California single-payer health bill shelved – for now

Pills health careSACRAMENTO – Assembly Speaker Anthony Rendon, D-Paramount, an avowed supporter of single-payer health care, nevertheless announced last week that he was pulling the plug on a Senate-passed measure that would create such a system in California.

Rendon, who is holding the bill in committee, was only the proximate cause of AB562’s death. Its fate was sealed after a Senate floor analysis last month pinned its likely cost at $400 billion – more than three times the state’s entire general-fund budget.

“It didn’t make any sense,” Rendon recently told the Sacramento Bee. “It just didn’t seem like public policy as much as it seemed a statement of principles. I hope the Senate takes this chance to take the bill more seriously than they did before.”

According to its bill language, the Healthy California Act would “provide comprehensive universal single-payer health care coverage and a health care cost control system for the benefit of all residents of the state.” The measure would have tossed out California’s myriad systems of private, insurance-backed and government-funded health care and replaced it with a single, government-managed system run by a newly created state agency.

Such a massive change would demand volumes of detailed legislative language, yet the bill itself was remarkably brief and lacking in specifics. It even failed to include any explanation for how it would receive the necessary waivers from the federal government.

The Appropriations Committee analysis concluded the bill would lead to “increased utilization of health care services,” given that all residents would be free 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 such as drug formularies, prior authorization requirements, or other utilization management tools.” So all financial bets were off, given an expected – and probably massive – hike in demand.

To fund the $400 billion program, the Appropriations Committee concluded the state would have to raise about $200 billion in new tax revenues. That would mean a new 15 percent payroll tax, with no cap on the wages subject to the tax. Shifting any of those costs from taxpayers to enrollees would be impossible under provisions that prohibit “members from Healthy California from being required to pay any premium” or “from being required to pay any co-payment, co-insurance, deductible and any other form of cost-sharing for all covered benefits.”

State officials often argue about programs that spend millions of dollars, but had a surprisingly short debate about one that would cost hundreds of billions of dollars. One reason that might be is that Gov. Jerry Brown already had expressed deep skepticism about the measure. “This is called ‘the unknown by means of the more unknown,’” he told reporters in March. It was unlikely he would have signed it, especially given his concern about creating new spending programs. Critics argue that the governor’s public views gave Democrats a free pass to vote for it and assuage their political base while knowing it was unlikely to become law. Rendon’s comments to the Bee certainly give ammunition to those who saw the bill as a half-baked “statement” bill.

Support and opposition fell along predictable and partisan lines. Liberal interest groups, unions and Democratic politicians typically supported the bill, while conservative groups, taxpayer organizations and Republicans opposed it. Some groups expressed views similar to Rendon’s – supporting the single-payer concept but expressing concern about specifics.

The latter, cautious point of view won the day. After all, the bill raised more questions than it answered. It’s unclear how the new system would work or how the new government agency would operate. There are questions about the effects a 15 percent payroll tax would on the economy and jobs creation and about the magnet effect if California created an unlimited, valuable new benefit available to anyone who simply lives in the state. There are questions about federal waivers and how the California system would intersect with federal programs. And that’s just for starters.

Instead of trying to answer those questions thoroughly, the bill’s backers did as Rendon suggested – introduced a measure that stated some principles and goals, but didn’t really explain how the state government might fund them. Given the debate the health care issue sparked at the latest state Democratic Party convention and on the floor of the Legislature, it’s clear that the single-payer issue will be around or a while, regardless of the fate of this particular bill.

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

Supporters of single-payer must explain how to pay for it

Healthcare costsSince the best feature of the Healthy California Act is that all health care will be free, it seems churlish to suggest that someone must pay for something.

Sadly, even after asserting more than $70 billion in new savings from efficiencies that highly motivated private providers and government regulators have not achieved, and after assuming that federal authorities will hand over about $150 billion in program funding and tax subsidies for use by state health care officials, the academics hired by program proponents find that revenues still fall short by $106 billion.

That’s in year one. Before health care inflation kicks in and utilization of free health care services metastasizes. An analysis of the measure by the author’s own staff found that, “Given all the factors that would make utilization management difficult, a 10% utilization increase is likely a conservative assumption.” That translates into tens of billions annually in higher health care costs.

So how does one resolve an annual $106 billion hole in the state’s health care budget?

  • Double the personal income tax? Nope. That will only bring in $89 billion.
  • Quadruple the state sales tax? Nope. That will only bring in $98 billion.
  • Ok, increase the corporate tax by eight-fold. Sorry, that’s just $87 billion.

But California already is a tax machine. This can’t be that hard.

Actually, it isn’t that hard, if you’re willing to dive deeply into the dumpster of discarded ideas.

Voila! That’s where you’ll find the gross receipts tax, the revenue stream preferred by academics supported by the bill’s union sponsors.

A gross receipts tax is levied against the receipts of a sale by a business of a product or a service. According to the Tax Foundation, “gross receipts taxes are largely a historical novelty to the developed world because it is a singularly unsuitable tax for the modern age.” It is economically inefficient, inequitable, and nontransparent.

The tax is not based on profits, wealth, measures of income, or any other indicator of consumption power that is the signal feature of most taxes in modern developed economies.

The tax gives a competitive advantage to bigger businesses that can make their own inputs rather than buy them. As taxes get added to the various stages of production they “pyramid” into the final price, so that the effective tax rate on goods exceeds the tax rates presented to final consumers. Businesses that must pass through this pyramided rate are less competitive than businesses that can integrate value added processes internally.

For the most part, the gross receipts tax is an artifact of history, trendy about a century ago, but abandoned by much of the world for a very long time.

A handful of states have retained versions of a gross receipts tax at very low rates, mostly far less than one percent of sales.

But even more states are abandoning this archaic tax. Indiana, New Jersey, Kentucky and Michigan all repealed their gross receipts taxes within the past 15 years. Even progressive Oregon voters swamped a gross receipts tax at the polls last year.

It takes a tax that bad to support the single-payer plan in California.

The putative rate for the California gross receipts tax would be 2.3 percent, about the same as the 2.5% tax that lost by 19 points in Oregon last year. (Only one state has a gross receipts tax anywhere near this rate, that’s on radioactive waste by Washington state.)

But wait, there’s more.

According to the academics, even a 2.3% gross receipts tax is not enough to close the funding gap for single-payer. (It “only” raises $92.4 billion.) So sponsors also suggest a new sales tax to top up revenues – not only on goods but on many services. This new tax – also at a 2.3% rate – would raise $14.3 billion, the equivalent of a 58% increase of the existing state sales tax.

Still … this may not work.

Implicitly acknowledging that their multi-layered sales tax mechanism may be a nonstarter, the academics suggest a payroll tax as a fallback revenue source to replace the gross receipts tax. While they believe a gross receipts tax is the superior mechanism because it “does not discriminate in its impact between labor-intensive and capital intensive firms,” they nonetheless calculate that a payroll tax paid by both employees and employers at a 3.3% rate would raise sufficient taxes to replace the gross receipts tax and fill the revenue need.

Existing payroll taxes for Social Security, Disability Insurance, Unemployment Insurance are capped at certain wage levels. This new payroll tax would not be capped – similar to the payroll tax for Medicare. The Medicare tax is 1.45% of payroll for both employers and employees, so this new payroll tax would be the equivalent of more than doubling the existing Medicare tax – which taxpayers would continue to pay even if Medicare spending is consolidated with the single-payer plan.

To conclude, under the most absurdly favorable circumstances – never-before achieved cost savings, minimal health care inflation and utilization increases, and enthusiastic cooperation by federal officials – a single-payer plan would require either an untried and economically unsound gross receipts tax, a new sales tax on services, or an record state-level payroll tax.

Yet somehow the single-payer bill is still considered a serious proposal.

resident of the California Foundation for Commerce and Education.

This article was originally published by Fox and Hounds Daily