01/08/2007 09:46 pm ET | Updated May 25, 2011

The Schwarzenegger Health Plan: A First Look

Gov. Schwarzenegger provided an overview of his health plan today. As expected, it's based on the "mandated coverage" approach used in the Massachussetts law and in Sen. Ron Wyden's proposed Healthy Americans Act. If the plan's details bear out the impressions left by this summary there will be some winners, some losers, and some - as Al Gore would say - in that "little known third category."

First, the good news. The plan does appear to provide universal coverage, especially for children. It also addresses the "invisible tax" that's generated when medical providers treat the uninsured and bury the cost in fees that wind up buried in insurance premiums.

It creates a purchasing pool for lower-income enrollees, which could be used (we don't know if it will be) to lower rates and increase performance requirements for insurers. It requires all employers to set up "Section 125" plans, where employees can set aside pre-tax dollars to pay their out-of-pocket health costs.

In the "mixed" category, the plan emphasizes premium discounts for "healthy behavior." That's mostly good, although there are two potential downsides to this approach. First, discounts for "healthy behavior" sometimes turn into penalties for "unhealthy behavior," which is a hidden way to raise premiums. Secondly, limits need to be placed on which "lifestyle" decisions affect rates or the program can become Draconian.

Negatives include the fact that people are required to buy insurance from private providers only, as with most "mandated coverage" proposals. This leaves insurers with no incentive to perform better as an industry. The way to address that is by allowing people to buy into Medicare, then challenging private insurers to do better.

Mandated coverage is also, in some ways, a regressive form of taxation. The plan does offer subsidies to low income people, but the regressive impact will remain everywhere else.

As with many such plans, the devil - or angel - is in the details, and the details aren't available yet. So all of these comments are preliminary, based on the overview-level information that was released today. I've put up a more detailed review of the proposal, with my initial pick of winners and losers, at The Sentinel Effect. We'll keep you posted as more information comes out.