Ahnold’s Very, Very Bad Movie

Arnold Kling is far too kind in his description of Arnold Schwarzenegger’s new health care proposal.  While I suppose it is possible for the plan to have been worse (it could have endorsed Massachusetts-style managed competition, for instance), the plan gets almost everything wrong, from its tax on employment to its individual mandate, from increased welfare subsidies to increased insurance regulation.  The proposal will end up hurting workers, employers, health care providers, and health care consumers.  Consider just some of what the Governator is calling for:

  • More spending, more taxes.  According to the nonpartisan taxpayers foundation, California’s state/local tax burden is the 15th highest in the nation, and its business climate ranks 45th out of the 50 states.  Californians already pay $4,451 per-capita in state and local taxes.  Governor Schwarzenegger’s proposal is expected to cost at least $12 billion in additional state spending.  He would finance it through a variety of new taxes, including taxes on health care providers and businesses.
     
  •  An Employment Tax.  The governor came to office promising to improve the state’s struggling business climate.  Now he proposes a mandate that every business with 10 or more employees would be required to provide its workers with health insurance or pay a four percent payroll tax.  Such a mandate simply increases the cost of hiring workers.  Employers will inevitably hire fewer workers. (Imagine a nine-employee company trying to decide whether to hire that tenth worker).  Some may even be forced to lay off current employees and others will offset their costs by reducing wages or wage increases.  California’s business taxes are already the highest in the West.  Governor Schwarzenegger’s plan will only make this worse.
     
  • More Welfare.  Governor Schwarzenegger would offer subsidies for a family of four with incomes as high as $60,000 per year, extending dependence on government well into the middle class.   Those subsidies should be understood for what they are—welfare, with all the drawbacks and unintended consequences that go with welfare programs.  Compounding matters, Governor Schwarzenegger would extend these subsidies to illegal immigrants.  Immigrants traditionally come to this country to work, not for welfare.  Governor Schwarzenegger would be sending them a very different and very bad message.
     
  • An Individual Mandate.    Not only would an individual mandate represent an extraordinary infringement on individual liberty—every Californian would be required to purchase a specific government-defined product, simply because they live in California–it opens the door to widespread regulation of the health care industry and political interference in personal health care decisions.  The governor claims that a mandate is necessary to reduce the cost of uncompensated care from uninsured individuals seeking care from hospital emergency rooms.   But uncompensated care represents only 3-5 percent of health care spending, a problem but hardly a crisis large enough to justify such a radical response.
     
  • More regulation.  The biggest reason why people don’t buy health insurance today is that it is too expensive.  One reason for this is California blizzard of insurance mandates covering everything from dental anesthesia to in vitro fertilization.  Those mandates and other insurance regulations raise the cost of insurance, particularly for the young and healthy who often choose to go without insurance rather than pay excessive premiums.  But rather than take on the special interests by reducing mandates and cutting regulation, Governor Schwarzenegger proposes new regulations, including a requirement that insurers cover all applicants, regardless of whether they are in perfect health or on their deathbed.  These new regulations will only drive up the cost of insurance, requiring either more government subsidies or imposing a greater financial burden on business and individuals.

Governor Schwarzenegger seems to be under the impression that health care in California suffers from too little government regulation, control, and subsidies.  He’s just plain wrong.