By Christopher Lee
Washington Post Staff Writer
Thursday, January 31, 2008; A02

The demise of California's attempt at comprehensive health-care reform this week means that advocates of overhauling the health-care system will turn their focus back to Washington, several experts said yesterday, as an increasingly tough budget climate raises new questions about whether states can go it alone.

When the plan championed by Gov. Arnold Schwarzenegger (R) and state Assembly Speaker Fabian N¿¿ez (D) went down to defeat in a legislative committee, so did hopes that successful reform in such a populous, influential state would bolster efforts elsewhere to cover more of the nation's 47 million uninsured.

While California is unique in some respects -- it has a diverse electorate, a high number of uninsured and a history of occasional budget crises -- experts said some of the same economic forces at work there threaten to slow or swamp similar proposals in other states. The slumping economy diminishes states' tax revenue at the same time that spending demands increase as more people seek help from programs such as Medicaid, which serves the poor. And, unlike the federal government, state governments have to balance their budgets every year.

"The failure of California's plan pushes the focus about expanding coverage even more strongly towards Washington," said Paul B. Ginsburg of the Center for Studying Health System Change, a nonpartisan policy-research group. "I've never believed that states would be able to go very far on their own because of their fiscal limitations. A state in an average year could be able to afford something, but once they get into a recession, they get into fiscal trouble."

Karen Davis of the Commonwealth Fund, a nonprofit research institution, said federal leadership is crucial because California and some other states' plans depend, in part, on expanding Medicaid and other public programs to cover uninsured children who currently do not qualify. But the Bush administration has been unwilling to sign off on most such expansions. "The lack of federal support for state innovations has proved to be a major hurdle to reform," Davis said.

California's proposal, borrowing elements from a similar plan that passed in Massachusetts in 2006, would have required most residents to obtain private health insurance and would have called for new charges on businesses, hospitals and cigarettes to help fund it.

It drew opposition from Republicans who saw it as too onerous on business and from Democrats, including advocates of a single-payer system, who said it would impose a financial burden on working people and yet bring too little benefit. But the crowning blow came from the gaping $14 billion hole in California's budget, which made many supporters and opponents doubtful that the state could afford the program's $14 billion cost.

Schwarzenegger and N¿¿ez have vowed not to give up. About 6.6 million Californians lack health insurance, more than 20 percent of the state's population.

So far, Massachusetts -- which began with an estimated 400,000 to 600,000 uninsured people, less than 10 percent of its population -- is the furthest along among states trying to expand coverage.

Since July, Massachusetts has required almost all residents to obtain health insurance or face a penalty of as much as $912, exempting only those deemed unable to afford coverage. More than 300,000 people had signed up for coverage as of Jan. 1, according to the Commonwealth Health Insurance Connector Authority, the new state entity implementing the law. But the program's long-term cost remains a concern, with state budget experts projecting a shortfall of as much as $147 million this fiscal year.

"We've been extremely successful in enrolling people in health plans, but there is still an awful lot of work to do," said Dick Powers, a spokesman for the authority.

Despite the sagging economy and the collapse of the California effort, other states are still trying. In recent years, Vermont and Maine approved legislation intended to expand coverage to the uninsured, and Illinois and Wisconsin made it a priority to cover more children. Late last year, Maryland expanded Medicaid coverage for single adults and approved new subsidies for small businesses. Other states that are developing plans and may consider them in legislation this year include Colorado, Iowa, Missouri, New Mexico and Washington, according to the National Conference of State Legislatures (NCSL).

"They are likely to take a look at what happened in California and tweak something that they may already have in the works, but I wouldn't see those states as changing a basic direction or abandoning what momentum they already have," said Richard Cauchi, health program director at the NCSL. "States, to be honest, look inward primarily. They are not necessarily trying to be the national trendsetter. They are looking to create a law that will work within their own boundaries."