Universal Health Care Defeated in California: Can the Health Insurance Industry Survive?

by Del Meyer, MD

The concept of a state-based health care system seems to recycle every few years, as the inadequacies of the current employer-based financing system become more apparent. Dr. David Gibson, a health care consultant in Sacramento, states that arguments for using the government to enforce the pooling of risk across the entire population make eminent sense from a purely actuarial perspective. He reports in Sacramento Medicine that 54% of health care underwriting is employer-based, 14% is Medicaid, and 20%  uninsured. (For details for the remainder, visit www.ssvms.org/articles/0609gibson.asp.)

However, Gibson continues, whenever such a system is presented to the voters, it does not fly. For example, in 1994, Californians resoundingly defeated Proposition 186, a single-payer health-care initiative. In November of 2002, Oregon voters defeated a measure that would have provided universal health care for state residents. It failed by almost a four-to-one margin. In 2005, California voters rejected Proposition 72, a referendum to support SB 2, which was a state law requiring employers to provide health care benefits to workers. It is of interest that, despite intensive support by unions, the California Medical Association and a host of consumer groups, the proposition went down to defeat.

Gibson contends that Americans have lost confidence in the competency of their political system. Politicians at all levels of government have demonstrated that they lack the self-discipline required to competently govern. Thus, these politicians cannot be trusted with America's health care system. You do not get re-elected by saying no to special interests, even when their demands represent bad public policy. The publicís ultimate protection from politicians is the voterís initiative.

Gibson concludes that support for this assertion can be found in California. The state's economy generates $1.3 trillion in annual output and is the fifth- or sixth-largest economy in the world. During the dot com bubble in the mid to late 1990s, California politicians, responding to entrenched special interests, created a structural budget deficit of such magnitude that, even if the state fired every single person on the payroll (every park ranger, every college professor and every Highway Patrol officer), it would still be more than $6 billion short. No public or private company in America could survive with this quality of leadership. Self-disciplined politicians are an oxymoron. 

Bill to Abolish Health Insurance Companies Vetoed
Governor Arnold Schwarzenegger vetoed a bill that would have created a universal health care system run by the state in September 2006. Senate Bill 840, written by state Senator Sheila Kuehl, D-Santa Monica, would have abolished the role of private insurance companies in health care. Instead, the state would have covered everyone. Theoretically, the system would have been financed by taxes on individuals and businesses that would have replaced the health premiums that both now pay to private insurers.

In his veto message, the Republican governor said government-run health care was not a solution. About 6 million Californians are uninsured. "I want to see a new paradigm that addresses affordability, shared responsibility and the promotion of healthy living," Schwarzenegger wrote. "Single-payer, government-run health care does none of this." (Clea Benson, Sacramento Bee: www.sacbee.com/296/story/28096.html.)

What Is The Answer?
Iíve been part of a working group that includes physicians, MBAs and IT. We met weekly on Tuesdays from 6:00 to10:00 p.m. for a two-year period designing a health insurance program for the United States and, by extension, the free world. Patients would be involved in the decision-making process at every step of their health care. It is a variation of the recent consumer-, or more appropriately, patient-directed health care plans on the market. Claims would be Web-based and payment from the insurance company would clear the next day, much as a check, credit or debit that is deposited. There would be the savings of the insurance biller, since any member of the physician, hospital, x-ray, pharmacy or lab providerís staff would just simply enter the code and the charge the patientís Web-based account. All charges, as long as they fell within the 90-percentile range, would be paid and electronically deposited into the provider's bank account the next day.

There would be no need for claims review because patients, by paying a percentage of each claim, have a vested interest in reviewing their claims to make sure it is the lowest possible charge. If they were unhappy with the charge, that physician, hospital, x-ray or lab facility would obviously lose all further business from that patient. Estimated savings of this simple maneuver was estimated at 15 to 25%, or the cost of the providerís business office.

This would be coupled with an electronic medical records system with physician entry into medical templates. This would save the cost of a transcription service, which can be significant. Our last transcriber charged by the line, which came to about $5 a page. Thus, a four page new-patient medical history and physical exam report could cost $20 in transcription fees. To put this in perspective, our Medicaid reimbursement is $21 per office call. The cost was becoming untenable and so we implemented templates completed by the physician.

In our plan, all orders were also entered into the Web-based chart, which could be filled by any provider (laboratory, pharmacy or x-ray facility) the patient chose, allowing full freedom of the marketplace, which is ruthless in finding the lowest cost in the neighborhood and beyond. Thus, the continuous vigorous reducing of health care costs becomes a constant mechanism.

But The Answer Cannot Be Implemented
The group then had an actuary, whose primary job is with a large insurance group, evaluate the business plan. This was a real eye-opener about the status of health insurance or even Medicare reform in our country. He said that this plan would save between 40 and 50% of all health care costs, which would be reflected in a reduced premium to about half the current rate. But he added that his insurance company and all the large players would vigorously oppose such an entry into the medical marketplace or more specifically, the health insurance marketplace. They would even use congressional force to try to prevent it.

This was further brought into focus when an entrepreneur looked over the business plan. He was very impressed with the logic, ingenuity and simplified nature of the plan. He estimated the cost of bringing it to market at $45 million of venture capital plus $10 million in lobbying costs to stop congressional action instigated by the major players in the health care field wanting to prevent any and all marketing efforts.

Is There a Government Solution?
Health reform in the public or political arena is a lost cause. There have been many states that have implemented various efforts to include the uninsured from increasing Medicaid coverage, increasing the CHIP program to grants, subsidies and other slight-of-hand maneuvers. In each case, the cost of health care has increased but the number of uninsured has not changed or decreased. Thus, government involvement has always increased health care costs but has not ameliorated the problem of extending coverage.

The Solution Lies Outside of the Government
Health care reform has to come from the private sector. Government is incapable of accomplishing anything that will either solve the problem or reduce the cost. It will only increase the cost and the problem. If the private sector, outside the current vested interests, could invest the projected $45 million startup costs plus the $10 million projected lobbying costs to placate Congress according to this one entrepreneur, health care reform could occur. It would then be relatively inexpensive, related to each individualís wants or needs, save the health insurance industry from government extinction, and place it in the health insurance marketplace, where every insurance agent or broker could market it. Otherwise, it just could be Armageddon for the industry.