Californians need health care reform now. As the state faces across-the-board spending cuts, many of them to health services, we must not walk away from the billions of dollars that the Governor's reforms will bring into our health care system. California cannot afford to leave this money on the table. The Health Care Security and Cost Reduction Act secures these funds and takes pressure off of the state budget to finance the Medi-Cal rate hikes that drive some of our most significant budgetary spending growth. This reform is fully funded, budget neutral and includes mechanisms to ensure strong oversight, evaluation and flexibility to prevent auto-pilot spending. The Health Care Security and Cost Reduction Act strengthens our health care system when we need it most.

Bringing billions into our health care system.

The Health Care Security and Cost Reduction Act:

• Secures $4 billion in new federal funds that California is currently leaving on the table. This reform brings in $4.6 billion in federal dollars. Approximately $4 billion of this is new funding. California has not been able to access this money in the past because of our inability to provide the matching state funds. We are eligible for these federal funds under current law.
• Brings in $9 billion in other contributions. This reform provides a dedicated financing stream to fully fund these changes. Sources include individual contributions, employer revenues and hospital fees.

• Is fully funded and budget neutral. The Health Care Security and Cost Reduction Act does not utilize any new General Fund dollars to fund health care reforms. Modeling by MIT health care economist Jon Gruber demonstrates the Governor's plan is fully funded, and over the long-term, this reform's prevention policies and other cost controls will slow the rate of growth in health care costs.

Reducing pressure on the General Fund and the state's second-largest expenditure: Medi-Cal.  

Medi-Cal represents one of the fastest growing programs in state government, rising from $7.5 billion General Fund in 1998 to $14.3 billion General Fund in the current budget year. The Health Care Security and Cost Reduction Act will minimize long-term budget pressures by:

• Reducing the burden on the General Fund to finance rising Medi-Cal hospital rates. This reform will finance higher reimbursements with new hospital revenues and federal funds. Hospital costs are the largest driver of Medi-Cal cost increases. Hospitals are canceling their contracts with Medi-Cal because of low reimbursement rates. California's health care reforms increase and stabilize hospital rates by bringing Medi-Cal payments up to Medicare payment levels. 
• Funding programs to improve the health of current Medi-Cal beneficiaries. These include "Healthy Actions" programs, diabetes screening and management, obesity prevention and programs to stop smoking. Keeping Californians healthier reduces the need for costly services.

Addressing the structural budget problems that drive deficits.

Constitutional spending requirements, formula-driven programs and the volatile nature of the state's income tax system all contribute to California's structural budget deficit. The Health Care Security and Cost Reduction Act includes built-in mechanisms to ensure that health care reforms are financially self-sustaining and have a positive impact on our structural budget problem. It:

• Can't go into effect until the Department of Finance certifies that there is enough money available. Under this legislation, the state Director of the Department of Finance must certify that there is enough revenue for a three-year period in order for the entire legislation to go into effect.
• Will be reviewed throughout the budget process. Once the legislation is enacted, the Department of Finance will provide updates on expenditures twice each year. In the event of a shortfall, the legislature will be notified. If the legislature does not act within six months, the programmatic expansions and rate increases are automatically reduced to the levels that existed prior to reform.
• Requires ongoing evaluation. The Secretary of Health and Human Services, in collaboration with other state agencies and external experts, will track and assess the effects of health care reforms. They will submit this assessment to the legislature and update it every two years.  
• Gives the state flexibility to manage costs. Under this reform, the state will have flexibility to make adjustments, reduce costs, and alleviate the need to reach for additional state resources.

Taking financial pressures off of California's counties.

• Public hospitals will gain approximately $500 million a year in new revenue from health care reform. Today, every county must provide health care to many of the uninsured, generally using only county funds, and public hospitals face rising costs as a result. Federal reimbursement for this coverage is either flat or expected to decline. Without structural change these public hospitals may not be financially viable. Under the Health Care Security and Cost Reduction Act, counties will be required to provide a share of the cost for providing this care, equal to approximately 50 percent of what they are currently spending.

Containing costs and lowering health care spending.

• The Health Care Security and Cost Reduction Act addresses chronic illnesses, which account for 83 percent of national health care spending. This reform provides broad access to preventive care; targeting obesity, diabetes, smoking; and enacting "Healthy Actions" programs.

• According to the California Healthcare Foundation, 38 percent of the US population suffers from a chronic disease, accounting for 83 percent of health care spending. The Robert Wood Johnson Foundation reports in "Chronic Care in America: A 21^st Century Challenge" that 40 percent of Americans will be living with one or more chronic condition by 2010.  

• This reform moderates spiraling hospital costs in two key ways:
  • Universal coverage and increased Medi-Cal reimbursement rates will help mitigate the shift of uncompensated costs by hospitals onto the insured and reduce General Fund pressure for Medi-Cal rate increases.
• It improves insurer efficiency and limits excessive profit margins and administrative costs. Health plans will be required to spend 85 cents of every premium dollar on patient care, not on profit or administration.

Creating a positive impact on the economy.

This reform will:

• Increase productivity. The Institute of Medicine estimates that America's health insurance gap reduces national economic productivity by $65-$130 billion dollars annually (2003 dollars) (Institute of Medicine, "Hidden Costs, Value Lost: Uninsurance in America," National Academy of Sciences, 2003).
  • California has approximately 15 percent of the nation's uninsured, so the economic productivity loss could be estimated at about $10 - 20 billion. More productivity means higher tax revenues.
• Minimize the costs that the insured pay to cover the uninsured. Coverage of the uninsured will reduce the "hidden tax," helping to contain the rate of premium growth that employers experience on an annual basis.  The New America Foundation has estimated that the average California family pays an additional $1,186 in premiums each year to cover the hidden tax for the uninsured alone (New America Foundation, "A Premium Price: The Hidden Costs All Californians Pay in Our Fragmented Health Care System,"  December 2006).
  • Reducing these costs allows employers to redirect those funds into new jobs and capital projects, which create new economic growth for the economy.  
• Generate health care savings.  An economic analysis of the "Illinois Covered" health care reform plan, authored by health care economist Ken Thorpe, found that "each $1 of public revenues spent on Illinois Covered will generate more than $2 in new health care savings-mainly through reduction in growth of health insurance premiums paid by Illinois businesses, families, and individuals." (America's Agenda Health Care Education Fund, Fact Sheet on Illinois Covered Health Care Reform Plan).
  • The premium savings generated were achieved through three key elements that are also contained in the Governor's reforms:  chronic care management, greater reliance on health information technology and a reduction of the uncompensated care cost shift.
• Take the pressure off wages and tax revenues. According to the National Bureau of Economic Research, "...the cost of increasing premiums is borne primarily by workers with employer-provided health insurance in the form of decreased wages."  (National Bureau of Economic Research Working Paper 11160 (Abstract), "The Labor Market Effects of Rising Health Insurance Premiums," Katherine Baicker and Amitabh Chandra, Spring 2005)  
  • Reversing or mitigating this trend means higher wages and higher consumer expenditures which mean more state revenues from the sales tax and state income tax.
• In sum, if the Health Care Security and Cost Reduction Act were in place today:

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  • The federal government would have a significantly increased role in paying for medical costs of our population. 
  • California's health care system would have $4 billion in new federal funds.
  • General Fund pressure on the Medi-Cal program would be reduced.
  • California would expect to see higher productivity, wages and tax revenues.
  • Together, these factors would contribute to an improvement in California's economic outlook and state budget.

On The Record

California Endowment Chief Executive Officer Dr. Robert K. Ross - Economic Downturn "Could Leave Even More Californians Without Insurance": "Now is not the time to walk away from the playing field. In fact, an economic downturn that could leave even more Californians without insurance should be a driving force for our governor and the legislature." (Dr. Robert K. Ross, "Now Isn't Time To Quit On Health Care," Sacramento Bee, 12/20/07)

Los Angeles Times - Budget Shortfall "Shouldn't Be A Pretext" To Dismiss Health Care Reform: "In a state about to enter a ‘fiscal state of emergency' because of a $14-billion budget shortfall, these concerns are nothing to sneeze at. But they shouldn't be a pretext to dismiss healthcare reform either." (Editorial, "California's Healthcare Plan," Los Angeles Times, 12/19/07)

Latino Coalition For A Healthy California Executive Director Lupe Alonzo-Diaz - Reforming Health Care System "Critical To Lowering The Pressures On Our State Budget": "While next year's budget crisis is emerging as this year's Scrooge, this should spur us-the collective ‘Us'-to act now.  Because of health care's dependence on the general fund, every time there is a tough budget year, health care programs and services are always at risk.  Reforming our health care system will draw down more federal dollars, put prevention first and lower the burden of treating the uninsured in high-cost emergency rooms-all critical to lowering the pressures on our state budget." (Latino Coalition For A Healthy California, "A Christmas Miracle Can Still Happen...," Press Release, 12/13/07)

California Children's Hospital Association President And CEO Diana S. Dooley - Reform Is "Even More Important Now" To Ensuring Critical Health Care Services: "With a projected $14 billion state budget deficit, cuts to programs that rely on funding from the state general fund, such as health care and the Medi-Cal program, will undoubtedly be considered. That's why an infusion of federal funds is even more important now to ensuring continued access to critical health care services for ill and injured children and adults throughout the State. The time for healthcare reform is now. We can't afford to wait." (California Children's Hospital Association, "All Children Need Healthcare Reform," Press Release, 12/13/07)

San Francisco Chronicle - "Looming Deficit Is An Argument For Health-Care Reform Now": "If legislators don't produce a bill that the governor will sign by that date, California's hopes for health care reform this year-probably for the next several years -will implode... Actually, the looming deficit is an argument for health-care reform now. Its potential for an infusion of federal funds - along with a lowering of the burden of treating the uninsured in high-cost emergency rooms - would mean that California could deliver more health care without a net drain on the state treasury." (Editorial, "Against The Clock," San Francisco Chronicle, 12/13/07)

California Hospital Association President C. Duane Dauner - "The Time Has Come": "Just within the last two weeks, three hospitals in California have announced that they are dropping out of the Medi-Cal program because they can't afford to incur the losses that result from treating Medi-Cal patients.  Many more hospitals are likely to follow suit unless something is done soon to bring payments in line with the cost of providing care. Now looming over this discussion is the news that the state's budget deficit for next year is likely to top $14 billion.  With such a gaping hole in the state budget, lawmakers are going to be forced to make difficult choices -including the very real possibility of cutting vital health care programs...The time has come to enact meaningful health care reform legislation.  If this opportunity is missed, all Californians will feel the effects for many years to come." (California Hospital Association, "The Clock Is Ticking: Action on Health Care Reform is Needed Now," Press Release, 12/13/07)

PICO California Director Jim Keddy On Behalf Of Californians For Healthy Kids, Children's Defense Fund, Children Now, The Children's Partnership and PICO California - "Health Care Reform Has Never Been A More Urgent Policy Imperative": "Health care reform, including coverage for all children, has never been a more urgent policy imperative for the State of California - not despite our current budget shortfall but, in part, because of it...Without health care reform now, including new financing, children will be significantly impacted by cuts in health and other funding due to another budget crisis.  These cuts could have tragic consequences, resulting in thousands of children losing their current health coverage.  Through health care reform, we can gain additional federal funding and bring in new, dedicated sources of revenue that will expand health coverage and improve our overall health care system for the future...Only by taking action on health care reform this year can we take that critical step to protect health programs that bring vital health care and health coverage to our children." (PICO California, "Health Care Reform Needed To Protect Health Coverage for Children Today and in the Future," Press Release, 12/13/07)