Governor Schwarzenegger's Flawed Health Care Plan

Paved with good intentions, California's  proposed road to Universal Health Coverage will lead straight to chaos. The Governor's January 8th, 2007 proposal aims to provide relief for Californians suffering under a healthcare system in desperate need of repair. It does not lack noble goals. What it lacks is common sense.

Achieving a workable solution first requires that we understand the problem.  For 4.8 million uninsured Californians, no further explanation is necessary (the often-cited figure of 6.5 million refers to those uninsured "at some point" during the prior year, including many who are currently covered).  But for the rest of us, some background information is essential.

The cost squeeze

While medical spending has skyrocketed, doctors have been caught in a vicious cost squeeze. Health insurance premiums have risen at an unsustainable rate for consumers over the past decade, peaking at a 10.5% increase in 2002.  Faced with rising costs, employers have been unable to maintain coverage, leaving workers with limited or no employer-based health insurance.

But the cost to physicians of providing medical care has also skyrocketed over the same period.  Increasingly expensive medical equipment, office supplies, staff salaries, Malpractice/Worker's Comp/Liability insurance premiums-all squeeze the bottom line for doctors trying to keep their doors open for patients.  Federal and State taxes excise an additional share of shrinking revenue.

Reimbursement for physicians has lagged far behind inflation.  Medicare, after years of pay declines and freezes, has committed to a 10% pay cut for doctors in 2008, to be followed by a 5% cut for each of the successive six years.  Doctors who care for Medicare recipients will pay a price for it.  Given that private health insurance plans base their reimbursement on the Medicare-fixed prices, the cuts are magnified.

The situation is worst for doctors who accept Medi-Cal, California's version of MedicaidThis top-heavy State program, subsidized by the Federal Government and run by nearly 6,000 Sacramento-based bureaucrats, spends nearly $7,500 yearly per patient.  This money could fund a private Blue Cross-type plan for every man, woman and child that Medi-Cal currently covers. 

Because doctors are so badly paid by it, California physician participation in Medi-Cal is the lowest of any state sponsored program in the country.  Medi-Cal payments to California physicians rank 49th in the U.S.  The rates are based on 1969 data, with only a single increase in 20 years. Medi-Cal reimbursement often does not even cover the cost of keeping a doctor's office open during the patient's visit.  Accepting Medi-Cal is the surest way to destroy the viability of a California medical practice.

The Governor's proposal ignores these realities. Medi-Cal and similarly inefficient programs would be expanded, not replaced or even diminished.  The program inevitably will run into the law of supply and demand. The current shortage of physicians for those enrolled in Medi-Cal will worsen. Patients will not get more care, they will get less if there are fewer doctors serving them than before. And despite the finest intentions, that is likely to happen.

The $12 billion proposal supposedly addresses the problem of low reimbursement for doctors who care for Medi-Cal patients. Despite the fact that the Governor's 2006-07 budget included zero increases in Medi-Cal reimbursement (and faced a court battle when he attempted to force a 10% cut to doctors who accept Medi-Cal), the proposal promises to increase rates "significantly" for providers, hospitals and health plans.

This proposed increase, however, is tied to new and unspecified performance measures.  It is also tied to doctors' adoption of health information technology (HIT) such as Electronic Medical Records and e-prescribing.

This "carrot and stick" approach defies logic. Portable, universal, affordable HIT that adequately safeguards patient privacy currently does not exist.  So the conditions mandated by Governor's Medi-Cal reimbursement plan are like requiring the paving of a road that is not yet on the map.

Violating federal and state mandates

While claiming to create "more efficient health care delivery," the governor's plan includes the "expansion of lower-cost models."  This language actually means that patients will be treated by independently practicing Physician Assistants and Nurse Practitioners instead of doctors-a violation of current State and Federal statutes.  While this practice may provide cost savings, it is certainly not Universal Coverage.

Moreover, limiting Californians' care to "Physician Extenders" without adequate Physician supervision contradicts the stated goals of improving patient safety.  While Physician Assistants and Nurse Practitioners play a valuable role in caring for patients, they will newed supervision, which costs time and money.  Patient safety cannot be traded for "efficient health care delivery," no matter how cost-effective.  Patients deserve better.

The doctor and hospital tax

It is a basic economic principal that you get less of something when you tax it. The supply of medical services to will be diminished by the imposition of new taxes on the key actors: hospitals and doctors. The Governor proposes that all hospitals and doctors pay a new tax.  According to the Governor's healthcare team's "State Fiscal Impact Summary," the tax will generate $3.5 billion. The same report reveals that the projected Medi-Cal reimbursement increase is $2.2 billion.  Therefore, even if one assumes that any increase in payments is provided as the reward for caring for uninsured and underinsured Californians, doctors and hospitals will be forced to finance $1.3 billion in net new taxes.  While supposedly delivering more care, they will take home substrantially less.  

This tax is in addition to the Governor's proposed "Pay or Play" 4% payroll tax on California employers, which doctors and hospitals will also face.

Paying for more care

If more care is required, taxing the supply of care will not do. If business owners, doctors and hospitals aren't forced to subsidize this program, what are the alternatives? What kinds of funding sources would do less damage?

One answer might be foreign remittances, the payments immigrants send back to their home countries. 

The most attention-getting aspect of the Governor's plan is that California's undocumented immigrants will receive health coverage under it.  The reasoning is that California's doctors and hospitals already provide it-largely unreimbursed-so paying for their healthcare makes economic sense. Is this a sound premise? Consider these statistics:

Yet California's undocumented immigrants sent $9.6 billion back to Mexico in 2004.  From 1960-2003, the amount sent increased by an average of 12.8% yearly.  It is projected that by 2010, the total remittances sent by undocumented immigrants will reach $25 billion.  According to Mexico's former President Vicente Fox in September 2003, remittances from Mexican nationals residing in the U.S. "are our biggest source of foreign income, bigger than oil, tourism or foreign investment."

A conservative estimate of California's undocumented immigrant population is four million.  Using 2004 statistics, the annual remittance to Mexico from a family of four in California is a minimum of $2,400.  The figure may well  be higher, given the difficulty of tracking demographics in this population and the fact that the newest statistics are not yet published.

The sum of $2,400 easily covers a basic family healthcare plan. 

California's taxpayers are asked to fund health insurance for undocumented immigrants, a group with up to $3,000 in disposable income on average. Why should they not accept some financial responsibility when California's legal residents already struggle to do so for them. The logic that informs the Governor's proposal is elusive, if not simply unsound on this elementary point of social justice.

There is no question that uninsured and underinsured Californians do need help.  But in order to treat them, doctors want to keep their office doors open and serve their communities. And so do hospitals.

California hospitals, particularly trauma centers and Emergency Rooms, are overwhelmed by patients after the closure of scores of facilities across the State.  Business owners want to provide for their employees, but are frustrated when constantly increasing costs force them to choose between offering health insurance and keeping their businesses solvent.

The Governor's proposal should be applauded for its good intentions.  But it should not be enacted in its current form.

What is needed now is not a new or expanded bureaucracy that will shuttle uninsured patients into State programs without the resources to provide quality, sustainable medical care.  Nor will our critical problems be solved by empty promises of economic relief.  The answer is not to levy a $3.5 billion tax on those who are already subsidizing care not covered by the State. Further burdening California's employers is an equally poor path.

We can succeed, but only if we rely on sound economic principles, simplicity, accountability and-above all-ethical aims.  The right road is not covered with unrealistic promises...it is paved with common sense.

Dr. Halderman is a Board-Certified General Surgeon practicing in rural south Fresno County, California
Paved with good intentions, California's  proposed road to Universal Health Coverage will lead straight to chaos. The Governor's January 8th, 2007 proposal aims to provide relief for Californians suffering under a healthcare system in desperate need of repair. It does not lack noble goals. What it lacks is common sense.

Achieving a workable solution first requires that we understand the problem.  For 4.8 million uninsured Californians, no further explanation is necessary (the often-cited figure of 6.5 million refers to those uninsured "at some point" during the prior year, including many who are currently covered).  But for the rest of us, some background information is essential.

The cost squeeze

While medical spending has skyrocketed, doctors have been caught in a vicious cost squeeze. Health insurance premiums have risen at an unsustainable rate for consumers over the past decade, peaking at a 10.5% increase in 2002.  Faced with rising costs, employers have been unable to maintain coverage, leaving workers with limited or no employer-based health insurance.

But the cost to physicians of providing medical care has also skyrocketed over the same period.  Increasingly expensive medical equipment, office supplies, staff salaries, Malpractice/Worker's Comp/Liability insurance premiums-all squeeze the bottom line for doctors trying to keep their doors open for patients.  Federal and State taxes excise an additional share of shrinking revenue.

Reimbursement for physicians has lagged far behind inflation.  Medicare, after years of pay declines and freezes, has committed to a 10% pay cut for doctors in 2008, to be followed by a 5% cut for each of the successive six years.  Doctors who care for Medicare recipients will pay a price for it.  Given that private health insurance plans base their reimbursement on the Medicare-fixed prices, the cuts are magnified.

The situation is worst for doctors who accept Medi-Cal, California's version of MedicaidThis top-heavy State program, subsidized by the Federal Government and run by nearly 6,000 Sacramento-based bureaucrats, spends nearly $7,500 yearly per patient.  This money could fund a private Blue Cross-type plan for every man, woman and child that Medi-Cal currently covers. 

Because doctors are so badly paid by it, California physician participation in Medi-Cal is the lowest of any state sponsored program in the country.  Medi-Cal payments to California physicians rank 49th in the U.S.  The rates are based on 1969 data, with only a single increase in 20 years. Medi-Cal reimbursement often does not even cover the cost of keeping a doctor's office open during the patient's visit.  Accepting Medi-Cal is the surest way to destroy the viability of a California medical practice.

The Governor's proposal ignores these realities. Medi-Cal and similarly inefficient programs would be expanded, not replaced or even diminished.  The program inevitably will run into the law of supply and demand. The current shortage of physicians for those enrolled in Medi-Cal will worsen. Patients will not get more care, they will get less if there are fewer doctors serving them than before. And despite the finest intentions, that is likely to happen.

The $12 billion proposal supposedly addresses the problem of low reimbursement for doctors who care for Medi-Cal patients. Despite the fact that the Governor's 2006-07 budget included zero increases in Medi-Cal reimbursement (and faced a court battle when he attempted to force a 10% cut to doctors who accept Medi-Cal), the proposal promises to increase rates "significantly" for providers, hospitals and health plans.

This proposed increase, however, is tied to new and unspecified performance measures.  It is also tied to doctors' adoption of health information technology (HIT) such as Electronic Medical Records and e-prescribing.

This "carrot and stick" approach defies logic. Portable, universal, affordable HIT that adequately safeguards patient privacy currently does not exist.  So the conditions mandated by Governor's Medi-Cal reimbursement plan are like requiring the paving of a road that is not yet on the map.

Violating federal and state mandates

While claiming to create "more efficient health care delivery," the governor's plan includes the "expansion of lower-cost models."  This language actually means that patients will be treated by independently practicing Physician Assistants and Nurse Practitioners instead of doctors-a violation of current State and Federal statutes.  While this practice may provide cost savings, it is certainly not Universal Coverage.

Moreover, limiting Californians' care to "Physician Extenders" without adequate Physician supervision contradicts the stated goals of improving patient safety.  While Physician Assistants and Nurse Practitioners play a valuable role in caring for patients, they will newed supervision, which costs time and money.  Patient safety cannot be traded for "efficient health care delivery," no matter how cost-effective.  Patients deserve better.

The doctor and hospital tax

It is a basic economic principal that you get less of something when you tax it. The supply of medical services to will be diminished by the imposition of new taxes on the key actors: hospitals and doctors. The Governor proposes that all hospitals and doctors pay a new tax.  According to the Governor's healthcare team's "State Fiscal Impact Summary," the tax will generate $3.5 billion. The same report reveals that the projected Medi-Cal reimbursement increase is $2.2 billion.  Therefore, even if one assumes that any increase in payments is provided as the reward for caring for uninsured and underinsured Californians, doctors and hospitals will be forced to finance $1.3 billion in net new taxes.  While supposedly delivering more care, they will take home substrantially less.  

This tax is in addition to the Governor's proposed "Pay or Play" 4% payroll tax on California employers, which doctors and hospitals will also face.

Paying for more care

If more care is required, taxing the supply of care will not do. If business owners, doctors and hospitals aren't forced to subsidize this program, what are the alternatives? What kinds of funding sources would do less damage?

One answer might be foreign remittances, the payments immigrants send back to their home countries. 

The most attention-getting aspect of the Governor's plan is that California's undocumented immigrants will receive health coverage under it.  The reasoning is that California's doctors and hospitals already provide it-largely unreimbursed-so paying for their healthcare makes economic sense. Is this a sound premise? Consider these statistics:

Yet California's undocumented immigrants sent $9.6 billion back to Mexico in 2004.  From 1960-2003, the amount sent increased by an average of 12.8% yearly.  It is projected that by 2010, the total remittances sent by undocumented immigrants will reach $25 billion.  According to Mexico's former President Vicente Fox in September 2003, remittances from Mexican nationals residing in the U.S. "are our biggest source of foreign income, bigger than oil, tourism or foreign investment."

A conservative estimate of California's undocumented immigrant population is four million.  Using 2004 statistics, the annual remittance to Mexico from a family of four in California is a minimum of $2,400.  The figure may well  be higher, given the difficulty of tracking demographics in this population and the fact that the newest statistics are not yet published.

The sum of $2,400 easily covers a basic family healthcare plan. 

California's taxpayers are asked to fund health insurance for undocumented immigrants, a group with up to $3,000 in disposable income on average. Why should they not accept some financial responsibility when California's legal residents already struggle to do so for them. The logic that informs the Governor's proposal is elusive, if not simply unsound on this elementary point of social justice.

There is no question that uninsured and underinsured Californians do need help.  But in order to treat them, doctors want to keep their office doors open and serve their communities. And so do hospitals.

California hospitals, particularly trauma centers and Emergency Rooms, are overwhelmed by patients after the closure of scores of facilities across the State.  Business owners want to provide for their employees, but are frustrated when constantly increasing costs force them to choose between offering health insurance and keeping their businesses solvent.

The Governor's proposal should be applauded for its good intentions.  But it should not be enacted in its current form.

What is needed now is not a new or expanded bureaucracy that will shuttle uninsured patients into State programs without the resources to provide quality, sustainable medical care.  Nor will our critical problems be solved by empty promises of economic relief.  The answer is not to levy a $3.5 billion tax on those who are already subsidizing care not covered by the State. Further burdening California's employers is an equally poor path.

We can succeed, but only if we rely on sound economic principles, simplicity, accountability and-above all-ethical aims.  The right road is not covered with unrealistic promises...it is paved with common sense.

Dr. Halderman is a Board-Certified General Surgeon practicing in rural south Fresno County, California