U.S. Congressman Pete Stark (D-CA) from Fremont, plans to lead the way in
health-care reform at the federal level

Gov. Arnold Schwarzenegger’s bold foray into the health care reform debate has pushed the issue to the top of the nation’s domestic political agenda for the first time since 1994, analysts said.
With 47 million Americans uninsured and health care costs continuing to outpace inflation by a hefty margin, overhauling the nation’s health insurance system is shaping up as the major domestic issue in both parties’ presidential campaigns next year.

“Arnold-care has catapulted the issue (and) it’s good for the country,” said Len Nichols, who runs the health policy program for the New America Foundation, which worked closely with Schwarzenegger’s advisers in crafting the California plan. “The governor is saying that in a state that has the highest number of uninsured in the country, we can do it.”

The Schwarzenegger plan, which relies on an individual mandate to buy insurance coupled with new taxes on employers, doctors and hospitals to pay for it, is sure to be controversial in California. It requires businesses with 10 or more employees to either offer insurance or pay a 4 percent payroll tax into a fund to cover the state’s 6.5 million uninsured, including illegal immigrants. That fund would be supplemented by a 2 percent tax on physician revenues and a 4 percent tax on hospital revenues. The plan also caps insurance company administrative expenses at 15 percent. However, a California-style plan will be only one of many proposals jockeying for attention in the nation’s capital.

Rep. Pete Stark (D-Calif.) praised the governor for tackling the issue after his advisers laid out the broad dimensions of the plan in an article in Health Affairs in December. Stark is expected to pursue his own version of universal health-care coverage at the national level. “There are components of their plan that I would change,” Stark said.

The Stark plan, which he dubbed Americare when he introduced it last year, would expand Medicare to cover the uninsured. It closely parallels the guaranteed coverage scheme authored by Yale University political scientist Jacob Hacker, which requires employers to pay Medicare an additional 6 percent payroll tax if they do not provide their employees with health insurance. Employers who do provide insurance would have to buy plans in the private market at least as good as the national plan.

Judy Feder, dean of the Georgetown University School of Public Policy, supports Stark/Hacker-style plans because they provide everyone with a comprehensive benefit package. They also avoid the pitfall of the California plan, which does not adequately subsidize low- and moderate-income families, according to Feder.

The architects of plans that expand Medicare to cover the uninsured believe employers will gradually gravitate to that plan because of its lower overall costs, which come from eliminating insurance industry overhead. Medicare administrative costs typically average about 3 percent, while the private insurance industry’s are estimated to be anywhere from 14 to 30 percent.

Another plan sure to get attention was developed by the Center for American Progress (CAP), which is headed by John Podesta, former chief of staff to President Bill Clinton.

Rather than raise payroll taxes, the CAP plan would impose a new value-added tax (a national sales tax levied at the wholesale level) of 2 or 3 percent to cover the uninsured. The newly covered would choose from among the same private insurance companies that provide coverage for federal employees.

Given the plan’s pedigree and its similarity to the failed Clinton effort of 1993-94, which relied on competition between insurance companies to hold down costs, it’s likely that the Democratic Party’s leading contender, Sen. Hillary Clinton (D-NY), will champion some version of the CAP plan.

The insurance industry, meanwhile, with the backing of a few business and consumer groups including Families USA, which advocates for low-income people, unveiled its own plan in mid-January. It gives tax breaks to families without insurance to buy plans in the private market while simultaneously expanding existing programs such as the State Children’s Health Insurance Program so all kids are covered. Though the insurance industry tried to get broader support for its proposal, groups like the AFL-CIO pulled out when it became apparent that the industry would not back a universal requirement.

The Bush administration and Republicans on Capitol Hill, though down after last November’s elections, aren’t out of the game yet. The president in his State of the Union address proposed a universal health insurance tax deduction of $15,000 for families and $7,500 for individuals. This would encourage people without insurance to procure plans in the private market, and tax those with more expensive plans. The value of the tax break for the already insured would be the difference between the deduction and the cost of their employer-provided plan, which would now become taxable income.

Democrats including Sen. Ted Kennedy and Rep. Pete Stark immediately attacked the plan as offering too little to encourage uninsured low- and moderate-income families to purchase individual plans, and a powerful incentive for employers to cancel group plans in favor of cash grants for workers to go out and buy their own plans.

“It would eliminate employer-provided coverage, through which 160 million Americans are covered today, and force people into an individual insurance market that regularly denies coverage because of family history, existing illnesses, or genetic makeup,” Stark said.

The flurry of activity in the nation’s capital last month was capped off by a press conference that brought together the blue-ribbon Business Roundtable; the AARP, the nation’s largest senior citizen lobby; and the Service Employees International Union, the nation’s largest union, whose membership includes over a million health care workers. Though calling for universal coverage, the group was vague on specifics.

That comes as no surprise, since the major providers of health care — the hospital associations, organized physicians, the drug, device and durable equipment suppliers, the nursing homes and specialty clinics — were noticeably absent from the platform. They are not likely to look kindly on any universal coverage scheme that includes measures to control costs.

Indeed, America’s Health Insurance Plans, the trade group that represents the insurance industry and produced the Harry and Louis ads over a decade ago that sank the last effort at reform, suggested they would not be the group leading the opposition to universal health care coverage this time around.

“This marks a kind of tipping point,” AHIP chief lobbyist Karen Ignagni told the Los Angeles Times. “With all these different efforts, you are seeing a consensus emerge that the time for action is now.”
Merrill Goozner is a contributing editor to Bay Area Oncology News.

—By Merrill Goozner

Posted on February 14, 2007 09:30 AM