NCPA - National Center for Policy Analysis


January 15, 2007

Governor Schwarzenegger' health care proposal has the potential to make a costly mess of California's health insurance market, says the Wall Street Journal.

Under the plan:

  • Everyone would be required to buy health insurance or face penalties such as garnishment of wages.
  • Businesses with 10 or more employees would be required to provide insurance, or else pay 4 percent of their taxable Social Security wages into a fund to subsidize insurance for the working uninsured.
  • Hospitals would be taxed at 4 percent and doctors 2 percent of their gross revenues.

Like all such political schemes, the plan also works at cross-purposes. It includes new subsidies to help the uninsured obtain coverage, but at the same time it would impose new coverage mandates that would make insurance a lot more expensive. One likely reaction of many California businesses will be to outsource to Nevada, or India, says the Journal.

This is all especially regrettable because California has had more market-friendly insurance regulations than most other large states, which has meant lower insurance premiums, says the Journal. According to

  • A single 35-year-old man in Beverly Hills can buy decent coverage for as little as $69 a month.
  • But the governor's plan would move those rates in the direction of community-rated New York, where that same man would pay $416 for any coverage at all.

The better alternative, says the Journal, is to expand tax-advantaged health savings accounts and to improve access and affordability by creating a national market for private health insurance. Consumers in California, especially, are going to need that safety valve when the plans' bills come due.

Source: Editorial, "Schwarzenkennedy," Wall Street Journal, January 13, 2007.

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