I commend the Governor for suggesting a solution to a tough problem.  I just don’t think any economic theory supports the outcomes he desires.  And I definitely don’t believe his is a "centrist" approach.  A centrist approach would be devoid of tax increases, employer mandates and mandated spending by providers, and be full of market based incentives to lower the cost of private health plans. 

My firm handles over $40 million in health and health related business, so I follow health insurance and health care trends as closely as possible.  Diagnosing the reasons for 6.5 million uninsured workers isn’t that tough.  Employer paid health plans are expensive.  Treating doctors and facilities are grossly underpaid by government funders such as Medicare, Medicaid and MediCal.  Those unreimbursed costs are mostly transferred to the private health plans when they contract for services with the health care providers.  Thus, the "hidden tax" on us is primarily caused by the government because the cost of health plans is inflated, and out of reach to many employers, due to government rationing of health care dollars.  This accounts for a significant portion of the uninsured problem today.

The federal government also contributes to the problem by failing to enforce employment laws and a secure border.  The "hidden tax" on us for caring for illegal immigrant health care is a federal government problem, and they aren’t going to fix it.  Illegal immigration inflates the cost, and reduces the availability of private health insurance, which is made more expensive by unreimbursed care for the illegals.  This is also the primary cause of the closure of over sixty ER hospitals in California. 

Finally, a significant number of uninsured are uninsured by choice, and because they work part time.  A government mandate for employer paid insurance, as proposed by the government, will depress wages and available entry level jobs.

The Governor’s proposal includes at least three tax increases disguised as fees, and these increases will never make it out of the legislature because they require a two thirds vote.  The 2% physician tax, 4% hospital tax, and 4% "play or pay" tax on small employers will hurt the economy and drive capital away from the health care markets.  Let’s quit playing semantics – these are taxes, and the Governor has broken his pledge on new taxes.  This issue will be litigated.  And the State will lose. 

A primarily theory associated with the Governor’s proposal is that we are bringing a "hidden tax" out into the open and funding the care of those without care through additional "fees", employer mandates and increased MediCal reimbursements.  If these increased funding sources, as dubious as they may seem, actually do replace the "hidden" tax, than the cost of all private, employer based health plans should immediately go down, as the costs are shifted back to the new revenue sources.  This is as likely to happen as Social Security being solvent in 2050.  It’s a pipe dream and we should not buy into it.  The mere fact that Government, already a primary cause of the uninsured problem, proposes to solve the problem through higher funding should scare everyone to death.  No pun intended.

Requiring health providers to spend 85% of their health care revenue on patient care is an intrusion into business planning and will drive capital out of the health care industry in California and to industries where no such mandates exist.  There is no evidence that the private health care industry is spending an inadequate amount of its resources  on patient care – providers have already had to adjust to a lean revenue environment.  This is quietly one of the more outrageous provisions of the Governor’s proposal.  There should be no directive from a State Government that cannot handle its own finances to an industry that produces, annually, more advancement and innovation and productivity in one year than the Government does in ten years.  Regulating profits = regulating innovation, research, and the availability of care.  Profits are essential to a thriving health care marketplace.

Fast forward to a scenario where the Governor’s plan actually works, and there is no damage to the economy, and we have 6.5 million more citizens with health insurance.  The health system would simply collapse.  There are not nearly enough nurses, physicians, specialists and facilities to treat millions more users of health insurance in California.  Health care would immediately become more rationed than it already is, and then what would happen?  The government would step in and "fix it".  To that I say:  Yikes!

Next up:  solutions to help chip away at the problem of health insurance availability.

This entry was posted on Tuesday, January 9th, 2007 at 12:00 am and is filed under Blog Posts.