Senate panel warned on health plan's cost

Governor's projected price tag could be more than $3 billion too low, says nonpartisan analyst.
By Clea Benson
Sacramento Bee
Friday, February 16, 2007
Gov. Arnold Schwarzenegger may have underestimated the cost of his health care overhaul by $150 million to more than $3 billion, the Legislature's nonpartisan budget adviser said Thursday.

The governor estimates that his plan to bring down insurance costs and extend coverage to the 6.5 million people without health care will cost $12 billion annually.

But the actual costs may be higher, the Legislative Analyst's Office told the Senate Health Committee during the first hearing on the proposal.

Marcus Stanley of the analyst's office said the plan would cost more if medical care outpaces inflation, if the numbers of uninsured are higher than estimated, or if insurance company premiums are higher than anticipated.

Though Schwarzenegger released the plan in January, Thursday marked the first time lawmakers have been able to ask questions about it in an official setting.

The proposal would require individuals to buy coverage, employers to help pay for it, and insurers to sell it to anyone who wants it. Doctors and hospitals would also be asked to chip in to help fund the expansion, which would also rely on a significant amount of new federal funding.

The debate Thursday centered on whether the Republican governor's financial model was realistic.

Kim Belshé, California secretary of health and human services, testified that the governor's plan would change the health care marketplace, making insurance more affordable for working families who would be required to purchase it because more people would be participating in the system. Many of those people would be young and healthy, she said, making them relatively cheap to insure.

But several members of the Senate Health Committee said the plan relies heavily on theoretical models without guaranteeing that insurers would offer premiums that people could afford.

"I don't see anything in the proposal that helps us feel confident that affordability will be achieved," said Sen. Sheila Kuehl, a Democrat from Santa Monica who chairs the committee.

Kuehl said the health care debate reminded her of the debate over deregulating electricity that occurred in the 1990s. Financial models showed that, in theory, energy prices should be lower. But companies such as Enron ended up gaming the system, leading to high prices and rolling blackouts.

"We should have hired a pirate to show us how the system could be gamed" during the electricity debate, Kuehl said. "We need to hire a pirate, I think ... so we can see what's coming."

The governor's staff said models show that insurance would be cheap enough that the health plan would not cause a hardship for working families.

But even insurers said their prices under the new system would depend heavily on the makeup of the population they would be forced to insure.

In other states that have required insurers to sell coverage to everyone, people with expensive medical needs entering the system had raised the cost for everyone, said Charles Bacchi of the California Association of Health Plans.

Requiring insurers to cover everyone "is one piece of the proposal, and with that in mind we're willing to work constructively to see if we can make it work," Bacchi said. "But we do so with caution."

The California Nurses Association, which has led high-profile efforts opposing various Schwarzenegger policies since he took office, resurfaced at the hearing.

Deborah Burger, Nurses Association president, said the best solution is one that Schwarzenegger is not even proposing: abolishing all health insurance and replacing it with a system of universal coverage run by the state.

The insurance industry "is structurally set up to make profit by denying care, wastes 30 percent in administrative overhead, and is the root of the present cost and quality crisis," Burger said.

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