Letter to Governor-elect Arnold Schwarzenegger. Health care reform- special interest or public interest?

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Governor-elect Arnold Schwarzenegger
State Capitol
Sacramento, California

RE: Health care reform– special interest or public interest?

Dear Governor-elect Schwarzenegger,

Though you have yet to take office, an important test of your commitment to stand up to special interests will be whether or not you oppose the Chamber of Commerce‘s efforts to overturn the state’s new landmark health care expansion legislation. This unprecedented national model, SB 2, could provide health care coverage for 1 million working families without care by 2007.

These 1 million disenfranchised consumers may very well be many of the same voters that provided you your nearly 1 million-vote margin over Governor Davis.

The good news is that California has the time-tested tools it needs to expand health care while controlling costs by regulating insurance premiums, capping hospital and physician rates, and bulk purchasing benefits and prescription drugs.

As a candidate, you promised to open the state’s books and eradicate waste, corruption and greed. Fixing the state’s ailing health care system is your opportunity to do just that.

There are a number of important reasons to support SB 2:

* Hawaii has had a positive experience with a similar “pay or play” system. When costs became too great in the late 1990’s, that state took effective action by allowing the Insurance Commissioner to deny unfair and excessive rate increases.
* The bill has the potential to significantly increase access to health care because more than 80% of California’s uninsured are working families.
* The bill will save California taxpayers millions of dollars because health care will be provided preventatively rather than later in an Emergency Room when the patient’s condition is critical and care is much more expensive.
* By insuring more people, the cost of care will come down for all consumers because risk is spread more widely.
* The new plan offers a comprehensive benefits package, including prescription drugs for all eligible workers and dependents.
* The proposed plan could be expanded in the future by allowing all Californians to have access to the state purchasing pool.
* The proposal will level the playing field for employers by taking away the competitive advantage of those employers that currently do not offer health benefits to their workers.

The bad news is that opponents of the new law would rather take an ideological stand against rate oversight and turn their backs on the overwhelming popular support for stabilizing costs and expanding health care.

Instead, they should be encouraged to join consumers in finding ways to make the system more affordable.

You promised that once elected you would be a governor for the people, not the special interests. That promise must apply even if the outcome annoys your political allies.

The Chamber of Commerce endorsement gave your candidacy credibility early in the recall campaign when you needed it most. Now that you are in Sacramento, they will come calling on you for payback.

The fact is that the implementation of the law has been delayed until 2006, providing the legislature and your administration ample time to require insurers, hospitals and physicians to abide by appropriate cost controls.

Californians know that to hope insurers, hospitals, and physicians will lower rates voluntarily runs contrary to their experience of the current system, where new administrative costs, soaring profits and other expenses continue to drive up costs.

Insurance premium rate regulation and caps on how much doctors and hospitals may charge are time-tested cost control strategies. Bulk purchasing and universal access to care help bring down system-wide costs.

To hold together an unlikely coalition of insurers, hospitals, physicians, and organized labor, bill crafters ignored these practical, but politically unpalatable, tools.

Now you can do something that your predecessor lacked the will or courage to do: stand up to the special interests like the Chamber of Commerce, insurers, hospitals and physicians and make good public policy for the people of California.

Over the last two years the Foundation for Taxpayer and Consumer Rights has organized town halls televised throughout the state with consumers, small business owners, health professionals, hospital executives and health care policy experts.

It is clear from these discussions that affordability is the linchpin of health care reform.

On the campaign trail you promised to expand access to health care for children. How can you do that without providing care for parents and family members? How can you do either without making the system affordable? The answer to both these questions is to support SB 2 and implement appropriate cost controls.

We look forward to working with you and your administration to address the next stage of health care reform.


Jerry Flanagan
(415) 633-1320

cc: Joe Rodota, Policy Director

The Foundation for Taxpayer and Consumer Rights’ cost control plan for the California health care system:

1. HMO and health insurer premium regulation.

HMOs and health insurers should be required to have premium increases approved like auto insurers have since 1988 under the voter approved Proposition 103. That landmark auto insurance reform initiative established a ‘prior approval‘ system for many lines of insurance. During the decade after Proposition 103 was adopted, auto insurance rates in California went down by 4.0% while insurance products remain broadly available and competitive, and the uninsured motorist population declined by 38%. Nationally, rates rose over 25% during this period. California consumers saved over $23 billion since 1988 under the prior approval system.

2. Price controls on doctors and hospitals.

Hospital and physician rates should be regulated like hospital rates have been in Maryland since 1971. That law created the Health Services Cost Review Commission (HSCRC) as an independent agency with seven members appointed by the governor. Since 1977, Maryland hospitals’ average cost per admission has declined from 25% above the national average to 8% below the national average. Such a model could serve as a basis for physician and hospital rate setting for California’s health care system.

3. Bulk purchasing and universal access.

A new state health care plan overseen by the 2-million member California Public Employees Retirement System would be more efficient than the current system if it is designed to bypass insurers and organizes hospital and physician networks directly and buy prescription drugs at bulk discounts. The new state purchasing pool should provide care for all who do not have access to benefit plans provided by employers. Competition between the State and private plans will help to stabilize premium costs. Universal access to care will save California taxpayers millions of dollars because health care will be provided preventatively rather than later in an Emergency Room when the patient’s condition is critical and care is much more expensive. By insuring everyone, the cost of care will come down for all consumers because risk is spread more widely.

The Foundation for Taxpayer and Consumer Rights (FTCR) is a non-profit and non-partisan consumer advocacy group. For more information visit us on the web at or

Inquiries about our health care program should be directed to Jerry Flanagan at (415) 633-1320.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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