Gov. looks to Lotto as healthcare fix

SACRAMENTO -- In a high-stakes gamble to revitalize healthcare negotiations, Gov. Arnold Schwarzenegger proposed Tuesday to lease California’s lottery to a private firm and use the money to help guarantee medical insurance for everyone.

Schwarzenegger submitted a 200-page bill to a special session of the Legislature. The framework is largely the same as the plan he outlined in January but never submitted as a bill, although it contains a number of concessions intended to appease labor unions, physicians and some small businesses, all of which have persistently opposed his vision.

Schwarzenegger’s $14-billion plan still would require all Californians to obtain private insurance, either individually or through their employers. The state would subsidize coverage for individuals earning less than $25,525 for individuals or $51,625 for families of four.

The new plan would create a tax credit for low earners who make more than those amounts, to address complaints that many Californians could not afford the insurance Schwarzenegger wants to require.

It also would excuse physicians from being taxed on their office revenue, a move intended to appease the California Medical Assn.

And the governor changed a 4% tax on employers who don’t provide healthcare so that businesses with payrolls under $200,000 would not have to pay that much.

His old plan would have exempted employers with fewer than 10 workers. The new one would double to $2 billion the amount businesses contribute, while giving a break to smaller enterprises like restaurants.

“Our original proposal is now fleshed out and much stronger,” Schwarzenegger said at a news conference. The debate in California represents “the best chance for comprehensive healthcare reform in, I think, 100 years.”

Schwarzenegger’s plan did not immediately win any new converts in the Legislature. Republican leaders indicated that they still objected to a requirement that employers spend a certain amount on healthcare. Democratic leaders signaled that they continue to prefer their own alternative, which would require employers to spend the equivalent of 8% of their payrolls on healthcare.

Union leaders and consumer advocates said Schwarzenegger’s plan would still place too much burden on workers, even though the governor’s tax credit would reimburse insurance expenses that exceed 5% of a family’s income for individuals earning up to $35,735 and families of four earning up to $72,275.

“His proposal didn’t work for the middle class in January, and it doesn’t work now,” said Art Pulaski, the secretary-treasurer of the California Labor Federation.

In January, Schwarzenegger pitched privatization of the lottery as a source of money to help the state’s overall budget. That idea didn’t fly.

Democrats don’t trust the lottery as a reliable long-term source of revenue, and those with moral qualms about gambling fear a private firm will more aggressively try to attract players. Goldman Sachs and Lehman Brothers, two Wall Street investment firms, have expressed interest in helping the state find a private manager.

The administration estimated Tuesday that leasing the lottery to a private company for 40 years could provide the state $2 billion a year for healthcare if California could boost lottery sales to the national average. Those payments could grow to $4.5 billion a year to keep pace with medical inflation, but all the money would run out after as little as 15 years without any plans to replace the revenue source.

Incorporating the lottery into the debate also threatens to anger California’s Indian tribes, which until now have had nothing at stake in the debate.

Alison Harvey, executive director of the California Tribal Business Alliance, said privatizing the lottery could violate gambling compacts between the state and tribes that give tribes a monopoly on gambling machines such as slots.

“There would be inevitable pressure to bring in some kind of mechanical gaming devices in order for them to make the kind of profit they are looking for,” Harvey said, referring to the private operators who would lease the state’s lottery.

It was unclear how another major Sacramento player, the state’s teachers unions, would view Schwarzenegger’s proposal. The lottery provides schools with about $1.1 billion each year. Schwarzenegger’s plan would increase the state’s guaranteed funding to schools by that amount.

“We have a lot of concerns any time you start talking about the lottery and making changes for it,” said Becky Zoglman, a spokeswoman for the California Teachers Assn.

Kevin Gordon, a lobbyist for a number of school districts, including ones in San Bernardino and Riverside, predicted the idea would win education converts. “They get out from under the uncertainty and the negative stigma of the lottery, and they get the funding too,” he said.

Schwarzenegger’s proposal comes as many people in the Capitol have been urging him to scale back his ambitions, perhaps guaranteeing insurance only for children and boosting hospital payments for treating the poor through the tax, which the California Hospital Assn. signed off on last month.

“In recent weeks we had downgraded our confidence level from optimistic to merely hopeful, because we were concerned the governor was not engaged enough,” said Robert Ross, president of the California Endowment, a healthcare foundation in Los Angeles created to press for universal healthcare. “This is certainly an encouraging sign that he is willing to respond to reasonable criticisms to his approach.”

jordan.rau@latimes.com

Times staff writer Evan Halper contributed to this report.