New California Governor Takes Healthcare Reform by the Horns

Ken Terry

January 18, 2019

California's new governor, Gavin Newsom, has hit the ground running with a package of healthcare reform proposals that have national implications. In conjunction with recent initiatives in other states and cities — including New York City — to move toward universal health coverage, Newsom's program gives additional impetus to the nationwide movement to guarantee healthcare for all, partly by building on the Affordable Care Act (ACA).

While the California governor's proposals mostly concern incremental policy changes, Newsom also asked Congress and President Donald J. Trump to provide broad waivers to federal regulations to help the state adopt a single-payer financing system.

However, California is unlikely to receive such waivers unless the Democrats take back control of the US Senate and the White House. Even if that were to happen, experts say, federal cooperation would be insufficient to overcome the large barriers to a single-payer program.

In Newsom's 2019-2020 budget request, he asked the state legislature to expand access to MediCal, California's Medicaid program, to undocumented immigrants up to the age of 26, according to the California Health Care Foundation. Currently, MediCal enrolls undocumented children who are younger than 19. The state pays the full cost for this coverage, as undocumented people are not eligible for Medicaid under federal regulations.

In a Facebook Live address, Newsom said he wanted to eventually offer MediCal coverage to everyone below a certain income level, including undocumented immigrants. Of the three million Californians who are uninsured, more than half are undocumented.

While Newsom did not specify funding sources for this initiative, his proposed budget includes a $2.2 billion increase for MediCal. Richard Kronick, a professor in the family medicine and public health department of the University of California at San Diego, told Medscape Medical News that state budget experts had told a state assembly select committee that covering all of the undocumented people would cost "significant money. That's probably one reason the governor just proposed increasing [MediCal coverage for the undocumented] up to age 26."

Newsom also proposes to increase and expand subsidies for purchasing health plans in the Covered California marketplace. Using state funds, he would increase financial support for people with incomes between 250% and 400% of the federal poverty level (FPL) and would create new subsidies for people with incomes from 400% to 600% of the FPL. In California, these people are considered middle class.

To finance the expanded subsidies, Newsom wants to restore the penalty for not buying health insurance. That penalty was part of the individual mandate in the Affordable Care Act. In its 2017 tax legislation, Congress eliminated the individual mandate by zeroing out the tax penalty in the ACA.

If California covered all of the undocumented immigrants, revived the individual mandate, and increased subsidies to buy insurance in the Covered California marketplace, that would take the state "quite far" toward achieving universal coverage, Kronick said. "About 7% of Californians are uninsured today, and I'd imagine that could easily come down to 2% or 3%."

Jennifer Tolbert, director of state health reform for the Kaiser Family Foundation, agrees. "Newsom's plan would cut the number of uninsured in the state significantly," she told Medscape Medical News. "These are significant proposals, but you're still going to have some gaps in coverage."

Federal Waivers

To help fill those gaps, Newsom, in a January 7 letter to President Trump and Congressional leaders, asked for federal waivers that all states — not just California — could apply for. These waivers, the California governor said, would allow states "to reinvest federal funding — combined with State funds — to increase coverage, contain costs, and tailor their own solutions, and lay the groundwork for more comprehensive solutions, such as a single payer system."

Aside from the all-public financing approach, Newsom said, these waivers would permit states to introduce public plan options in areas with limited health insurance carriers. States would also be able to support continuity in coverage, such as moving from MediCal to individual exchange plans, and could use tools such as "all-payer pricing" to address rising healthcare costs. (All-payer pricing refers to state-set prices for healthcare services, regardless of payer.)

In a more immediate effort to reduce health costs, Newsom also issued an executive order that requires state agencies, including MediCal, Covered California, and the California Public Employees' Retirement System (CalPERS), to collectively negotiate prescription drug prices with pharmaceutical companies. In his Facebook video address, Newsom said he hoped other states would follow suit and possibly even work together to obtain lower drug prices.

Going to Single Payer

In his letter, Newsom made it clear that the states and the federal government would have to work together to move to a single-payer system. California has tried and failed to figure out how to do this on its own for the past decade. While a single-payer bill cleared the state senate in 2017, it stalled in the assembly, which formed a select committee and commissioned a 2018 report on universal healthcare options.

"It's difficult to see how a state could do this by itself," Tolbert said. One barrier to a single state capturing the money that employers are now paying for healthcare, she noted, is that many of them are multistate operations. Also, a single-payer system would have to include Medicare, which is a federal program, she said.

Kronick said he could imagine a future federal government writing checks to California for what it currently spends on Medicare, Medicaid, and ACA exchange subsidies. But if California tried to implement a public financing system for all state residents, he pointed out, it would have to convert what employers and employees currently spend on health insurance — about $125 billion a year — into public funds, perhaps through a payroll tax.

"On balance, there could be some reduction in spending or the growth in spending, but it's still a tall order to raise that $125 billion in taxes," he said.

Nevertheless, the experts predicted, the states will continue to be laboratories for healthcare reform, just as Massachusetts was when its 2006 reform law supplied the template for the ACA. Washington State, for instance, has proposed covering undocumented immigrants, and New Mexico is considering a public option based on buying in to Medicaid, Tolbert said. "There's value in the states experimenting with some of these approaches," she observed.

Kronick agreed. "We have a variety of examples where states have been harbingers of national activity. It's possible that if California moves forward and gets fairly close to universal coverage, that would encourage other states and eventually the federal government to follow suit."

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