Washington Health Debate Is a Replay for Californians : Reform: The state took a nearly identical journey, from universal coverage to pragmatic compromise. The voluntary measures feature key Clinton goals.

If the health care debate raging in Washington sounds eerily familiar to Californians, there’s good reason: Two years ago, the state went through a nearly identical process.

It began with sweeping plans to achieve universal coverage financed by employers, but eventually settled for a less ambitious package of insurance industry reforms.

The lessons learned by the state could offer a blueprint for national reformers, even as President Clinton and Congress abandon their hopes for major reform legislation this year that focuses on universal coverage.

California’s laws provide some of the most cherished goals sought by the President: Insurance companies cannot refuse to sell insurance to small firms or cancel coverage because of the health status of a company’s workers. An insured worker with health problems is not required to go through a waiting period to obtain full coverage after changing jobs. And there are strict price limits--no matter how sick the work force is, a company cannot be forced to pay more than 20% above the standard rate.

Even after the changes, 5 million Californians still have no health insurance. Nonetheless, the state’s legislation, a compromise brokered between a Democratic Legislature and Republican Gov. Pete Wilson, is widely perceived as a major, pragmatic step on the road to health reform.

It has made insurance available at reasonable rates for the small-business community and its workers who once were at the mercy of an insurance industry that could arbitrarily refuse to provide coverage, could cancel policies, or raise premiums without any restrictions.

The law created the Health Insurance Plan of California, a voluntary alliance--unlike the huge mandatory alliance proposed by Clinton--that enables employers to offer their workers a choice among 22 different health plans. Armed with negotiating powers, it won a 6% reduction in insurance premiums last month. Although the HIPC is small, covering 58,000 workers and dependents from 3,400 employers, its existence provides a competitive spur to private insurers throughout the state.

“There really are striking parallels to what is now happening in Washington,” said Assemblyman Burt Margolin (D-Los Angeles), a key author of the reform measure. “We went through a major effort to get a universal coverage system for California,” he recalled. But the efforts for an employer mandate ran into the unyielding opposition of the business community and then-Gov. George Deukmejian.

When Wilson became governor in 1991, he gave his backing to the idea of insurance reform, but made it clear he shared Deukmejian’s aversion to making coverage compulsory.

“We needed to do the best we could,” said Margolin, summing up lengthy and complex negotiations among legislators, insurance industry representatives and members of the business community. When the governor said at a crucial point in 1992 that he would sign a reform bill, “that gave us tremendous momentum,” Margolin said. The reform bill was passed on the last day of the 1992 legislative session and took effect on July 1, 1993.

The bill provided a new competitive market for small firms, those with fewer than 50 workers seeking coverage:

* Insurers had to make all products available to all customers.

* Insurers had to publish their rates, and could classify customers only by their age and the region of the state.

* Rate differentials were limited. An insurer would have to publish its standard rate for a group. It could give no more than a 20% discount for a firm with the healthiest workers, and charge no more than 20% above the standard rate for a company with the sickest work force.

The insurance market now is more competitive. In fact, the average charges for many customers are lower now than in 1991, according to Mark Weinberg, executive vice president of Blue Cross of California.

Because of the new laws, “small employers have much better access today, and fairly reasonable pricing,” said Terry Hartshorn, chief executive officer of UniHealth America, which operates two major health maintenance organizations, along with 10 hospitals and four physicians groups.

PacificCare, a big UniHealth HMO, with 900,000 members, recently decided to make itself available to customers of the state purchasing alliance, the HIPC. “We were skeptical at first, but decided to join because of its success,” Hartshorn said.

Margolin is hopeful that future legislatures will make the insurance reforms--which apply to companies with three to 50 workers--available for the self-employed, for companies with just two people, and for individuals working at firms without insurance coverage.

California’s insurance reform was a good first step on a much longer road to reform, experts agree.

“It took away a lot of fears business people had that health insurance wouldn’t be there,” said Alan Katz, principal owner of Centerstone, an insurance and benefits firm in Woodland Hills. “But it is not a solution to the overall problem that there are a lot of uninsured people in California and medical costs are spiraling out of control.”

The vast majority of the uninsured are full-time, low-wage workers at medium and small firms. “Many small businesses cannot afford to provide health insurance and stay in business,” said Allan Zaremberg, senior vice president for legislative affairs at the California Chamber of Commerce.

The dilemma, for California and the nation, is finding a way to cover these uninsured workers. But the stalemate in Washington indicates that will be a battle for another day.

In the short run, according to Sen. Dianne Feinstein (D-Calif.), insurance reform is a top priority for members of Congress striving to do something this year. She said Wednesday she favors “taking that first step.”

Times staff writer Edwin Chen contributed to this story.