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Watching the latest budget drama in California should be a wake up call for every American in understanding that our broken health care system is breaking the bank for our state governments. Without substantive health care reform, our states will face fiscal collapse. And reform must extend far beyond the funding mechanisms, but must also look very strongly at how we control costs, and how we deliver health care in far more efficient ways.

States share the cost of providing medical care under Medicaid and SCHIP, the very poor and the children of the working poor.

In California, the latest budget battles included a proposal to eliminate SCHIP in California and scale back Medicaid in several areas. Part of this battle has been cynical right wing politics, with attacks on Medicaid-funded In-Home health care workers who are represented by progressive unions. Schwarzenegger's barbaric proposals were not adopted, but the state did scale back SCHIP dramatically, with a budget that will deny coverage to hundreds of thousands of California children over the next two years. Medicaid recipients will lose some benefits, and a cynical attack on the home-health care workers and patients to reduce non-existent fraud  is designed to reduce spending in this area.

As state revenues decline, and stay depressed for the forseeable future, there's a zero-sum game where states must  cut money spent on education, infrastructure, and every other activity to continue funding their share Medicaid and SCHIP.

As detailed in this article by David Osborne.

because states pay for almost one-half of Medicaid, the problem is most acute at the state level.... if current trends continue, health care will devour half of all state spending within 10 years.Every time health care gobbles up another percentage point -- every 1.2 years -- we lose the equivalent of 150,000 teachers.

By 2005, state and local governments were spending 21 percent of their money on health, almost double the figure from 1972. States spent one-third of their money on health by 2005, and within a decade, if present trends continue, the health sector alone will devour one-half of state spending. Similarly, Medicaid and Medicare under current policy would consume one-half of all federal revenues within 15 years.

Osborne, the author of Re-Inventing Government, continues with a diagnosis of the problem.

To develop a workable solution, it helps to understand four basic problems our system faces.

First, the core purpose of our current system is to treat symptoms, not to sustain health. We spend most of our energy and money responding to illness, rather than preventing it.

Second, most medical institutions are designed to provide episodic care for acute illnesses, but the real burden has shifted to chronic problems that need continuing and coordinated care, such as diabetes, asthma, cancer, heart disease, and AIDS.

Third, our system is so fragmented among myriad medical practices, hospitals, and insurance companies that it produces enormous waste. Complex administrative processes consume 25 percent to 30 percent of all health-care dollars.

Fourth, our fee-for-service payment system creates perverse incentives. Providers make more money by performing more services. Indeed, if a hospital makes a mistake or omits something important and the patient has to be treated again, that hospital makes more money than it would have if the procedure had gone well.

Even before the Great Recession, we were moving towards permanent fiscal crisis in state government, largely driven by health care costs that have continued to escalate at 10% per year for 50 years.

Read the whole article by David Osborne for some prescriptions that inform the discussion of what a public plan might look like, and how states, with their differing demographics, problems, and markets can play a tremendous part of the solution.

California is leading the way to fiscal collapse because we have the WORST GOVERNOR EVER and structural problems with our government that allow a minority to control the budget, but the problems in California aren't unique, and they will apply to every state unless we adopt meaningful health care reform immediately.

Originally posted to Aeolus on Sat Jul 25, 2009 at 10:03 AM PDT.

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