NCPA - National Center for Policy Analysis


February 7, 2007

Gov. Arnold Schwarzenegger has declared that every Californian should be required to have health insurance.  His effort, though, is unlikely to succeed and in some ways is likely to make matters worse, says John C. Goodman, president of the National Center for Policy Analysis.

So what could go wrong?

  • The plan encourages people with unsubsidized insurance to get subsidized insurance instead; that is, a lot of employers of low-income workers will drop their coverage and pay a 4 percent fine once they realize their employees will be eligible for free coverage under an expanded Medicaid program or will qualify for income-based premium subsidies.
  • As employers drop their coverage, system costs will rise, and because of the new insurance regulations health insurance will cost more for everyone, encouraging healthy people to exit the system, leaving the sickest and most costly people behind, again driving up costs.
  • The plan also opens the door for future legislatures to convert the employee mandate into an employer mandate, thereby increasing employer costs and encouraging businesses to leave the state.

Perhaps the worst feature of the plan is the new burdens it creates for low- and moderate-income, uninsured families.  These people are currently receiving health care as a form of government charity, often through emergency room visits; and according to the RAND Corporation, once they access the system, their care is just as good as everyone else's care.

  • Under the new plan, workers will get hit by the 4 percent wage tax (a tax nominally imposed on their employers).
  • If the workers do not buy insurance, they will have wages garnished and tax refunds withheld.
  • If they do buy insurance, they will have a $5,000 deductible catastrophic policy, which is of great benefit to California hospitals (and perhaps even to the family if they have assets), but of no benefit for the purchase of primary care.

Source: John Goodman, "Terminate This Plan; The shortcomings of Schwarzenegger's health care reform," Weekly Standard, Volume 12, Issue 21, February 3, 2007.


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