The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

The California Money Pit

Posted by Alan on January 8, 2008


As we’ll hear later this afternoon in Governor Arnold Schwarzenegger’s state of the state address, the budget deficit facing California amounts to $14 billion. How big a number is this? The Census Bureau recently estimated California’s population at 37, 771,000. Spread among all residents, $14 billion would cost each of us $370.65 — roughly 100 Tall Latte’s per resident per year — less than 2 a week. Makes closing the gap sound pretty doable, doesn’t it?

Yet the state legislature spent 52 days passing this year’s budget because of a $700 million gap. That works out to a bit less than $13,500,000 per day. So with $14 billion to close … well, they should pass the 2008-2009 budget sometime in 2011.

But wait, there’s a lot more forgone lattes to come. A blue ribbon commission appointed by the Governor has finished its analysis of California’s unfunded liability for public employee retirement and health care costs. According to a report on the Sacramento Bee’s CapitolAlert web site, over the next 30 years, the unfunded portion of these costs is expected to exceed $180 billion. The commission estimates the health care liability as at least $118 billion of this total and the pension liability comes in at no less than $63.5 billion.

Most of this liability falls on local governments, but the impact on the state budget is substantial. To cover the approximately $47 billion shortfall the state faces to meet its future health care obligations (nevermind the the pension liability), the commission recommends California set aside $1.23 billion per year — this is on top of the $1.36 billion the state already spends on retiree health care costs. The Los Angeles Times article on the commission points out that the report underestimates the cost of health care in the future, so $1.23 billion may be inadequate. Even using this lower figure, however, the recommended set aside works out to another $32.62 per resident — just nine few lattes each year. And it would only extend the budget debate another day.

What does all this mean for health care reform? There’s only so many lattes a person can give up. Or, less flippantly, there’s only so many dollars the state can get from its residents. $370 here. $32 there. It starts to add up. Governor Schwarzenegger and Assembly Speaker Fabian Nunez have earmarked sources of the $14.4 billion their health care reform package will cost (more than $5 billion is to come from Washington, but that still leaves approximately $8 billion for Californians to pick up — another $212 per resident). And they assume their plan is in fiscal balance. Yet $2 billion comes from an increase on the cigarette tax, a source that hopefully will decline over time. And a substantial portion comes from taxes on wages. Yet medical cost inflation greatly outstrips wage increases over time, meaning this funding source will no doubt lag behind the costs of the health care program over time. 

The Governor and Speaker are correct when they say the funding for Assembly Bill X1-1, their health care reform package, has been identified from sources outside the general fund. But the reality is there are only 37,711,000 pockets to take money from. Whether the dollars destination is the general fund or a health care trust, it’s still a dollar out of someone’s pocket.

There’s a lot to like in ABX1-1, but there’s a lot of problems with the substance of the bill that needs to be addressed before it passes the Senate (more on those in future posts). When it comes to the financing of the bill, however, I’m not suggesting that the state’s money pit woes torpedo the legislation.  All I’m asking for is that state leaders be upfront about the state’s financial situation so lawmakers and voters can make an informed decision. If we all agree that comprehensive health care reform is worth $212 per resident — or $512 per resident — then that’s great, but let’s have an honest discussion about it. At the same time, let’s give the Senate time to amend ABX1-1 into responsible comprehensive health care reform. And that will require significant discussion, too.

Perhaps we can all meet at Starbucks and discuss this over lattes.

Authors note: I hate coffee, but the Chai Tea Latte is pretty good.

One Response to “The California Money Pit”

  1. Meg McComb said

    Alan,

    Thank you both injecting humor and a realistic perspective into this post!

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