California governor Arnold Schwarzenegger has proposed a major reform of healthcare insurance in California:
LOS ANGELES, Jan. 8 — Gov. Arnold Schwarzenegger (R) on Monday proposed a system of universal health insurance for Californians that would make the nation’s most populous state the third to guarantee medical coverage for all its residents.
“Prices for health care and insurance are rising twice as fast as inflation, twice as fast as wages. That is a terrible drain on everyone, and it is a drain on our economy,” Schwarzenegger said. “My solution is that everyone in California must have insurance. If you can’t afford it, the state will help you buy it, but you must be insured.”
I suspect that something along these lines is what newly-reelected Illinois governor Rod Blagojevich had in mind when he mentioned healthcare reform for Illinois yesterday:
On Monday, the House speaker questioned whether the governor’s stated ambition to have Illinois lead the country “out of our national health-care crisis” amounted to another high profile, potentially expensive Blagojevich program when the state’s finances remain shaky.
“I want to provide health care for everybody,” Madigan said. But, he added, “I recognize in Illinois there’s a constitutional obligation to balance the budget.”
Health care was a dominant part of the Blagojevich re-election agenda. Not only did he talk about his desire to push the state toward a broad, universal health care program, but he used his campaign and government offices to promote All Kids, a program he developed to provide state subsidized insurance for children.
“We can expand access to health care so that not just kids get coverage, but every family member has access to affordable, quality health care,” Blagojevich said.
There are actually two different problems: universal access and healthcare costs. I believe that the former can be addressed without sweeping reforms of this sort and sweeping reforms of this sort are likely to exacerbate the second problem.
IMO the sharp rise in healthcare costs isn’t caused by excess demand alone or by the use of expensive new technology as some defenders of our current system would have it. I believe that we do have excess demand but we also have a serious supply bottleneck. Both the supply and demand sides of the equation need to be addressed in parallel.
Ed Morrissey has a decent analysis of the likely impact on California businesses of the plan. There’s a good discussion of the proposal going on at The Moderate Voice.
Update
Steve Verdon has prudently decided to hone in on a single feature in his commentary on the plan at Outside the Beltway—community rating:
Why is this important? Well, the idea of community rating is that everybody is charged the same insurance rate in a defined community irrespective of age, gender, health history, etc. All that matters is are you in the community and what are the costs for that community as a whole. In insurance lingo this is called a pooling equilibrium. That is, everybody is put into the same pool when it comes to figuring out insurance premiums. Why is this interesting? Well, without regulations enforcing the pooling equilibrium such an equilibrium is “broken†by a seperating equilibrium. A seperating equilibrium is where insurance companies would offer more than one insurance policy with different premiums/deductibles to induce people to self-select. If you are generally healthy and lead a fairly non-risky lifestyle having a low monthly premium, but a high deductible might appeal to you. Thus, healthy people end up leaving the pooling equilibrium and since only the unhealthy are left in the pool, it is no longer viable.
It might be countered that the provision for mandatory insurance coverage would prevent this but it won’t:Â people can move to communities with a more beneficial rating or out of the state altogether.
