Dr. Obama’s secret

The explosive battle over national health-care reform is wildly emotional, the issues madly complex and the expectations impossibly high.

As 7 million uninsured Californians face east to pray for basic medical coverage from the high priest of change, President Barack Obama and his populist administration face a nearly hopeless task: Get concessions from historically—and stubbornly—self-interested stakeholders.

Just ask Hillary Clinton, whose own reform efforts in the early ’90s met with a blunt death blow at the hands of conservatives equating “reform” with “complete government control.” Clinton herself did not help matters by sequestering herself with a handful of brilliant minds and delivering her secret proposal on the steps of Congress, arms folded: health-care reform as fait accompli.

But there may be hope. Not just the hope Obama brings with his stunning worldwide popularity, grassroots support and Democratic Congress. And not just the hope gained from Clinton’s lessons of reform meltdown.

No, Barack Obama has a secret weapon right here in Sacramento that may help him claim ultimate victory: California’s own failed reform effort.

Although the state’s health-care effort flamed out just a year and a half ago—hammered at a Senate Health Committee by a 7-1 vote bipartisan opposition—it remains one of the nation’s most successful stabs at reform.

The story of Gov. Arnold Schwarzenegger’s grand vision of universal care—some called it another bid for the cover of Newsweek—is packed with devastating illness, seething passion, fretful hand-wringing and vicious table pounding. It features every interest group imaginable, each with its own angle, agenda and ideology. Like a Hollywood thriller, the stories intertwine, good guys turn sour and even the best intensions are suspect.

Most important, it serves as the best road map so far to guide Washington over the bumpy, dirty boulevard of health-care reform.

“A lot can be learned from those in Washington, D.C., on how the Schwarzenegger administration conducted the negotiations and discussions,” said Jot Condie, president and CEO of the California Restaurant Association. “Whatever happens in California from a major public-policy standpoint usually rolls eastward.”

“Some important momentum happened in California to get beyond the usual stakeholders,” agreed Daniel Zingale, a health-care policy veteran from the administrations of President Bill Clinton and Govs. Gray Davis and Schwarzenegger. On the national stage, “the stakeholders are not lining up as usual.”

“Our work in California laid the foundation for what the Obama administration is proposing,” said Assemblyman Dave Jones, head of California’s Assembly Health Committee.

Arnold finds god

The ultimate self-made businessman, Arnold Schwarzenegger muscled his way into California’s top position with his unique mix of charisma, tenacity and entrepreneurial spirit. In his abbreviated first term, he’d skirted the idea of health-care reform because it put such a heavy burden on business, especially small business with its razor-thin profit margins.

Worst of all, in 2006, he alienated the most progressive reformers in the state by slapping a veto on a hard-fought reform bill that passed through both the Senate and Assembly. Senate Bill 840 was the first single-payer universal health plan ever to be passed by a state legislature, and Schwarzenegger unceremoniously dumped it as too-expensive “socialized medicine.”

But the governor’s come-to-Jesus moment occurred after his re-election in November 2006.

“When he was really presented with the opportunity to step out front, it appealed to very personal, long-held values regarding health and fitness,” said Zingale, then Maria Shriver’s chief of staff who split his duties as the governor’s health-care adviser. “The governor likes big things. He likes to take on the toughest, biggest challenges.”

Schwarzenegger was suddenly partnering with former opponents and joined a growing league of extraordinary business gentlemen—some of them fitness zealots—solidly behind health-care reform. One of these was Steve Burd, chairman and CEO of Pleasanton-based Safeway supermarkets. The hard-nosed Burd once forced major concessions from union workers over medical coverage after their four-month walkout. A fitness nut, Burd then saw the light and shepherded the progressive Coalition to Advance Healthcare Reform, which joined business leaders and employers as true believers of reform.

Schwarzenegger learned the first and most important lesson about reform: passion. “It makes a difference when it’s personal,” said one Capitol insider. That refrain was echoed time and time again from those heralding reform: participants who brought a willing attitude to the table first did what was needed to make concessions and move the dialogue forward. Mere number crunchers did not.

Zingale put it another way: “What threatens health-care reform every time is the self-interested lobbying of those with a financial stake in the status quo.”

Bipartisan mind-bending boggle

Like Abraham Lincoln—famous for populating his Cabinet with opponents—Schwarzenegger’s first move was to create a six-member task force from both sides of the reform wars. It included John Ramey, a conservative Republican who worked with the state chamber of commerce to defeat reform efforts by Gov. Davis.

“The governor insisted it be created by a hybrid team of conservative Republicans alongside liberal Democrats like me,” recalls Zingale, now senior vice president for policy, communications and public affairs for The California Endowment. Their marching orders: Play nice and find common ground.

Team member Kim Belshé, secretary of the state’s Health and Human Services Agency, quickly proposed bringing onboard two consultants with vast national health-care experience to help guide the ship through choppy seas.

Schwarzenegger eventually began the monumental task of joining the various stakeholders under a unified plan, in what has frequently been called a “mind-boggling” or “mind-bending” exercise of conflicting interests. Employers, hospitals, labor unions, health-insurance plans, doctors. Each group came onboard with a unique agenda.

“We had many conversations about health care,” said Condie. “He did a great job, obviously, understanding how it would affect employers.”

But the governor as collaborator and intimidator made his point clear, according to Condie: “You have to play a part in solving this problem. So I want answers.”

Like Obama, who emphasizes “shared responsibility” to pay for reform, Schwarzenegger’s original proposal taxed all of the major players: doctors, hospitals and employers. Employers were faced with a “pay or play” option: Cover their employees’ health insurance or pay into a state insurance pool.

There were two non-negotiable elements essential to Schwarzenegger’s plan: “guarantee issue”—requiring insurers to cover all applicants including those with pre-existing conditions—and “individual mandate”—ensuring all Californians carry a health-insurance policy, similar to auto insurance (see “The language of health care,” page 25).

Interest groups quickly huddled up and began a reform discussion that would last nearly a year and a half. It would join strange bedfellows in both support and opposition.

“I think what was revealing about all this debate is that we usually think of these interest groups as monoliths,” said Anthony Wright, executive director of Health Access California. In fact, there was a wide spectrum of diverse opinions—and frequent haggling—within groups. Consensus on health-care reform? Try getting it within a single association.

The effort also joined two political enemies who bonded tightly over health-care reform. Schwarzenegger and powerful Democratic Assembly Speaker Fabian Núñez first set aside their profound differences—and intense dislike for one another—during greenhouse-gas negotiations, and deepened their mutual respect while negotiating over health care. For Núñez, the issue was also profoundly personal: As a child, Núñez grew up in San Ysidro, receiving health-care from community clinics. As a legislator, he represented a district with the highest number of uninsured in the state.

The Schwarzenegger proposal eventually morphed into a Núñez-sponsored bill with powerful Democratic fingerprints—Assembly Bill X1-1—which saw literally hundreds of drafts.

Contagions and alliances

After a 2006 governor’s summit on health care, there was a powerful sense among participants that something important was about to happen in California. The former antagonist now touting his own brand of universal health care? The governor’s newborn health-care enthusiasm was contagious, and produced one of those electric, elusive moments when an idea is quickly born and picks up momentum, snagging devotees along the way. It was palpable, and everyone sensed it.

At the summit, two important players broke bread and formed an alliance that would deepen over the course of the reform effort: president and CEO Jay Gellert, of the health insurer Health Net; and Duane Dauner, president and CEO of the California Hospital Association.

“We both believed there was an opportunity for California to lead the way in solving health-care problems,” said Gellert, who is also chairman of America’s Health Insurance Plans and is closely involved with President Obama’s reform efforts. “It started there, and as we talked more and more, [we agreed] the present track we were on was not sustainable.”

Gellert credits Dauner with the political savvy and—more important—the progressive outlook to foment reform. “He has a much broader interest than most people in that job,” admired Gellert.

Dauner encouraged his hospitals to submit to the governor’s proposed 4 percent “hospital tax” to help fund the total reform effort. The money would have helped raise $2 billion that would be matched by an additional $2 billion in federal funds.

While Dauner genuinely quotes the hospital association’s first priority—“to serve the public interest”—he’s adamant about reducing hospital losses for treating the uninsured, which he says totaled $4 billion in 2008. Medi-Cal, the state’s equivalent to Medicare, ranks dead last in reimbursements nationwide, putting extraordinary financial pressure on both hospitals and doctors.

The relationship between Gellert and Dauner was emblematic of the momentum Schwarzenegger had begun.

“I think the hospitals deserve enormous credit for supporting the hospital fee,” said Zingale. “Those personal relationships were really important in moving the policy discussions forward.” It was one of the reform effort’s most important compromises. It was also compromise with a payoff. If all Californians were covered by health insurance, the hospitals could then recoup some of their losses from treating the uninsured.

“The stakeholder who really took the lead, who ushered in a lot of the other stakeholders, were hospitals,” agreed Mike Sloyan, director of planning and development for the Insure the Uninsured Project.

One of the biggest surprises of the reform effort was the willingness of the largest California health-insurance plans to cooperate. Kaiser Permanente, Health Net and Blue Shield of California supported the final Núñez-sponsored bill, and were joined in spirit by the smaller, Sacramento-based Western Health Advantage.

The biggest point of contention for the plans was guarantee issue. Insurers feared that Californians would wait to buy health-care coverage until they needed expensive treatment and then sign up for coverage—thereby “gaming the system.” It’s why they demanded a powerful “individual mandate” be paired with guarantee issue. The interplay between the two mandates—and so labor and the health plans—was frequently a dance between antagonists.

The second concern for the health-insurance plans was a mandate that 85 percent of their insurance-premium revenues be spent on direct health-care services. In other words, no more than 15 percent of company income could be spent in areas not strictly devoted to health, such as executive compensation or marketing.

Blue Cross was the only major player in the state to oppose the 85 percent restriction. It was another lesson in the world of health-care politics.

“Blue Cross was implacably opposed almost the entire year because of their business model,” says Emily Clayton, policy coordinator for the California Labor Federation. By offering plans with high deductibles and restricted coverage (such as pregnancy benefits), Blue Cross has been the target of criticism within the insurance industry for “cherry-picking” only the healthiest payers.

“I think that [they] opposed it because they’re a for-profit company,” said Garry Maisel, president and CEO of the not-for-profit Western Health Advantage, which targets companies of three to five employees. They also “had some heartburn over the issue of spending 85 cents on the dollar for health care.”

Dauner is reflective about the negotiation process with the insurance plans and other interest groups. “We were able to bring some of them along, but others remained opposed throughout.”

And in this corner …

While many legislative Republicans opposed the reform effort because of cost, they were joined in “strange bedfellow” opposition by health care’s most compassionate workers: nurses. The California Nurses Association made it clear from the beginning they would support neither the Schwarzenegger plan nor the Núñez bill. For years they stood steadfastly behind a single-payer, government-run system that covers everyone equally, regardless of ability to pay—despite being “politically unfeasible.”

Although Schwarzenegger vetoed the single-payer SB 840 in 2006 as “socialized medicine,” it was reintroduced in 2007 to piggyback on Michael Moore’s devastating health-care documentary, Sicko, which was touring the country. So both reform plans were circulating in the Legislature at the same time.

“If all the people who believed single-payer is the right thing to do would get up and agitate and stand up for that on a consistent basis, it would immediately become politically feasible,” announced CNA board member David Welch to a 2007 seminar sponsored by ITUP.

The California Chamber of Commerce also opposed the final Núñez-sponsored bill, although individual chambers wound up supporting it.

Labor unions were wildly split over the reform. Some, such as the Service Employees International Union, opposed the Núñez bill until new organizational leaders took over, and they magically changed their tune in support. Others, such as the California Labor Federation, did not. Clayton said while the Núñez bill claimed shared responsibility, there were strict limits to what hospitals and physicians had to pay, and so “it was workers that would foot the bill.”

While employers would have to pony up a percentage of their payroll for health care, Clayton said it was “significantly less than the cost of coverage” and that, ultimately, millions of uninsured workers still couldn’t afford any type of mandatory coverage.

“That’s akin to solving world hunger by requiring that everyone buy food,” she said.

Health Access’ Wright saw the situation differently.

“It was only on the last day when the Assembly voted on the package that the governor decided to put affordability protection in the bill, so that if people [would be forced to buy] coverage more than X percentage of their income, they’re not required to buy coverage,” said Wright. “We thought there was a lot of good stuff in there, but that was one of the stumbling blocks for us.”

Show me the money

One of the major ironies about health-care reform is that health is often a distant second in the dialogue. “It ultimately comes down to who pays,” said Condie.

It’s the nagging question and the problem without a solution. With money serving as the pain point for all involved in the 2007 reform effort—and the state’s budget crisis looming—it was critical to spread the responsibility for payment to everyone.

The most controversial financial aspect of the governor’s original proposal was a 2 percent tax on physicians’ gross income. This caused instant and vehement opposition from doctors and their powerful trade group, the California Medical Association. The governor quickly backed down once CMA proved that unreimbursed expenses—like certain prescription drugs—were unfairly included as “income” under the formula and would have put undue financial pressure on physicians.

“They went berserk” when the tax was proposed, said the hospital association’s Dauner, adding that CMA “did everything they could to try to undermine” the reform efforts. This was echoed by others who pointed to CMA as a major stumbling block in the reform effort.

“They really dug their heels in and were extremely difficult to deal with,” agreed Betsy Imholz, special projects director for Consumers Union.

CMA responded emphatically to this characterization: utter hogwash.

Andrew LaMar, spokesman for CMA, pointed to an earlier reform effort in 2003 in which CMA for the first time joined labor unions to support meaningful reform. The bill—Senate Bill 2—mandated that employers pay for health care, and was signed into law by Gov. Davis. Opposed ardently by the restaurant lobby, it was challenged at the ballot box and was overturned by a slim 100,000-vote margin.

LaMar said the recent Schwarzenegger-Núñez reform was significantly larger in scope and eventually suffered from fatal flaws, both political and practical—most egregiously, price. He pointed to an analysis by the independent Legislative Analyst’s Office that the true costs of implementation would far exceed original estimates.

“You’re asking doctors to go up on a program that just doesn’t add up,” LaMar said. “We’ve seen what happens when you have an underfunded system, and it’s called Medi-Cal.”

LaMar said CMA was also opposed to the governor’s strong-arm tactics. “The meetings always resulted in them going back behind closed doors and writing what they felt represented compromise,” he said. “To us, that’s not how you negotiate.”

Skunk at the party

Jot Condie admits the restaurant lobby and his California Restaurant Association have often been viewed as one of the biggest opponents to reform. He’s called himself “the skunk at the garden party,” but claims that for his members, the numbers have to work or many of them would simply go out of business.

The governor’s original proposal—which CRA supported—required businesses to spend 4 percent of their payroll on health care. But the Núñez bill upped the ante to 6.5 percent. It was enough to turn CRA off; they opposed the final bill.

“There’s a big difference between a 99 cent taco and a $1.06,” said Condie. In 2003, Condie estimated that 20 percent of his restaurants would have gone out of business if the 2003 referendum putting the kibosh on reform—Proposition 72, which they backed heavily—had failed. Although Condie did not provide similar estimates for the far more expansive Núñez measure, they would most undoubtedly be even higher.

Condie’s detractors scoff at the assumption, pointing out that restaurants claimed a rise in minimum wage would bankrupt these same restaurants—which never happened.

“We can’t just continue to say no,” Condie has said in the past. The challenge, he says, is finding a cost-effective plan for restaurants.

What will Obama face on the national level? Many observers say it’s simple: Just substitute the National Restaurant Association, and the American Medical Association, and continue down the line. It’s a minefield Obama has already begun to walk.

The Massachusetts model

What about Massachusetts? Because the state has successfully passed its own health-care reform plan, isn’t it a better model than California for national reform?

Apples and oranges never looked so different.

When Gov. Mitt Romney pushed his reform through the Legislature in April 2006, the state’s uninsured population was only a few hundred thousand, strictly homogeneous and relatively healthy.

By comparison, today California’s uninsured nears a whopping 7 million—more than the entire population of Massachusetts (see “California’s uninsured,” an SN&R Web extra). They also represent a widely diverse ethnic mix with far more medical problems.

Still, the Massachusetts plan has done a commendable job reducing the number of uninsured. A study by The Urban Institute published in December reported that a scant 2.6 percent of the state’s residents—167,300—were still uninsured. That’s half the number since the plan was fully implemented in 2007, when the uninsured totaled more than 5 percent.

Yet the state has been slapped by the reality of a faltering economy. The costs of the program—with its noted “connector” pairing buyers and insurers—have increased from $630 million in 2007 to an estimated $1.3 billion in 2009. The rise in costs is not surprising as the once uninsured—and sick—receive long-needed treatment.

Perhaps most sobering of all is that premium costs in the state have gone up, not down.

Without proper cost containment, explained Assemblyman Jones, “they’ve pushed [consumers] right into the arms of the health-insurance companies.”

After the death of reform in California, Capitol Hill politicos were distraught. One Washington lobbyist heard this refrain echoed inside the Beltway: “Darn it, I wish you’d got it done, because it would have been a much better model. … Now everybody’s pointing at Massachusetts.”

The end of reform

As Massachusetts began implementing its own limited reform, negotiations over the Núñez bill stretched through 2007. Schwarzenegger and Núñez continued pounding the phones, bending ears and holding meetings. Though criticized by some for a lack of openness or “transparency” during this process, the major stakeholders expressed just the reverse: They felt included early and often. And they admired the passion and perseverance of the duo, who added amendments to help make the plan work for everyone: They reduced requirements for smaller employers and allowed an escape clause from the individual mandate for the Californians who simply couldn’t afford coverage.

The duo formed a holy trinity of leadership along with Senate President Pro Tem Don Perata. Although Núñez and Perata had a relationship typical of leaders of the Assembly and Senate—professional dislike—they largely set aside their differences during the effort.

At the same time, the length of the negotiations wore thin on many. From the beginning, Schwarzenegger seemed hesitant to reveal his reform plan before it was fully cooked.

“The governor waited an awful long time before engaging in negotiations, and that hurt our prospects,” said Wright.

As negotiations progressed, special-interest groups kept visiting Sacramento to make still more changes, and the revolving door at the Capitol kept turning. Agreements once sealed remained in constant flux. The hundreds of revisions on the Núñez bill left heads spinning. Long into the process, suddenly new interest groups walked into the door, asking, “Can we get an exemption from the mandates?” Eyes rolled and teeth ground. At just the moment the bill should have been set in stone, it changed still again. The slippery field of health-care give-and-take became slicker than ever.

Even Duane Dauner and his California Hospital Association kept pushing for revisions long after deadlines had passed. It was symptomatic of the lengthy, confusing, maddening process. Standing just behind the major stakeholders—labor, doctors, hospitals and the health-insurance plans—were a thousand tiny voices asking for a thousand tiny changes.

“Everybody kept thinking, ‘I can get a little more out of this,’” said a Capitol insider.

As the year came to a close, there was another complication: time. Although sponsors hoped the bill would pass the Senate, it would never get the two-thirds vote needed to raise taxes and fund the reform. So a unique two-step process was created: Pass the legislation, then seek funding at the ballot box. But the deadline for referenda was fast approaching, and people were sweating.

In the end, it didn’t matter.

Although the Núñez bill passed the Democratically controlled state Assembly, the bill died its sudden death in the tiny Senate Health Committee, chaired—ironically—by one of the most passionate defenders of health-care reform: Sen. Sheila Kuehl.

For years a passionate supporter of health-care reform, Kuehl remains a devotee of the single-payer system. She was joined in her opposition by senators from both parties. Some opposed the bill because of the individual mandate requiring all citizens get health care. Others questioned the enormous expense of the program. Fears of a growing budget deficit were mounting.

In the end, the bill died for several other reasons. There was never a powerful core of support. It lacked a “center of gravity,” according to one lobbyist. And Perata was unable to harness needed support in the Senate, a fact that gnawed at Núñez, who felt betrayed by his legislative counterpart. When it died its eventual death in a Kuehl’s Senate committee, it was the biggest frustration of Núñez’s legislative career.

“For something that complicated and charged,” said Consumers Union’s Imholz, “you really need a broader group [of support] with a deeper understanding.”

The death left a gaping hole for those who thought, this time, true health-care reform was here.

“Despite it not being the ideal package,” said Assemblyman Jones, “it represented the best possible opportunity we had in California, including coverage for undocumented children.”

“On January 1, 2008, I sat in my office and was certain we’d have health-care reform,” said Maisel of Western Health. “Three months later, it had completely fallen apart.”

Despite the Labor Federation’s opposition, Clayton called it “a Herculean effort and well-done in many respects.” Other opponents echoed her sentiments: a monumental task that fell short because of time, money and fragmentation.

Letter to Barack

A nearly unanimous vote of support for Obama resounded from those in the California health-care reform trenches. They said the president has all the essentials: passion for the cause, a powerful team and the political savvy to pull it off.

“The federal discussion has started off in a much better place,” said Clayton.

“The exciting thing now is that we have a president and Congress who really want to do this,” agreed Gellert.

But in the back of everyone’s mind looms a dark thought: the fear that California’s reform failure could be mirrored in Washington if animosity and self-interest derail the powerful Obama train. Without passion, commitment and a willingness to compromise, it could happen again.