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10.03.07

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Photograph by Carlie Statsky
Taxation for Medication: Ted Burke, co-owner of Shadowbrook and Crow's Nest and local spokesman for the California Restaurant Association, favors a sales tax to help pay for universal health care.

Decoding Health Care

In coming weeks California will adopt health-care reform. A guide to the options on the table.

By Paul Wagner


The already thick and simmering stew of potential California health-care plans has grown even richer over the last couple of weeks, as long-resistant restaurateurs joined the Legislature and governor with a recipe of their own.

"We can't just continue to say no," observed president Jot Condie of the California Restaurant Association, which had successfully convinced statewide voters in 2003 to overturn Legislature-ordered mandatory employer health coverage.

On Aug. 27 the CRA offered up a new course: a funding appetizer designed to quicken the drive toward universal health coverage for all state residents, through a 1 percent statewide sales tax increase. By Sept. 12, the California Independent Grocers Association, California Retailers Association, California Small Business Association and California Black Chamber of Commerce had all signed on.

Because a 1 percent sales tax increase would raise only $5.6 billion—or around $3.6 billion after the 40 percent allocation to schools guaranteed by state law—the CRA noted that "the sales tax alone will not solve the systemic problems in our health-care system." It would, however, in the words of Sacramento-based CRA representative Kearsten Shepherd, "create a stable funding mechanism for a portion." It is conceived to fit into Gov. Schwarzenegger's plan (see below).

Exactly how the money would be used is not clear. "That's the part we're still working out—the program," Shepherd told Metro Santa Cruz. "The devil is, as always, in the details."

What's nevertheless tantalizing about this proposal is how significantly it differs from those already on the table, all of which depend on payroll and, in one case, income tax increases.

The Contenders
Take, for example, the only proposal that would pretty much replace the state's current public/private health-care mélange: State Senator Sheila Kuehl's S.B. 840.

Kuehl's proposal is commonly referred to as a single-payer system, since only one agency—a new California Health Insurance System—would pay all bills for all care for every resident. Combining all current funds for all state and many local programs, and even Medicare and Medi-Cal, into a Universal Healthcare Fund, the Kuehl plan would require $167 billion to operate, an amount larger than the total current state budget of $143 billion. Some $72 billion of that would be nabbed from current public health spending programs on all government levels, and $95 billion of it raised in new taxes.

Among those taxes: a new employer-paid payroll tax of just over 8 percent; on top of that, an employee payroll tax of nearly 4 percent; an additional income tax, on all, of 3.5 percent; a tax of 12 percent on self-employed people; and a 1 percent income tax surcharge on those making over $200,000 a year. Only income below $7,000 a year would be exempt. The overall additional individual obligation, plus the employer-paid payroll tax (usually passed on to workers in the form of skipped or skimpy raises) would come to somewhere between 12 percent and 16 percent.

Kuehl has now pulled her bill from consideration, convinced that Gov. Schwarzenegger will veto it. Instead of facing that, she's converting it to a two-year bill so that she can introduce it again next spring and start the campaign anew.

Carol Robinson, co-chair of the Santa Cruz County chapter of Health for All, strongly favors Kuehl's bill—as does the group—regardless of what year it passes. "The critical difference between Kuehl's plan and the others is that in her proposal the profits for insurance company shareholders aren't there," observes Robinson. "This is the number one factor where the Kuehl plan works where I believe that the others can't."

Directly competing with Kuehl's bill is a second proposal sponsored by state Senate President Don Perata and Assembly Speaker Fabian Nunez. Far less ambitious, it proposes to expand coverage to around two-thirds of currently uninsured state residents by requiring a "pay or play" approach.

All employers, regardless of number of employees, would be required to either provide a health coverage program that limits employees' total expenses to 5 percent of their income and $1,500 out of their own pockets per year, or fork over a payroll tax of 7.5 percent of Social Security-covered wages per employee into a state fund named the California Cooperative Health Insurance Purchasing Program (CalCHIPP), which will provide coverage for them. Employees without their own coverage would be required to enroll in CalCHIPP.

Schwarzenegger, while congratulating Nunez on getting as far as he has with the bill, which passed both state legislative houses, has promised to veto the bill by simply not signing it, saying that it's not universal enough.

Besides, the governor has his own proposal. Schwarzenegger proposes to have the state cover around three-quarters of California's current uninsured population—including all children—directly, while continuing to hold counties responsible for providing health care to indigent undocumented adult immigrants.

Here's how the plan works: First, insurance companies wanting to continue to profit in the state's lucrative health insurance market would be limited, for the first time, to choosing potential customers by age or living place. No longer could they legally reject anyone for current or prior medical conditions. In addition, as in the Perata/Nunez bill, their profits above payouts couldn't exceed 15 percent. In return for these, they'd get to keep on offering health-care policies.

To balance for this, all adult residents, including self-employed people, would be required to have health insurance policies, even if just minimal catastrophic-event policies imposing $5,000 deductibles and $7,500 per person out-of-pocket annual expenses. There would be no choice: if you're a Californian, you would have to buy some kind of health insurance.

Several mechanisms would exist to guarantee affordable policies for the uninsured. First, the state would open up Medi-Cal or, if a resident preferred, provide at least a minimal free policy, to everyone with an income of $10,000 or less. From that income level up to one 2.5 times the federal poverty rate, the proposal would offer state-backed policies guaranteed to cost no more than 3 to 6 percent of total wages. Above 2.5 times federal poverty income level, policies would be priced at market rate.

It's with funding sources that the flambé surprise arrives: Schwarzenegger would increase—yes, increase—Medi-Cal payments to doctors and hospitals by 20 percent, collect that back from the federal government in the form of reimbursements for state health expenses, tax doctors 2 percent and hospitals

4 percent for the easy new money, and require employers of 10 or more people to offer coverage or pay 4 percent in payroll taxes. Voilà: extra bucks for policies for the uninsured. Total new costs: $12 billion.

Regressive or Far-Sighted?
And finally, there's the new entree, the California Restaurant Association's 1 percent sales tax proposal. Ted Burke, co-owner of both the Shadowbrook and the Crow's Nest—both of which offer 50/50 share health-care coverage to employees—and who is active in both state and national restaurant associations, explained why the association supports the governor's plan.

"We're looking for universal access rather than for a universal payer," Burke said, contrasting the CRA's approach to Kuehl's, "because it's a societal problem, and needs to be shared societally."

Burke is hoping that the $3.6 billion from the CRA's sales tax proposal would lower the governor's 4 percent payroll tax to one that "has a less significant impact on industries which are highly labor-intensive."

He also notes that the Perata/Nunez plan, while widely characterized as a 7.5 percent payroll tax, is more than that. "Their 7.5 percent isn't a cap, it's a starting point" that might rise, he says.

Burke likes the sales tax approach for other reasons, as well. "We still think that there's a place for market solutions," he says—and also notes that the sales tax approach at least partially solves the politically knotty problem of insuring undocumented residents. "Since everyone pays something into the fund with every purchase, we can point out that they will also be paying for their own services."

Now, of course, the sales tax has its own troublesome characteristic, which is that it is income-regressive; it hits those with the least discretionary income (after paying monthly housing costs) hardest, appearing on receipts for everything from pliers to laundry detergent.

Yet sales taxes, when spent on health care, are less age-regressive than payroll taxes; they take small amounts of money from everyone of every age, rather than collecting money from those of working age and delivering it to those of retirement age, who already own the majority of the nation's resources and who use over half of all medical care in the last years of life.

Carol Robinson is sanguine about that rarely mentioned characteristic of publicly funded health plans. "In any society that provides health care for its population, there's going to be more money spent on older people," Robinson said. "But then, young workers are going to get older, too."

Law professor, community activist and Assembly candidate Bill Monning, though, sees age-related fund transfers as a predictable effect of the current health-care system's profound lack of preventive care, which guarantees significant end-of-life needs; in other words, as "a false dichotomy created by the dysfunction of our current health-care system."

For that and other reasons, Monning says, "I still favor working toward a single-payer system as a long-term solution," he said, characterizing it as "head and shoulders above the others."

Monning expressed confidence that a single-payer state system will come to be, as did Carol Robinson. Perhaps oddly and perhaps not, Ted Burke, who favors the sales tax approach, also expressed confidence that a solution to the healthcare breakdown is near.

"I'm confident something's going to happen, and soon," he said. "I really am."


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