Loren Kaye: Finding the right health care solution

Political leaders in Sacramento have made health care a top priority, but their prescriptions for universal coverage are founded on several myths. Rather than risk creating a new, unrestrained entitlement program, the governor and Legislature should instead focus on targeted, market-based approaches to bringing health coverage to those without.

Myth 1: The uninsured are a "hidden tax" on California business. Advocates claim the uninsured create a significant "cost shift" onto private payers that could be eliminated by providing universal health coverage. Further, since private payers are mostly employers, resulting cost savings would more than offset payroll taxes proposed to finance new coverage.

But according to a new study by the California Foundation for Commerce and Education, government underfunding of Medicare and Medi-Cal are major drivers of private health care costs, but the impact of uncompensated care for the uninsured is minimal: fully paying hospital costs of indigent patients would reduce private payers' costs less than 1 percent.

The governor's strategy to beef up Medi-Cal reimbursements is sound. But the notion that raising taxes on employers who do not provide health coverage would result in lower costs on all other employers is simply wrong.

Myth 2: The uninsured are an enormous drain on health care resources, especially emergency rooms. Implicit in the "hidden tax" argument is that the uninsured overuse health facilities. But according to the California Healthcare Foundation, communities with high levels of uninsured residents generally have lower rates of emergency room use than other communities. In fact, Medi-Cal enrollees are more likely than others to use the emergency department inappropriately.

There are likely many health care and societal benefits from increased coverage for the uninsured, but reducing private payer premiums is not one of them.

Myth 3: Health coverage for the uninsured can be financed by taxing businesses that do not offer employee health coverage. Only in California would the solution for the erosion of employer-provided health insurance be to tax employers who do not provide health insurance. Both the governor and the Democratic legislative leadership have proposed financing their coverage expansions with a payroll tax on employers who do not provide a specified level of health care coverage for their employees.

These proposals just do not add up.

According to the UCLA Center for Health Policy Research, three-quarters of the uninsured are in households that would qualify for a state health care subsidy under the Democrats' plan. Eighty percent of the uninsured are in families with full-time workers. As these mostly small business employers choose to "pay" instead of "play" -- sending their uninsured employees to the state-run health care pool -- the state will wind up with far more in insurance premium obligations than in revenues to pay for those premiums.

Here is one example: The median health care policy purchased by a small business for a family costs $846 a month. The state could drive a deal for a policy in the lowest 25 percent, which is $675. A $16-an-hour worker (about double the federal poverty level for a family of three) would generate about $215 in employer taxes. Even with some amount from the employee, those contributions would cover less than half of the insurance premium.

So who would pay for this shortfall? The only plausible answer is ever higher payroll taxes or insurance premiums. And with health care inflation running at about double the rate of payroll growth, there is no way to sustain a subsidized health insurance program without chronic tax increases.

How to reconcile the legitimate need to improve health care access with the burdensome cost of new programs? Political leaders should prioritize resources on two immediate needs: addressing the most vulnerable Californians -- the relatively few uninsured children and individuals with uninsurable medical conditions -- and insisting on structural changes to create incentives for more appropriate and efficient delivery of care, more transparency in health care costs and outcomes, and empowerment of the ultimate health care consumers.

This approach has a far better chance of increasing health access and improving health outcomes without damaging the California economy.

About the writer:

• Loren Kaye is president of the California Foundation for Commerce and Education (http://www.cfcepolicy.org/ ), a nonpartisan think tank affiliated with the California Chamber of Commerce.