State health-care reform was expected to take a step forward last week. Instead, it seemed to stumble.

And the diagnosis?

Unknown.

“There are certainly a lot of steps that still have to occur before health reform becomes a reality,” says Jan Emerson, a spokeswoman for the California Hospital Association. “We are very committed to seeing it become a reality. I can’t predict what the Senate’s going to do and who could predict what the voters will do?”

On Jan. 16, the state Senate Health Committee was to hold its first hearing on the health plan negotiated between Gov. Arnold Schwarzenegger and Assembly Speaker Fabian Núñez. Late last year, after months of political wrangling, the Assembly approved the plan, ABX 1 1. Supporters say the draft law would extend health-care coverage to 3.6 million people, including 800,000 kids, who don’t have insurance now. It was a compromise between the governor’s original proposal and Assembly legislation. Considered key to the deal was the fact that important unions and industry groups – like the California Hospital Association – endorsed the heath-care proposal.

“With the Assembly’s courageous vote just a short time ago, we are closer than ever to fixing our broken health-care system,” Schwarzenegger said this past Dec. 17. About a week later, Núñez and Schwarzenegger together filed an initiative that would finance the $14.4 billion plan.

The hearing on ABX 1 1 was pushed back a week, to Jan. 23 (past the Weekly’s deadline), and initial news reports all but labeled health-care reform DOA.

Before the originally scheduled hearing, the legislative analyst hadn’t completed her report on the plan’s revenues and costs. (She probably had other things on her to-do list. Like, say, dealing with the $14.5 billion shortfall in the governor’s proposed budget.)

And further mucking up the health plan’s prognosis was a closed-door meeting among the governor, Democratic leaders and the California Hospital Association.

“The hospital association, whose support is seen as a linchpin to passage of the plan both in the Legislature and by the voters,” wrote The Sacramento Bee’s Capitol Alert, “is apparently unhappy with how the hospital section of the initiative is written and has threatened to file a new measure.”

Considering the health plan’s existing deep-pocketed opponents – Blue Cross, the tobacco industry and the pharmaceutical industry are expected to spend upwards of $100 million to defeat a future ballot measure on the health proposal – a flip-flop by the hospital association likely would deliver the fatal blow to health-care reform in 2008.

But as it turns out, it’s got a pulse.

“Filing a new measure…

I have no idea where that report came from,” Emerson says. She says she hopes the governor will file new initiative language instead.

“Our association was the first major health-care organization to come out and support the governor’s proposal, and that meant we would agree to a tax,” Emerson says.

Per the agreement, hospitals said OK to a new 4 percent fee. The fund generated by this fee on hospitals would be matched by the federal government, and be used in part to increase Medi-Cal reimbursement rates and to expand coverage for the uninsured.

“Part of our agreement,” Emerson says, “is that the fee would be capped at 4 percent. In addition to the new monies that would be generated, the state would continue the payments being made at the state general fund. That way we’re getting new money into the system, not using the tax to replace money and have the state use the current money for other purposes. That’s long been the agreement with the governor.”

But then, on Dec. 28, when the governor and Assembly speaker filed the initiative, the language changed, Emerson says. “The way it is written, it would allow that 4 percent fee to be raised by a two-thirds vote of the Legislature. That was not the agreement we had.

“The other thing: All the money was to be used for Medi-Cal payments and the uninsured. The way the measure was drafted, it says the Legislature, with a two-thirds vote, could use the money for other purposes.”

On Jan. 16, the hospital association’s executive board met with Schwarzenegger, Núñez and Perata, Emerson says. “We believe it was an honest misunderstanding,” she says. “We are continuing the conversations with them to get the problem resolved.”

When asked if she’s confident the governor will refile new initiative language with the attorney general’s office, Emerson says, “We’re very hopeful. We all want to resolve this. We all want health reform to succeed.”

Says Ted Lempert, a former assemblyman and current president of Children Now, an advocacy group that supports ABX 1 1: “I’m trying to be optimistic. From a children’s advocacy perspective, we view [ABX 1 1] as absolutely critical. There’s been a lot of talk for a long time about making sure all children are insured. It’s about time we actually do it.

“I hear people say, ‘There’s this problem with it,’ or ‘There’s this problem with it,’ Lempert adds. “Well, this is a way to get kids health insurance. And there’s not another motion out there.”

Before voters get the chance to weigh in on the health-care reform, the state Senate would need to approve ABX 1 1. And despite the self-congratulatory attitude in Sacramento in late December, politicos expect the bill to have a more difficult time in the state Senate.

“While I applaud and share the goal of this legislation, I’m also deeply concerned,” Senate President Pro Tem Don Perata (D-Oakland) wrote in the California Progress Report. Before the Senate considers the legislation, he said, Perata wants to see the legislative analyst’s financial assessment.

Before the full Senate votes on the health plan, it would have to make it out of the Senate Health Committee, which is chaired by Sen. Sheila Kuehl (D-Santa Monica), who’s got her own competing proposal in the works. In 2006, Schwarzenegger vetoed Kuehl’s bill, which would have provided universal health coverage through a single-payer model. She brought it back in 2007; the Senate approved it but because the governor again promised a veto, Kuehl asked the Assembly to hold SB 840 in a committee.

Kuehl’s no fan of the Núñez-Schwarzenegger plan. “That bill is going to get an extremely thorough hearing,” she previously told the Weekly.