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Road To Single-Payer: Overcoming Hurdles At The State Level

Editor’s Note

This is part 4, the final installment in Jon Walker’s series on health care and the path to universal, affordable coverage in the United States.

Read Part 3 | View Series Archive

Attempts to convince states to adopt single-payer healthcare face significant hurdles that are both legal and financial. The failures of single-payer in Vermont and Oregon are prime examples of what must be overcome.

When Gov. Peter Shumlin (D-VT) reluctantly gave up on his plan in 2014, he said, “I have supported a universal, publicly financed health care system my entire public life, and believe that all Vermonters deserve health care as a right, regardless of employment or income. Our current way of paying for health care is inequitable.”

“I wanted to fix this at the state level, and I thought we could. I have learned that the limitations of state-based financing—limitations of federal law, limitations of our tax capacity, and sensitivity of our economy–make that unwise and untenable at this time,” Shumlin added.

There is both a short and long term financial concern for any state health care reform plan, since it would dramatically increase the size of state government.

Based on data from Vermont’s attempt to create Green Mountain Care, a single-payer-like program, adopting such a plan would effectively double the size of the state budget.

While single-payer would save money long-term, any big change will require a large startup cost in the short term.

It was estimated that Vermont needed a one-time $200 million bond issue to have the necessary reserves at launch. Almost all states have some form of balanced budget requirement, and it is much harder for states to borrow money than it is for the federal government.

Uncertainty was one of the most commonly cited fears about the ColoradoCare ballot measure in 2016. The Coloradoan editorial against the measure said, “ColoradoCare leaves too many questions unanswered for the Coloradoan Editorial Board, from both a funding and execution standpoint.”

Theoretically, a state can raise taxes to create the necessary funds and provide universal benefits later, but that tends to be pretty unpopular politically.

The long term budget issue is that the economy is cyclical, but health care needs are relatively constant. The amount generated by revenue sources for a single-payer system, like a payroll tax or sales tax, would drop during economic downturns while health care spending would remain relatively steady.

Needing to raise taxes during a downturn can hurt a recovery. Smoothing these temporary disparities is much simpler for the federal government, with its easy borrowing power, than it is for a state government.

Legal Hurdles Far Surpass Financial Hurdles

The big problem for any state reform is that the federal government already directly (via Medicare, Medicaid, Tricare, and ACA exchange subsidies) or indirectly—through employer-sponsored insurance exclusion and the Employee Retirement Income Security Act (ERISA)—controls most health care dollars.

According to Rand’s analysis for Oregon, any true single-payer system would require the federal government to grant numerous waivers to redirect Medicare, Medicaid, and ACA tax credit dollars. These waivers would be tough to get from President Donald Trump’s administration, though not impossible.

ERISA is the 900-pound-gorilla standing in the way of state-based reform. It prohibits states from regulating most elements related to self-funded employer-sponsored health plans. According to the Kaiser Family Foundation, 61 percent of covered workers are enrolled in such plans.

The recent Supreme Court case, Gobeille v. Liberty Mutual Insurance Co., shows just how much ERISA can restrict states’ ability to act.

The court found Vermont cannot require self-funded insurers to disclose basic data about claims for their all-payer database. To what degree the vague law would prevent different state reforms is a significant matter of debate that makes any planning difficult.

State-based health care reform would be fairly easy if the state could simply require every employer to buy their employees the state-based, Medicare-like insurance policy or pay a large tax.

Back in 1974, Hawaii adopted a strong employer mandate law that required good private coverage before Congress adopted ERISA so it is exempt from the federal law. The Hawaii plan was fairly straightforward and worked well. ERISA prevents anything like that from happening now.

Unable to directly regulate most employer-sponsored health plans, state based reform plans tie themselves in knots trying to work around it. Most state single-player plans would indirectly but strongly encourage companies to drop insurance benefits and increase wages to make up for it.

Vermont considered funding their plan with a payroll tax because payroll contributions are deductible business expenses.

“This financing mechanism would best preserve the roughly $500 million worth of forgone federal income taxes owing to the current tax treatment of employer-sponsored health insurance,” one report argued.

Theoretically, over the long term this should mostly even out, but “mostly” is not a reassuring political qualifier. The interplay could create some real losers, especially in the short term.

How About A State Payroll Or Sales Tax To Fund Single-Payer?

It is not guaranteed a payroll tax-financed universal health care system would survive an ERISA challenge.

The Rand study for Oregon points out, “Because the single-payer option would provide universal coverage and use payroll taxes to help fund the system, self-funded employers operating in Oregon could argue that the option effectively compels them to discontinue their current health plans and offer alternative benefits.”

“Unless the state were able to obtain a federal exemption from ERISA, the single-payer option would very likely be challenged in court by self-funded employers,” the study adds.

The report indicates a sales tax-financed system might have better legal standing but even that could run afoul. The sales tax route creates the additional problem of how to recoup the money lost due to the federal tax exempt status of employer provided insurance.

To understand why let’s assume that if a state created a single-payer system, most companies would stop compensating their employees by giving them private insurance benefits.

Let’s also assume that instead of partly compensating employees with insurance they would just pay them higher wages. The problem is that, unlike insurance benefits which are tax exempt, these higher wages would be subject to federal tax.

Workers in this state would be sending way more to the federal government, even though their total compensation would not have increased. Getting the federal government to fix this or reimburse the state would be a challenge.

Dealing With The Federal Straitjacket

If activists want to make states their focus in the effort to move toward single-payer, they need to address the legal constraints in addition to the political ones. For example, the state of California is considering a single-payer bill. The plan for running the actual insurance system is sound, but the legislators behind the measure still haven’t figured out how to fund it, which is difficult given constraints created by federal law.

There are three basic options to deal with these constraints:

1) Build a broad base of support in a state where the political establishment is willing to stomach large transitional costs and possible lost revenue for a law that could be undermined by the Supreme Court. This was tried in Vermont but it hasn’t worked yet, although it might in a larger state with a big tax base.

2) Try making a deal with the devil. There is a small chance a bipartisan Congressional deal could be reached to give states greater flexibility to pursue their own reform plans, including a waiver from ERISA. This would make state single-payer relatively easy. Any such deal while Republicans control Congress would likely give red states the flexibility to move in the wrong direction. States like Oklahoma would have the power to adopt some very regressive changes to their local health care system. The alternative is pushing federal law that would only waive ERISA for states pursuing single-payer.

3) Keep goals and proposals within the legal restrictions. It would be possible for states to greatly expand the use of public insurance without risking running afoul of ERISA. An all-carrot approach might convince companies to ditch private insurance.

Rand found Oregon could create a strong public option without a federal waiver. It would have lowered administrative costs and reimbursement rates, making it significantly cheaper than private insurance. If it was open to all companies, it is likely many employers would switch to it. It is not what many single-payer supporters want, but it is achievable in the short term. When most of the state is covered by public insurance, additional reforms become easier.

How The Single-Payer Movement Can Make Progress

This series is not particularly optimistic because optimism is not what enables people to successfully climb Everest. That requires an honest study of the pitfalls, dangers, footholds, and possible routes. Getting to truly universal affordable health care in the United States is a similarly monumental task.

In conclusion, I hope readers recognize two big takeaways. Single-payer or at least greatly expanding public insurance is the most practical and politically viable route.

While a highly regulated all-payer private insurance system is theoretically possible, using private insurance to achieve a truly affordable system without bankrupting the government seems even more politically difficult. The simple fact is public health insurance programs are more cost effective, easier to understand, more popular with recipients, more popular with the public, and harder to undermine.

Efforts to adopt the intense regulation necessary to make the private insurance markets really work would likely be fought as hard by the industry as single-payer, but without single-payer’s popular base. It is still too much regulation for Republicans but too little government to make liberals happy. “We want Medicare-for-all” or even “lower the Medicare age” is a simple and easy message large groups can rally around.

“We want plan standardization, a government centralized billing system, a large risk adjuster equal to at least 30% of premiums, etc…” doesn’t fit on a sign or get people engaged.

The other takeaway is this will be a big political war that requires battling against a large industry with deep pockets. It can be done, but it requires the political equivalent of trench warfare.

The Anti-Saloon League proved taking on large industry is possible in our system. While their goal of alcohol prohibition was misguided, their political tactics were widely effective. They didn’t just focus exclusively on putting prohibition in the Constitution; they worked for years to win hundreds of smaller battles to create the conditions to eventually make the 18th Amendment possible.

The League did not ask if every local bill was “prohibition” or “not true prohibition.” They asked if  a bill would politically weaken the alcohol industry or strengthen it. If it would weaken their opponent, the League supported it.

Prohibitionists backed women’s suffrage because they knew women were more likely to support their cause. They supported the 16th Amendment, allowing the federal income tax, to undermine the alcohol industry’s argument that the federal government would not be able to fund itself without alcohol excise taxes. They spent years undermining the economic and political power of the industry directly and indirectly at the local, state, and federal level. It was only after they laid all that groundwork that they won.

The movement for single-payer needs a similar commitment to battles big and small to steadily gain territory.

New lobbying rules and campaign finance reform don’t directly impact health care, but they reduce the lobbying power of the health care industry. Making legislators’ pensions conditional on not taking lobbying jobs would reduce one form of legal bribery that makes reform more difficult.

Improving salaries for regulators would make it less likely they would seek jobs from industries they are supposed to be overseeing. Creating larger, better paid congressional staffs would mean legislators would not need to depend on outside lobbyists so much in crafting policy.

Expanding the role of public health care clinics—as California is considering—marginally reduces the scope of for-profit providers and makes it cheaper to create a universal system. Measures, like raising the medical loss ratio or moving even a small segment of people to public insurance, reduces the private insurance industry’s power.

The focus cannot only be on the goal of single-payer but also on every small step that makes getting to the goal easier.

McHenry County Adult Correctional Facility. Photo from McHenry County IL website.
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Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is an expert on politics, health care and drug policy. He is also the author of After Legalization and Cobalt Slave, and a Futurist writer at http://pendinghorizon.com