Health-Care Storm Brewing in California Threatens to Swamp U.S.

An alarm bell is ringing in California. Will President Bush and the new Republican majority in Congress respond?

The alarm is warning of an approaching catastrophe in the health-care system. It’s a perfect storm collision of threatening trends.

From one side, the sagging economy and skyrocketing costs of insurance are pressuring more employers to drop health-care coverage for their workers. From the other side, the cavernous deficits in state budgets are forcing governors and legislators to slash Medicaid, the joint state-federal health program for the poor. As these two trends meet, the result could be a tidal wave in the number of Americans without access to health care.

As is often the case, that wave is hitting the beach first in California.

Even in good times, an unusually large share of Californians lack health insurance -- mostly because the state has so many small employers (who are less likely to provide coverage) and new immigrants, many of them here illegally, working in low-wage jobs that don’t offer insurance.

According to the Census Bureau, almost one in five Californians lacked health insurance in 2001, one of the highest figures in the country; a statewide UCLA survey puts the figure at a smaller, but still daunting, one in six. All evidence suggests the problem got worse this year.

Ordinarily, this would be precisely the time the state expands its health-care safety net to catch those losing private insurance. But instead, under the pressure of a budget deficit that could hit $35 billion over the next 18 months, Gov. Gray Davis has proposed two major retrenchments in the state’s Medicaid program, known as Medi-Cal.

One proposal would toughen paperwork requirements for recipients in a way meant to weed out adults already on the rolls; the second would reduce the number of uninsured low-income adults eligible for benefits in the future. Together, these two changes are expected to reduce the Medi-Cal rolls by roughly 500,000 through June 2004. That’s more than one-third the total number of Americans who lost health-care coverage across the entire nation in 2001.

And that’s not all. These cutbacks are coming after the budget crunch last year forced Davis to shelve an expansion of the state’s Children’s Health Insurance Program, which covers children in working poor families. Following a national trend, Davis wanted to open the program to the children’s parents, nearly 300,000 low-income workers in all. But now that idea is indefinitely on hold. And Davis aides privately acknowledge that, as he scrambles to close the massive budget shortfall, he may propose further cuts in Medi-Cal next year.

The state budget squeeze is most severe in California, but virtually every state is sliding into this same ravine. In a study last week, the Center on Budget and Policy Priorities, a liberal think tank in Washington, reported that the states are facing a combined deficit of at least $60 billion to $85 billion in the coming budget year.

Those shortfalls, the center calculated, equal at least 13%, and maybe as much as 18%, of state spending. States haven’t faced deficits that deep for at least 50 years.

Inevitably, those deficits are forcing states to point their knives at Medicaid, now the second-largest cost (behind elementary and secondary education) in most state budgets. Besides California, states this year considering significant reductions in eligibility for Medicaid and the Children’s Health Insurance Program include Connecticut, Montana, Missouri, Nebraska and New Jersey; this month, Tennessee’s governor said he would appeal a court order blocking him from eliminating Medicaid coverage for 200,000 recipients.

In all, states are already considering Medicaid cuts that could strip coverage from 1 million low-income people, the budget and policy center reported. That number is guaranteed to rise as more governors release their budgets over the next month.

And all these Medicaid cuts, remember, are coming as the number of workers receiving health coverage on the job is shrinking. It is as if firefighters were dismantling their rescue equipment just as survivors were jumping from a burning building.

“The incredible stress we are all going to experience from that is something that none of us have really grasped,” says E. Richard Brown, director of the UCLA Center for Health Policy Research.

“We are all in for a very rude awakening when the results of these kinds of cuts are really transmitted down to the level of the doctor and the patient.”

States are hardly without blame. Many governors bought popularity by excessively cutting taxes during the good times of the 1990s; now, to avoid unconscionable reductions (not only in health care but also education), most will have to bite the bullet of asking for tax increases.

But even if governors accept that responsibility, the impending Medicaid disaster is not a problem the states can handle alone; their budget shortfalls are too big. “The problem is nationwide,” says Stan Rosenstein of California’s Department of Health Services.

“The cost of health care far exceeds the ability of states to fund during a revenue decline.”

In July, the Senate (with support from 27 Republicans) voted to temporarily raise the federal contribution to Medicaid by $6 billion. But Bush opposed the idea and it died in the House; he has proposed to send states half that much to subsidize not only health care but all social services during the downturn. That’s little more than a gesture. Even the original Senate proposal now looks inadequate.

Health care is returning to Washington’s agenda, with the two major political parties developing proposals to expand coverage for the uninsured through tax credits either for individuals (Republicans) or businesses (Democrats). But if Washington stands aside while the Medicaid safety net unravels, nothing else it does will overcome the damage.

More families without care, longer lines in emergency rooms, more hospitals and public clinics bleeding red ink, more kids sick at school: That’s what is looming if Washington continues to close its ears to the health-care alarm ringing now in California -- and soon in state capitals from coast to coast.

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Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at: www.latimes.com/brownstein.