SACRAMENTO, CA – California Gov. Arnold Schwarzenegger has outlined a bleak prognosis for the budget of the nation’s most populous state, and healthcare spending is one of the areas feeling the impact.
In his January address before the California legislature, Schwarzenegger said he would take a variety of steps to counteract an expected $14.5 billion deficit for the year. In declaring a fiscal emergency, he asked for across-the-board cuts of 10 percent, with reductions totaling about $2.7 billion in health and human services. Those cuts include $1.1 billion from Medi-Cal, California’s Medicaid program, in which some 6.6 million residents are enrolled.
State law requires California to have a balanced budget and gives the governor authority to make budget cuts to achieve that balance when the state is encountering certain emergencies.
The crisis could throw a curve at state legislators and voters, who would be asked to fund the additional cost of the healthcare reform package passed by the state’s Assembly just before the end of its 2007 session.
The reform package, the result of an agreement between Schwarzenegger and Assembly Speaker Fabian Nunez, would require all Californians to prove that they have health insurance.
The reform still needs approval from the state’s Senate and by the state’s voters, who would be asked to pass a referendum on the initiative. Several business groups in the state have vigorously opposed the proposal.
Senate leader Don Perata has requested an independent fiscal analysis of the reform plan, and consumer groups already are weighing in with predictions of what could happen.
Last month, the Foundation for Taxpayer and Consumer Rights wrote a letter to the legislative analyst conducting the fiscal study to suggest that she consider cost overruns that the group said had affected a similar reform initiative in Massachusetts.
“Proponents will argue that a provision in (the California bill) to cap insurer overhead and profit at 15 percent will control costs … but without rate regulation, (the cap) actually may drive up premiums rather than control them,” the letter to analyst Elizabeth Hill stated.
The group contends Massachusetts is predicting a cost overrun for its program of $147 million for the year ending July 30, 2008. Extrapolating those results for a state the size of California could result in extra costs of $1.75 billion, it said.
The group also pointed to much lower-than-predicted employer contributions in Massachusetts, as well as higher premium costs and lower benefits than expected.