Schwarzenegger Gets it Wrong on Universal Coverage

This article appeared in the San Francisco Chronicle on January 11, 2007.

In his previous career, Arnold Schwarzenegger undoubtedly ran across some very bad ideas (anyone remember the Last Action Hero?), but none is a match for his new health care bill. Governor Schwarzenegger’s back‐​breakingly expensive plan gets almost everything wrong, and it will end up hurting everyone: workers, employers, health care providers, and patients.

To reduce the costs of care for uninsured individuals seeking treatment in hospital emergency rooms, the Governor proposes both an employer and an “individual mandate” requiring everyone living in California to buy a specific government‐​defined health care plan.

This amounts to swatting a fly with a sledgehammer. The Council for Affordable Health Insurance estimates the cost of uncompensated care at just 2.5 percent of health care spending nationwide. Even if that is somewhat low — other estimates put the cost between 3 and 5 percent and California is likely on the higher end — uncompensated care is a problem but hardly a crisis large enough to justify such a radical response.

Schwarzenegger’s plan is driven almost entirely by a desire to achieve universal coverage. If he can give everyone in California a piece of paper saying they have insurance, he will claim success, no matter what the cost in lost jobs, higher taxes, and a wrecked health care system.

Yet even at these terms, his plan is liable to fall short, and its mandates are likely to prove difficult to enforce. After all, California has an auto insurance mandate, but more Californians drive with out auto insurance (25 percent) than go without health insurance (20 percent). And many of the state’s uninsured — the unemployed, mentally ill, transients, and illegal immigrants — are beyond the reach of any mandate.

Schwarzenegger seems to believe that the problem with health care in California is too few government regulations, controls, and subsidies. Yet, it is government regulation and subsidies that are driving the cost of insurance up beyond the reach of many Californians.

The biggest reason why Californians don’t buy health insurance today is that it is too expensive. California already has a blizzard of insurance regulations covering everything from dental anesthesia to in vitro fertilization. These raise the costs of insurance, particularly for the young and healthy, who often choose to go without insurance rather than paying excessive premiums. If Mr. Schwarzenegger only wanted to address the neediest cases, he wouldn’t need to spend $12 billion; he could repeal existing regulations that stood in the way of inexpensive insurance.

But rather than attempting to reduce counterproductive regulations, Governor Schwarzenegger proposes new ones, including a requirement that insurers cover all applicants regardless of whether they are in perfect health or on their death bed. These new regulations will drive insurance costs up even more, requiring either more government subsidies or imposing a greater financial burden on businesses and individuals. Vicious circles, anyone?

Then, of course, there are the economic costs. The nonpartisan Taxpayers Foundation reports that California’s state and 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. As the Chronicle reported in December, tens of thousands of Californians are fleeing the state every year to escape the tax burden.

To raise $12 billion in additional revenues, Schwarzenegger would have to enact a variety of new taxes, including taxes on health care providers and businesses. In addition, his plan would require every business with 10 or more employees to provide its workers with health insurance or pay a four percent payroll tax. Such a requirement simply increases the cost of hiring workers, so employers will inevitably hire fewer of them. (Imagine a nine‐​employee company trying to decide whether to hire a tenth).

Some firms will offset their costs by reducing wages or wage increases, and others may even be forced to lay off current employees. California’s business taxes are already the highest in the West. Governor Schwarzenegger’s plan will only make this worse.

Even if these additional costs to employers were worth it, beneath the romantic rhetoric on which they are based lies the reality that they could be harmful even for the individuals who still got pay raises. Schwarzenegger’s individual mandate would open the door to widespread regulation of the health care industry and political interference in personal health care decisions.

To cure what ails Californians, we must shift the debate away from a single‐​minded focus on expanding coverage to the bigger question of how to reduce costs and improve quality. That means introducing market mechanisms and giving consumers control of their health care decisions. And that will, in turn, increase coverage and reduce free ridership.