Single-payer health care could cost Californians $400 billion a year

Healthcare costsSACRAMENTO – During the California Democratic Party convention in Sacramento last weekend, the spiciest news was outgoing chairman John Burton dropping an f-bomb on a group of activists demanding that the party embrace a single-payer health system. It’s not really news when the notoriously foul-mouthed Burton says such things, but the fracas highlighted the pressure party leadership faces to embrace government-run medical care.

Yet the foulest rebuke to advocates for single payer this week did not take place at the convention. It took place nearby at the state Capitol, in the form of an appropriations committee report that found that a single-payer bill working its way through the state Senate would cost more than double the state’s total budget.

Senate Bill 562, which had previously passed the Senate health committee, was placed in the “suspense file” by the appropriations committee on Monday as legislators analyze the huge price tag. They have until the end of the week to move it out of the file, or it will die this year.

The committee made clear the size of the undertaking: “The fiscal estimates below are subject to enormous uncertainty,” it explained. “Completely rebuilding the California health care system from a multi-payer system into a single payer, fee-for-service system would be an unprecedented change in a large health care market.”

The appropriations analysts estimate an annual cost of $400 billion a year, which soars above the projected $180 billion state budget. Of that cost, the committee explained, about half of it would be covered by existing federal, state and local health care funding. That leaves a $200-billion hole, which the committee says could be covered by a 15 percent payroll tax. Even if the calculation includes reduced health care spending by employers and employees, the committee still estimates a $50-billion to $100-billion shortfall.

And, quite significantly, these costs could be understated given the kind of demand that would be created by this system. Its main advocates, Sens. Ricardo Lara, D-Bell Gardens, and Toni Atkins, D-San Diego, view health care as a “human right,” so the system the bill would create would provide nearly unlimited access to medical care. In fact, the Senate health committee report opined that “SB562 will change health care in California from commodity to a right.”

“Under the bill, enrollee access to services would be largely unconstrained by utilization management tools commonly used by health care payers, including Medi-Cal,” according to the committee report. “The ability for enrollees to see any willing provider, to receive any service deemed medically appropriate by a licensed provider, and the lack of cost sharing, in combination, would make it difficult for the program to make use of utilization management tools … . Therefore, it is very likely that there would be increased utilization of health care services under this bill.”

And the committee only is talking about predicted costs. It’s not its job to engage other policy debates, such as those touching on subjects including rationing, waiting lists for services if the demand overwhelms supply and the quality of care. The bill would apply to illegal immigrants, which raise critics’ concerns about the state becoming a worldwide magnet for “free” health care.

The bill is fairly short given the complexity of the subject. But the Mercury News captured the gist of the single-payer approach in a March news article: “Instead of buying health insurance and paying for premiums, residents pay higher taxes. And those taxes are then used to fund the insurance plan — in the same way Medicare taxes are used to provide insurance for Americans 65 and over.”

This bill would put control of health care in the state under the authority of a nine-member panel and essentially eliminate the role of insurance companies – thus replacing them with a government bureaucracy. But the size of the tax bill and state costs even have Democratic Gov. Jerry Brown expressing what the newspaper calls “deep skepticism.”

The analysis makes some other important points. For instance, it’s not clear that the federal government would go along with this, and it is totally discretionary whether the feds would grant the necessary waivers involving Medicare and Medicaid services. The bill’s funding is based heavily on the ability to divert federal funds from those programs.

The analysis also notes, “There are several provisions of the state constitution that would prevent the Legislature from creating the single-payer system envisioned in the bill without voter approval.” In Colorado this past November, voters defeated a single-payer initiative, Amendment 69, with an overwhelming 79 percent to 21 percent “no” vote.

Supporters of the measure claim that it will reduce “waste” by putting all health plans under a single umbrella, thus ending the duplication of multi-plan systems. But critics note that competition is the best way to keep costs low – not putting a system under one giant governmental entity. Advocates see it as a way to ensure proper health care for everyone, but the appropriations report confirms critics’ concerns that such a system could obliterate the state budget and kill job-creating private enterprise because of the high tax bite.

As the Democratic Party protests illustrated, we can expect the debate to become even more acrimonious and obscenity laden as the days go on.

Steven Greenhut is Western region director for the R Street Institute. Write to him at [email protected]

This piece was originally published by CalWatchdog.com

Gavin Newsom to pitch universal health care as California governor’s race grows crowded

As reported by the Sacramento Bee:

Democratic Lt. Gov. Gavin Newsom is drafting a health care plan for California that he plans to unveil as a core component of his gubernatorial run, based in part on the universal health care program he signed into law when he was mayor of San Francisco.

Newsom, seen as a strong contender in the increasingly crowded field of candidates vying to succeed Gov. Jerry Brown in 2018, is staking out an ambitious plan to rein in rising health care costs, expand universal access to people across the state regardless of income or immigration status, and preserve coverage for the estimated 5 million Californians who risk losing their insurance under President Donald Trump’s changes.

“I think we can learn a lot for the state of California from what we did with Healthy San Francisco,” Newsom said in an interview. “We had the resourcefulness, the resources, and the boldness and audacity to try something new. It’s not necessarily something that can be adopted in all 58 counties, but it can be adopted …. where the majority of California’s population is.”

The idea would likely require substantial state and federal funding. …

Click here to read the full article

Neither liberty nor justice for all

Recently, Harvard political theorist Danielle Allen wrote in the Washington Post of “The most important phrase in the Pledge of Allegiance” — “with liberty and justice for all.”

Liberty

Allen recognized that justice required “equality before the law” and that freedom exists “only when it is for everyone.” But she confused democracy, as in progressives “build[ing] a distributed majority across the country, as is needed for electoral college victory,” with liberty, which is very different. Similarly, she replaced the traditional meaning of justice (“Giving each his own,” according to Cicero) with a version of “social justice” inconsistent with it. And her two primary examples — rights to education and health care — were inconsistent with both liberty for all and justice for all.

Americans cannot have both liberty and such social justice, under whose aegis one can assert rights to be provided education and health care, not to mention food, housing, etc. Positive rights to receive such things, absent an obligation to earn them, must violate others’ liberty, because a government must take citizens’ resources without their consent to fund them. Providing such government benefits for some forcibly violates others’ rights to themselves and their property.

The only justice that can be “for all” involves defending negative rights — prohibitions laid out against others, especially the government, to prevent unwanted intrusions — not rights to be given things. Further, only such justice can be reconciled with liberty “for all.” That is why negative rights are what the Declaration of Independence and the Constitution, especially the Bill of Rights, were intended to protect. But those foundational freedoms continue to be eroded by the ongoing search to invent ever-more positive rights.

Echoing John Locke, The Declaration of Independence asserts that all have unalienable rights, including liberty, and that our government’s central purpose is to defend those negative rights. Each citizen can enjoy them without infringing on anyone else’s rights, because they impose on others only the obligation not to invade or interfere. But when the government creates new positive rights, extracting the resources to pay for them necessarily takes away others’ unalienable rights, which people recognize as theft except when the government does it.

Almost all of Americans’ rights laid out in the Constitution are protections against government abuse. The preamble makes that clear, as does the enumeration of the limited powers granted to the federal government. That is reinforced by explicit descriptions of some powers not given, particularly in the Bill of Rights, whose negative rights Justice Hugo Black called the “Thou Shalt Nots.” Even the Bill of Rights’ central positive right–to a jury trial–is largely to defend innocent citizens’ negative rights against being railroaded by government. And the 9th and 10th Amendments leave no doubt that all rights not expressly delegated to the federal government (including health care and education) are retained by the states or the people.

Liberty means I rule myself, protected by my negative rights, and voluntary agreements are the means of resolving conflict. In contrast, assigning positive rights to others means someone else rules over the choices and resources taken from me. But since no one has the right to rob me, they cannot delegate such a right to the government to force me to provide resources it wishes to give to others, even if by majority vote. For our government to remain within its delegated authority, reflecting the consent of the governed expressed in “the highest law of the land,” it can only enforce negative rights.

Our country was founded on unalienable rights, not rights granted by Washington. That means government has no legitimate power to take them away. However, as people have discovered ever-more things they want others to pay for, and manipulated the language of rights to create popular support, our government has increasingly turned to violating the rights it was instituted to defend. And there is no way to square such coercive “social justice” with “liberty and justice for all.”

Gary M. Galles is a Professor of Economics at Pepperdine University, a Research Fellow at the Independent Institute, an Adjunct Scholar at the Ludwig von Mises Institute and a member of the Foundation for Economic Education Faculty Network. His books include “Lines of Liberty” (2016), “Faulty Premises, Faulty Policies” (2014) and “Apostle of Peace” (2013).

Prop. 55: California Voters Extend Highest Income Tax Brackets to Fund Education and Healthcare

classroomCalifornia voters on November 8 passed Proposition 55, which is an initiative constitutional amendment which took effect on November 9. This ballot measure was the successful effort to extend the Prop. 30 highest marginal tax rates promoted by Gov. Brown and others in 2012 as a “temporary tax” to help stabilize the state’s General Fund. Prop. 55 was opposed by some segments of the business community, but no serious opposition effort was mounted against this ballot measure.

Pursuant to the Attorney General’s Title and Summary, Prop. 55 extends by 12 years the “temporary” personal income tax increases enacted in 2012 on earnings over $250,000 (for single filers; over $500,000 for joint filers; over $340,000 for heads of household). Prop. 55 allocates these tax revenues 89 percent to K-12 schools and 11 percent to California Community Colleges, as well as up to $2 billion per year in certain years for health care programs.

While the ballot measure also prohibits the use of education revenues for administrative costs, it provides local school governing boards with discretion to decide, in open meetings and subject to annual audit, how revenues are to be spent. These are among the required audits and disclosures under Prop. 55.

According to the revenue estimates prepared by the Legislative Analyst and the Director of Finance, the enactment of Prop. 55 “will result in increased state revenues annually from 2019 through 2030 — likely in the $5 billion to $11 billion range initially — with amounts varying based on stock market and economic trends. These increased revenues will be allocated under constitutional formulas to schools and community colleges, budget reserves and debt payments, and health programs, with remaining funds available for these or other state purposes.”

According to the official ballot arguments: “PRO: Prop. 55 helps children thrive! Prop. 55 prevents $4 billion in cuts to California’s public schools, and increases children’s access to healthcare, by maintaining current tax rates on the wealthiest Californians — with strict accountability requirements. We can’t go back to the deep cuts we faced during the last recession.”

“CON: Vote No on 55 — Temporary should mean temporary. Voters supported higher taxes in 2012 because Governor Brown said they would be temporary. State budget estimates show higher taxes are not needed to balance the budget, but the special interests want to extend them to grow government bigger.”

As explained by the independent Legislative Analyst Office, over half of California’s budget is spent on education and that portion of the budget has seen a 50 percent increase in spending since Prop. 30 was enacted just a few years ago. The personal income tax provides a large portion of the State’s General Fund, followed by the sales tax and the corporate income tax.

High-wage earners, as well as thousands of small businesses that pay under the personal income tax, will continue paying an extra 1 percent, 2 percent or 3 percent tax on their income for an additional 12 years. The ballot measure also creates a formula to provide additional funds to the Medi‐Cal program from the 2018‐19 state fiscal year through 2030‐31. Although included in Prop. 30, this ballot measure does not extend the expiring sales tax increase of a quarter percent.

While the proponents repeatedly claimed that Prop. 55 continues a tax on “millionaires,” that clearly is not the case. Many small businesses that gross or net less than 1 million dollars will be impacted, as well as individuals making $263,000 or more, hardly the definition of a millionaire. At least a quarter of personal income tax revenue in California is generated by small businesses (i.e., sole proprietorships, LLCs, Subchapter S corporations, etc.). Some have estimated that over 80 percent of small businesses pay under the PIT Law.

To make matters worse, Prop. 55 taxes capital gains as ordinary income. With the continued volatility of the global and domestic stock markets, California will likely see big increases and decreases of PIT receipts with the drops and bumps of those stock markets. Moreover, with over $3 billion in the state budget reserves, some have questioned the need to extend the tax increases under Prop. 30 until they expire in 2018.

Prop. 55 extends the following income tax brackets, the highest marginal rates in the nation:

For individual filers (double the figures for joint filers):

  • Over $263,000 – 10.3% tax rate
  • Over $316,000 – 11.3% tax rate
  • Over $526,000 – 12.3% tax rate
  • Over $1,000,000 – 13.3% tax rate (includes 1% surcharge for mental health)

As a result of the enactment of Prop. 55, thousands of individuals and small businesses will be saddled with additional taxes over the next dozen years and California will continue to have the highest base rates in the nation for those paying taxes under the state’s personal income tax law. While a highly progressive tax system is desired by some interest groups in California, the current rates are at such a level that some believe they are fundamentally unfair and result (along with the highest federal income tax bracket) in more than 50 percent of income being taxed by the state and federal governments.

Chris Micheli is an attorney and legislative advocate with the Sacramento governmental relations firm of Aprea & Micheli. 

Obamacare Sinking Under Weight of Math

Healthcare costsThe Affordable Care Act is collapsing, and President Obama blames Republicans.

Writing in the Journal of the American Medical Association, the president accused Republicans of undermining the health care law’s implementation. “It has come at a cost for the country,” Obama wrote, “most notably for the estimated 4 million Americans left uninsured because they live in GOP-led states that have yet to expand Medicaid.”

But expanding Medicaid also has come at a cost.

Medi-Cal, as Medicaid is called in California, has enrolled almost 5 million people since January 2014, when the Affordable Care Act expanded eligibility for the safety-net program. In 2010, 7.4 million Californians were covered by Medi-Cal. Today it’s more than 13 million, about one-third of the state population.

Covered California, the health care exchange where federally subsidized policies can be purchased from private insurers, has enrolled just 1.4 million people since it went online in the fall of 2013.

Is the dramatic expansion of Medi-Cal a success story?

Not if you run a hospital. California pays Medi-Cal providers less than it costs to provide the care to patients. The more people they treat, the more money they lose.

In 2009, hospitals in California were losing a total of about $2 billion annually on the care they provided to Medi-Cal patients. Today it’s about $8 billion.

The federal government provides matching funds for state Medicaid programs. To help California bring home every available federal dollar, the hospitals came up with the idea of paying a fee to the state, which would be put into the Medi-Cal program to help it qualify for matching funds. Then the state would have more money and could pay the hospitals for providing care to Medi-Cal patients.

It may sound like a game of three-card monte, but the California Hospital Association says the program has helped hospitals lose only $5 billion on Medi-Cal patients instead of $8 billion.

The hospital fee program was written into state law in 2009 and renewed three more times, most recently in 2013. It was well-supported but still bumpy: The state took a $1 billion annual cut of the hospital fees to pay for children’s health programs, and occasionally some of the hospital fees were diverted to other budget priorities.

So the hospitals are asking the voters of California to lock the hospital fee program into the law permanently. It will be on the Nov. 8 statewide ballot as Proposition 52, the Medi-Cal Funding and Accountability Act.

The measure has the endorsement of …

Click here to read the full article

Tobacco Tax – Conflicting Goals of Prop. 56

cigarette smoking ashesWhat is the tobacco tax increase for? Is the tax proposed in Proposition 56 to reduce smoking or to gain revenue? It seems the proponents’ goal is to be all things — a deterrent to smoking by raising the cost, plus raising revenue mostly for health care. Can they really have it both ways?

Raising the cost of a product means you will get less of it. The idea behind raising the cost of cigarettes and other tobacco products is to diminish and even eliminate their use. Previous tobacco tax increases have been accompanied by reduced use.

In a new study by the Proposition 56 campaign aimed at convincing the business community of the measure’s positive economic impacts, additional costs for a single smoking employee in health care costs and reduced productivity is calculated to be more than $5,000 per year.

The study also notes that, “From an employer ’s perspective, money spent on Medi-Cal is a good investment.”

About a billion dollars raised by the new tax would be dedicated to Medi-Cal. The idea is for an on-going financial commitment to the Medi-Cal program that has seen a dramatically increased population in recent years–and not just because of smokers. California has one the smallest percentage of smokers of any state.

The study briefly remarks on the loss of business for retailers who carry tobacco products asserting that the net benefit of eliminating “all” smokers would outweigh the costs involved from lost revenue of private sector retailers and lost government revenue. In this context, can we call eliminating all smokers a pipe dream?

If cessation of smoking is the prime goal, with all the economic benefits that the study says comes with the end of smoking, why not raise the tax instead of $2 a pack to $20 or more. That should discourage smokers.

But then all the revenue will disappear as well.

How important is the revenue goal of Proposition 56? If revenue diminishes with the decrease in smoking won’t those who benefit from the government dollars look for a replacement? In fact, Proposition 56 calls on the state Controller to transfer some of the new money to programs already benefiting from previous tobacco tax increases to make up the expected revenue loss if this measure passes. It stands to reason that those benefiting from the revenue haul from an increased tax will not want it to disappear.

There’s an example of such logic on the same ballot. California voters will decide on Proposition 55 to continue what was supposed to be a temporary tax.

Hospitals and health care union members are taking a two-prong approach to fund Medi-Cal. Go after dollars from the rich with Proposition 55’s extension of the income tax, and capture money from the poor who tend to make up the bulk of smokers with Proposition 56’s tobacco tax increase.

So, what is the intention of Proposition 56 — is it designed to discourage and ultimately stop smoking, or is it to raise revenue?

This piece was originally published by Fox and Hounds Daily

Everybody Getting Sick of Obamacare

MedizinTo keep a comedy plot moving, things have to go terribly wrong, somebody has to hide the truth, and it all has to come crashing down at the end in something like a spectacular pie fight.

The whipped cream is about to hit the Affordable Care Act.

Covered California just announced that the average cost of premiums for policies sold on the state health insurance exchange will be 13.2 percent higher next year. In 14 other states, premiums for widely sold silver plans will rise an average of 11 percent.

The worse news is why: Health care costs are higher, two temporary programs to reduce risk for insurers are ending, and people signing up have been sicker than expected.

That’s the opposite of what was intended. The Affordable Care Act was supposed to reduce health care costs, outgrow its need for insurer subsidies, and get young and healthy people into the risk pool with its mandate to buy health insurance.

The individual market may have reached the dreaded death spiral — the point where insurance is so costly that only people who are sick will buy it, driving rates even higher.

There’s evidence of this in the latest numbers from the law’s “risk corridor” program, which is supposed to collect money from insurers with healthier customers (lower costs), and give that money to insurers with sicker customers (higher costs). For 2014, the program collected $362 million but owes $2.87 billion. For now, insurers will receive only 12.6 percent of the money they expected.

This has added to financial problems at the nonprofit member-run health plans known as co-ops. In 2014 there were 23 co-ops around the country. Today there are 11 — seven that lost money in 2015 and four that just announced they’re going out of business.

Five health plans have filed lawsuits over underpayments from the risk corridor program, which is set to end this year along with a second program that provides reinsurance. A third program for risk adjustment is permanent, although a Maryland health plan is challenging it in the courts.

Meanwhile, a federal judge ruled in May that the Obama administration is illegally giving money to insurance companies to pay for a cost-sharing reduction program that subsidizes the deductibles and co-payments of low-income people who buy silver policies on the exchanges.

In mid-2013, the administration removed the cost-sharing reduction program from its 2014 budget request and decided to pay for it with money that Congress appropriated for another purpose.

Congress has been trying for over a year to …

Click here to read the full story at the L.A. Daily News

“Honeymoon” Period is Over For Government Run Health Care

The announcement yesterday by Covered California that the statewide premium increase for Obamacare will be 13.2%, up from approximately four percent in each of the last two years, signals that the “honeymoon” period is over for government run health care in California and elsewhere.

The State of California and its taxpayers needs to brace itself for another major threat to its long-term fiscal sustainability because things could get ugly pretty quickly depending on many variables that determine California’s extraordinary level of government run health care spending.

The precise impact of the fiscal hit posed by the premium increases is difficult to pinpoint at this early stage, but there is no question that the state’s exposure to significant increases in Obamacare-driven health care expenditures will increase dramatically over the next few years.

Total costs for Obamacare in California are staggering, which means that any tweak to the program by the federal government could immediately expose the state to billions, or even tens of billions of dollars in increased costs unless corrective action is taken.

This fact is particularly troubling given the extremely poor track record of the California Democrat Legislature in being proactive on fiscal issues such as the state budget and the pension issue.

For example, Republican Presidential nominee Donald Trump says he plans to completely repeal Obamacare, which would blow a hole in California’s budget of tens of billions of dollars, unless coverage is dropped for millions of Medi-Cal recipients.

A few sets of summary figures paint a good picture the state’s total exposure in the event that federal government shifts more responsibility for the financing of Obamacare to the states, or decides to pull back all together.

According to the state’s approved 2016-17 budget, total state spending for Health and Human Services totaled $54 billion for 2016-17, which even now surpasses K-12 Education as the biggest category of state spending, which received $51.5 billion in 2016-17.

California State spending for Health and Human Services, primarily Medi-Cal, has increased by 46% since 2011-12, jumping from only $37 billion in 2011-12 to the $54 billion for 2016-17 noted above.

But if you add federal spending to the equation, the California Department of Health Care Services received a total $93 billion in 2016-17, nearly double the $47 billion received in 2011-12, according to the California Department of Finance.

The state’s Medi-Cal caseload has exploded in the past few years, increasing from 8 million in 2012-13 to a projected 14 million in 2016-17, covering over a third of the state’s population, according to the Governor’s May Revise.

For 2016-17 the state’s share of the Medi-Cal expansion under Obamacare is $16.2 billion ($819.5 million General Fund).  But this only assumes a 5% share of the cost for the State of California.  By 2020-21, the state share will double to 10%, while the federal government is supposed to continue to pick up 90% of the costs.

I don’t believe it’s reasonable to assume that these formulas will stay so one-sided for long, particularly in light of increased premium pressures as well as fiscal pressures on the federal budget.

Absent changes to current federal and state law, my preliminary analysis suggests that the state’s annual cost increases related to Obamacare could easily reach into the billions of dollars per year in the very near future, and significantly higher if the federal government decides to further shift its costs to the states, which is inevitable.

Future double-digit annual premium increases will only serve to exacerbate state costs and encourage more cost shifting by the federal government.

It is important to note that health care premium inflation is not something that will subside anytime soon, and the trend is only likely to increase for the foreseeable future.

The low-premium increases over the last two years of 4%, was a complete anomaly based on the historical 20-year averages.

Public agencies in California commonly assume an average of 10% annual increases in employer health care premiums.  According to the California Health Care Foundation, individual premium increases rose by 15% in 2014, 9% in 2013, 8.2% in 2012, and 10% in 2011—roughly an average of 8.75% per year.

“The key drivers of health care premium increases are advances in medical technology and subsequent increases in utilization, excel price inflation for medical services, cost-shifting, the high cost of regulatory compliance, and patient lifestyles (e.g. physical inactivity and increases in obesity),” according to a study by the Wellpoint Institute of Health Care Knowledge.

To sum up, the federal government’s future commitment to Obamacare financing is shaky at best, and any major changes could spell financial catastrophe for the State of California unless bold political leadership is exercised in Sacramento—something that has been in extremely short supply on the Democratic side of the aisle in Sacramento for quite some time.

David Kersten is executive director of the Kersten Institute for Governance and Public Policy (www.kersteninsitute.org) . He is an expert on fiscal issues and teaches a masters’ course on public budgeting for the University of San Francisco. 

Covered CA projects large hike in 2017 health premiums

As reported by the Sacramento Bee:

Covered California announced projected average rate increases of 13.2 percent for health insurance bought next year through the state-run system, as consumers were urged to “shop around” to avoid large premium hikes.

Covered California executive director Peter Lee said there are multiple reasons for the increase: hikes in specialty drug costs, an expected loss of federal aid to insurance companies and “sicker people” enrolling in two of the state’s biggest providers during the off-season special enrollment period.

Lee said the premium hikes are not due to health insurer profits. “We kicked the tires hard. … This isn’t about health plans making big buckets of money. It’s about rising costs of health care.”

Rate hikes for Covered California policies in the last two years came to about 4 percent, putting the three-year average at 7 percent. Lee noted that 90 percent of Californians will still be eligible for federal subsidies to help cover their Covered California premium costs.

Lee noted that the average increase varies widely by …

Covered California Is No Model for Obamacare Reform

covered caWith the recent announcement of UnitedHealth Care’s abandoning Covered California and most other Obamacare exchanges around the country, its beneficiaries will have fewer plans to choose from in 2017. We can expect this shrinking number of health plans to take advantage of market power to increase premiums. Obamacare’s supporters believe the solution is to give state-based exchanges the power to act as “active purchasers” limiting consumers’ choices like Covered California does today.

Under Obamacare, consolidation is widespread. Hospital mergers increased 44 percent from 2010 to 2014. As for physicians, Marcus Welby, MD is an artifact of history. In 2014, 39 percent of physicians worked in practices with at least eleven physicians, versus fewer than one quarter three decades ago. The five largest national health insurers are merging into three, assuming the federal Department of Justice approves the consolidations.

Admitting Obamacare is leading to shrinking choices, its supporters now argue less competition among health plans is just fine, as long as the exchanges are granted even more power over the plans insurers offer.

California is one of only four states where the Obamacare exchange, called Covered California, has the statutory authority to act as an “active purchaser.” Covered California defines just one benefit design in each “metal” tier. It dictates, for example, a primary-care visit has a $45 co-pay for those with Silver plans; or that a family deductible is $4,500. According to Peter Lee, Executive Director of Covered California, consumers do not really value being able to choose plans with different deductibles or copays. “What’s the difference between them? Tweaks on co-insurance and insurance babble that most consumers don’t understand.”

In order to cut out this “babble”, Covered California only accepted 12 of 32 insurers which initially showed interest in participating in 2014. Some rating regions have more insurers competing than others. Obamacare’s supporters were relieved when Professor Richard Scheffler of the University of California, Berkeley, and colleagues published research concluding rating regions with fewer insurers (such as Santa Clara County) had lower premium hikes in 2015 than those (such as San Francisco) with more. The authors credited Covered California’s active purchasing power for this counter-intuitive result.

Examining Silver plans, the researchers concluded the average statewide premium for a 40-year old increased 3.3 percent in 2015; and a 10 percent decrease in insurer competition in a rating region was associated with a reduction in the premium hike to 3.0 percent. In New York, where the exchange is not an active purchaser, the relationship went in the direction one would expect in a normal market.

The average statewide premium increased 2.1 percent; and a 10 percent decrease in competition in a rating region was associated with an increase in the expected growth rate to 3.0 percent.

Explaining California’s counter-intuitive result, Professor Scheffler and colleagues suggest health plans in rating regions where there are fewer competitors can negotiate excessively profitable contracts with hospitals and doctors; and this gives them more room to yield when negotiating rate hikes with Covered California. Another way to put it might be that uncompetitive insurance markets allow insurers to gouge providers, then Covered California gouges back from insurers.

A policy to give that power to other states’ exchanges ignores the bigger picture. Comparing two states’ Obamacare exchanges is like comparing the taste of two rotten lemons. Health plans in exchanges in both California and New York are “highly concentrated” as defined by the Department of Justice and Federal Trade Commission. In other words, they would be closely investigated for antitrust violations if they operated in a normal market.

Nevertheless, the average premium hike in California in 2015 was 3.3 percent and in New York it was only 2.1 percent.  By 2015, we already had one full year of Obamacare behind us. Everything turned upside down a year earlier. According to the Manhattan Institute, a 40-year old man’s premium went up by 33 percent in California in 2014, versus declining 45 percent in New York.

And there is the problem of network adequacy. Professor Simon F. Haeder of the University of Wisconsin – Madison, and colleagues, found hospital networks were smaller in insurers’ Covered California plans than in their commercial plans in two-thirds of cases. Networks in their Covered California plans were 17 percent smaller (measured by hospital beds) than in commercial plans. Insurers are not limiting premium hikes by yielding excess profits to Covered California, but by reducing access to hospitals and doctors.

Rather than giving other state exchanges Covered California’s power to limit consumers’ choice of health plans with narrow networks, other states should be demanding more freedom from Obamacare’s federal regulations and passing that freedom on to consumers.

enior fellow at the Pacific Research Institute and a Senior Fellow at the National Center for Policy Analysis.

This piece was originally published by Fox and Hounds Daily