The California Senate recently approved The Healthy California Act (SB 562) in a vote of 23-14, but this victory shows how many hurdles remain in its way.
SB 562 is currently less of a fully formed single-payer bill and more of a statement of support for the progressive Platonic ideal of a single-payer system. The legislation spells out the benefits of such a system — incredible insurance for everyone — but is silent on how it deals with the legal, financial, and political challenges.
The still unfinished bill was approved just before the deadline to send it to the state assembly to keep it alive this year. None of the tough work was done.
Around $200 billion of health care spending in the state comes from federal, state, and local sources. Presumably, these funds would just be redirected to the new single-payer system, but there is no guarantee.
To create a true single-payer system, California needs to fold Medicare, Medicaid, and the Affordable Care Act into the new program, but as the legislative analysis pointed out, that would require numerous federal waivers. The federal government is not required to grant these waivers, and it is an open question as to whether the President Donald Trump’s administration would help California.
The big question that the California legislature does have control over is where to get the other roughly $106-200 billion, but that part of the bill is still sorely lacking.
This $106-200 billion would not be “new” money spent on health care—estimates indicate overall health care spending would go down by 8 percent—but it would be taking money that is being spent privately on health care and officially putting it on the state budget. How to do this in an equitable way that the public will understand and accept has bedeviled numerous efforts.
In fact, where and how to get this money are questions at the political heart of every single-payer fight. It is the major stumbling block that has effectively killed other attempts, including Vermont.
A three-way tug of war
To understand the political and financial challenge, think of health care under a single-payer system as a three-way tug of war between patients, taxpayers, and providers.
Every decision is a trade off between these groups. Lower taxes means reduced benefits for patients or reduced salaries for doctors. Better benefits for patients means either more taxes or more work from providers for the same pay.
Finding a politically viable balance is difficult, and SB 562 hasn’t even tried to achieve a balance yet. Right now, it is basically promising everything to everyone:
For taxpayers, SB 562 doesn’t include any new taxes yet.
For patients, SB 562 promises near total coverage with no co-pays and no deductibles as well as total freedom choosing providers without a need for a referral. This is more generous to patients than most single-payer health care systems; even the Scandinavian countries have modest co-pays and/or require a primary care doctor to act as a gatekeeper.
For providers, SB 562 promises a fee-for-service system. The law would cover “all medical care determined to be medically appropriate by the member’s health care provider.” While reducing administrative overhead and establishing a single government entity to negotiate rates would reduce health care costs, the law prevents many cost control options used in other countries. It even promises funds to retain workers in the health insurance industry whose jobs are made obsolete.
The bill is currently generous towards providers, but in every other health care system the government has eventually decided to negotiate a better deal for taxpayers against providers. American hospitals and drug makers know this, and it is why they typically fight any expansion of government health care.
Our currently byzantine system gives providers the power to demand payment well in excess of what they deliver.
Eventually, real decisions will need to be made about balancing the desire of these three groups to decide just how much extra government money must be raised with new taxes. Better cost controls would mean fewer taxes but more potential opposition from providers.
How to raise revenue for single-payer
On top of deciding the amount that will be needed in new revenue, the big question is how to structure any new taxes.
The University of Massachusetts Amherst’s analysis suggested a gross receipts tax of 2.3 percent and a sales tax of 2.3 percent, along with exemptions and tax credits for small business owners and low-income families to promote tax-burden equity. Of course, even with these credits, this scheme would produce some winners and losers among businesses and individuals.
Alternatively, the state legislative analysis looked at a 15% payroll tax. This is a logical way to go because most people indirectly pay a large amount for their employer provided insurance, and companies would no longer need to provide health care.
Presumably, most companies would eventually raise employees’ salaries by roughly what they spend on their health insurance benefits.
To quote the legislative analysis, “In the long-run, it is likely that employers would increase wages to employees, so that total compensation would be roughly equivalent to what it was when employers were paying for employee health benefits. How this would play out in reality would depend on the labor market dynamics in place at the time. For example, in a recession when unemployment is high, employers may be under less labor market pressure to pass cost savings along to employees.”
Theoretically, it would be much easier to directly require employers to provide the state with roughly the amount they previously spent on private insurance, but the federal Employee Retirement Income Security Act (ERISA) prevents that.
Changing ERISA, which prevent states from regulating large employer provided insurance plans, would take an act of Congress. At the moment, the Republican-controlled Congress doesn’t seem inclined to help California adopt single-payer.
Thanks to the health care savings single-payer would produce, most people and businesses will on net be better off even with the new taxes, but getting the public to understand that is a major challenge. A big tax increase is an easy thing for the opposition to attack and the health insurance companies that would effectively put out of business by the bill are ready to oppose it.
A first step in a very long journey
This is not a pessimistic take on SB 562, but an attempt to offer a realistic outline of the big fights ahead.
Generating both public and legislative support for the general idea of single-payer is important, however, an actual system will never be enacted until there is support for a specific plan that includes the trade-offs necessary to make it work.
Polling from PPIC highlights this challenge. It found 65 percent of Californians favor the state setting up a single-payer system, yet support drops to 42 percent if the plan raises taxes.
Reform requires explaining to voters that single-payer doesn’t really mean more taxes. It means the state government is taking money out of your paycheck instead of private insurance companies.
Success for a state single-payer plan requires more than a defined plan A. A plan B and C is needed if or when the federal government denies state waivers or California loses a court battle over ERISA.
At this point, SB 562 is not even a plan A. It is a plan to have a plan, which is far from adequate.