#186 Health Services. Taxes.

by Carol Brydolf
Copyright 1994, California Journal

An initiative constitutional amendment, known as the Health Security Act,
that sets up a health services system for all Californians, creates an
elected post of Health Commissioner, establishes taxes on employers and
individuals and imposes a surtax on tobacco products.

Background: For years would be reformers have struggled to shake up
California's health care system in hopes of making a dent in the state's
burgeoning uninsured population. In 1992 the California Medical Association
put an initiative on the ballot for employer mandated coverage. Then
Insurance Commissioner John Garamendi devised a plan for universal coverage
that passed both houses of the state Legislature, and Senator Nick Petris
(D Oakland) authored a bill that called for a state sponsored, tax financed
Canadian style single payer system. But voters rejected the CMA initiative,
Governor Pete Wilson vetoed the Garamendi plan and the Petris bill died in
the Senate.

The recent growth in California of for profit managed care organizations
has angered health practitioners and consumers, who worry that business
concerns are dictating treatment choices. In December, a Southern California
jury returned a $89 million verdict against HealthNet in a lawsuit brought by
a terminally ill breast cancer patient who couldn't get coverage for a bone
marrow transplant.

This legislative session, lawmakers working closely with the California
Medical Association and specialty provider groups have sponsored a number
of bills designed to tighten state HMO regulations. Bills pending in the
Senate and Assembly would require HMOs to liberalize treatment denial
appeals, mandate coverage of certain experimental treatments, ban the
practice of giving financial bonuses for HMO staff who deny treatment claims
and require disclosure of administrative expenditures. Insurers and HMOs are
fighting the legislation, saying some proposals will undercut their efforts
to keep costs down by ensuring only medically appropriate and necessary
treatments are covered.

The notion of implementing a government run single payer system to
replace the increasingly complex network of insurers and HMOs is increasingly
appealing to organized medicine, an interest group that once rejected the
idea as too radical. Although the CMA does not support single payer, the
group is not fighting Proposition 186. In a statement explaining CMA's
position on single payer, the organization issued a pointed indictment of the
existing system. Privately, CMA officials say support among providers for
single payer is growing dramatically, even among this group's traditionally
conservative membership. Some physicians, especially specialists, see single
payer as the only way for independent practitioners to survive in a world
increasingly dominated by managed care organizations.

Needless to say, the problem of the uninsured and under insured has not
gone away during the statewide policy debate. An estimated six million of
California's 32 million residents do not have any health insurance and are
not eligible for Medi Cal or Medicare; many of these residents rely on
emergency rooms and other public "safety net" programs for urgent health care
problems or go without care.

Proposal: Proposition 186, the California Health Security Act, was
written by a group of physicians who believe that private, and especially
for profit, insurers are a major part of California's health care problem.
Their initiative would institute a Canadian style health care system in which
the state would become the "single payer" administering and financing health
benefits for all Californians. This measure promises generous medical,
dental, vision, mental health and long term care benefits to all state
residents. Benefits would be financed by income tax increases (2.5 percent
for all individuals and an additional 2.5 percent for those with incomes
above $250,000; $500,000 for couples), payroll taxes of between 4.4 percent
and 8.9 percent per employer depending on the number of persons employed, and
a $1 per pack surcharge on cigarettes. The measure also allows the
Legislature to redirect funds from government funded health care services for
low income residents to support the single payer system. The proposal assumes
that by eliminating private insurers and drastically reducing overhead and
administrative costs, the system could save enough money to underwrite the
extensive benefit menu. The payroll and income taxes would raise an
estimated $40 billion; the amount available to underwrite the system would
total $75 billion when public health care program funds are added to the tax
revenue estimates.

But the system is largely untried and it's impossible to precisely
estimate potential costs. The measure would authorize the Legislature to
reduce or increase taxes if necessary to maintain benefits. The measure also
is emphatic that it is "the intent of the people" that spending in any year
not exceed the prior year's expenditures, adjusted for changes in the gross
domestic product and population. The system would be administered by a new
statewide elected Health Commissioner with far reaching authority to
negotiate provider fees and drug prices, set hospital staffing ratios and
institute cost containment measures, including limits on elective care and
co payment increases, if necessary to keep spending in check.

The legislative analyst concludes that the measure would have a
negligible impact on the state's economy as a whole, but concedes that
impacts are difficult to predict with any certainty. Some small employers
might be forced to cut jobs, especially in lower wage occupations; while
others, who now offer health benefits, might save money because their payroll
tax might be lower than their present health care bills. Businesses might
also see their workers' compensation costs drop. The state would lose tax
revenues now collected on premiums sold by for profit ventures in the state;
but might benefit from having a healthier and more mobile workforce that does
not lose benefits due to job changes.

Arguments for: Supporters of the measure, who include the Physicians
Alliance, Health Access, the California Congress of Seniors, the California
chapter of the American Association of Retired Persons, the League of Women
Voters, Consumers Union, the American Nursing Association and a long list of
state and national labor unions including the California Teachers and Service
Employees International unions, argue that private and especially
for profit health care providers are driving up the cost of health care.
Eliminate the profit motive, the insurance middleman and the associated
administrative, bureaucratic and marketing expenditures, and the system can
eliminate unnecessary care and funnel premium dollars into direct services to
more people. Proponents say they retained those aspects of the failed Petris
bill that passed legislative muster during the 1992 hearings and refined
other provisions after consulting with health care policy experts. They
insist their program is hard headed, economically sound and workable. They
say their system offers choice, universal coverage and a wider range of
benefits than most Californians have now. Because the measure offers coverage
for long term and home care, elderly and disabled persons and those whose
health conditions require extensive long term care would no longer have to
worry that their health care bills will bankrupt them or their estates.
Proponents also argue that businesses that provide health benefits now pay
between 10 percent and 17 percent of their payroll for this insurance. Even
at the highest payroll tax bracket, these companies would pay less under
single payer. Advocates argue that the system would reduce the cost of living
and of doing business in the Golden State, eliminating the need to buy
duplicate medical coverage on automobile or homeowner insurance policies.
Despite the income tax increases, they argue that taxpayers would come out
ahead, too; their tax bills would be lower in most cases than their current
health care expenditures.

Arguments against: Proposition 186 opponents include many of the groups
that are fighting President Bill Clinton's national health reform plan,
including major insurance companies, the California Association of HMOs, the
California Association of Hospitals and Health Systems, the National
Federation of Independent Businesses, the Organization of Nurse Executives,
the California Taxpayers Association and the California Chamber of Commerce.
Governor Pete Wilson and his Democratic gubernatorial challenger, Kathleen
Brown, have both come out against 186. Opponents say the measure would
devastate the state's economy, bankrupting some small businesses and driving
others from the state. An economic study commissioned by the opposition
coalition concluded that single payer would eliminate 300,000 jobs. Opponents
say the financing mechanisms could not support the generous benefits offered.
They predict that once the real costs of these benefits become clear, the
Legislature would either have to raise taxes or ration health care. Critics
argue that the Health Commissioner would have too much authority and predict
that the new system would create a monstrous, expensive and unwieldy
bureaucracy. Opponents contend that it's dangerous to abandon a health care
system that works so well for so many Californians in favor of a program that
has never been tested here.


return to the main page

The material included in this voter guide is archived and will not be updated. Please visit the California Voter Foundation's homepage for the most current information and resources.

California Voter Foundation 1994, 1995, 1996, 1997 & 1998