The Governator’s health reform letter…

There was a time when Governor Arnold Schwarzenegger had significant national attention and credibility on health care issues, as a Republican leader who had proposed a serious health reform proposal. But he showed little ability to bring Republicans along with him in California, so it was unclear how he would fare in DC.

And that was before he cut Medi-Cal benefits and savaged the Healthy Families program, denying coverage to hundreds of thousands of children. The notion that he is the “health care governor” now seems a cruel joke.

It’s remarkable that given his record, Governor Schwarzenegger decided to weigh in on the health reform discussion anyway.

Here’s the Governor’s letter in full in italics… and some annotation and commentary exploring the full contradictions of the Governor, where he can be absolutely right on and amazingly wrong-headed in the same breadth.

July 31, 2009

Dear Senator Reid, Senator McConnell, Madam Speaker and Mr. Boehner,

I appreciate your commitment and hard work toward reforming the nation’s health care system. I think we can all agree that the current system is not working as it should, and I have long supported a significant overhaul. Costs continue to explode, while tens of millions remain uninsured or underinsured. Many families are one illness away from financial ruin – even if they do have insurance. We have the greatest medical technology in the world at our fingertips, yet Americans’ health status lags behind many countries that spend less than half what we do per capita. Any successful health care reform proposal must be comprehensive and built around the core principles of cost containment and affordability; prevention, wellness and health quality; and coverage for all.


Here, the Governor makes an impressive and important case for health reform, as he did in 2007, and reiterates the same talking points as he did back then. It’s like its 2007 all over again.

Cost Containment and Affordability

Cost containment and affordability are essential not only for families, individuals and businesses, but also for state governments. Congress is proposing significant expansions of Medicaid to help reduce the number of uninsured and to increase provider reimbursement. Today, California administers one of the most efficient Medicaid programs in the country, and still the state cannot afford its Medicaid program as currently structured and governed by federal rules and regulations. The House originally proposed fully funding the expansion with federal dollars, but due to cost concerns, members decided to shift a portion of these expansion costs to states. I will be clear on this particular proposal: if Congress thinks the Medicaid expansion is too expensive for the federal government, it is absolutely unaffordable for states. Proposals in the Senate envision passing on more than $8 billion in new costs to California annually – crowding out other priority or constitutionally required state spending and presenting a false choice for all of us. I cannot and will not support federal health care reform proposals that impose billions of dollars in new costs on California each year.


In the sharpest part of the letter–and perhaps the real point–the Governor is reacting to a change in the House bill demanded by the “Blue Dogs” to lower the cost of the health reform bill, by having the states’ pick up a small percentage of the Medicaid expansion, rather than take on the full cost of that expansion.

The Governor has a valid point on the policy: it is preferable for the federal government to fund the cost of health expansions in Medicaid, even though most of the program now is a state-federal partnership. The federal government has the funding flexibility that states do not have, especially during tough economic times when state revenues are down but the need for such safety-net services increase. States who had to put up even a portion of the match may simply not do the expansion.

That said, the figure that the Senate bill might impose $8 billion in new annual costs seems wildly inflated. And this is a Governor who, a mere 18 months ago, was willing to support billions of dollars in increased taxes and revenues for his own health reform… but now he seems to say he would oppose anything that would require the state to raise a fraction of such revenues to implement a federal health reform that is relatively similar but does not have his name?

I know it only reflects the same inconsistency of the Governor in supporting revenues to expand Medi-Cal and SCHIP in health reform, but opposing revenues in the budget process to prevent steep cuts in those very same programs.

It’s not a surprise that this or any Governor would advocate for the California budget. But he missed the opportunity–and responsibility–to advocate for the California consumer. The “Blue Dog” amendments in the House also sought to reduce affordability subsidies to low- and moderate-income families. The Governor refrained from making a comment–even though Californians would be most negatively impacted:

* California has a disproportionately high percentage of low-wage workers that would need and benefit from such affordability subsidies.
* And since California has one of the highest costs of living in the nation, having meaningful subsidies go up the income scale to 400% of the federal poverty level is incredibly important.

One would hope that the Governor of our state would make the case not just for the budget, but for his constituents. California was lucky to have the Progressive Caucus, Black Caucus, Asian CaucOne us–led by California Representatives Lynn Woolsey, Barbara Lee, and Mike Honda, respectively–as well as the Hispanic Caucus, fight for those affordability subsidies.

The inclusion of maintenance of effort restrictions on existing state Medicaid programs only compounds any cost shift to states. We simply cannot be locked into a cost structure that is unsustainable. Governors have three primary ways to control Medicaid costs: they can adjust eligibility, benefits and/or reimbursement rates. Maintenance of effort requirements linked to existing Medicaid eligibility standards and procedures will effectively force state legislatures into autopilot spending and lead to chronic budget shortfalls.


Here, the Governor actually argues against the health and welfare of Californians. He wants the ability to limit eligibility, drop reimbursement rates, and scale back benefits–even in the context of a universal health system with an individual mandate.

With a requirement for individuals to take up coverage, there needs to be a resulting requirement that government–at the state and federal level–will provide the necessary assistance to get quality, affordable coverage. It was the Governor’s lack of understanding about the need for that commitment that made negotiations on health reform so frustrating… and that prevented a broader coalition from coming around in support of the final proposal in California.

The federal government must help states reduce their Medicaid financing burden, not increase it. A major factor contributing to Medicaid’s fiscal instability, before any proposed expansion, is that the program effectively remains the sole source of financing for long-term care services. Therefore, I am encouraged by congressional proposals that create new financing models for long-term care services. Proposals that expand the availability and affordability of long-term care insurance are steps in the right direction, but they must be implemented in a fiscally sustainable way. More fundamentally, however, the federal government must take full responsibility for financing and coordinating the care of the dually eligible in order to appreciably reduce the cost trend for this group. This realignment of responsibilities is absolutely essential to controlling costs for this population, while ensuring that state governments will be better positioned to fill in any gaps that will undoubtedly arise from federal health care reform efforts.

I also encourage Congress to incorporate other strategies to help stabilize Medicaid costs for states. Delaying the scheduled phase-out of Medicaid managed care provider taxes pending enactment of new Medicaid rates, reimbursement for Medicaid claims owed to states associated with the federal government’s improper classification of certain permanent disability cases, and federal support for legal immigrant Medicaid costs are examples of federal efforts that could provide more stability to state Medicaid programs. Moreover, given the fiscal crisis that many states, including California, are experiencing, I strongly urge Congress to extend the temporary increase in the federal matching ratio to preserve the ability of state Medicaid programs to continue to provide essential services to low-income residents pending full implementation of national health reform.


The Governor here makes the pitch for more federal resources for California and the states in general. He actually brings up issues that are currently in discussion–the budget signed last week includes $1 billion in Medi-Cal savings from negotiating with the federal government over some of these disputed issues.

The Governor missed another opportunity in advocating for Medicaid savings–a robust employer requirement. The more that employers continue to provide coverage to their workers, the less likely they are to fall onto state programs like Medicaid. The proposal in the House (which is closer to what Governor Schwarzenegger agreed to at the end) is much more likely to provide state savings, than the relatively weak employer contribution in the Senate, which might actually increase Medicaid enrollment for currently eligible categories. He had a chance, consistent with his health reform proposal, to make the case for employer responsibility in an area where he could have made a difference, where there is real fluidity in the national discussion.

The Governor also makes the case for continuing the increased federal-state matching rate that California is getting from the stimulus, that has provided nearly $10 billion in federal funds, but that will expire at the end of 2010. Given that California is not likely going to be out of this fiscal hole that soon, such a request is necessary–however, it’s probably more likely to come not under health reform, but in a second stimulus or more targeted package of aid to states.

Prevention, Wellness and Health Quality

Prevention, wellness and health promotion, along with chronic disease management, can help to lower the cost curve over the long run and improve health outcomes in the near term. This was one of the cornerstone pieces of my health care reform proposal in California, and I continue to believe it should be a key piece of the federal efforts. Prevention, wellness and chronic disease management programs should include both the individual and wider population levels.

At the individual level, proposals to provide refunds or other incentives to Medicare, Medicaid and private plan enrollees who successfully complete behavior modification programs, such as smoking cessation or weight loss, are critical reforms. To ensure they are widely used, individual prevention and wellness benefits should not be subject to beneficiary cost sharing. Because individuals’ behaviors are influenced by their environments, health reform must place a high priority on promoting healthy communities that make it easier for people to make healthy choices. California has demonstrated through its nationally recognized tobacco control efforts that population-based strategies can be effective and dramatically change the way the people think and act about unhealthy behaviors, such as tobacco use. A similar model, community transformation grants, has been advanced in the Senate Committee on Health, Education, Labor, and Pension legislation, and it should be included to support policy, environmental, programmatic and infrastructure changes that address chronic disease risk factors, promote healthy living and decrease health disparities.

Quality improvement measures are also critical to health reform. The House proposal for a Center for Quality Improvement to improve patient safety, reduce healthcare-associated infections and improve patient outcomes and satisfaction is a positive step. Coordinated chronic disease management is necessary to improve outcomes for chronically ill people. Systematic use of health information technology and health information exchange, including access for public health agencies, is vital to providing the necessary tools to measure the success of quality improvement efforts. Finally, investments in core public health infrastructure can be facilitated through the creation of the proposed Prevention and Wellness Trust.


These are important elements–and we wish the Governor’s policies and actions met the rhetoric. He opposed a tobacco tax (Prop 86) on the ballot in 2006, and refused to consider another during this awful budget crisis.

However, this emphasis on focusing on healthy environments and communities–not just personal responsibility for better health–is much needed. His endorsement of “community transformation” and better public health infrastructure are all welcome and should be heeded by the DC policymakers. Unfortunately, some of these items have come under scorn, and maybe he can help defend them from attack.

Coverage for All

Coverage for all is also an essential element of health care reform and I believe an enforceable and effective individual mandate, combined with guaranteed issuance of insurance, is the best way to accomplish this goal. The individual mandate must provide effective incentives to help prevent adverse selection that could occur if the mandate is too weak. Creating transparent and user-friendly health insurance exchanges to help consumers compare insurance options will also help facilitate participation. States should maintain a strong role in regulating the insurance market and have the ability to maintain and operate their own exchanges, with the understanding that some national standards will need to be established. California has a long history of protecting consumers through our two separate insurance regulators, one covering health maintenance organizations and the other monitoring all other insurance products. Maintaining a strong regulatory role at the state level is in the best interest of consumers, and I urge Congress to maintain this longstanding and effective relationship as you design these new market structures.


There’s a common understanding that the individual insurance market is broken, from the allowance of insurers to deny coverage for “pre-existing conditions,” to the utter complexity and confusion to understand benefit packages or make apples-to-apples comparisons. The new “exchange” would place new oversight over insurers and fix many of these issues, while preserving a wide range of choices for consumers.

In this section, Governor Schwarzenegger argues for the continued role of state regulators. This is an area where a federal floor would be welcome, but also the ability for states to set higher standards where needed. California’s insurance market has often been compared to the wild, wild West, in deperate need of taming–on issues from rescissions to the lack of minimum benefits–so a federal presence would be welcome. But there are areas where California has lead the way in consumer protection, such as with our HMO Patients’ Bill of Rights, independent medical review, and advances on issues like timely access and language access. We wouldn’t want to lose our ability to continue to improve consumer protections.

I hope our experience in California working toward comprehensive health care reform has informed the debate in Washington. There will be many short-term triumphs and seemingly insurmountable roadblocks for Congress and the nation on the road to comprehensive health care reform. We must all remain focused on the goal of fixing our health care system and remember that we all have something to gain from the reforms, and we all have a shared responsibility to achieve them. I look forward to working with you as you move forward on this desperately needed legislation.


The letter seems disjointed, wanting to continue the Governor’s rhetoric from last year as a health reformer, but the main thrust–as most media reported it–was to send a signal of opposition, particularly about state costs. Unfortunately, in making that case, especially on any maintenance of effort requirement, he shamefully argues for the state at the expense of its residents. And he

When reading this, our Congressional delegation, who after all represents the same constituency, will reject the self-serving arguments, but also recognize the good points in the letter. There’s some common ground for our delegation in supporting more resources for California, prevention-oriented policies, and the ability for state regulators to craft key consumer protections.

With most Republicans attacking health reform, it’s just a shame–in more ways than one–that the Governor has lost his pro-reform voice and credibility on the issue with his recent actions. The letter only serves to continue his many contradictions.

Health Access California promotes quality, affordable health care for all Californians.
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