The Wall Street Journal-20080112-State of the Living Dead
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State of the Living Dead
Arnold Schwarzenegger said in an address this week that California must end its "binge and purge" budget process -- his way of kicking off a binge worthy of Imperial Rome in its decadent late period. Yep: As his state reels from one of its recurrent fiscal crises, the Governor is making some headway on his "universal" health-care plan.
California is carrying a $14 billion budget deficit and Mr. Schwarzenegger is suggesting across-the-board spending cuts. So perhaps it's unwise to introduce a new government entitlement that costs north of $14.4 billion a year. But then, you have to understand the Kremlinology of liberal health-care reform: This effort has as much to do with politics as public policy.
Mr. Schwarzenegger devoted more than a year to health feuding with Sacramento. He strafed his own party for opposing tax increases. Meanwhile, many Democrats (and most labor unions) fought the Governor's agenda because the subsidies weren't extravagant enough. Desperate, the Governor brokered a last-minute bargain with Assembly Speaker Fabian Nunez in December.
Thus Mr. Schwarzenegger's ambitions didn't die -- but for now, maybe call them the living dead. The negotiators rushed to patch together a policy framework before 2007 ended, but they didn't have the votes to actually pay for it. A two-thirds majority in the state legislature is required for tax increases, and Mr. Schwarzenegger alienated the Republicans he needed. So if this scheme is to become reality, new taxes on tobacco, hospitals and business must be ratified by voters in a November ballot initiative.
Assuming that the bill reaches Mr. Schwarzenegger's desk at all. His plan may hit a wall in the state Senate, where President Pro Tem Don Perata, a Democrat, has qualms about the plan's cost in the midst of a budget meltdown. Apparently, Mr. Perata is one of the few adults in Sacramento.
Mr. Schwarzenegger and his collaborators insist their proposal is revenue neutral and requires no new spending after the start-up costs. But the numbers are flimsy. When the bill moved out of the Assembly hopper, the financing fine print remained unresolved and legislators were practically working off the back of an envelope. Mr. Perata is leery of potential consequences for the state's general fund.
With good reason -- these health plans are always more expensive than predicted. But that's what happens with governance via political ego. Having invested himself so fully in the congratulations for "doing something" about health care, Mr. Schwarzenegger wanted a plan, anything to claim victory. He's spinning it as "post-partisan" pragmatism. At least he's not calling it a "free market" solution, as did Mitt Romney after he pioneered a similar plan.
Like Massachusetts, Mr. Schwarzenegger's program is built around the "individual mandate," which requires that everyone acquire insurance or else pay penalties. While bumping up subsidies for the uninsured, California would also lay down more severe insurance regulations, instituting price controls and compelling companies to offer policies to all applicants without regard to age or health condition. Such mandates have all but devastated the insurance markets in every other state where they've been tried, but then all this is the triumph of politics over experience anyway.
In addition to hiking state levies on cigarettes to $1.75 a pack and imposing a 4% tax on hospital revenues, there are new taxes on business. Companies must either spend a certain amount on covering their employees or pay a tax sliding between 1% and 6.5%, depending on the size of the payroll. If Mr. Perata is watching out for his state's bottom line, such taxes may drive businesses to Nevada or Arizona -- or simply lead them to dump their health-care liabilities on the state and pay the 6.5%.
None of this is what California's cooling economy needs -- to say nothing of the damage that such a plan would do to the insurance markets, or the national precedent it would set. Mr. Perata supports comprehensive health reform but seems to be leaning toward prioritizing the budget deficit. If Mr. Schwarzenegger's stunt collapses only because of fiscal reality, that's good enough.
