The stimulus package has money for government health programs, but that's not the way to make coverage more affordable

Gov. Arnold Schwarzenegger raised the ire of many in California by calling for $1.1 billion in cuts to Medi-Cal, the state health care program for the poor, as part of an effort to head off a projected $42 billion budget deficit over the next 17 months.

The federal government is now throwing him a lifeline. A cool $32 billion from the massive economic stimulus bill winding its way through Congress was designated for California. About a third of that is earmarked for Medi-Cal relief.

But a bailout of Medicaid (the federal version of Medi-Cal) with no checks and balances to ensure funds are spent as specified only kicks health care reform further down the road. It also shows that both state and federal policy-makers are still falling prey to myriad misconceptions on health policy. Until our leaders gain a hold on what is and isn't true in the health care debate, we'll continue to suffer through ineffective – and often harmful – reform efforts.

Among these myths is the notion that tens of millions of Americans don't have access to health care. The U.S. Census Bureau puts the number of uninsured Americans at 46 million; of those, 6.6 million live in California, according to the California HealthCare Foundation.

But there's more to those figures than meets the eye.

• Fourteen million of the 46 million counted as uninsured nationwide are eligible for Medicaid, Medicare, or SCHIP (a children's program) – they just haven't signed up.
  
  
• Thirty-one percent of California's uninsured have annual incomes over $50,000. Nationally, 18 million of the uninsured have household incomes above that level. Is it really fair to count as uninsured folks who can afford policies but have elected not to purchase them?
  
  
• Further, 44.7 percent of uninsured Californians are not even American citizens. It's unlikely that even a fully nationalized health system would insure noncitizens.
  
  

Throwing more money at Medi-Cal won't address the fundamental reason why many Californians are uninsured. As long as insurance is prohibitively expensive because of mandates and regulations on insurers, people will go without it.

Medi-Cal and Medicare are, in fact, largely responsible for skyrocketing private health insurance premiums because the reimbursement rates for government programs are well below market rates. This means that the privately insured must make up the difference, creating higher costs for everyone not on the government dole. In fact, research shows this hidden tax on those with private insurance adds about 10 percent to premiums.

Here in California, private health care providers subsidized Medicare to the tune of $45 billion in 2004. By shifting so many of its costs to the private sector, Medicare is hardly a model of cost-effectiveness.

So how should we lower health care costs? Many policy-makers believe that updated health information technology is a silver bullet for the task. The federal stimulus package contained about $20 billion for improving America's health IT infrastructure. Gov. Schwarzenegger is on record as stating that health IT "can lead to dramatic savings."

The savings from computerizing medical records sound significant. A RAND Corp. study estimated that revamped health IT would save approximately $77 billion a year nationally.

Unfortunately, those savings would only be realized after 15 years and only if the system were properly implemented. Considering that Americans spend around $2.3 trillion a year on health care, the absolute best-case scenario for cost-savings is about 3.3 percent.

Bailing out failing state programs and investing in dubious initiatives will prove a dead end for health care reform. If lawmakers are serious about lowering health costs, expanding access to care and perhaps even stimulating the economy, they'd be well-served to reform the federal tax code.

Currently, only businesses enjoy a tax deduction for health insurance expenses for their employees who get their insurance paid for with pretax dollars. If that deduction were extended to individuals – or if individuals received a refundable tax credit for purchasing their own insurance – many more would be able to obtain coverage. And costs would go down, as consumers would have the power to shop around for a policy that best meets their needs.

Closer to home, California could abolish its "sick tax" on the contributions individuals make to federally exempt Health Savings Accounts. Today, California is one of four states that taxes contributions to an HSA. Since 2004, Californians have paid some $162 million in unjustified taxes on their HSAs. With those funds, Californians could have saved for future health expenses or shopped around for the best deal on medical services. Instead, their money has been plowed back into the inefficient government system.

Both state and national leaders are interested in using the economic crisis to advance health reform. Whether that's wise is debatable. But it's critical that their deliberations heed the facts of the health care debate. If they don't, we'll continue to suffer through ill-gotten policies that waste time, money and lives and lead us down the path to a government-run health care system – "Medicare for All."

Pipes is president and CEO of the Pacific Research Institute. Her new book is "Top Ten Myths of American Health Care: A Citizen's Guide."