Decision ’94 / SPECIAL GUIDE TO CALIFORNIA’S ELECTIONS : Propositions : 186: Creates a Statewide Health System : WHAT IT IS

Proposition 186 would establish the Health Security Act, which would create a universal health insurance program aimed at putting all legal residents of California into one cradle-to-grave health plan. The intent is to eliminate insurance companies and use the dollars that now go into private-sector administration and profits to expand medical services to Californians.

* Eligibility: An amendment to the California Constitution, Proposition 186’s start-up phase would begin immediately, but benefits and tax increases would not take effect until Jan. 1, 1996. At first, all Californians except those qualifying for Medicare, Medi-Cal or plans backed by self-insured companies would be covered. Eventually the initiative proposes to cover everyone, but congressional or federal administrative agency approval would be required for people covered under federal programs.

* Benefits: All inpatient and outpatient hospital or clinical services would be covered, as would eye care, home health care, prenatal, perinatal and maternity care, and durable medical equipment such as prosthetics, corrective lenses and hearing aids. Also covered would be podiatry, chiropractic, dialysis, rehabilitative care and prescription drugs. Mental health services such as treatment for substance abuse and outpatient counseling would be part of the package, as would dental care. Preventive care and long-term care benefits would also be included, although expenses for room and board, a significant cost in nursing homes, are excluded.

Each Californian would receive the same health insurance card, providing a uniform level of benefits. Physicians who agree to be in the program would be prohibited from seeing private patients.

* Costs: Estimates of the annual cost of the program vary, ranging from $75 billion to just over $100 billion. Increases in individual and business taxes would provide the chief source of funding, but architects of the plan also presume the availability of federal and state payments now going into the Medicare and Med-Cal programs.

* Taxes: Individuals earning less than $250,000 annually or families earning less than $500,000 would pay an additional 2.5% of their taxable income in state income tax. Those earning more would pay 5%. Employers would pay an extra payroll tax of 4.4% to 8.9% on salaries, depending on the size of their work force, phased in over three years. Legal challenges are likely to be mounted by self-insured corporations, which finance their own plans, on the issue of whether they should have to pay the payroll tax. Cigarette taxes would be raised $1 a pack.

As a trade-off for the higher taxes, individuals would be freed from paying health insurance premiums and high deductibles. Insurance policy costs now borne by businesses for their employees’ health care would be eliminated.

* Administration: The program would be administered by a health commissioner elected in a statewide vote. The governor would appoint the first health commissioner; thereafter, the commissioner would be elected every four years in the same election cycle as the governor.

The commissioner would operate under sweeping powers. Among the commissioner’s duties: negotiating reimbursement rates with physicians and other providers, setting annual payment schedules for each of the state’s hospitals, deciding which drugs would be covered under the plan and, in the event of budget difficulties, establishing co-payment rates or rationing medical services allowed under the plan. The commissioner also would be empowered to set minimum nurse-to-patient staffing ratios in hospitals.

* Local Controls: The state would be divided into an undetermined number of regions, decided on the basis of population and other demographics after a formal study. Regional administrators, appointed by the state health commissioner, would be in charge of operating the regional health plans and performing tasks such as determining eligibility of residents and issuing health care cards. The Legislature would establish uniform residency requirements for all Californians.

Consumer councils with professional staffs of public advocates would be funded in each region to represent the interests of consumers and help mediate disputes that develop.

ARGUMENTS FOR

* Savings--For those now paying for health insurance, Proposition 186 offers better coverage, at a lower cost, even when the tax increases are considered. A family with a taxable income of $40,000 would have to pay an extra $1,000 a year under the 2.5% levy, but would be freed of deductibles and monthly premiums. As for businesses, sponsors say that businesses with more than 8.9% of payroll now going to pay for health care would save money.

* Accountability--An elected health commissioner would be more accountable to the citizens of California than insurance companies because voters could turn the official out of office every four years. Consumer councils add an extra level of protection for consumers.

* Economy--Early job losses due to insurance industry cutbacks would be inevitable, but businesses would find the 8.9% payroll tax an attractive trade-off to the spiraling cost of providing employee health benefits. For companies now paying, say, 10% or more of payroll for health care, money would be freed up for new investment. Union supporters say Proposition 186 would take the issue of health benefits, a sharply contentious issue in labor negotiations, off the table and allow them to concentrate on wages and working conditions.

* Public agencies--The Los Angeles Unified School District, which supports Proposition 186, would save tens of millions of dollars in health-related expenses under the simplified system. Similar benefits are predicted for other large government agencies.

* Medical--Some physicians predict an improvement in the health profiles of both high-end and low-end health care consumers. Numerous studies show that the indigent, and those with minimal health insurance, have higher death rates and worse rates of recovery from serious illnesses than people in the same age groups with more money to spend on health care and insurance. On the other hand, studies show that many of the insured get unnecessary tests, and even surgeries they don’t need simply because they have the ability to pay.

ARGUMENTS AGAINST

* Financing--Sponsors can’t deliver their liberal package of benefits with the tax increases they are proposing. Two studies have predicted multibillion-dollar deficits, requiring either higher tax levies or rationing of health care services.

* Big government--Setting up the massive system called for by Proposition 186 would be comparable to the creation of the national health care system in Canada or the establishment of the federal Medicare system for Americans 65 and over. Such a feat, virtually unprecedented for a state, would require cooperation between the governor and Legislature, who have not been able to resolve chronic budget deficits in recent years.

* Magnet--Since no other states have such a system, California would become a magnet for the sick, elderly and uninsured.

* Politics--Having an elected health commissioner would further politicize health care. Feminist groups risk abortion rights and family planning services coming under fire. On the other side of the abortion issue, California’s Roman Catholic bishops complain that all individuals and employers would be forced by Proposition 186 to pay into a health plan that would include abortion as a defined health benefit. Employers and individuals now can refuse a plan that covers abortion.

* Hospitals--Hospitals would be required to operate under so-called “global” budgets that would cap payments but do nothing to control inflationary factors that are driving up health care costs. State approval would be needed to build new hospitals or expand existing ones. Attempts at similar controls in the past have failed.

* Economy--Major new taxes would halt California’s economic recovery. Businesses that don’t provide health benefits now would meet tax increases by eliminating jobs. Arbitrary rates provide disincentives for job creation. The tax on companies with fewer than 50 employees is 7% of payroll, but jumps to 8.9% for firms with 50 or more employees.

WHO SUPPORTS IT

The initiative sponsor, Californians for Health Security, is a broad-based group of consumer activists, unions and those dissatisfied with the current health care system. Key coalition members are the California Physicians Alliance, the California Nurses Assn., the Service Employees International Union, the West Coast office of Consumers Union, California branch of American Assn. of Retired Persons, League of Women Voters, Health Access of California, the California Teachers Assn., Americans for Democratic Action, Neighbor to Neighbor and the California Congress of Seniors.

WHO OPPOSES IT

The opponents, Taxpayers Against the Government Takeover, include the Health Insurance Assn. of America, which has contributed $1.5 million to the campaign so far, the California Chamber of Commerce, the California Medical Assn., Health Net and the California Assn. of Hospitals and Health Systems. Other opponents include the Los Angeles metro chapter of the National Women’s Political Caucus, the California Catholic Conference, the California State Employees Assn. and the Los Angeles County Employees Retirement Assn.