California’s Single-Payer Health Care Plan Would Be Costly and Risky

MedizinSingle-payer health care is e a major issue in California’s 2018 gubernatorial election. Democratic candidate Gavin Newsom has strongly endorsed the idea, while Republican candidate John Cox is opposed. Last year, a single-payer bill, SB 562: The Healthy California Act, passed the state Senate but was placed on hold in the Assembly.

SB 562 would replace the current health care system with a state program under which all provider claims are paid centrally with no network restrictions, deductibles, co-pays, or other limitations. One governing body would replace the current array of public and private insurers. Medicare, Medi-Cal, and the Children’s Health Insurance Program (CHIP) would be integrated into the new system.

Proponents of single-payer primarily tout its ability to move the state towards universal coverage. However, California is already fairly close to achieving universal coverage. The June 2017 CDC report states that only 6.8 percent of Californians are uninsured. The other 93.2 percent already have private insurance, Medi-Cal, or gained insurance through Covered California during the Affordable Care Act (ACA) expansion.

Creating a single-payer health care system would be enormously costly, time-consuming, and difficult from a political and implementation standpoint. If achieving universal coverage is the primary goal, existing insurance schemes and government programs could be expanded to cover the uninsured instead. If Medi-Cal coverage is considered insufficient, it could be enhanced without impacting other categories of insurance.

A major argument from proponents of single-payer is the claim that it saves money by eliminating profits and administrative overhead — money that is going to insurance providers. Relative to all health care costs, these amounts are quite small. Most California residents already have coverage either through the government (Medi-Cal or Medicare) or a non-profit provider (Kaiser Permanente or Blue Shield), so profits only enter into the equation for a minority of Californians. Second, SB 562 would remove incentives to control costs, eliminating managed care. As a result, provider charges would probably increase substantially, overwhelming any savings from the elimination of middlemen.

Kaiser Permanente, the nation’s largest non-profit health plan and the insurer for many Californians, is known for its high quality of care and cost-conscious decision-making. A single-payer system would eliminate managed care organizations, and with them, the years of efficiency gains made to eliminate wasteful spending and improve quality. A statement by Kaiser’s CEO last year emphasized the difference between universal coverage and single-payer, mentioning his hesitations with single payer’s outdated fee-for-service model.

Perhaps the most daunting challenge of a single-payer system is the price tag. Analyses estimate that implementing a single-payer system would cost California between $330 billion and $400 billion per year, and there are reasons to believe that these estimates are too low. To put the potential costs in perspective, the entire California state budget for 2018-2019 is $201.4 billion. SB 562 does not provide details about how funds would be raised to pay for single-payer.

Furthermore, SB 562 has no mention of cost control measures, while explicitly saying there will be no co-pays, deductibles, or premiums. It plans to cover all medically necessary care, including medical, vision, dental, hearing, and reproductive services. Other services like chiropractic care and acupuncture would also be fully covered under the new program.

Many other countries have universal health care coverage and better health outcomes than the United States, an argument frequently used in favor of single-payer. However, many of these countries utilize free-market mechanisms that promote cost-conscious decision-making. These include price transparency, fewer regulations, consumer choice, and cost-sharing to prevent overuse of services.

Aside from the fundamental problems aforementioned, there are considerable political and legal roadblocks associated with implementing a single-payer system in California. Assuming that tax increases would be a necessity for funding purposes, a key obstacle would be gaining the two-thirds vote requirement for passing any such increases in the state legislature. Other obstacles include Proposition 4 of 1979, referred to as the Gann Limit, which limits state and local appropriations. Implementation of a taxpayer-funded single-payer system would necessitate repealing the Gann Limit or exempting the new taxes from the limit. Proposition 98, passed in 1988, requires that a certain amount of state tax revenues be diverted toward education funding and taxes for a single-payer system would fall into this category. So, once again, voters would have to approve exempting these new taxes from Prop. 98.

Proponents of the single-payer system believe that the new taxes needed to fund it could be addressed in legislation without requiring voter approval. The California Budget & Policy Center sees this as “very unlikely,” since it would require amending the state Constitution. When it comes to Proposition 98, the likelihood of exempting new taxes is less clear, since it depends on differences between the General Fund and Special Fund, potentially opening the door to a lawsuit.

Much uncertainty exists about the possibility of rolling federal funding into the California Health Fund (a new fund from which the state government would pay all medical expenses). The federal government funds Medicare and most of Medi-Cal, setting or at least influencing eligibility rules. This creates a hurdle to covering undocumented immigrants; federal funds are currently not allowed to finance any of the social services provided to this population.

The combination of the political and legal complications, SB 562’s enormous price tag, and the lack of cost-control measures and long-term funding uncertainties need to be carefully considered by Californians. Vermont tried to implement a single-payer health care system in 2014 but ultimately abandoned it following a myriad of challenges. Vermont had a population of 625,000 residents at the time. California’s is home to nearly 40 million people. Increasing access to health care is a laudable goal, but changes to the system should focus on improving health care outcomes for patients and  improving the quality and affordability of care. Increasing the state government’s role in health care is unlikely to deliver those results.

This article was originally published by Reason.com

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