Health Care Bill Passes, Governor Announces Veto

After months of public pronouncements claiming that 2007 would be “The Year of Health Care Reform,” Governor Arnold Schwarzenegger finally took some action on the issue September 10. Unfortunately, the action was a step backwards as he announced he would veto AB 8, the health care reform legislation authored by Assembly Speaker Fabian Núñez.

Immediately after the State Senate voted for the legislation, and before the vote by the Assembly, Governor Schwarzenegger issued a statement saying he would veto the bill, despite his public statements calling for reform. On Wednesday, September 12, he called for a Special Session of the Legislature to work out a new reform measure that would include some of his own proposals. While AB 8 would establish a minimum standard for employer health care spending and help control rising health care costs, Schwarzenegger’s outline for health care reform includes a lower employer contribution and a provision mandating that individuals purchase health insurance.

How a compromise can be reached, in light of the 52-day budget impasse, remains to be seen. As the Sacramento Bee noted after the governor’s announcement, “… the Republican governor’s own health care proposal has scant support in the Legislature...”

At issue is how the expansion in coverage for the 6.7 million-plus Californians who lack insurance would be funded. AB 8 would require employers to spend 7.5 percent of payroll on health care. Schwarzenegger’s plan would set the payroll fee at 4 percent.

In announcing that he would veto AB 8, Schwarzenegger said, “I cannot sign AB 8 because it would only put more pressure on an already broken health care system. … I also believe that AB 8 is financially unsustainable. I have always said that I would not sign a health care bill that puts the vast majority of the financial burden for reform on any one segment of our economy. AB 8 unfortunately does that by requiring businesses to pay at least 7.5 percent of their payroll into a state fund or on health care services for employees.”

The final version of AB 8 included amendments demanded by labor. AB 8 would curb skyrocketing health care costs, expand coverage to nearly 70 percent of the state’s uninsured residents, expand public programs to working poor families, and create a statewide purchasing pool for nearly four million Californians. Provisions for cost and quality transparency include allowing health care purchasers, like Taft Hartley Trust Funds, to identify why they are paying more for health care and have the tools to do something about it, according to the California Labor Federation.

AB 8 also guarantees that no working family will have to accept health insurance that costs more than five percent of their wages, and creates a public insurance option to compete against private health plans. AB 8 would require insurers to spend at least 85 percent of premiums on health care. Administrative costs, marketing, and high CEO salaries currently amount to as much as 30 percent of health care costs.

After lengthy debates on AB 8, the bill passed the Senate on 22-17 and the Assembly by a 45-31 margin. State Senator Sheila Kuehl, author of the more comprehensive single payer bill SB 840, was one of two Democratic State Senators to vote against AB 8. Her bill would eliminate private insurance companies from the health care system and cut administrative costs down to about five percent, similar to Medicare.

Kuehl said she thought that neither AB 8 nor Schwarzenegger’s plan would contain the cost of insurance premiums. “If premiums are rising three to four times faster than wages every year, all the reforms are doomed to failure,” she said. Her bill is supported by labor, as well as the Assembly and Senate Democratic leaders. It passed last year but was vetoed by Schwarzenegger, who said he favors a private market approach to solving the health care crisis.

Senator Don Perata, a co-author of AB 8, said that while some opponents of AB 8 say that the bill’s provision that employers pay 7.5 percent of payroll is too high, about 80 percent of employers in the state are already spending on average 13.5 percent of payroll for health insurance premiums. He said that while Democrats have detailed their proposal in legislative language, the governor “has been dealing mainly in concepts.”

Schwarzenegger’s plan is opposed by most members of his own party in the legislature. As Labor went to press, the governor and legislative leaders were engaged in negotiations over how to amend AB 8 with some of the elements of Schwarzenegger’s plan. The plan would be voted on during a Special Session, then its funding provisions would be put before the voters in a November 2008 ballot measure, bypassing the legislature, where Republicans can block funding because a two thirds super majority is required for budgeting.

The California Labor Federation launched a campaign to urge Schwarzenegger to sign AB 8, while also continuing to press for labor’s principles to be included in a new compromise bill. Information on sending letters to the governor can be found online at www.unionvoice.org/campaign/dontvetoAB8.