Assessing the Possibilities of a Single Payer System in California
Last year, the Assembly Speaker held up the single payer bill, SB 562 (Lara) to assess whether and how the measure could be financed. Its major proponents, the California Nurses Association were furious.
What does the bill do? It covers all Californians for all services with low copays and no deductibles. It would be paid for by consolidating existing government programs and their financing and by increasing state taxes. While the measure has passed the legislature in the past, its proposed taxes have never passed either house of the state legislature, and I don’t believe they have ever passed the Revenue and Taxation Committee of either house.
The Assembly convened a Special Committee to hold hearings and educate members and the general public on the measure. There are thus an interesting set of materials on the next step challenges for California health reformers at http://healthcare.assembly.ca.gov/content/2017-2018-hearings The committee did an excellent job of bringing in expert witnesses looking at financing options, better controls of spiraling health costs and premiums, the fractures in the system and the models from other nations and other states.
My takeaways were as follows: 1) you cannot realistically finance single payer at the State of California level, and 2) we need to look to fix the poorly functioning parts of our health system. Those parts include: excessive administration, unnecessary and unproductive fragmentation, and poorly performing reimbursement systems.
The salient points on financing are as follows. First, the federal government controls nearly all the financing and without Congressional approval you cannot fold in Medicare, employment based coverage, and associated federal tax breaks, let alone Covered California and Medicaid. Second, the state’s increased tax costs are exorbitantly high and would massively distort our state’s economy.
There is no waiver provision in Medicare that would allow the federal government to turn it over to the state to run as it sees fit. (Cubanski) That means you would have to build your new state system on and around Medicare, and you would have very little flexibility to change it to fit your state’s new system. This is less of a problem for single payer proponents, but does require significant funding to fill in the cost sharing and coverage gaps; particularly expensive is long term care.
Medicaid does have a §1115 waiver provision that would allow the federal government to turn its program administration over to the state, which is where it already resides, but some provisions such as eligibility determinations, state claiming procedures and state match requirements cannot be waived. Much as the Trump Administration might be willing to block grant Medicaid to some states (but definitely not California); there are specific limitations, bars and barriers. (Brooks-LaSure) To get a pure Medicaid block grant for a California single payer, you would need an Act of Congress.
The Affordable Care Act has a §1332 waiver provision. (Brooks-LaSure) There are specific requirements, do’s and don’ts that appear to tie the ACA funding to a private insurance delivery system with cost sharing and premium sharing provisions, all three of which are at odds with the single payer model. So it does not appear that you can access this aspect of ACA funding without a change in §1332; in other words an Act of Congress may well be needed.
Federal laws governing ERISA and the tax-favored status of employment-based coverage would need to be changed as well. ERISA governs the large multistate employers who choose to self insure rather than be subject to differing rules in each state where they have employees. These plans are not subject to state rules and regulations, but rather are subject to Congressional and US Department of Labor rules and oversight. (Marciarille) The value ($50 billion) of the federal tax exemption accounts for nearly 30% of the costs of employer and employee premiums. There is no waiver available to capture the value of this tax preference, even with a President who favored single payer. Integrating self-insured employers and employment based financing is a huge and very complex policy lift requiring an Act of Congress.
The Legislative Analyst’s Office assumes that all the necessary federal statutory changes would be secured to fold in the ACA, Medicare and Medicaid and concludes that there is still about $200 billion in current private expenditures that must be replaced by state taxes. (LAO) The private expenditures that would need to be replaced by new taxes include the costs of employment based insurance, the premiums for individual insurance and the consumer out of pocket costs for copays and deductibles and uncovered services. This could be financed by tripling the state’s income taxes, or by quadrupling the state’s sales taxes, or by increasing the state’s property tax rates by nearly 300%.
Scott Graves of The California Budget and Policy Center pointed out that tax financing of this magnitude would require changing the Gann Limit and Prop 98 in the state Constitution – a vote of the people. (Graves) Proposition 98 requires that roughly 40% of the state General Fund taxes must be used for education. The Gann limit constrains the growth of state spending to population growth plus cost of living growth.
The hearings’ expert witnesses identified the very real problems that need fixing: rising costs and declining affordability, fragmented delivery systems, poor performance of some delivery systems, physician shortages, and the 7% of Californians who remain uninsured. (Levitt) Many suggested remedies short of the heavy lift required to enact and adopt single payer in California. One witness pointed to the success of Maryland’s hospital rate regulation system. (Gerovich) Another pointed to Massachusetts’s success in slowing the rise in health costs through expenditure targets. (Hattis) Another pointed to the need for stronger state antitrust enforcement against the proliferation of anti-competitive hospital system mergers. (Baker) Another called for coverage of the undocumented uninsured adults through Medicaid. (Wright) Others called for expanded premium assistance for those still unable to afford coverage under the ACA. (Jacobs) Others called for reducing private insurance reimbursements while increasing Medicaid physician payments. (Trish) Some suggested better risk adjustments and reinsurance for the individual markets and tying plan participation in the Exchanges to participation in other public programs. (Corlette, Mann) Others suggested greater uniformity in provider reimbursements among the different market segments and more efficient administration using modern technologies. (Levitt)
California health reform advocates and state policy makers need to recognize that short of the silver bullet of single payer there are vital practical changes that need to be addressed beginning now. Any help from the federal government in the immediate future is just as illusory as are our dreams of and wishes for a far simpler single payer system even in a state as large and prosperous as California.
So let’s get on with it.
Prepared by: Lucien Wulsin