Health Care: As California Leads, Other States Will Follow

The aggressive approach announced by California's Republican governor could prompt other states to move on health care.

By Martha Lynn Craver, Associate Editor, The Kiplinger Letter

January 8, 2007

California's new health care plan will focus attention on the issue and add momentum to efforts already under way in many state capitals. With the federal government deadlocked on how to provide health care to the 47 million Americans who are uninsured, many states are taking the lead in working out solutions of their own.

The plan announced by Gov. Arnold Schwarzenegger (R) is similar to one adopted by Massachusetts in that it requires all persons in the state to buy health insurance. Employers with 10 or more workers would have to pay 4% of their payroll into a fund if they don't offer coverage to full-time staff. Employers also would have to offer flexible spending accounts to their employees.

Odds are good that most of the plan will win approval from the Democratic legislature in California, though opposition in some quarters will be fierce. Physicians and hospitals are likely to chafe at the requirement that they pay into a fund for the uninsured, and the insurance industry will object to a requirement that it offer coverage to all individuals regardless of their medical condition. Many Republican legislators will also object to Schwarzenegger's plan to cover the children of illegal immigrants.

Other states will move to provide coverage for the uninsured, including Oregon, Ohio, Colorado, New Jersey, Minnesota and Maryland. Proposals range from the incremental, such as covering all children, to more-comprehensive reform, such as what Schwarzenegger proposed and that Massachusetts and Vermont approved last year. "Massachusetts and Vermont showed that Republicans and Democrats can come together to reform health care, and success tends to be contagious," says Enrique Martinez of Academy Health, a health care policy group in Washington, D.C.

States considering plans to cover all children include New Mexico, Kansas, Washington and Wisconsin. Wisconsin will also work to expand Medicaid eligibility, as will Michigan.

Massachusetts led the way by aiming to cover 460,000 uninsured residents by July. All residents must buy insurance. Those who can't afford it will be subsidized by the state. Employers with 11 or more workers that don't provide coverage to their employees must pay $295 per worker a year into a state fund.

Vermont's plan is similar to Massachusetts' in that it offers assistance in paying premiums to the poor and penalizes employers that don't provide insurance to their workers. But the Green Mountain State's plan also deals with the underlying drivers of health care costs by attempting to better coordinate the care of those with chronic illnesses. "Focusing on cost containment issues is important. Many states are afraid that otherwise they won't be able to sustain any of the coverage initiatives," says Martinez.

How to pay for covering the uninsured is the big conundrum. Many states have budget surpluses and are in a better position to consider coverage expansion, but will also seek to leverage federal Medicaid funds and raise cigarette taxes. Those states looking to pass more-ambitious reforms will probably follow the lead of Massachusetts and Vermont and require employers that don't offer insurance to pay into a fund.

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