Healthcare reform could punish California

If enacted, California could be disproportionately affected by a proposed annual tax in the national health overhaul legislation.  A fine-print provision in the Senate bill would tax health insurers, such as Kaiser Permanente, while exempting plans offered by large employers who pay their employees’ medical claims.  Don Crane, chief executive of the California Association of Physician Groups, stated, “It’s a real killer for California.  Why should California pay more for healthcare reform than, say, Idaho or New York?  It’s not fair.”  The proposed tax, which targets “fully insured” plans, could potentially cause the golden state to pay 33% more per capita than the average state since 77% of Californians are enrolled in fully insured plans, compared to 48% nationwide.

Critics who support healthcare reform in general but oppose the tax plan, claim that ultimately, the consumers will be forced to pay even higher premiums.  Small businesses and the self-employed would be hit especially hard, amounting to what many call a “middle-class tax increase”.  Tom Epstein, VP of Blue Shield of California, said, “It’s really a middle-class tax increase.  It’s more clearly a middle-class tax increase than any source of revenue in the bill.”  Stanford University economist, Alain Enthoven, also voiced his concern about the potential tax stating, “What’s happening is this tax is going to be falling on the more cost-efficient, organized systems of care.”

In a late change to the Senate bill, though, legislators offered fully insured health policies a tax exemption if it could be proven that they paid a significant percentage of their premiums on medical care instead of administrative costs.  At this time, big insurers such as Kaiser and Blue Shield are either uncertain or skeptical whether they’d qualify for the exemption.

Proponents of the tax claim that any cost increase would prove insignificant, and according to Elizabeth McGlynn, associate director of health at the Rand Corp., “It is quite likely that whatever increases are attributed to that are offset by decreases from other aspects of the bill.”  Proponents also claim that California will likely disproportionately benefit from healthcare overhaul since expanded coverage will be available to the state’s large pool of uninsured.

Considering that California is facing $83 billion worth of budget deficits over the next four years, paying $50-$100 billion a year in unfunded federal mandates, largely as a result of the Alternative Minimum Tax (AMT), and suffering under a dismal 12% unemployment rate, a new healthcare tax could prove punishing to the state’s economic viability.  Yet another tax hike, coupled with the potential for higher healthcare premiums, would likely stymie employee hiring in the private sector, exacerbate healthcare inflation, reduce consumer spending, stunt economic growth, and add to the crushing deficits. Perhaps proponents of healthcare reform should take a long, hard look at the potential consequences of a newly instituted tax, particularly when it comes to the most populous state in the union.  

And here’s a big-picture perspective to consider as well.  Proponents of national healthcare overhaul should consider the following.  President Obama just requested a record $708 billion military budget, including an additional $33 billion for the latest buildup in Afghanistan.  This defense budget is larger than any that President Bush ever proposed.  If healthcare reform is deemed such a vital priority, then why is the nation simultaneously spending 3/4 of a trillion dollars on military operations around the world?  I addressed this clear cut contradiction in my recent post, A watershed moment.  Simply put, America does not have the money to do both.  Its $1.4 trillion deficit and $12 trillion national debt demand a choice. Either healthcare is this nation’s top priority or military spending is this nation’s top priority.  

Making both a top priority runs the risk of a future Dollar collapse, a sovereign default, or decades of poor economic growth, turning America into a debt-laden, second tier global player. Healthcare reform proponents should confront its current leadership on this glaring contradiction before it’s too late.