1. There’s now a new, improved ABX1-1 (Nunez).  According to a story by Laura Kurtzman of the Associated Press, the package requires all residents to obtain health care coverage, implements a one-to-six percent payroll tax on employers, and raises the cigarette tax. (One of the few remaining issues left to resolve is whether the tobacco tax will be raised by $1.50 or $2.00 per pack). The “affordability exemption” demanded by Labor and others is gone, but households earning up to 400 percent of the Federal Poverty Level would receive tax subsidies if premiums exceed 5.5 percent of their income; and for those earning up to 700 percent of the FPL tax credits would kick in if their premiums exceeded 10 percent of their income. As is apparent, negotiators made a lot of changes to the ABX1-1 passed by the Assembly Health Committee last month.  Understanding the package will require a thorough review. 
2. Assembly Members don’t have much time for that review. Speaker Nunez has announced a vote on the compromise by the full Assembly on Monday, December 21st. Or, of course, they could skip reading the bill and simply vote the way their party leaders tell them. In either event, the result is likely to be the same: expect the Assembly to pass ABX1-1 on a party line vote.
3. Senate President Pro Tem Don Perata called passage of health care reform legislation before Sacramento addresses the state’s looming budget crisis “imprudent and impolitic.” He told Senate colleagues not to expect to meet before the end of 2007. (This is significant because, depending on who you talk to, work on the initiative to finance ABX1-1 needs to begin next week or early-January if the measure is to be on the November 2008 ballot).
4. Governor Arnold Schwarzenegger and Speaker Nunez have already begun positioning their compromise as being a financial boon for the state. According to a statement issued by the Governor’s office, health care reform would “bring billions of dollars of badly needed money to our healthcare system and ensure that future Governors will not have to make the decisions we are being forced to make today.”  Central to this argument is the relief ABX1-1 provides the General Fund in connection with MediCal financing. By using a tax on hospitals to raise the reimbursement rate, California providers will benefit from increased federal matching funds.

There’s a whole lot to digest here. It’s a complicated package and with lots of nooks and crannies for devils to hide in.  Whether understanding the bill will be worth the effort depends a great deal on Senator Perata.

It will be difficult for him to claim that what was “imprudent and impolitic” on Thursday is sound public policy on Monday. But both the Governor and Speaker are working hard to position their health care reform package as good for the state’s economy and budget. If their argument gains traction with the media and the public Senator Perata would have the coverage he would need to reverse course and push the compromise through the Senate. If that’s what he wants to do.

That’s unclear, however. He’s made very complimentary statements about the compromise, calling it better than he thought would emerge from the long and arduous negotiations. But he also seems genuinely focused on dealing with what could be a $14 billion budget deficit.

Over the next few days, it will be important to keep an eye on how various stakeholders respond to ABX1-1. Has it crossed the line in the sand Labor and its allies drew during the November 14th Assembly Health Committee hearing? Or has that line shifted to the right in the past month? Will the business community consider the reform package a benefit to their bottom lines or a drag on it? What do doctors think about the package? The carriers? Agents? Editorial boards?

If keeping track of how all these folks respond to the compromise seems too daunting a task, it’s easy to simply things: just watch for what Senator Perata. Because the fate of health care reform is largely in his hands now.

Data Point Two: Senate Pro Tem Don Perata issued a statement declaring it would be “imprudent and impolitic” to expand health care coverage without first addressing the challenge posed by the $14 billion deficit facing the state. That’s not going to happen by December 21st — and maybe not before August 21st of next year.

If the Speaker is serious about his deadline and the Senator is serious about his priorities, health care reform will not happen this year. What’s ironic about this is that the Speaker and the Governor appear to be near a deal. According to the Los Angeles Times, the compromise they’ve worked out would require most California businesses to pay six percent of their payroll costs on health care, increase the state’s tobacco tax, provide subsidies to low- and middle-class residents to help them afford premiums, and require every resident to have health care coverage.

Speaker Nunez and Governor Schwarzenegger are likely to make the argument that their $14 billion health plan won’t impact the state’s budget. Whether they’ll be able to convince Senator Perata of that will be key to meeting the Speaker’s deadline. And then, of course, they’ll also need to convince voters the reform financing makes fiscal sense. That will take all of the 11 months remaining before voters cast their ballots on the initiative in November 2008. Assuming there really is enough time to qualify it for the ballot. Given that the compromise described in the Times is far less than Labor and their allies were looking for, they may have trouble finding the foot soldiers required to qualify the measure, let alone get it passed.

Access advocates note that decreasing the number of uninsured will reduce the “hidden tax” imposed when the cost of uncompensated care is shifted to those with coverage. Affordability proponents point out that until coverage is affordable, too few will be able to obtain and use it.

The tension between access and affordability is one of the reasons Governor Arnold Schwarzenegger and the Legislative Leadership are having such a hard time producing a health care reform package for California. Governor Schwarzenegger is seeking to increase access by requiring all residents to obtain coverage. Speaker Fabian Nunez is attempting to assure coverage is affordable by creating an exemption to the Governor’s coverage mandate if the cost of premiums and out-of-pocket expenses exceeds 6.5 percent of a family’s income.

The chicken and egg debate is also a feature of Democratic presidential campaigns, too.  Senator Hillary Clinton attacks Senator Barack Obama for presenting a health care reform plan that fails to achieve universal coverage while Senator Obama questions how Senator Clinton plans to force Americans to buy coverage they can’t afford.

So which comes first? Access or affordability? As I’ve posted several times, I believe affordability has to come first. Newsweek’s Robert J. Samuelson makes a strong case for why. Writing in the magazine’s December 10th issue, Mr. Samuelson takes to task politicians who focus exclusively on expanding coverage. “Everyone believes in adequate health care; people should have it when they need it. Politicians cater to these beliefs. But the intellectual and even moral laziness of this approach results in an invisible abdication of political responsibility. We are letting the unchecked rise in health spending automatically determine national priorities.”

The need for controlling health care costs is clear (and has been the topic of many a post on this blog). Mr. Samuelson cites three key facts:

• At $2 trillion dollars, health spending already accounts for about 16 percent of the gross domestic  product. By 2030 it could exceed 25 percent. This saps resources away from other priority items.
• We currently tax young people to pay the costs of seniors. Older Americans (65 years and over) account for an eighth of the population and a third of all health spending. By 2030 they could account for 20 percent of the population and close to half of medical spending. Americans under age 64 by-and-large pay those costs.
• No one has demonstrated the ability to control costs The average cost of providing benefits to Medicare beneficiaries rose 8.9 percent a year from 1970 to 2005. During the same period, spending on Americans with private health insurance rose 9.8 percent. The slight difference, Mr. Samuelson notes “may reflect cost shifting. When Medicare imposes price controls, doctors and hospitals increase prices for privately insured patients).

 These trends are unsustainable. Unless medical costs are constrained, spending on health care is crowding out what’s available for other critical tasks. “We are letting the unchecked rise in health spending automatically determine national priorities,” is how Mr. Samuelson puts it.

The problem, he notes, is that “[t]he politics of health care rests on a mass illusion: most Americans think that someone else pays for their care.  Workers with employer-provided insurance believe that their companies pay. Retirees and the poor think that the government … pays. No one has an interest in controlling spending, because everyone believes it burdens someone else.”

Mr. Samuelson’s solution: “People need to see and feel health costs.” But he recognizes “most Americans do not want to face the difficult political, economic and moral issues posed by unchecked health spending …. The impulse is to blame some unpopular villain (drug companies, insurance companies) and to focus on a simpler problem — say, the uninsured.”

He warns that failing to address the issue of costs makes meaningful health care reform impossible. “The present politics of health care aims to camouflage [health] costs and skew the choices.”

What’s interesting is that there’s actually a broad consensus among policy makers that affordability is central to comprehensive reform. The health care reform packages put forward by the Governor, the Democratic Leadership and the Republican caucus all include cost containment features. It’s a primary focus of California Insurance Commissioner Steve Poizner. It’s a central focus of the California Association of Health Underwriters’ Healthy Solutions plan.

Yet for the past 11 months in California medical cost containment has been an afterthought in the negotiations. Politically, access comes first. Without tackling affordability, however, paying for that access will break the bank.

According to the Sacramento Bee’s CapitolAlert (which has added this blog to it’s list of top blogs, incidentally), the Foundation for Taxpayer and Consumer Rights (FTCR) and the California Nurses Association are claiming California Governor Arnold Schwarzenegger, Speaker Fabian Nunez and Senate President Pro Tem Don Perata are close to striking a deal on comprehensive health care reform with the blessings of the California Labor Federation, AFL-CIO.

Not so says Senator Perata. Not so say spokes-folk for Speaker Nunez and the Governor. Not so says the Labor Federation. 

CapitolAlert says the deal rumors stemmed from a release by the FTCR headlined “California Labor Poised to Sell out Consumers with Unaffordable Mandate.” In the words of Steve Maviglio, Speaker Nunez’s spokesman, the FTCR and CNA are “tragically and deliberately misrepresenting the discussions taking place in Sacramento.” While the principals remain optimistic an agreement will be reached, there’s no deal imminent according to Mr. Maviglio.

Usually when there’s a lack of real news on a topic, the importance of rumors is elevated. It’s also not uncommon for opponents of a possible deal to launch a preemptive strike to remind negotiators that they’re being watched. That might be what’s going on here.

It’s also possible, however, that the FTCR and CNA are upset the single-payer apporach they advocate has been completely marginalized. They may have felt it was time to make some noise to remain relevant. The FTCR especially seems to need — and seek out — press attention nearly as much as too thin celebrities-for-being-celebrities do. Under this theory, the attack on Labor and lawmakers is the political equivalent of posing for the paparazzi.

In the meantime, talks go on, the principals profess optimism but give no progress reports, the budget deficit grows and time is running out. That’s all we really know.

Capitol Weekly’s Anthony York, however, describes one driver which might pull things together: the political ambition of Speaker Nunez. Writing in the Los Angeles Times, Mr. York emphasizes the importance of voters passing Proposition 93 on the February 2008 ballot to the Speaker’s career. Proposition 93 changes California’s term limits law. Currently, legislators may serve six years in the Assembly and eight in the Senate. Proposition 93 reduces the total tenure permitted from 14 years to 12 years, but allows the entire time to be spent in one house. If it were to pass, instead of being termed out next year, Speaker Nunez would be able to remain Speaker Nunez for another six years.

Passage of Proposition 93, however, looks as likely as, well, passage of comprehensive health care reform in California any time soon. It’s hovering a little shy of a majority in current polls. And although there’s a significant number of undecideds, historically they tend to break more towards the “No” side of any initiative. Then there’s Insurance Commission Steve Poizner’s commitment to spend “whatever it takes” to defeat the ballot measure — he’s already contributed $1.5 million to the “No” campaign. And recently the prison guard unions, upset over the failure of the legislature to raise their member’s pay, have committed to the “No” campaign.

What could save the measure? The support of Governor Schwarzenegger. And it’s not beyond the realm of possibility Governor Schwarzenegger would come on board. As Mr. York points out, however, the price is health care reform. According to Mr. York, the Governor “has consistently used Nunez’s desire to change the term limits law as leverage in his negotiations with the speaker about healthcare reform ….” He cites Speaker Nunez’s move to support a mandate for all Californians to have health insurance coverage, albeit with an “affordability exemption,” as proof of the effectiveness of this lever.

Put bluntly, what Mr. York is suggesting is that Governor Schwarzenegger would trade his support for the term limits to induce Speaker Nunez to adopt the Governor’s health care reform package. However, there’s a couple of serious problems with this. First, Governor Schwarzenegger’s support may not be enough to salvage Proposition 93. As the San Jose Mercury News reported earlier this month, only nine initiatives have passed in the last 15 years when more than $1 million has been spent to defeat them. And those that did pass tended to be simple and straightforward. Term limits, is neither, instead representing the ultimate in insider-politics. Would the Governor risk political capital to push for passage of a measure which may be doomed beyond saving? He might, but with initiatives of his own to worry about in 2008, he will need to get a lot to make the risk worthwhile.

Which underscores the second reason a Proposition 93/health care reform trade seems unlikely. The compromises the Governor would seek to extract could undermine support for the health care reform package among the Speaker’s allies, most notably, the unions. Mr. York acknowledges this at the end of his article, but, in my mind, it belongs front and center. Labor’s calculation is simple: is keeping Fabian Nunez as Speaker worth caving in on important health care reform provisions? The answer depends in large part on who the next Speaker would likely be. Mr. York identified eight potential successors to Speaker Nunez in a Capital Weekly post last month. Virtually all would be acceptable to the unions. What all this means is that the while Labor wants to support the career of Speaker Nunez, it may not be willing to pay Governor Schwarzenegger’s price.

In an ideal world, the specific provisions of health care reform would be decided on their merits. The benefits to any individual’s political career should be of minor concern. That’s not how things work, however. If the political ambitions of a current legislative leader results in responsible, meaningful reform, that’s terrific. If, however, that ambition  results in reforms that do more harm than good, no one’s political career will benefit — nor should it.

Ironically, this comes as a change in the leadership of the California Service Employees International Union could soften Labor’s opposition to the Governor’s reform package. Sal Rosselli, president of the SEIU state council, withdrew his nomination to remain in the post. Mr. Rosselli was one of the most adamant proponents for some of the health care reform provisions preventing a compromise among Governor Schwarzenegger, Speaker Fabian Nunez and Senate President Pro Tem Don Perata. His departure is generally seen as a victory for national SEIU president Andy Stern who takes a more conciliatory approach to health care reform.

Personally, I don’t think a leadership change at the SEIU will result in a breakthrough in health care reform negotiations. The major differences between the parties arise from differences in principles, vision and approach. This takes them out of the realm of horse trading and to a much more challenging level. Talk of an initiative is just the latest sign that a legislative solution is unlikely.

It’s important not to read too much into the initiative trial balloon, however. Governor Schwarzenegger has used the threat of an initiative in the past to achieve a negotiating advantage. In 2004, when discussions on Workers Compensation reform bogged down, he went so far as to personally gather signatures in front of a Sacramento Costco on behalf of a Workers Comp initiative. Democrats in the Legislature folded to the pressure and quickly came to terms with the Administration. The Governor might be using a similar tactic with health care reform.

If a ballot measure is something Governor Schwarzenegger is seriously considering, the next question is, could it pass? As I’ll discuss in my next post, I don’t think so. For now, I take talk of an initiative as more evidence that 2007 won’t be the year of health care reform after all. Of course, that doesn’t mean 2008 shouldn’t be.

The most significant sign health care reform is in trouble comes from Bill Ainsworth, who in the San Diego Union blog claims the blame game has begun. If so, this is the political equivalent of a B-Western cowboy seeing buzzards circling overhead. The blame game, as played in Capitols everywhere, involves key players spending a couple of news cycles giving others credit for the failure to accomplish something. And with California’s health care reform effort, there’s plenty of “others” to credit: the unions, the Republicans, the carriers, the Democrats, the Chamber of Commerce, the doctors, the Administration, the wildfires, the budget deficit and so on and so forth. If this is the route the principals will be taking, you’ll start hearing about the do-nothing legislature that’s too beholden to the unions and how the Governor sold out to big business and the insurance industry. Then the Legislature will pass their health care reform package, Assembly Bill X1-1 on party line votes and the Governor will veto the bill. Both sides will use these actions as opportunities to offer various innuendos, insults and accusations.

That’s the low road, but there’s another option available to the Governor, Speaker and Senator. Instead of savaging one another, they could salvage something meaningful from the wreckage. In this scenario, they enact several “small” reforms that lay the foundation for future, more comprehensive reforms while also fixing some present problems. I’ve already written about what three elements of such a package might be: 1) cost containment; 2) increasing MediCal reimbursement; and 3) improving outreach for Healthy Families. (The post even suggests how to fund these efforts). Assemblyman Mervyn Dymally already introduced a bill in the special session concerning the state’s high risk pool that would be a worthy addition to the package.

Whether it’s these or other incremental reforms, there’s reason to be optimistic that the troika will take the high road. They already have a track record of successfully working together. There are a host of other issues they will face next year (think water and budget deficits) that will require compromise and cooperation. Creating ill will over health care reform won’t make those issues any easier. And they all have a political needs a salvage operation would help meet.

They may yet fashion a compromise on health care reform. The conventional wisdom, after all, is rarely actually wise. But if they can’t, let’s hope, at the very least, they find a way to work together on a meaningful Plan B.

Now, for two entwined reasons, I’m not so sure. First, any legislative deal needs to have enough buy-in from the constituents of the negotiators’ that they’ll support the November 2008 funding initiative required to make the legislative reforms real. Second, those constituents have all but locked the negotiators into their current positions. The result: a political context in which a handshake is just out-of-reach.

Consider just one of several contention issues: the affordability exemption to the individual mandate. The Legislative Leaders have accepted the Governor’s demand that all residents obtain health care coverage (that’s the “individual mandate” part). However, their legislation, ABX1-1, exempts individuals from this requirement if the cost of coverage and out-of-pocket medical expenses exceeds 6.5 percent of an individual’s income (the “affordability exemption”). The Governor recognizes that this formula undermines the balance he’s tried to achieve between the mandate for carriers to sell coverage and for residents to buy it. From everything I’m hearing he’s refusing to accept the exemption as written. However, the unions and consumer groups that comprise the Democratics base on health care reform have made it extremely clear they will not accept a watering down of what’s on the table.

Of course, Speaker Nunez and Senator Perata could compromise on this issue anyway. But this would make it unlikely Labor and grassroots progressives would support — either politically or financially — the 2008 financing initiative. And their support will be critical not only for passage of the measure, but in qualifying it for the ballot in the first place.

There are several other issues resulting in a similar dynamic. Moving from their current positions means either the Governor risks alienating his support in the business community or the Democrats lose the backing of the unions and consumer groups. Passing the November 2008 health care reform financing measure is going to be a huge challenge in any case given the state’s fiscal woes. If the financing package includes a cigarette tax, the tens of millions of dollars the tobacco industry is likely to against the initiative will only make the task harder. If business and/or labor sit out the campaign, the measure could be doomed. And it’s not like these groups won’t have other important issues deserving of their time, attention and resources on the 2008 ballots.

That’s why I’m no longer optimistic about the chances of California enacting comprehensive health care reform this year. (There’s still an opportunity to pass some meaningful health care bills, as I’ve written about previously).  The political will exists for a deal, but the political environment necessary for a compromise seems to be growing toxic.

For some, this is a relief because aspects of the reform package being negotiated in Sacramento are, well, bad. But no one should rejoice that the year of health care reform seems to be fizzling out. A series of articles on Monday in the Los Angeles Times by reporter Susan Brink shows why.

In one story, a Dana Point family of five goes without coverage because it’s “unaffordable” on their $70,000 annual income. As it turns out, focusing on this family was a questionable choice. As many of the reader comments point out, they apparently consider health care coverage less important than other, perhaps less critical, lifestyle choices. (The article also highlights the need for a good agent. The family claims coverage they’re looking for would cost them in excess of $900 per month, but a professional agent could probably find them acceptable coverage for roughly half that amount). So the story makes two points. The intended point is that there are families just beyond the cusp of qualifying for premium subsidies who are struggling to obtain care. Under either the Governor’s or the Democratic Leadership’s reform proposals, these families would qualify for state help. The inadvertent point is that there are families who make decisions that health care isn’t important to seek out even minimum coverage — until something goes wrong.

Another article in the group describes a single mother whose pay raise results in her child losing eligibility for Healthy Families. It shows the hardships families face when their priorities are in the right place, but nonetheless find themselves struggling to maintain health care coverage. Frighteningly, with re-authorization of the State Children’s Health Insurance Plan (SCHIP) stalled in a bitter dispute between Congress and the White House, even eligible children may be dropped from the program soon.

The point here is not that Governor Arnold Schwarzenegger, Speaker Speaker Fabian Nunez and Senate Pro Tem Don Perata should sign off on any plan just to get something passed. (Although it is clear the Administration and Congress need to resolve their dispute over SCHIP, and quickly). What it does underscore is the importance of getting the reforms right, even if it takes more time. After all, subsidizing premiums for families who struggle to afford coverage now won’t help much if reforms result in their premiums doubling. Yet based on the difference between what New Yorkers and Californians currently pay for health insurance that could very well happen if lawmakers aren’t careful. And it’s a reminder that while politics is closely entwined in the health care reform debate, in the end, it’s about people facing real problems and challenges. Anecdotes are a poor foundation for fashioning legislation, but they do help keep things in perspective.

In the meantime, negotiations continue on health care reform. As the need for a delay underscores, there are still substantial differences between Governor Arnold Schwarzenegger and the Democratic Legislative Leadership on some major issues. However, neither side is calling it quits yet. Indeed, they’re continuing to meet with stakeholders for input on a host of issues. 

That’s what happened legislatively, but politically there was lot more going on. For example:

1. While Speaker Fabian Nunez, the lead author of ABX1-1, committed to several changes to the bill, none seemed aimed at narrowing the gap with Governor Arnold Schwarzenegger. Instead they focused on concerns of his fellow Democrats, some technical issues, and even a broadly supported provision that was inadvertently left out of the bill. If progress towards a compromise with the Governor was moving forward, I would have expected to see more substantial changes.

2. The Governor sent a spokesperson from the Department of Health and Human Services to testify on the bills, not the Agency Secretary, Kim Belshe. The spokesperson spoke highly of the hard work and leadership shown by the Democratic Leadership. She praised some of the provisions in ABX1-1 that brought it closer to the Governor’s position than previous Democratic bills. Then she listed several concerns the Administration had with the bill, chief among them the broad exemption it contains from the requirement that all California residents have health care coverage. What was not given was a progress report on negotiations. Nor any enthusiastic statement that the parties were making terrific progress. Instead it sounded like substantial, difficult differences remain.

3. Speaker Nunez did succeed in rounding up most of his political supporters behind ABX1-1. This could not have been easy and is a testament to his political skill. While they expressed some reservations, it is clear that with some modest tweaking, Labor and it’s progressive allies will fully endorse the bill. However, they made very clear that they’d gone about as far as they could on some issues, especially the exemption from the requirement that all residents have health care coverage. This may indicate there’s not a lot more give in the Speaker’s position on an individual mandate. 

So, on one hand, the Governor’s spokesperson made clear the Administration considers the current exemption unacceptable. On the other hand, the Speaker’s allies made clear the current exemption was as far as they could go. What’s the sound of no hands clapping? I don’t know, but my guess is it doesn’t sound like victory.

Comprehensive health care reform is not dead (contrary to what I predict will be the tone of most news articles tomorrow). The political gain to the Governor and the Democratic Leadership from reaching a deal is enough to keep things moving forward for weeks, if not months.

Yes, a health care reform bill moved forward today. However, I don’t think the chances of comprehensive health care reform did.

This means observers will be looking for clues as to where negotiations stand. For those of you planning to listen in on the Assembly Health Committee hearing (please see the previous post for instructions on how to do this) what you may want to listen for is what version of ABX1-1 passes.

If it’s the current version with no substantial changes, it probably means negotiations between Governor Schwarzenegger and Speaker Nunez are not going well.  No meaningful amendments means the Speaker is holding tight to his original negotiating position. This in turn means the legislation will likely pass the full Assembly virtually unchanged on Monday, November 26th. Then attention will turn to the State Senate. If a compromise is to be reached, it will be while the legislation is working it’s way through the upper house.

If, however, Speaker Nunez accepts substantial compromises to the bill, changes which move it closer to Governor’s plan, then a deal more likely and imminent.  For example, if the Speaker accepts changes to the way the exemption from the mandate to purchase coverage is made, that’s a sign negotiations are going well. So would a further reduction in the payroll tax Democrats want to impose on the California businesses to finance reforms (they recently reduced their tax target from 7.5 percent of a company’s Social Security wages to 6.5 percent; the Governor is proposing a 5.5 percent payroll tax). Movement toward the Governor’s approach to reducing the burden of the tax on the state’s smallest businesses would also be a sign of progress. Another sign of progress: if the Governor’s staff testifies that premium subsidies should be raised toward the Assembly Democrat’s levels.

Then there’s financing. Both the Governor and the Speaker require some extraordinary measures to finance their plans (This, of course, assumes they’ve accurately estimated the cost of their reforms — the odds of which are extremely unlikely). The Speaker imposes a $2.00 per pack tax on cigarettes; the Governor would lease the state lottery. A move by one side towards the other’s financing plan would be a huge step toward an eventual compromise.

Not all changes are substantial, however. For example, ABX1-1 revives some of the group health insurance reforms that had been a part of Assembly Bill 8, the previous Democratic health care reform plan. If those are removed it’s a sign of progress, but not as significant as other amendments might be. The Governor’s staff has been intent on minimizing the risk of law suits based on ERISA. They would prefer not touching group coverage directly at all.

One thing to keep in mind is that the rhetoric of the hearing is less important than changes, if any, to ABX1-1. Everyone will be playing to their core constituencies. The key is to listen for what the participants do, not what they say.

In politics it’s pretty much the same: making lemonade from lemons. In 1992, Governor Bill Clinton was hammered by a host of damaging news stories just before the New Hampshire primary. Instead of winning the state, he came in second.  For some that would be the end of the road. Bill Clinton, however, celebrated the results, proclaiming himself the “Come Back Kid” and no one cared that Senator Paul Tsongas had come in first. 

The Democratic Leadership and Governor Arnold Schwarzenegger may be close to a compromise on health care reform. But as Dan Walters in the Sacramento Bee warns, “If health care … is worth doing, it’s worth doing right. It’s time for those involved to step back, take deep breaths and stop this madcap rush to do something just to say they did something.”

Substantial differences exist between Speaker Fabian Nunez and Senate President Pro Tem Don Perata on one side and the Governor on the other. And they’re playing with fire. If they fail to find the right balance between, to cite one challenge, requiring everyone to obtain health care coverage and a way to make coverage affordable, they could create a mess which will leave the state’s health insurance market in shambles. (And it won’t do much for the careers of some ambitious politicians, either), There are several issues on which a delicate balance must be struck and they’re performing without a net. Taking the time to get it right is of paramount importance.

But what if they can’t? What if, after all the press conferences, proclamations, negotiations, time, money, special session, raised expectations, near misses and pain there’s no deal? What’s the recipe for lemonade in that scenario?

My recommendation is that they pluck three lemons to work with.

1. Constrain Medical Costs
Every health care reform plan on the table includes provisions to control health care costs.  The approaches laid out by Democrats, Republicans and the Post-Partisan Governor overlap and, where they don’t, they often compliment one another. For example, most call for leveraging technology. Most include ways of promoting healthier lifestyles and preventive care. There’s some differences, but not much. It would take a week or two to fashion these ideas into a single, meaningful bill — one that would pass overwhelmingly and cost very little.

2. Capture Federal Medicaid Funds
California has one of the lowest Medicaid reimbursement rates in the country. This is wrong on many levels, but perhaps most significantly because the Federal Government matches a percentage of what the state pays. By underpaying for Medi-Cal (the state’s Medicaid program) California is failing to obtain from Washington what the state is due. This situation is so absurd the California Hospital Association accepted the Governor’s proposal to tax hospitals four percent of their gross revenues so long as the money is first used to fully fund Medicaid reimbursement. For most hospitals in the state the combination of increased reimbursement and federal funds more covers the revenue tax. If comprehensive health care reform is out-of-reach, capturing these federal funds is still possible. And the federal matching funds would help the state reduce the growing deficit.

3. Keep Our Promise to the Uninsured
Expanding affordable health care coverage for all Californians is the goal, but if it’s out-of-reach for now, let’s at least keep our promise to those already eligible for existing state programs. Nearly one million Californians — about 15 percent of the uninsured in the state — are eligible for Medi-Cal and Healthy Families, yet fail to enroll in those programs.  CAHU’s Healthy Solutions reform plan makes several low- and no-cost suggestions on how to improve outreach programs. Better yet, the Governor and Democratic Leadership should propose restoring $66 million in funds cut from the budget this summer, which was to be used for enrolling more children into Healthy Families. Given the state’s budget situation, it is only prudent to identify the source of new spending. I nominate eliminating the tax loophole benefiting out-of-state yacht purchases. I don’t know how much revenue this would generate, but every penny should be devoted to enrolling children already eligible for Healthy Families. Given that direct a trade-off — reducing the cost of boats for rich yacht owners or providing health care coverage to poor children — even the most fiscally conservative legislator would be hard pressed to claim helping out-of-state yachts sellers is a better use of funds. A bi-partisan spending bill would be a sight to behold.

It would be terrific if meaningful, workable, fair and affordable health care reform can come out of Sacramento in 2007. But it may be the only result will be, as Dan Walters described the state’s 1996 electric utility reforms, “a monumental pile of unintended consequences.” Enacting meaningful cost containment, capturing federal funds and keeping existing promises made to the uninsured would be no small accomplishment. Lawmakers could rightly claim a partial victory. It would address serious problems and lay the groundwork for more comprehensive reforms down the road. That’s a lot more than lemonade, that’s sound public policy.

What makes it unique is that there’s no author. ABX1-2 had been introduced earlier as a spot bill (think of it as a placeholder) with Assembly Speaker Nunez listed as the author. Yet when the Governor’s health care reform language flowed into the bill, the Speaker’s name flowed out. He does, after all, have his own bill — ABX1-1. So the Governor now has legislation, but no author. There’s something symbolic about all this, I just don’t know what it is. 

In an earlier post I calculated the impact of this exemption based on two assumptions of which costs would be counted toward determining the 6.5 percent threshold. The short version is, if only premiums were considered, many of those eligible for the exemption would also be eligible for premium subsidies, meaning they would be likely to comply with the requirement. If, however, out-of-pocket expenses were also included in the calculation, some households earning upward of $200,000 would be exempted, undermining the requirement to obtain coverage. 

Which definition is used in ABX1-1, the Democratic Leadership’s bill? The premium plus out-of-pocket costs.

Without knowing what minimum coverage will be required it’s tough to know how many Californians would be exempt from the mandate to have coverage. The way the math seems to work out is that older and larger families are more likely to be exempt than younger individuals. I suppose one could argue this is a good thing as it’s younger, healthier people who currently don’t buy insurance. Again, however, without knowing what qualifies as minimum coverage plan there’s no way of knowing if most Californians will be exempted.

So, let’s review:

• Speaker Fabian Nunez and Senate President Pro Tem Don Perata hold a press conference on health care reform.
• After criticizing the Governor’s proposal to require all residents to obtain medical coverage they agree to accept this approach, subject to the 6.5 percent exemption.
• ABX1-1 does not define the minimum benefit package so it’s impossible to calculate what it will cost.
• If the premium and out-of-pocket costs of whatever minimum benefit package eventually is defined totals $6,500, it means families earning less than $100,000 would be exempt from the requirement to buy coverage. For some older families the total medical expense exposure is likely to be twice this amount, meaning those earning under $200,000 would be exempt.
• It’s impossible to know for sure, but it appears many Californians will be exempt from the requirement to obtain coverage.

So Legislative Leaders offer a compromise which may not require them to change their position. Instead, they adopt the language of the Governor’s proposal, add an exemption that may nullify much of the purpose of that language, and declare it’s a compromise.

If I’m missing something here, someone please tell me. But if I’m right it looks to me like Speaker Nunez and Senator Perata pulled off a compromise without compromising.

Note: This post was revised significantly on November 10, 2007.

ABX1-1 (Nunez): The Democratic Leadership’s Health Care Reform Bill (as of November 8, 2007).

ABX1-2 (No Author): Governor Arnold Schwarzenegger’s Health Care Reform Bill (as of November 8, 2007)

ABX1-8 (Villines): The Assembly Republican Caucus’ Health Care Reform Bill (as of November 8, 2007).

California Health Care Foundation’s Comparison of Current Health Care Reform Proposals (as of November 9, 2007)

Daniel Weintraub: “Differences remain on dueling health care plans” An balanced summary of differences remaining between the health care reform plans put forward by Governor Schwarzenegger and the Democratic Legislative Leadership, published by the Sacramento Bee, November 8, 2007.

The sprint for the finish line is on with a stated goal of reaching a compromise on the framework of health care reform by the end of the month. Of course, there’s nothing stopping the process from continuing into next year, but the November 30th deadline creates a sense of urgency. Assuming a compromise is reached, a substantial portion of the reform package will be contingent on passage of an initiative the Governor and lawmakers will attempt to qualify for the November 2008 ballot.

Note: Updated November 10, 2007.

Since January the Governor had held firm against imposing a payroll fee on California business of any more than a four percent. Today he raised the maximum tax rate to 5.5 percent for businesses with annual payrolls above $1 million (this would be on Social Security wages, meaning salaries above $97,500 are not included in the tax calculation). On Monday Democrats had reduced the maximum payroll tax they wanted to implement from 7.5 percent to 6.5 percent. Under their proposal the maximum tax rate would apply to firms with Social Security payrolls of $250,000. There’s still a gap between the parties, but a deal on health care reform will not fail over the one percent difference.

In October Governor Schwarzenegger proposed tax credits to make health insurance premiums more affordable for Californians annual incomes of up to 350 percent of the Federal Poverty Level ($72,275 for a family of four; $35,700 for an individual). Today he agreed to providing this premium support to those earning 400 percent of the FPL ($82,600 for that family of four; $40,800 for an individual). Democrats have called for offering tax credits to those earning 450 percent of the FPL ($92,925 for the family of four; nearly $46,000 for an individual). Again, nothing here that will derail a compromise.

Significant differences do remain. Speaker Nunez and Senator Perata want to exempt Californians from spending more than 6.5 percent of their income on health care; the Governor hasn’t signed off on any exemption.  The Administration would require a two-thirds vote of the Legislature to increase the payroll tax; Democrats haven’t agreed to this.

Even if these issues are resolved, there’s still plenty more where they come from. Neither party has put forward a way to meaningfully enforce the requirement that all residents obtain health care coverage, yet both call for mandating carriers to accept all applicants. This guarantees substantial increases in non-employer-based insurance costs and far fewer options being made available to consumers. Both parties want to create a state-run purchasing pool, but it’s unclear their design of this program won’t have unfortunate unintended consequences.

And then there’s that pesky bit about financing all these reforms. While they agree on several sources for funds, more money is needed. The Governor would close the gap by leasing the lottery; the Democrats with a $2.00 per pack cigarette tax. If they can agree on a financing proposal it will need to be approved by voters in November 2008. Most of the health care reforms being negotiated today would be contingent on passage of that ballot measure, something which is far from certain.

The Administration and lawmakers are creeping toward a compromise package, that’s no guarantee meaningful reform is at hand.

• Deal or No Deal?
  - Speaker Nunez’s proposal represents a “deal” worked out with Governor Arnold Schwarzenegger.
  - Speaker Nunez’s proposal is a public unveiling of his current negotiating position, not the outline of a done deal.  (That the Governor’s staff is withholding comment until they see the details would indicate they haven’t signed off on anything yet).
  - Speaker Nunez’s proposal reflects the Speaker’s final offer — it’s take-it-or-leave-it time.
• Unions On Board?
  - Speaker Nunez got union buy-in on the package before going public
  - Speaker Nunez let the unions know where he was headed, but didn’t share details with them before the press conference. (I can’t believe the Speaker would pop something like this on his political allies without providing at least a general description of what he was up to.)
  - The unions were as surpised by what the Speaker is proposing as most everyone else seems to be.
• Senator Perata on Board?
  - Senate President Pro Temp Don Perata has signed-on to the Speaker’s reform package. That’s why he was at the press conference.
  - Senator Perata is not committed spending a lot of political capital on this proposal, but considers it an appropriate framework for ongoing negotiations. Perata’s official statement: “This proposal shows significant movement while maintaining the values of AB 8 in terms of affordability and fiscal responsibility.” Yet some of the Senator’s staff is saying they want to see what emerges from the Assembly before fully committing to the proposal.
• Liberals Falling in Line?
  - The jihad declared by unions and consumer groups won’t accept the compromise proposed by Speaker Nunez. They’re trying to figure out how to take him on without doing permanent damage.
  - The unions and consumer groups will find the reforms acceptable. (However, they won’t warmly embrace them. This will give the Speaker a political “anchor” on the left as he continues to negotiate with the Governor. Signficantly, while withholding judgement on the Speaker’s proposal until details are available, Anthony Wright, Executive Director of Health Access California sent several favorable signals concerning the Speaker’s proposal in his summary of the proposal in their blog. And the Speaker’s office released a list of favorable comments from progressive groups).

The list of rumors goes on, but these were the ones mentioned to me most often. Fortunately, most will be put to rest when ABX1-1 (which sounds like an experimental aircraft, but signifies this is the first bill introduced in the Assembly during the Legislature’s first extraordinary session) is heard by the Assembly Health Committee on November 14th. We’ll also learn a lot more about the details of the Speaker’s health care reform plan when the bill is published — which could occur as early as tomorrow, Thursday.

Something else to keep in mind is that while the Governor and the Speaker seem closer to an agreement on the most visible issues (the employer payroll tax, requiring individuals to purchase coverage), there’s still numerous other issues needing to be addressed. For example, the Governor proposes a voluntary purchasing pool where non-subsidized individuals could purchase coverage; in the past, and presumably in ABX1-1, the Democrats have called for a mandatory pool.

In other words, there’s movement towards a compromise, but they’re not there yet. In the meantime, rumors will continue bouncing merrily along.

Note: this post was edited on November 8, 2007

Unlike the Governor and Speaker, Assembly Republicans do not require Californians to purchase coverage. Instead it relies on tax incentives to  make coverage more affordable. For example it provides for state conformity with federal health savings accounts tax treatment, provides a 15 percent tax credit to new companies and those who haven’t offered their employees coverage in the past five years, and allow individuals to deduct health care costs — including, presumably, premiums.

Assemblyman Villines also called for the creation of a California Health Insurance Exchange, described by the Business Journal as a way of to “extend federal and state tax benefits related to the purchase of health insurance to more employees in the state, thereby reducing individual coverage costs between 10 percent and 50 percent.” (I’m not sure what this means. It would be ironic if Republicans were now advocating an exchange aimed at replacing the distribution of health insurance through independent agents.)

Assembly Republicans are also calling for allowing Californians to purchase mandate-free health plans and for participation in a federal demonstration program that allows low-income consumers to sign-up for accounts which allow them to purchase coverage in the open market. 

It would be nice if the Assembly Health Committee, which is slated to hear Speaker Nunez’s health care reform plan on November 14th also considered Assemblyman Villines’ bill at the same time. This would allow lawmakers — and the public — to hear the pros and cons of both proposals. Any effort that looks for common ground should be encouraged.

As I said in the earlier post today, the details are what’s important. As they become available we’ll see if all of this activity amounts to much or not. Clearly, however, it indicates the Speaker was sincere when he stated last week that he would like to see the health care reform debate resolved, one way or the other, by the end of November.

The biggest news in the proposal is the Legislative Leaders’ willingness to accept a requirement that all Californians buy health insurance coverage — with an asterisk (described below). Where Governor Arnold Schwarzenegger is proposing to expand existing state health care programs to residents earning up to 250 percent of the Federal Poverty Level (roughly $52,000 for a family of four), Democrats are pushing for expansion to 300 percent (about $62,000 annually).  Where the Governor offers tax credits to those earning between 250 percent and 350 percent of the FPL (about $72,000 for that family of four), Speaker Nunez wants tax credits for those earning up to 450 percent of FPL (up to about $93,000).

As for the asterisk, the Democrat’s proposal would exempt from the requirement to have insurance any family that would have to pay more than 6.5 percent of its income on premiums. Since both the Governor and the Speaker are willing to leave defining a minimum benefit package to a later date it’s unknown what out-of-pocket requirements such a family would face and thus what percentage of income their total health care spending might be.

This closes the gap with the Governor’s subsidy proposal that the parties should be able to reach an agreement. Legislative Leaders also agreed to a sliding scale for fees on employers to help pay for the subsidies. Whereas the Governor capped his payroll tax at four percent, the Speaker and Senator are proposing an upper level of 6.5 percent, down from the 7.5 percent in the Democratic-sponsored legislation passed earlier in the year and vetoed by the Governor, Assembly Bill 8. Again, this narrows the gap and increases the likelihood of a compromise.

As Mr. Rojas reports, there’s more to the Democrat’s proposal. It is scheduled to be heard by the Assembly Health Committee on November 14th. By then not only will more details be available, but we’ll know the response from various interest groups such as the unions and their allies, business groups, insurers, agents and the like.

What I find interesting is the Governor’s response. Aaron McLear, a spokesman for the governor told Rojas, “This is fairly positive movement. We look forward to seeing the details fo the proposal, but we understand there are still issues to be resolved.” That’s not the statement of an Administration who knew this was coming, which is surprising. If this proposal was the result of ongoing negotiations one might have expected the Governor’s and Speaker’s staffs had worked through some of these issues and to have reached some kind of an accommodation. That doesn’t seem to be the case. Instead, Speaker Nunez seems to be taking a page out of Governor Schwarzenegger’s playbook by making his negotiation positions public before bringing them to the table. What this tells me is that the hop, skip or jump separating the two parties may not be short ones.

The Speaker’s move clearly increases the possibility of an eventual compromise and for that he is to be commended. Whether it moves the debate toward an acceptable compromise remains to be seen. There’s still all those pesky details where the devils dwell to work through. And, as always, it will be interesting to see how the Governor responds once he’s seen those details. 

I’m still convinced the political need to succeed will trump the centrifugal forces pulling negotiations apart. And as I’ve written previously, the positions of the Governor and the Speaker may be closer than they appear. So how will we know when failure is certain?

One sign will be if Governor Schwarzenegger and Speaker Nunez and their staffs start laying the groundwork for rationalizing failure. This will happen not at press conferences or hearings, but in interviews on other topics or in hallway conversations. For example, if in an interview about the impact of the recent fires you read Governor Schwarzenegger lamenting how much time and attention the fires have taken from dealing with other important issues, that’s a clue. If he adds that the prolonged budget battle didn’t help either, then it’s a really big clue.

When the Governor or Speaker start saying that caring for the children is the key purpose of health care reform, you’ll know there’ll be a bill expanding Healthy Families, but comprehensive reform is history.

When they comment that health care affordability is more appropriately addressed at the national level, you’ll know the end is near. When they complain about the “culture of special interests” you’ll know they’re looking for a towel to throw. And if they claim the state needs to immediately resolve the <fill in the blank> crisis before it destroys the state’s economy and life as we know it (even if it’s true) then planning for the final health care reform press conference is already underway.

We’re not hearing these signals yet. And hopefully we won’t.