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League of Women Voters of California

LWV California Education Fund Nonpartisan Analysis of

Proposition 216

Health Care. Consumer Protection. Taxes on Corporate Restructuring.

Initiative Statute

The Question

Should additional requirements for the operation of health care businesses be established and new taxes be imposed on health care businesses to fund specific health care services?

The Situation

During the 1980s, average health care spending in the United States grew by almost 11 percent annually. Since 1990, the rate of spending has been slowed to about 4 percent annually, partly because employers have contracted with health maintenance organizations (HMOs) to keep their insurance costs down. HMOs use methods such as reducing the number of days patients stay in the hospital, review of treatment plans, and financial incentives for doctors to hold down costs. About one-third of Californians belong to HMOs.

The Proposal

Proposition 216 would require health care businesses to:
  • physically examine a patient before denying payment for care and establish criteria for authorizing or denying payment for care.
  • disclose tax returns and other financial information, and report the outcome of legal proceedings brought against the business.
Proposition 216 would also:
  • add new taxes on HMOs for excessive officer compensation, mergers, acquisitions, restructuring, and hospital bed reductions.
  • use the revenues from the new taxes to implement this Act and to provide public health services (trauma care, communicable disease control, preventive services).
  • create a consumer watchdog agency funded by dues, grants and donations to monitor HMO practices.
Proposition 216 would not allow insurers, health plans, and health care businesses to:
  • offer financial incentives to doctors and licensed caregivers to deny or delay medically appropriate care.
  • prevent doctors or licensed caregivers from disclosing relevant health care information to a patient.
Fiscal effect: According to the Legislative Analyst, Proposition 216 would potentially generate hundreds of millions of revenues from new taxes on health care business. On the other hand, General Fund revenues would be reduced up to tens of millions of dollars annually because the new taxes would reduce health care businesses' taxable income.

Supporters Say

  • doctors, not insurance companies, would make decisions on patient care, and patients' medical records would be confidential
  • health insurance premiums would be used for patient care, not excessive salaries to HMO officers and huge profits to stockholders.

Opponents Say

  • nurses union sponsors of this measure are trying to protect and increase their jobs at patient and taxpayer expense
  • businesses may drop employee health coverage if costs skyrocket because of this measure, and it does not extend health insurance coverage to uninsured Californians.
(Analysis prepared by the League of Women Voters of California Education Fund.)

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Last updated: October 20, 1996
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