Governor Schwarzenegger should be commended for suggesting a solution to the tough problem of covering the uninsured.  I just don't think any economic theory supports the outcomes he desires.  And I definitely don't believe his is a "centrist" approach.  A centrist approach would be devoid of tax increases, employer mandates and mandated spending by providers, and be full of market based incentives to lower the cost of private health plans. 

My firm handles over $40 million in health and health related business, so I follow health insurance and health care trends as closely as possible.  Diagnosing the reasons for 6.5 million uninsured citizens isn't that tough.  Employer paid health plans are expensive.  Treating doctors and facilities are grossly underpaid by government funders such as Medicare, Medicaid and MediCal.  Those un-reimbursed costs are mostly transferred to the private health plans when they contract for services with the health care providers.  Thus, the "hidden tax" on Californians is primarily caused by the government because the cost of health plans is inflated, and out of reach to many employers, due to government rationing of health care dollars.  This cost shifting accounts for a significant percentage of the uninsured problem today.

The federal government also contributes to the problem by failing to enforce employment laws and a secure border.  The "hidden tax" on us for caring for illegal immigrant health care is a federal government problem, and they aren't going to fix it.  Illegal immigration inflates the cost, and reduces the availability of private health insurance, which is made more expensive by un-reimbursed care for the illegals.  This is also the primary cause of the closure of over sixty ER hospitals in California.  The Governor’s proposal to cover illegal immigrants is a non – starter.  Californians are solidly against it.

Finally, a significant number of uninsured are uninsured by choice, and because they work part time.  A government mandate for employer paid insurance, as proposed by the government, will depress wages and available entry level jobs.

The Governor's proposal includes at least three tax increases disguised as fees, and these increases will never make it out of the legislature because they require a two thirds vote.  The 2% physician tax, 4% hospital tax, and 4% "play or pay" tax on small employers will hurt the economy and drive capital away from the health care markets.  Let's quit playing semantics - these are taxes, and the Governor has broken his pledge on new taxes.  This issue will be litigated.  And the State will lose. 

A primarily theory associated with the Governor's proposal is that we are bringing a "hidden tax" out into the open and funding the care of those without care through additional "fees", employer mandates and increased MediCal reimbursements.  If these increased funding sources, as dubious as they may seem, actually do replace the "hidden" tax, than the cost of all private, employer based health plans should immediately go down, as the costs are shifted back to the new revenue sources.  This is as likely to happen as Social Security being solvent in 2050, and is a pipe dream and we should not believe.  The mere fact that government, already a primary cause of the uninsured problem, proposes to solve the problem through higher funding should scare everyone to death.  No pun intended.

Requiring health providers to spend 85% of their health care revenue on patient care is an intrusion into business planning and will drive capital out of the health care industry in California and to industries where no such mandates exist.  There is no evidence that the private health care industry is spending an inadequate amount of its resources on patient care - providers have already had to adjust to a lean revenue environment.  This is quietly one of the more outrageous provisions of the Governor's proposal.  There should be no directive from a State that cannot handle its own finances to an industry that produces, annually, more advancement and innovation and productivity in one year than the government does in ten years.  Regulating profits = regulating innovation, research, and the availability of care.  Profits are essential to a thriving health care marketplace.

Fast forward to a scenario where the Governor's plan actually works, and there is no damage to the economy, and we have 6.5 million more citizens with health insurance.  The health system would simply collapse.  There are not nearly enough nurses, physicians, specialists and facilities to treat millions more users of health insurance in California.  Health care would immediately become more rationed than it already is, and then what would happen?  A parallel example:  put 6 million more cars on the road tomorrow and see what happens.  Chaos.

So what steps should be taken now to make health insurance more accessible and affordable?  Here are a few ideas:

1.  Put the new money on the table first. 
Increase reimbursement rates for government run health plans first.  Cost shifting to private plans will end and health insurance rates paid by employers and employees should come down.  When rates come down, access to plans goes up.  Employer profits and associated income taxes increase - helping to fund the increased reimbursement rates.  How many more people will be insured by their employer once this change occurs?  Probably tens of thousands.

2.  Make the uninsured pay something.
Someone has to say it.  I will.  Most of the uninsured are not destitute.  They wait in line all night to get Play Station 3, they send their money back to Mexico, they eat out, they have TV's, they go to County Fairs, they see movies, they go to concerts, they own cell phones - they live life.  When they go to the ER they plead poverty.  There, I said it.  Collect something, anything from them!  ER utilization rates will plummet if people know they have to pay - and many will pay if asked.  We just don't ask. 

3.  Bring the programs to the people.
How many of the 6.5 million uninsured are eligible for MediCal or MediCaid, or Healthy families?  We don't know.  We can guess, but we don't know.  Put several kiosks in every Emergency Room in the State where those seeking care, but without insurance, can input their information to determine eligibility and even enroll, right then and there, in the appropriate program.  Establish a 24 call center to handle the enrollments, in English and Spanish, so that by the time the patient is seen, often after a several hour wait, they will have insurance.  This could virtually eliminate un-reimbursed care in the State and give the patient something to do while they are waiting.  There are already websites in place to help people research their options.  www.coverageforall.org is one such website.

4.  Fund this new effort by taking a new look at education spending.
Everything cannot be a priority, so let's decide what the priorities are.  We've more than doubled education spending in California since 1996 and enrollment is up less than 15%.  Birthrates are at all time lows and enrollment trends are stagnant.  Why, oh why, do we keep throwing money into this bucket when the true cost drivers, kids, are not increasing in any way commensurately with the increased spending?  To fund the increased reimbursements for State funded health care, we are going to have to shift money away from other programs.  Education should be number one on the list. 

These four ideas should be put into practice before any sweeping employer mandates or taxes are brought to a vote.  Let's be entrepreneurial first and see if we can solve the uninsured problem with capitalism, not socialism.