Oct 12, 2007

The Health Care Crisis

Camarillo Chamber of Commerce

Camarillo, California

October 12, 2007


You may remember two months ago that we had a major battle over the state budget, with some of us warning that despite the governor’s assurances, it was dangerously out of balance.  I’m afraid those post-partisan pigeons are already coming home to roost. The state Controller’s cash report was released yesterday, and the numbers are nothing short of appalling…

I think based on the first quarter numbers that we could be ending this fiscal year with a shortfall in the neighborhood of more than $10 billion and when the budget is introduced in January we’ll be trying to close a two-year deficit of over $20 billion.

I don’t believe we have the resources to cover that.

So what’s the news out of Sacramento yesterday?  The governor is proceeding with the most expensive bureaucratized health plan ever proposed in California. 

As Reagan once said, “You could say they were spending like drunken sailors, but that would be unfair – to drunken sailors.”

I’d like to begin with a little background on that plan.  The Governor’s principal argument is that there are 6 ½ million Californians without health insurance and that Californians are paying a “hidden tax” of $1,200 per year in higher medical costs to cover them.

There’s only one problem with the argument.  It is hogwash.

First, the study the governor quotes DOES NOT say that there are 6 1/2 million Californians without health insurance.  It says that 6 1/2 million Californians don’t have health insurance AT SOME POINT DURING THE YEAR.  But 45 percent of those Californians have it within four months.  So 45 percent of these people are not chronically uninsured individuals – they’re people changing jobs.

And of those 6 1/2 million – 45 percent of whom WILL HAVE health insurance within four months -- 2 ½ million are illegal aliens; 2 million earn over $50,000 per year, 1 million are already eligible for MediCal or Healthy Families.

The other argument is that that Californians pay a “hidden tax” through higher medical costs.  That figure comes from a self-interested pressure group called the “New America Foundation.” They’re pushing the bureaucratized health plan.  They’re the same rocket scientists who came up with Hillary Clinton’s plan to give $5,000 to every baby born in American. 

It might not be all that surprising that a group of economists at Stanford University’s Hoover Institution reviewed their calculations and concluded that they had exaggerated the number by nearly A FACTOR OF FOUR.

Based on utterly bogus assumptions, the governor is proposing the biggest and riskiest intervention by state government in a market since the electricity debacle.  Not only is the structure of his proposal a house of cards (as other states are now discovering), but it’s a house of cards that’s built on a shaky foundation.

What the governor is proposing in its latest version is a mandate that every Californian MUST carry health insurance, and it requires that every insurance company issue a health plan to anyone who applies, regardless of their medical history or age.  Meanwhile, for those within 350 percent of the federal poverty level, it provides free or heavily subsidized insurance, including for more than two million illegal aliens.  This will all be financed by up to a four percent payroll tax on companies that don’t provide insurance, and by leasing the state lottery to a consortium headed by Goldman Sachs and Lehman Brothers.

Just a few immediate thoughts on this.

FIRST, we already have a law that requires every motorist to carry auto insurance – and yet this law is ignored by ONE DRIVER IN FOUR.  Question: if you are guaranteed health insurance when you are sick, why in the world would you pay for it when you are healthy?  Imagine if we added a requirement that every insurance company was required to write a policy after you’ve had the accident. 

SECOND, businesses that offer health insurance pay up to 14 percent of their payroll for these policies.  But under the governor’s plan, if they drop their coverage they can reduce their payroll costs by up to 10 percent simply by dropping their health coverage the day before the law takes effect.  Their employees now qualify for heavily subsidized insurance and the employer and employee can split the 10 percent payroll savings.  What’s not to like?

THIRD, the latest version proposes funding a portion of the program by leasing the state lottery – and monopoly control over all lottery gaming – to a consortium headed by Goldman Sachs and Lehman Brothers.  The idea is that they can run it much for efficiently, and split the increased revenues between the Goldman Sachs-Lehman Brothers consortium and the state, with the state’s share supporting the health care system.  This raises an inconvenient question. 

If the state government is so incompetent that it cannot run a simple lottery, what makes the governor think it can run an infinitely more complicated universal health care system?  And a bonus question: do we really want the same people who run the DMV to run the health insurance market? 

Maybe, before we embark on this radical course of action, we should ask how other states – and nations – have fared with similar programs.

One place we can look at is Canada.  You may remember about six weeks ago when a Calgary woman gave birth to identical quadruplets.  That’s a very rare phenomenon and it got a lot of press coverage.  What didn’t get a lot of coverage is that the mother from Calgary, Canada gave birth to her identical quadruplets IN GREAT FALLS, MONTANA.  No, she wasn’t visiting – she had to be rushed 325 miles south into the United States to give birth to the babies, because the waiting list for Canada’s bureaucratized and socialized system was full.  It turns out that Great Falls is a popular destination for Calgary’s pregnant moms whose babies just aren’t willing to wait in line.  I’m afraid Great Falls is going to get lot more popular if Californians find themselves in the same fix. 

You don’t have to look to other nations for what the governor’s plan will produce – just look to the other states that have tried it.

This measure is very similar to the Massachusetts plan, which just celebrated its first anniversary in May.  You might have noticed that Mitt Romney has stopped boasting about it, and there’s a reason. After barely a year in place, it has been besieged with skyrocketing cost over-runs.

In January, the Wall Street Journal reported that insurance premiums in Massachusetts are some six times higher than comparable policies in the neighboring state of Connecticut. 

In fact, Massachusetts Senate President Therese Murray, a liberal Democrat and one of the principal architects of their plan, gave a speech this summer in Boston where she warned, “If we do not constrain healthcare costs, the system we worked so hard to create and implement will collapse.”  That’s after just the first year. 

Tennessee State Senator (now Congresswoman) Marsha Blackburn wrote to Gov. Schwarzenegger in January to warn him of Tennessee’s experience.  She said: “In 1994, Tennessee implemented managed care in its Medicaid program and used savings anticipated from the switch to expand insurance coverage to the uninsured and uninsurable adults and children. Since then, the state has faced financial peril and numerous unsuccessful attempts to recover the state's runaway health care system. State spending accelerated from $2.5 billion in 1995 to $8 billion in 2004 on TennCare alone.

“Combined state and federal funding could not sustain TennCare's rising costs, and the program effectively lowered the quality of health care in Tennessee. Since the program's inception, Tennessee's doctors and hospitals charged that the $8 billion program was under funded by the state and federal governments, forcing providers to bear disproportionately high costs. Due to overwhelming dissatisfaction with the program, doctors and hospitals dropped out of managed care organizations or TennCare altogether, and hospitals were put out of business. Employers dumped employee coverage to save money, handing over employee coverage to the state. The poor could not find providers to take them and lost access to care due to cost-cutting measures. Furthermore, rampant fraud and abuse plagued the program.”

In Maine, major tax increases are now pending to bail out that state’s DirigoChoice universal health care plan.  According to the Illinois Policy Center, “Since Dirigo’s passage, Maine’s health care marketplace has suffered an explosion in Medicaid costs, higher health insurance premiums, uncompetitive health care providers and a dysfunctional individual insurance market.”

And just a few months ago, in what the Wall Street Journal called the “political rout of the year,” Illinois Democratic Governor Rod Blagojevich saw his own Democratic house reject the tax for his universal health plan 107-0.  Said the Journal, “one lesson here is that it is far easier to talk about ‘progressive’ political causes than to pay for them without doing larger economic harm.  In today’s global economy, the margin for policy mistakes is smaller, even for individual states.”

Every time and every place this concept has been tried it has consistently produced massive cost overruns for government, massive increases in insurance premiums for consumers, widespread fraud and abuse and ultimately a deterioration in health care services and a rationing of what remains.

This is not to say that there isn’t a problem with health care – due largely to four decades of government intervention and interference in a system that once worked quite well.   But the Governor’s case for bureaucratized health care in California is phony and the plan is dangerously flawed.  His proposal has wrecked the finances of other states – it will be interesting to see what it does to a state whose finances have already been wrecked.

Big changes need to be made in our health care system – but those changes should be in exactly the opposite direction as that proposed by the governor: we need to get the bureaucrats OUT OF MEDICINE and put patients back in charge.

If somebody else owns your health plan – whether it’s your employer or your government – then somebody else is making your health care decisions.  If your employer chose your grocery store for you, do you think it would be more or less to your liking than the one you currently use?  Then why do we perpetuate a system where your employer chooses your health plan for you?

We got into this mess during World War II, when wage and price controls limited what companies could offer their employees.  So they began offering paid health plans that weren’t subject to wage and price controls.  And as that grew, we began giving employers tax credits and deductions for offering health plans for their employees – instead of offering those same tax benefits to the employees themselves.

We need to extend to individuals the same tax breaks that we give companies so that individuals can afford their own health insurance.  All health expenses should be tax deductible.

Second, we need to restore to people a full range of choices for the health plan that best meets their own needs.  An elderly couple doesn’t need maternity benefits – so why do we require them to pay for it?

I introduced SB 365 this year which would have provided California consumers the freedom to choose lower-priced health plans that are already available to consumers in other states.

Current law forbids Californians from buying health insurance policies that are available to every other American.  This not only limits the choices available to consumers, it forces them to pay premium prices for mandates that they may not want – or cannot afford.

We don’t restrict Californians from banking only at California banks, or buying only from California retailers.  And we shouldn’t restrict them from getting their health insurance only from California-regulated providers.  

This simple reform would reduce the cost of health plans by as much as 12 percent according to a federal survey done on the subject. 

But the measure was killed on a straight party-line vote.

Third and finally, for the truly indigent, I have long advocated providing prepaid, refundable tax credits – vouchers, if you will – on a sliding income scale – to bring within the reach of every family a basic health plan of their own choosing.  This approach – applied to a program like Healthy Families -- would provide far broader coverage at far lower cost than today’s bureaucratized program.

But of course, we’re right back to individual freedom, individual choice, and individual responsibility and that’s what the Left hates. 

I have every confidence that these three basic reforms will not be passed by this legislature or signed by this governor – although they are the cornerstone of what once produced the finest health care system in the world – before government got involved.  And unless groups like yours rise up and get deeply involved in the public policy debate, I have every confidence that in one form or another, a bureaucratized health plan will be imposed on California, that it will have the same disastrous consequences that it has had elsewhere. 

A generation ago, the business community of this state devoted most of its attention to educating the public about how important freedom is to producing prosperity.  The Realtors spent huge amounts of resources explaining property rights.  Companies like General Electric sent people like Ronald Reagan around the country – not to sell G.E. products – but to sell freedom.  Junior Achievement – teaching high school students the simple mechanics of enterprise – was a principal object of the Chamber of Commerce.  That’s all gone now.  And the damage that is being done to our once GOLDEN STATE is staggering.

In one of his letters to John Adams late in life, Thomas Jefferson wrote, “Yes, we did create a near perfect union.  But will THEY keep it, or will they, in the enjoyment of plenty, loose the memory of freedom.  Material abundance is the surest path to destruction.”

Tom McClintock
Tom`s Blog