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January 9, 2007
The Healthinator?

Governor Arnold Schwarzenegger proposed mandatory universal health-care coverage for all Californians, a plan that will get its funding from taxes on small businesses and medical-industry professionals. California would become the third state to require all residents to carry health insurance, and Schwarzenegger plans on enforcing it through wage garnishments if necessary:

Gov. Arnold Schwarzenegger (R) on Monday proposed a system of universal health insurance for Californians that would make the nation's most populous state the third to guarantee medical coverage for all its residents.

"Prices for health care and insurance are rising twice as fast as inflation, twice as fast as wages. That is a terrible drain on everyone, and it is a drain on our economy," Schwarzenegger said. "My solution is that everyone in California must have insurance. If you can't afford it, the state will help you buy it, but you must be insured." ...

Schwarzenegger's plan would require everyone living in California -- even illegal immigrants -- to have health insurance, at an estimated cost of $12 billion. Individuals who refuse to carry insurance could face reductions in their state income tax refunds or the garnishment of their wages. All businesses with 10 or more employees would have to offer coverage or pay a fee of 4 percent of their payroll into a fund to help the uninsured buy health insurance.

Schwarzenegger also recommended expanding the state's existing program for children's health insurance to families that earn less than three times the poverty level, or about $60,000 for a family of four.

The plan appears to be a populist's dream. While not a single-payor system on the surface, the new regulation would dictate the terms for insurers in such a way that government will effectively take over most of the decision-making for medical coverage and payouts. It takes the bill out of the hands of the consumer and puts it onto both businesses large and small as well as the people who actually provide the medical care.

If California had a reputation for efficiency and good management of insurance programs, this might almost make sense. However, the state has a disastrous workers-comp program that has already provided a large incentive for businesses to look eastward for relocation. It costs employers a fortune and leaves them vulnerable for abuse. Schwarzenegger promised to overhaul the system, but reform has been slow in coming.

Now my native state has decided that it will manage the health-care system, and that it will force Californians to support some very questionable goals. Chief among these is the mandate to provide coverage for illegal aliens. This should begin an uproar that Arnold will find difficult to control. While I understand his economic reasoning -- he figures that they're getting free emergency-room treatment and wants to reduce the cost of their treatment -- there are many Californians who will oppose giving illegal immigrants another free ride, after education. It will start a political firestorm and may re-energize the anti-illegal movement in California.

One needs only look at the incentives to see what will happen with his proposal. Health care providers will decline, since taxes provide a disincentive to the market; doctors will find other venues in which to practice, and the best will capture the most lucrative economic positions, none of which will now be in California. Small businesses, which will have to start paying an additional 4% of their payroll if they employ 10 or more people, will simply work hard to avoid that cap -- perhaps by outsourcing some of their functions to services in other states, which will expand to meet the market demand. Otherwise, small businesses will have to raise prices to cover the additional cost, which will make them less competitive than larger businesses and force more of them out of business altogether. That will result in inflationary pressure and a drop in employment, which will force taxpayers to spend even more money to insure the uninsured.

And that's not the end of the bad news. In order to manage all of these new mandates, Schwarzenegger will have to expand the state government. Otherwise, who keeps track of the insurance status of Californians? Who makes sure that resident A has his wages garnished if he doesn't buy health insurance when he can afford it, and who makes sure they know who can pay the bill? It will require a more intrusive governmental structure and a whopping bureaucracy to keep track of all these markers. All of this will take even more money out of the pockets of Californians than the health insurance costs now mandated by Arnold.

For a state that has made deficit spending an art form and expansion of power a chronic addiction, this seems par for the course. We can now write off California's economy for the next few decades. Perhaps socialism sells in the Golden State -- I think it probably does, unfortunately -- but at some time they will have to pay the bills, and maybe that will finally convince them of their folly in creating the Nanny State.

UPDATE: Free To Choose? Apparently, not any longer.

Sphere It Digg! View blog reactions
Posted by Ed Morrissey at January 9, 2007 5:41 AM

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