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Daniel Weintraub: How to define affordable health care is key issue

Sacramento Bee

Although Gov. Arnold Schwarzenegger and the Democrats who control the Legislature have narrowed their differences over health care, they still have a fundamental difference in how they view the problem and the potential solution.

Schwarzenegger wants to use a combination of mandates and subsidies to provide at least basic insurance protection to Californians who don’t have coverage today, while focusing state aid on low-income families.

The Democrats, in contrast, want to guarantee comprehensive benefits to people who are employed, and to limit by law the amount that even middle-income families have to pay for their coverage.

Resolving that difference will be one of the big hurdles Schwarzenegger and the Democrats will have to overcome before they can reach agreement on a bill both sides hope will be a health care program that could be a model for the nation.

Schwarzenegger’s latest plan would offer free care to people earning up to 150 percent of poverty, or about $31,000 a year for a family of four. He would offer state-subsidized insurance on a sliding scale for families with incomes between $31,000 and $52,000. Their premiums would range from 4 percent to 5 percent of their income, so that a family earning $52,000 would pay a monthly premium of about $216.

The governor earlier this year said that people making more than that would have to be responsible for their own health care costs. But under pressure from the Democrats, Schwarzenegger is now supporting additional aid to families making as much as $72,000 a year.

People earning between 250 percent and 350 percent of the federal poverty rate who do not have health insurance through their employer would be eligible for a tax credit to offset any portion of their premiums that exceeded 5 percent of their income.

Democrats say they have at least two big objections to Schwarzenegger’s proposal.

First, they say, the subsidies he is offering don’t reach high enough into the middle class. They want to give direct aid to people making as much as four times the federal poverty rate, or about $82,000 for a family of four, especially if the state requires those people to have insurance, as Schwarzenegger has proposed.

Second, people who qualify for the subsidies should not have to pay more than 5 percent of their incomes for all of their health care costs, the Democrats say. The 5 percent limit should apply not just to premiums, as the governor proposes, but also to deductibles and out-of-pocket charges for drugs, office visits and other health care expenses.

The debate has focused attention on a key question: How much can people afford to pay for health care?

It is a tricky question to answer, especially once you start talking about the middle class because every family spends its money in different ways. Some live in bigger houses, some drive newer, nicer cars, some take more vacations while others sock away more in savings for retirement.

A recent study by the University of California, Berkeley, Labor Center and the UCLA Center for Health Policy Research concluded that the typical California family spends about 3 percent of income on insurance if they are covered through the workplace and about 6.8 percent if they buy it on their own.

Not surprisingly, the percentage of a family’s income spent on health care decreases as income grows. For the poorest families, just above the poverty level, the typical family spends 7.3 percent of income on health care if they have coverage through work and 12 percent if they do not.

Families earning between three times and four times the poverty level spend about 3 percent of their income on health care if they have job-based coverage and 7 percent if they do not.

While those numbers are for the “typical” family ? the median ? the study also pointed out that many families pay far more. For families earning between 2.5 and 3 times the federal poverty rate who do not get coverage through work, one in four spend more than 7.5 percent of their income on premiums alone, and 1 in 10 spend more than 20 percent of their earnings on premiums.

Schwarzenegger’s tax credit proposal is aimed at those families who have to buy insurance on the open market without the aid of an employer. He has been criticized for not also offering it to families who are covered through work. His goal, however, was not simply to offer relief to people who already have coverage but to make it easier for those without coverage now to obtain it.

That difference might seem a small point, but it is crucial.

California Democrats see health care reform, in part, as a chance to redistribute income to poor and middle-income people, even those who already have health insurance. Schwarzenegger’s plan does some of that as well, but his overriding goal has been to broaden access to at least minimum coverage while recognizing that some people will still have to pay a significant share of their income for health care.