The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Governor and Democrats Creep Towards Compromise

Posted by Alan on November 9, 2007


Governor Arnold Schwarzenegger, Speaker Fabian Nunez and Senate President Pro Temp Don Perata inched closer to a compromise on health care reform today (Thursday, November 8th) according to Laura Kurtzman of the Associated Press.

Since January the Governor had held firm against imposing a payroll fee on California business of any more than a four percent. Today he raised the maximum tax rate to 5.5 percent for businesses with annual payrolls above $1 million (this would be on Social Security wages, meaning salaries above $97,500 are not included in the tax calculation). On Monday Democrats had reduced the maximum payroll tax they wanted to implement from 7.5 percent to 6.5 percent. Under their proposal the maximum tax rate would apply to firms with Social Security payrolls of $250,000. There’s still a gap between the parties, but a deal on health care reform will not fail over the one percent difference.

In October Governor Schwarzenegger proposed tax credits to make health insurance premiums more affordable for Californians annual incomes of up to 350 percent of the Federal Poverty Level ($72,275 for a family of four; $35,700 for an individual). Today he agreed to providing this premium support to those earning 400 percent of the FPL ($82,600 for that family of four; $40,800 for an individual). Democrats have called for offering tax credits to those earning 450 percent of the FPL ($92,925 for the family of four; nearly $46,000 for an individual). Again, nothing here that will derail a compromise.

Significant differences do remain. Speaker Nunez and Senator Perata want to exempt Californians from spending more than 6.5 percent of their income on health care; the Governor hasn’t signed off on any exemption.  The Administration would require a two-thirds vote of the Legislature to increase the payroll tax; Democrats haven’t agreed to this.

Even if these issues are resolved, there’s still plenty more where they come from. Neither party has put forward a way to meaningfully enforce the requirement that all residents obtain health care coverage, yet both call for mandating carriers to accept all applicants. This guarantees substantial increases in non-employer-based insurance costs and far fewer options being made available to consumers. Both parties want to create a state-run purchasing pool, but it’s unclear their design of this program won’t have unfortunate unintended consequences.

And then there’s that pesky bit about financing all these reforms. While they agree on several sources for funds, more money is needed. The Governor would close the gap by leasing the lottery; the Democrats with a $2.00 per pack cigarette tax. If they can agree on a financing proposal it will need to be approved by voters in November 2008. Most of the health care reforms being negotiated today would be contingent on passage of that ballot measure, something which is far from certain.

The Administration and lawmakers are creeping toward a compromise package, that’s no guarantee meaningful reform is at hand.

One Response to “Governor and Democrats Creep Towards Compromise”

  1. I think that Sacramento cannot connect the relationship between premiums coming in and claim payments going out. The root is in the cost of healthcare. If they want to mandate guarantee issue and not mandate everyone participate; the only way I see this having a shot of working and not becoming New York is waiting periods. You’ve got to pay before you receive. I’m sure this has little or no traction but politicians have to come to grips with reality at least occasionally.

    There is certainly enough evidence what their policy will do to the market place. Purchasing pools have a really nice sound to it and the politicos can think this is the way out of the problem but once again this is not based on reality.

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