Savings in Governor's health care plan may prove elusive.

When Gov. Arnold Schwarzenegger announced his ambitious universal health care plan last week, the underlying premise was clear: Businesses that already provide their workers insurance should be better off.

The plan forces companies that do not provide insurance to pay into a state pool, requires doctors and hospitals to pay a fee based on their revenues, and mandates that individuals carry insurance. As such, it is supposed to lift the burden from employers who believe their insurance premiums are inflated by freeloaders who don't now participate in the system.

Don't be so sure.

Some analysts and business groups say not enough is known about how the proposal's economics will play out to say whether it will lead to lower costs over time for employers.

"There are still a lot of questions about how the plan will impact businesses," said Richard Brown, director of the UCLA Center for Health Policy Research.

Among the big issues worrying the California Manufacturing and Technology, a trade group representing big manufacturers, is whether there are enough controls to prevent costs from spiraling as the state's 6.5 million uninsured are brought into the system.

"To the extent that overall health care costs for businesses are reduced that will be a good start for California manufacturers, since we provide coverage for our employees at a higher level than any industry in the state," said Gino DiCaro, a spokesman for the association. "We're just concerned that the cost containment measures the governor is promising will actually be in the (approved) plan."

The plan's chief cost controls include a mandate that insurers spend at least 85 percent of their premium revenues on health care. It also streamlines insurers' reporting requirements and allows for electronic submission of insurance documents.

In addition, the governor's plan banks on bringing more funding into the state by lowering the number of uninsured residents and thereby drawing down more than $1 billion in additional federal Medicaid dollars. Another big source of funds--$3.5 billion--would be the 2 percent fee placed on a doctor's gross revenues and the 4 percent on a hospital's gross.

Other issues

But some worry that the proposal will actually entice some employers to drop coverage, and instead make a less costly contribution to a pool intended to subsidize insurance costs for employees who are not offered coverage at work. That fee is proposed at 4 percent of total payroll.

However, John Gruber, an MIT professor who ran the economic models that underlie the proposal's employer mandate, said his results indicate that is unlikely to be the case. The reason for that is most of those employers offer coverage to attract and retain workers, or because they believe it's the right thing to so.

"We actually see that some employers who were offering coverage will drop it, others who weren't will add it, and we end up with a slight positive increase in the number of employers offering coverage," Gruber said.

However, one of the biggest question marks is likely to be whether the proposed fees on doctors and hospitals will stand up to a withering lobbying effort by the medical profession to drop them.

Medical industry critics call the hospital and physician fees an unfair tax on their businesses that will only be passed on to patients. "You end up taxing sick people," said Dr. Ralph DiLibero, president of the Los Angeles County Medical Association.

The governor's proposal also introduces new regulations tot insurers. They would operate under a "guaranteed issue" mandate, meaning they would have to issue insurance to anyone who applied and be required to use a "community rating" model, meaning they would be barred from charging more to higher-risk customers.

Jeffrey Miles, vice president of public affairs for the California Association of Health Underwriters, an insurance brokers group, also has some concerns about some of the plan's funding assumptions, particularly the presumption that state will be able to get additional federal health care dollars.

"Overall this is a big picture, big, bold plan, and I think the majority of it is pretty good," he said. "(But) it's hard to say though, if those benefits will still be there when it gets through the legislative process."

BY DEBORAH CROWE

Staff Reporter