Healthcare Reform Failure in California Could Deter Other States

California Governor Arnold Schwarzenegger’s failed attempt to expand health care coverage to the state’s 3.6 million uninsured residents likely will have negative implications for other states trying to reform their health care system, says a Lehman Brothers healthcare facilities analyst.

Adam Feinstein said Lehman Brothers was no longer “optimistic” that a successful reform package in California would create additional momentum for other state-based proposals.

“If Schwarzenegger’s proposal would have continued to move forward, we believe this may have spurred other governors and state legislatures to keep moving their own proposals forward,” Feinstein said Monday in a note to investors. “However, some of this momentum has been lost. In addition, given the concerns about an economic slowdown resulting in state budgetary issues, it would not be surprising to see other state-based proposals face challenges this year.”

Feinstein noted that California’s ambitious plan was being watched closely across the country as a guide for health care reform. But last week, California’s Senate Health Committee voted 7-1 to reject the $14 billion proposal approved last month by the House Assembly. The move came after the state’s Legislative Analyst Office issued a report that the plan would likely cost significantly more than expected and compete with other state programs.

Despite his concern about states’ success at health care reform, Feinstein said state-based efforts to reform health care have a better chance of providing some relief to the uninsured problem and bad debt issue than a national effort.

“Despite all the discussion regarding national programs, we believe that it will be very difficult for national reforms to actually move forward,” Feinstein said.

Still, Feinstein said discussions about healthcare reform at the national level raises awareness of the issue and boosts voters will to support candidates that are attempting to make reforms. That also spurs governors and state legislators to take up the health care reform issue.

Health Affairs reported recently that approximately 40 states are actively purposing ways to address healthcare access, quality and cost, although many were not as far reaching as California’s plan. Meanwhile, Feinstein estimates that for-profit hospitals, alone, could generate nearly $14.6 billion in total bad debt in 2008, up from $12.4 billion last year.