Shades of Gray

[question everything]

The Wall Street Journal

January 18, 2007

CROSS COUNTRY

Shades of Gray
By JOHN FUND
January 18, 2007; Page A16

SACRAMENTO, Calif. -- Ted Kennedy, the nation's most persistent backer of nationalized health care, must be smiling at the irony. Almost four decades after he first proposed the idea, Gov. Arnold Schwarzenegger, a Kennedy relative by marriage, is touting his own version of universal coverage, and, if adopted, the idea could go nationwide quickly. It's no wonder critics are already dubbing the ostensibly Republican chief executive "Schwarzenkennedy."

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In 2003, then-Gov. Gray Davis, fighting to stave off his recall, signed a law mandating employers with 20 or more employees provide health coverage or pay into a state fund that would provide it. After Mr. Davis was recalled, Mr. Schwarzenegger helped lead an effort to repeal what he called a "job-killing health-care tax." In 2004, 51% of voters agreed and repealed universal coverage in the same election in which George W. Bush lost the state by 10 percentage points and the highly liberal Sen. Barbara Boxer was re-elected by 20 points.

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Last November, Gov. Schwarzenegger won landslide re-election in part by winning 91% of Republicans with an ironclad pledge not to raise taxes. He pounded Phil Angelides, his Democratic opponent, for wanting to raise taxes by $7 billion to pay for universal health care. But now the estimated cost of the Schwarzenegger plan to cover California's uninsured, including two million illegal aliens, is $12 billion. State subsidies for people to buy insurance will extend to those earning up to $50,000 a year, more than California's median income. "He's creating a welfare state where more than half the people are in the wagon being pulled than outside the wagon pulling," says one health-care analyst.

As bad as the policy implications are, the governor's plan may be fatally flawed, politically. He insists it doesn't raise taxes, despite billions in new charges on doctors, hospitals and employers. He prefers to call the new revenue "in-lieu fees" and "coverage dividends." ... Whether the new revenue is a tax or not is important, because if it is a tax the plan must garner a very difficult two-thirds vote in both legislative houses. Barring that, the California Supreme Court will have trouble with the concept. A fee on employers who don't offer health insurance probably requires only a majority vote. However, the imposition of a levy on the gross revenues of doctors and hospitals is almost certainly a tax that would require two-thirds approval.

Then there are the feds. The $5 billion a year in extra federal Medicaid money, which the governor is banking on, is shaky. An even greater barrier is Erisa, the 1974 federal pension law that preempts all state laws that regulate employee benefits. Last summer, a federal judge threw out Maryland's so-called "Wal-Mart law" requiring large firms to spend 8% of their payroll on health care because "state laws which impose health or welfare mandates on employers are invalid under Erisa." Just yesterday a federal appeals court upheld the ruling voiding the Maryland law.

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