The California compromise

John Edwards, the Democratic presidential contender, says it “is a fantasy” to believe “you can sit at a table” with powerful interests in the healthcare industry “and negotiate and compromise” a plan that will produce universal health coverage. Progress is possible, he insists, only through an “epic fight.”

It’s a good thing Gov. Arnold Schwarzenegger, a Republican, and Assembly Speaker Fabian Nunez, a Democrat, and, for that matter, Service Employees International Union President Andy Stern, Safeway Inc. Chief Executive Steven Burd and even the chief executives of most of the state’s largest insurance companies weren’t listening.

Because this week, all of those interests, and many others, finalized a breakthrough agreement that could not only ensure universal health coverage in the nation’s most-populous state but stamp the template for federal action that finally guarantees health insurance for all Americans. Along the way, through arduous negotiations, they also demonstrated that the best way to address the nation’s most challenging problems is not through angry finger-pointing but principled bipartisan compromise that tries to harmonize the broadest possible range of interests. “It is a big mistake to not bring everyone together to talk and ask for help rather than just to attack and destroy,” Schwarzenegger said in an interview.

The California healthcare consensus, which the Assembly approved this week, still must clear several hurdles. The state Senate must ratify the agreement -- probably next month -- and then California voters next year must pass a ballot initiative that authorizes the plan’s $14 billion in annual funding.

That ballot initiative will face a difficult political climate shaped by a state budget shortfall and formidable resistance from interests unhappy with the deal, such as tobacco companies and at least one insurer, Blue Cross of California. But the breadth of the coalition supporting the agreement -- which extends from the interests listed above to top Silicon Valley employers, AARP, the public employees union and several big-city chambers of commerce -- as well as the bipartisan backing of Schwarzenegger and legislative Democrats should provide a powerful tail wind. “This is too broad a coalition ... for anybody to stand in the way,” Nunez predicted.

Both in form and substance, the California agreement offers Washington a compelling model. It largely tracks the reform plan Massachusetts approved under then-Gov. Mitt Romney, a Republican, and the universal coverage proposals from the leading Democratic presidential candidates. “It says there is an [opportunity] to craft a big step forward nationally,” Stern said.

Like those other proposals, the California plan is rooted in the principle of shared responsibility. All individuals (with some exceptions for hardship) will be mandated to purchase health insurance, but government subsidies will limit their costs. All employers will be required to insure their workers or pay fees that help fund the subsidies; in an innovative twist, smaller companies will pay smaller fees than larger ones. Tobacco and hospital taxes and increased federal Medicaid payments will cover the remaining expense.

When Bill and Hillary Clinton pursued universal healthcare in 1993, the insurance industry led the opposition. But at least three of California’s five largest insurers are supporting the deal, even though it includes significant insurance reforms, such as the “guaranteed issue” requirement that the companies insure all applicants without regard to prior health problems. As Schwarzenegger quickly recognized, many insurers can accept reform if it is linked to the mandate that all individuals must have insurance -- which broadens the risk pool, provides the companies new customers and prevents people from using the guaranteed issue rule to purchase coverage only after they get sick (which inflates prices for everyone). Linking the individual mandate with insurance reform “was the basis for us getting onto middle ground,” and a clear lesson for Washington, says Bruce Bodaken, chief executive of Blue Shield of California, which backs the deal.

The other reason California found middle ground were herculean efforts from political leaders, particularly Schwarzenegger and Nunez. Each spent months negotiating not only with each other but with their own party’s fractious interests. Asked for the key to the agreement, Schwarzenegger quickly replied, “Being inclusive ... and listening to everyone’s concerns.” Nunez believed a crucial factor was that he and Schwarzenegger disciplined the groups allied with their parties and pushed them toward compromise. Stern’s late intervention also provided critical momentum. “A lot of people gave

In a national political environment overrun by partisan posturing and ideological polarization, Schwarzenegger, Nunez and the other interests that converged in California have demonstrated that the real fantasy is to imagine that big change on big problems is possible without broad consensus forged through painstaking negotiation and compromise. It’s telling that a former movie star has a better understanding than Washington’s squabbling tribes of how progress is achieved in the real world.