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News Article

Oct 10, 2007

San Jose Mercury News: Schwarzenegger Would Lease Out Lottery To Fund Health Care

Mike Zapler

SACRAMENTO - Hoping to rejuvenate lagging negotiations over health care reform, Gov. Arnold Schwarzenegger said Tuesday that he wants to use the state lottery to help finance his plan that would require all Californians to have health insurance.
The Republican governor said at a news conference that he wants to lease the lottery to a private group and use about $2 billion a year of the proceeds to pay for his health insurance plan, without diverting any lottery funds used for education.
The proposal is part of a larger health care financing initiative whose fate voters would decide in November 2008.
But before he can go to the ballot, Schwarzenegger must reach agreement with Democrats on a sprawling health reform plan. The sticking point remains cost: Schwarzenegger wants to require everyone to carry insurance, but Democrats say he must first demonstrate how he would make it affordable for lower- and middle-class Californians.
Although the governor has won considerable business backing for his plan, consumer and labor groups say he has failed the affordability test.
New idea
Schwarzenegger suggested earlier this year leasing the lottery to help shore up the state budget, but the idea of using the proceeds for health care is new. The governor said California's lottery generates less money per capita than many other states.
"There is someone who will do a better job, who will get more money for the taxpayers," Schwarzenegger said. Under one scenario, according to the governor's finance aides, a private management company would pay $37 billion for a 40-year lease. The state would use that money to create a $2 billion-a-year annuity to pay for health insurance (education, which receives about $1.1 billion annually from the lottery, would be unaffected). The price tag on the governor's health care plan is $14 billion a year.
The lottery funding stream for health care, however, would expire in 15 to 25 years, at which time the state would have to find money to replace it. There also are questions about whether the fund would grow fast enough to keep up with spiraling health care costs.
Beyond that, advocates for the working class said a plan that encourages an increase in lottery sales would disproportionately hurt lower-income people, who studies show spend more of their money on the lottery.
"The governor's proposal would ask more Californians, particularly low-income Californians, to gamble away more of their hard-earned dollars to pay for health reform," said Jean Ross, executive director of the California Budget Project, which researches issues that affect the working class.
Nonetheless, tapping the lottery could allow the governor to sidestep a more politically risky idea he had been considering: Asking voters to raise the sales tax to pay for health care. Pollsters said including a sales tax increase in a health care ballot initiative would jeopardize its chance of passing.
Schwarzenegger has made national headlines since he unveiled his universal health insurance plan in January - a plan that some say could become a national model - but it was based on a 10-page document outlining his ideas. Tuesday was the first time he released an actual bill, spelling out the details.
The governor shifted on a few issues. His January proposal included a 4 percent payroll fee on businesses with fewer than 10 employees that don't provide health insurance. Now he proposes exempting only businesses with a payroll of less than $100,000. Those with payrolls up to $200,000 would pay 2 percent if they don't provide insurance; those with payrolls over $200,000 would have to pay 4 percent.
A few other changes: Schwarzenegger dropped a proposed 2 percent tax on doctors' revenues. Although he still would bar insurers from rejecting people with pre-existing conditions, he would allow rates to be set based on a person's health status - within limits - for several years.
Tax credit
Schwarzenegger also proposes a new tax credit for some lower-income people who wouldn't have qualified for subsidies under his original plan. Finally, although he would require everyone in the state to carry insurance, his plan does not spell out what should be included in the minimum benefit package they would have to buy.
Critics say that could create a situation where people are forced to pay hundreds of dollars a month for insurance, but end up with only catastrophic coverage.
"If you're going to require everyone to have insurance," said Beth Capell, a health care lobbyist who represents labor, "you ought to make sure they're going to be able to afford to pay the premiums and get good care."
Schwarzenegger said he wants to complete a health care deal with lawmakers within two weeks.
© 2007 CAHR