Linking health plan to economy

SACRAMENTO -- Confronting the latest challenge to his effort to reshape California’s healthcare system, Gov. Arnold Schwarzenegger argued Friday that the state’s rapidly deteriorating financial outlook is extra impetus for action, not reason for pause.

“Some have said we shouldn’t tackle healthcare reform with this year’s shortfall,” Schwarzenegger told a gathering of Latino healthcare advocates in Los Angeles. “I happen to totally disagree with that. There is a real correlation between fixing the healthcare system and fixing our budget.”

Schwarzenegger’s assertion that his plan to insure all Californians would help the economy -- and therefore the state’s finances -- was questioned by leading legislators from both parties and by some independent analysts.

“If everything turns out in the governor’s favor, that’s one scenario,” said Shawn Martin, who directs the health department of the nonpartisan Legislative Analyst’s Office.

The analyst’s office issued a report last month saying the state could end up with as much as $3.2 billion in additional costs if some of Schwarzenegger’s assumptions don’t pan out.

“If everything went wrong here, it would create, I think, more of a budget problem, but there’s no way of knowing,” Martin said.

The $14-billion healthcare plan the Republican governor favors would be built on new employer and hospital taxes, extra money from the federal government, selling off management of the state lottery, and requiring that all Californians obtain insurance. Schwarzenegger says the plan would pay for itself.

But even if the governor’s proposal is enacted, it will not kick in until 2010, two years too late to affect the state’s upcoming fiscal year, when officials anticipate a $10-billion shortfall.

The Assembly Republican leader, Mike Villines of Clovis, said the state’s fiscal troubles require retrenchment, not ambitious new programs.

“I think it’s a stretch to argue that a tax increase and a large government-run system is going to be a benefit to the state budget that we’re coming into,” said Villines, who has opposed the governor’s plan.

Democrats in the Legislature have advanced their own healthcare proposal, which they also say will pay for itself. On Friday, Assembly Speaker Fabian Nunez (D-Los Angeles), the author of one such plan who has been working with the governor to reach a compromise, said he doubted Schwarzenegger’s logic that the plan would bolster the state’s business environment.

“I don’t think it’s going to have a profound effect as an economic boost to the state budget,” Nunez said.

Nunez said he agreed with the governor that a proposal needed to pass before the end of the year, because after that, lawmakers will be consumed with “harsh decisions” about what to cut to balance the budget.

California spends $145 billion a year. The anticipated budget gap will leave state revenues short by about 7%, and Schwarzenegger has ordered state agencies to seek ways to cut their spending by 10%.

It could prove difficult for Sacramento to balance the budget without reducing existing healthcare programs. Cutbacks to the state’s Healthy Families program for the poor would add to the 5 million Californians who don’t have insurance.

Schwarzenegger delivered his message at the Latino Coalition for a Healthy California Conference, where he received a standing ovation from about a third of the listeners. More Latinos lack insurance than any other group, Schwarzenegger said.

“Those same constituents who may be on the receiving end of cuts will see the benefit of making healthcare more accessible,” said Adam Mendelsohn, the governor’s communications director.

Most major business groups have opposed the governor’s healthcare plan, saying that a new tax on their payrolls to pay for coverage would hurt their bottom lines. But in his 13-minute speech, Schwarzenegger made an impassioned assertion that a healthcare overhaul could lower healthcare costs for businesses, whose rising premiums partly are caused by the cost of treating the uninsured in emergency rooms.

“All of that will be eliminated when we fix the problem,” he said.

However, most mainstream healthcare experts believe premiums will increase as new medical technologies are developed and as the population ages.

Schwarzenegger offered a rosy characterization of negotiations in Sacramento, where he said a deal was close. Although Republicans and Democrats “have different philosophies,” he said, “we can bring those two philosophies together” because “everyone wants to have this.”

But not one Republican lawmaker has endorsed the governor’s vision, and the party’s legislative leaders have vowed to vote against any deal he reaches with the Democrats. Because of the lack of Republican support, the governor and Democratic leaders have decided they will have to gather signatures to put much of their plan on the ballot next November.

“There’s no state in the Union that has reforms like we are suggesting here, and that we have put together and are negotiating,” Schwarzenegger said Friday. “No state in the Union.”

But his plan is based on one created in Massachusetts, the first state to require all residents to obtain insurance and subsidize those who cannot afford the premiums.

Asked about that, Mendelsohn said, “The governor understands the importance of Massachusetts to this debate, but it is undeniable that when you get universal coverage in the state with the largest population of uninsured, the impact will be gigantic.”

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jordan.rau@latimes.com

Times staff writers Evan Halper and Francisco Vara-Orta contributed to this report.