Senator Eliot Shapleigh - El Paso, Texas

When free-market oracle Milton Friedman died last year, California's Republican Gov. Arnold Schwarzenegger said that he was a disciple of the Nobel Prize-winning economist.

"When I was first exposed to his powerful writings about money, free markets and individual freedom," Schwarzenegger said, "it was like getting hit by a thunderbolt. I wound up giving copies of his books and Free to Choose videos to hundreds of my friends and acquaintances."

Apparently the thunderbolt's effects have faded.

Schwarzenegger has proposed a universal healthcare plan for his state with a shocking amount of government intrusion into the marketplace, including strict insurance regulation, employer mandates and higher taxes. In the face of withering criticism, he is even proposing healthcare for children of illegal immigrants.

His plan borrows heavily from one that was shepherded through the Massachusetts Legislature last year by then-Gov. Mitt Romney, a fellow Republican. One of that plan's chief architects, economist Jonathan Gruber of the Massachusetts Institute of Technology, also advised Schwarzenegger.

Although there are some tactical differences, the glaring contrast is scale. Massachusetts' uninsured population is 460,000, or 7.2 percent of its residents, and Romney's plan carries an estimated $1.2 billion price tag. California's numbers: 7.2 million uninsured, or 19 percent of residents, at a cost of $12 billion.

Regardless of whether Schwarzenegger is successful -- and there are indications that he may be -- the plan is a game-changer for states such as Texas.

Prior to this, Texas government officials and healthcare executives shrugged off Massachusetts as if it were another planet, dismissing its left-leaning politicians, high tax burden and low number of uninsured.

But California has to be considered a close relative, with its excessive number of uninsured residents, a large immigrant population and a populace highly resistant to new taxes.

Massachusetts and California are being watched carefully by the federal government and other states. If they succeed, expect universal healthcare to spread like a brush fire. Maine and Vermont already have universal healthcare plans, and another 10 states are studying similar proposals.

All 50 state legislatures are meeting this year, including 43 this month. Governors and legislators in most states are weighing in with plans for expanding medical coverage for the uninsured.

Because their economies are robust, states are in a generous mood.

Seventeen states took steps in 2006 to cover more of their uninsured, according to the Kaiser Commission on Medicaid and the Uninsured. And for the first time in four years, no state cut income eligibility requirements in Medicaid or the Children's Health Insurance Program.

Polls consistently show that Americans want everyone to have affordable and accessible healthcare. A Texas Hospital Association poll last year showed 86 percent of Texas voters favoring the idea.

The "how" is what foments the controversy.

An emerging popular approach is the "individual mandate," which means that everyone must buy health insurance, much like auto insurance, from a private insurance company. This is the heart of the Massachusetts and California models, which also subsidize low-income residents. This contrasts with the much-loathed, government-run, single-payer system favored in Canada and Western Europe.

Conservatives still promote market-based, incentive-driven solutions. In Tuesday's State of the Union address, President Bush proposed tax changes as an incentive for the uninsured to buy insurance. He also has championed tax-advantaged health savings accounts, although the marketplace has been slow to respond.

Texas Gov. Rick Perry and state Sen. Jane Nelson, R-Flower Mound, chairwoman of the Senate Health and Human Services Committee, each reportedly plan to push his/her own Medicaid reforms in the coming weeks, and they are likely to employ the market-based tactics. Perry opened the door in his Jan. 16 inaugural address, saying, "We must find solutions to the high rate of the uninsured and to the high cost of health insurance."

The Texas Hospital Association and Texas Medical Association, the state's two strongest healthcare lobbies, also are getting into the act on behalf of the uninsured -- and themselves.

The TMA calculates that Texas physicians are giving $1 billion a year in uncompensated care, which is charity plus below-cost treatment of Medicare and Medicaid patients. Medicare pays 65 percent of actual costs, and Medicaid pays even less, the TMA says. Texas hospitals provided more than $10 billion in uncompensated care in 2005, according to the THA.

The TMA sponsored a healthcare summit last year, bringing together several dozen physicians, insurance people, hospital executives, business executives and government officials. Two consensus needs emerged: 1.) more effective wellness programs, including smoking cessation and obesity prevention, and 2.) reducing the number of uninsured.

Texas leads the nation in the percent of uninsured adults, number of uninsured working adults, percentage of uninsured children and number of uninsured children, according to a 2005 U.S. Census estimate.

A total of 24.6 percent of Texans -- 5.6 million -- are uninsured at any given time. The U.S. average is 15.3 percent. In the counties along the Mexican border, the rate is 34.6 percent, and the population is expected to increase by 1 million people by 2020. Tarrant and four other counties -- Dallas, Harris, Bexar and El Paso -- account for nearly half the state's uninsured.

Most uninsured adults in Texas are working, but they either cannot afford health insurance or cannot get it through their employers. Seventy-nine percent of uninsured adults are part of the work force or have a family member in the work force.

Workers in construction, retail, wholesale and manufacturing account for 53 percent of all uninsured Texans. Of businesses with fewer than 50 employees, only 37 percent offer insurance. In those small businesses that do offer insurance, only 35 percent of employees actually enrolled, versus 63 percent in large businesses.

Those who say they cannot afford insurance often make too much to qualify for Medicaid. A nonpregnant, nondisabled parent under 65, in a family of three and earning the minimum wage of $5.15 an hour, would not qualify for Medicaid even though his/her $10,500 in wages would be well below the poverty level, according to Families USA.

Schwarzenegger calls universal healthcare an antidote to the "hidden tax" that the privately insured pay to make up for the cost of uncompensated care for the uninsured. Private U.S. employers pay an average of $922 extra to care for the uninsured. In Texas, that figure is $1,551, and it is expected to rise to $2,786 in 2010, according to Families USA.

David Warner, a professor at the Lyndon Baines Johnson School of Public Affairs at the University of Texas at Austin, teaches a state health policy course. He says Texas would have a much bigger hill to climb in covering its uninsured population.

"California has a higher rate of employers offering insurance. Its Medicaid program covers a lot more people than Texas. Before you do individual mandates, you have to cover the people who can't afford it, such as children and noncitizens. That 6 percent [higher uninsured in Texas] is significant," Warner said.

Anne Dunkelberg, associate director for the Austin-based Center for Public Policy Priorities, agreed that Texas' higher rate of uninsured makes universal coverage "daunting," but she said "there are some core concepts [in Schwarzenegger's plan] that could be used in Texas."

Specifically, she said the 4 percent fee on businesses not offering insurance would be a bargain if their employees could obtain state-sponsored insurance. She noted that small businesses that offer employees insurance have to pay about twice that much.

In the details

Gov. Arnold Schwarzenegger's plan would require California residents to obtain health insurance coverage, regardless of immigration status. The plan would expand state programs and require contributions from employers, individuals, insurers, medical providers and the government.

Funding -- The plan would cost an estimated $12 billion. Schwarzenegger said his plan will save $10 billion annually by reducing costs and redirecting state money already in the healthcare system.

Funding sources would include:

About $5.5 billion in additional matching federal funds to increase reimbursements for Medi-Cal, California's Medicaid program, and to reorganize public insurance programs.

$2 billion redirected from current indigent-care expenditures.

Employer contributions estimated at $1 billion.

Contributions from physicians and hospitals that Schwarzenegger estimates will amount to $3.5 billion.

Employers -- Businesses with 10 or more employees would have to offer health insurance or contribute 4 percent of payroll to a state fund that would provide coverage to uninsured residents.

Individuals -- Those who decline to carry insurance could face a reduction in state income tax refunds or have wages withheld. The proposal expands Medi-Cal eligibility to include adults who earn up to 100 percent above the federal poverty level. The state would subsidize the estimated 1.2 million low-income state residents who do not qualify for coverage under Medi-Cal, up to 250 percent above the poverty level. The provision would allow them to purchase insurance through a state-run pool that will require a small contribution toward their premiums.

Insurance providers -- They would be required to cover everyone, regardless of pre-existing medical conditions or age; to set premiums based only on age and location; and contribute at least 85 percent of their premium revenue to patient care. Insurers would benefit from having 4 million to 5 million new customers.

Children -- Medi-Cal would cover children, regardless of immigration status, from households up to 300 percent of the poverty level.

Physicians and hospitals -- They could expect to receive $4 billion more in Medi-Cal reimbursements. But physicians and hospitals would have to pay 2 percent and 4 percent of gross revenue, respectively, to help finance the plan.