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UC Berkeley's Bizarro Health Reform
by John R. Graham 9/7/07

Can the battle for California health reform get any stranger? Governor Arnold Schwarzenegger and Democratic leaders differ only by degree, not on principle. They all believe that the government knows best how to insure Californians’ health, and haggle only over the cost.

Governor Schwarzenegger proposes a four-percent payroll tax on employers who do not offer adequate health coverage, and he proposes “fees” from hospitals and doctors; while Assembly Speaker Nuñez’s AB8 shakes them down for 7.5 percent. The Los Angeles Times recently reported that the two sides are close to compromise, and that Governor Schwarzenegger is ready to sign a bill that imposes mandatory purchase of health insurance but avoids mentioning the tax, leaving that to a subsequent ballot initiative.

John R. Graham

John R. Graham is Director of Health Care Studies at the Pacific Research Institute.

Pacific Research Institute

Undoubtedly smelling defeat, the California Restaurant Association, the California Small Business Association and the California Retailers Association have just test-ballooned the idea of a one-percent sales tax, hoping to knock the steamroller off course. But they needn’t worry, according to the taxpayer-funded class warriors at the U.C.-Berkeley Labor Center.

Ken Jacobs and colleagues figure that the short-term increase in business operating costs would be less than one percent, and even less in the medium term. This is because “…firms will largely shift health spending onto workers in the form of lower wages over time.”

That’s right, California’s largest pro-union research center promotes "lower wages over time," also known as pay cuts, as a major selling point of both politicians’ proposals. Indeed, they are correct that American workers choose health benefits over wage increases. However, not all do, and this choice is an important freedom.

Take two companies in Oakland: one pays $50,000 without health benefits and the other $40,000 plus health benefits worth $10,000. Why do both exist? After all, employees of the former voluntarily pay about $2,000 of extra taxes. They are already free to ask for benefits in return for a cut in wages of $10,000, but they value $8,000 in their pockets more than $10,000 of health benefits.

If a Schwarzenegger-Nuñez health proposal passes, those workers will see their wages cut against their will and have to reduce their quality of life or, especially if they are young, move out of California. Driving people across state lines is an expensive way to force people to choose between money wages and health benefits.

It would not be so bad if Schwarzenegger-Nuñez would reduce health costs through consumer-empowering deregulation. But this will not happen. If it did, they would be cutting taxes, not increasing them. Instead, it preserves a regime in which private insurers and government agencies, instead of patients, control our health-care dollars.

Neither this nor reduced wages bothers the UC Berkeley researchers, who conclude that mandating health coverage for Californians will result in higher productivity, because people with health insurance are more likely see doctors and stay healthy. This narrative of “universal” health care is so intuitively appealing it must be wrong. Indeed, the International Labor Organization’s latest report on productivity shows that the USA far outpaces every other country.

At $63,885 of value added per person employed, the U.S. produced 14 percent more than second place Ireland. This is not simply greater productivity: Americans take fewer sick days than Europeans. Nevertheless, the U.S. was second only to Norway in output per hour worked.

Schwarzenegger-Nuñez will undoubtedly succeed in reducing workers’ wages. But as long as California’s politicians flirt with “reforms” that cost us more, not less, of our hard-earned money, they won’t improve health care. CRO

copyright 2007 Pacific Research Institute



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