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Analysis: Can What Killed California Health Reform Strike Again?

When Congress began working on health care legislation earlier this year, Massachusetts’ universal insurance plan was often cited by Democrats as a model to follow. But as the increasingly difficult negotiations enter the fall, legislators might also study the lessons of California.

In 2007, California Gov. Arnold Schwarzenegger proposed covering the state’s 6.5 million uninsured residents through a plan similar to the one Massachusetts had deployed the previous year. The California program would have required all citizens to obtain insurance, with the state subsidizing part of the premiums for lower earners. Under Schwarzenegger’s $12-billion plan, insurers would have been compelled to accept all applicants regardless of their health status.

California’s political climate seemed conducive to change. Voters had just returned Schwarzenegger to office after he refashioned himself as a “post-partisan” politician. The Democratic leaders of the California Legislature, who controlled both chambers as they do in Congress, pledged to work with the Republican governor. Public opinion polling showed early support, and most of the health care industry didn’t oppose the proposal.

Yet, in January 2008, after a year of setbacks, Schwarzenegger’s plan was killed by a state Senate committee. While Obama’s prospects remain stronger than Schwarzenegger’s ever were, the president’s effort is hitting blockages reminiscent of the California experience. They include:

An Elusive Quest For Bipartisanship

Schwarzenegger spent from January 2007 through the summer trying to win over Republican legislators who, despite their minority status in both the Assembly and Senate, had the power to halt passage, which required a two-thirds vote.

“In California, people waited too long in trying to find a bipartisan agreement before starting to consider legislative alternatives,” said Peter Harbage, a healthcare consultant who has worked for groups favoring overhaul in both Sacramento and Washington.

In Congress, Senate Finance Chairman Max Baucus, D-Mont., postponed a committee vote on his proposal for three months while trying to win over a handful of GOP senators and avoid a filibuster. If no Republicans ultimately sign on, Obama and Democrats may need to use a budgetary process known as reconciliation to get around the 60-vote threshold.

A Rebellious Left

In California, the vocal state nurses’ union and the Democratic chairwoman of the state Senate Health Committee, Sheila Kuehl, were furious that lawmakers refused to back a single-payer system in which the government would supplant private insurers. Kuehl’s committee was the one that killed Schwarzenegger’s plan.

The fight in Washington is strikingly similar, though most liberals are no longer lobbying for single-payer. Instead, they are pushing for creation of a government-backed insurer, known as the public option, which would compete with private companies. Over the summer, liberal groups ran TV ads attacking Democrats who don’t support it, and this month they lambasted Baucus for leaving the public option out of his plan.

Dr. Mark Smith, president of the California HealthCare Foundation, an Oakland nonprofit, said that in California “the opposition was energized and the support was tepid at best. Right now that’s the sense I’m getting in Washington, that the opposition from right and left is increasingly energetic and the support is apologetic. That doesn’t augur well.”

Anxiety Over Deficits

The California plan’s chances were seriously damaged when the Legislature’s nonprofit budget analyst estimated that the plan would create a $300-million deficit within five years. Similarly, the Congressional Budget Office’s estimates of red ink created by the House’s $1.2-trillion health legislation prompted Baucus to scale back his plan to below $860 billion over a decade. Obama’s promise to keep the overhaul “deficit neutral” has narrowed Congress’ options on how to pay for the plan.

The Challenge Of Affordability

Limiting the cost of the California package created a big problem for Schwarzenegger: how to subsidize the premiums for lower earners who would be mandated to obtain coverage. Unions viewed Schwarzenegger’s subsidies as too skimpy, and the Democratic Assembly ultimately increased the package by 22%. Similarly, national consumer groups and unions are now criticizing Baucus’ subsidies as too limited and cost-sharing for patients as too burdensome, forcing him to boost his package’s spending levels. It remains unclear whether Congress will be able to ensure affordable coverage and also meet Obama’s demand that the plan costs less than $900?billion over a decade.

So does this mean the federal proposal is doomed to follow California’s path? Not necessarily.

Despite all the similarities, the overhaul effort in Washington has achieved a momentum that eluded Schwarzenegger. Democrats in Congress still have a shot at snagging a few GOP supporters. Dissenters on the left have stopped short of saying they won’t back a plan that falls short of their dreams. Congress has more options to finance the plan than California did. And the 1994 GOP takeover of Congress – coming on the heels of the failure of the Clinton health plan – remains a terrifying lesson for Democrats on the political costs of doing nothing.

Returning to Los Angeles from a lobbying trip to Congress last week, Donald Crane, president of the California Assn. of Physician Groups, said: “Where we saw a train wreck in California, we see movement here in Washington.” Still, the objections that stymied California’s effort could lead to a derailment in D.C.


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