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State Health Care Reforms Need National Leadership

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Several states are trying to extend health coverage to the growing number of uninsured, but all of them are struggling with where to find the revenues to pay for subsidizing health insurance for those least able to afford rapidly rising insurance premiums. So far, however, the states appear to be looking in all the wrong places, and it’s not clear how they can solve this without progressively raising income taxes and challenging the role and costs of insurance companies.

This post Monday discussed the effect of using mandates to force companies to offer or individuals to purchase health insurance. I noted the incentives companies and individuals have to move to the state subsidized insurance pools, creating much higher state funding requirements than states anticipated.

As Tuesday’s New York Times article also explains, Massachusetts is facing an additional $150 million in costs for subsidized insurance coverage, and it’s not clear where the Legislature will find the funds. In California, Governor Schwarzenegger and Assembly Speaker Nunez are proposing a much larger version of Massachusetts’s mandatory insurance approach, while seeking approval for a variety of funding sources:

It would raise money to subsidize policies for low-income residents through what Mr. Schwarzenegger calls shared responsibility — a tax on hospital revenues, a hefty increase in tobacco taxes and assessments on employers who do not contribute to their workers’ health care.

In a California innovation, the assessment rates would be graduated according to the size of the company. If the Senate passes the measure, voters will be asked to approve the revenue measures in a November referendum that would become the truest test of public support for change.

While California’s funding approach remains uncertain, plans in other states are already blocked by opposition to higher taxes:

Illinois’ Democratic governor, Rod R. Blagojevich, got nowhere with his proposals to pay for universal access to insurance by taxing gross business receipts and assessing employers who do not offer coverage to their employees. He then instigated a fight with his legislature and provoked a lawsuit by using his executive authority to widen eligibility for state-subsidized insurance programs.

In Pennsylvania, Gov. Edward G. Rendell, also a Democrat, failed to persuade his politically divided legislature to cover the state’s 900,000 uninsured through an employer assessment. Like the California leaders, Mr. Rendell has now proposed increasing cigarette taxes, as well as raiding the surplus in a state fund designed to help doctors pay for malpractice insurance.

Taxing businesses who don’t provide coverage or taxing cigarettes are common solutions, but even these relatively "safe" taxes are encountering strong opposition at the state level. In Congress, Democrats were unable to gather enough Republican votes to override Bush’s SCHIP veto, partly because Bush and his Republicans opposed higher cigarette taxes. Yet as the Times article notes, states were counting on expanded SCHIP funding — now dead until 2009 — to extend coverage to the growing number of uninsured children, making it easier to fund the remaining uninsured population.

Notice what’s missing. None of the states is considering progressive income taxes. Nor are the states directly challenging the central role of the insurance industry, even though it’s a major cause of rising administrative costs. In contrast, allowing the Bush tax cuts for the wealthiest to expire is a key part of the funding proposed by some of the Democratic presidential candidates for their respective plans.

Beyond providing universal care, one of the goals of a national health care system should be to relieve businesses of a rising cost burden that their foreign competitors don’t face. That’s a major reason why the auto industry is trying to shed its health benefits and agreeing to union-spoonsored health care trusts. That means giving up on higher corporate taxes and finding some other revenue source, as well as taking on the insurance industry about its growing administrative costs. All of the private insurance-based plans seem structured to drive people inexorably towards the public subsidized pools, making the funding and cost-control issues even more important.

The Republicans show no interest in solving any of these difficult problems and will vigorously oppose any tax hikes. So all the heavy lifting will be left to the Democrats, and as they ask for support for higher taxes, they’ll need to be clearer about where the reforms are ultimately heading. We’re in for some bruising battles, no matter who is President.

Photo by willem velthoven

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Scarecrow

Scarecrow

John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

You can follow John on twitter: @JohnChandley

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