This Spring, California SB (Senate Bill) 562 proposed a single-payer healthcare financing system for California. Governor Jerry Brown was immediately skeptical, stating, “This is called ignotum per ignotius….In other words, you take a problem and say, ‘I’m going to solve it by something that’s even a bigger problem,’ which makes no sense.” And in early July, California Assembly Speaker Anthony Rendon tabled the bill calling it “woefully incomplete.” While true, that incurred the predictable wrath of single payor advocates.
Understandably, it’s difficult for supporters not to be enthusiastic about SB 562 given the conclusions reached by the Political Economy Research Institute (PERI) based out of the University of Massachusetts, Amherst. PERI has released a Study commissioned by the California Nurses Association (which has always favored single payor universal coverage) that projects reductions in healthcare spending by $37.5 billion a year! No small change there.
The Study reports that the proposed single payor system could provide “decent health care for all California Residents…” and while providing full universal coverage would increase overall system costs by about 10%, it “could” produce savings of about 18%. The savings supposedly will be realized through reduced administrative costs, reducing pharmaceutical reimbursement charges, and “a more rational fee structure for providers.” “More rational” usually means “reduced,” and that usually means primary care and mental health are the first in line to take it in the neck, given their limited negotiating leverage.
And it gets even better. There would be no premiums, copays, or deductibles. According to the Study, people could get treated whenever and wherever they want. And money will be saved. This is like heaven.
There was much missing from SB 562. For example, it did not include a funding mechanism in the Bill, leaving that to California’s Assembly. It was strong on what but light on how. That obviously troubled Speaker Rendon. The PERI Study suggested a 2.3 percentage point increase in the State sales tax which would raise California sales taxes to 9.55% not including local add-ons, and a 2.3% business gross receipts tax on revenue exceeding $2 million.
I admit to a modicum of skepticism as much as I welcome new and aggressive ideas. But the theory of single payor universal coverage has been around for decades, and the last state that went down this path (Vermont) got a very rude financial awakening when the real numbers were toted up. As the Boston Globe reported,
“The numbers were stunning. To implement single-payer, the analysis showed, it would cost $4.3 billion in 2017, with Vermont taxpayers picking up $2.6 billion and the federal government covering the rest. To put the figures into perspective, Vermont’s entire fiscal 2015 budget, including both state and federal funds, is about $4.9 billion.”
The Globe went on to report that the Vermont Governor’s office estimated needed tax increases on income and payroll that more than doubled existing taxes. The Governor, who ran on this issue, pulled the plug.
California Governor Jerry Brown may well do the same in California if a final bill reaches his desk next year, but the Wall Street Journal, in an editorial that ran on June 12, urged him to consider just the opposite. The WSJ editorial, most probably tongue-in-cheek, noted Governor Brown’s comment with the Latin phrase, and yet suggested that this concept be taken for a “test drive” by California, saying:
“ But if Mr. Brown believes this, maybe he should sign it and force progressives to live with the consequences before they foist another health-care experiment on the entire country.”
Not a bad point. For years, politicians advised by liberal-leaning economists have been on a rant for just this. Given the paucity of other more workable initiatives and the inability of Republicans in Congress to agree on much of anything, it may well be time to call the question once and for all. And where better than California?
Of course, a universal coverage single payor system would save money right off the bat in some areas. System-wide administrative costs indeed would be reduced. Commercial insurers as we know them would be eliminated with their varied operating expenses, procedures, and the ever-present bureaucratic red tape.
Employers would be relieved entirely of providing health insurance as a benefit. [Might that incent more employers to move to California?] Providers would have but one set of procedures and rules to comply with. And given that there will be no copays, copayments, or deductibles, significant administrative burdens on providers (as well as some collections problems) will be eliminated. While the savings would not constitute as big a portion of the overall coverage cost as some suggest, it represents real money in a one-time savings. However, it does nothing for the other 85% or so of the cost of coverage, namely, the claims expense.
Of course, the State of California, which would be the single payor, would incur some administrative costs in running the system, processing claims, managing networks, etc. And if history is any guide, States usually are not uber efficient. But if this were to be similar to Medicare, there is almost no management of care and very little other cost-control type activity or overview. Good for reducing administrative expenses; bad for reducing claims expenses. And to the extent California engages in cost-control activities, its administrative costs would increase, but at least there would be substantial economies of scale. And those evil private insurers would (at last) be gotten rid of.
However, let it be repeated: Once implemented, the administrative cost reduction would be a one-time reduction; thereafter, premium increases would resume unabated, and in fact, without cost-controls, they presumably would increase more rapidly than they have to date, unless the citizens of California undergo a huge transformation in lifestyles and how they use services.
As difficult as it is to digest, the only way to truly reduce healthcare costs substantially and in increasing amounts over time is to reduce claims expense. To do that, either fees must be reduced or reductions must be had in the per person rates of usage of services. And as I have written repeatedly, the focus eventually must be on the rates of use of services by focusing on the chronically ill, and improving overall health. THAT is the way, over time, to put increasingly large bites into the cost of healthcare.
SB 562 does apparently proceed down the path of reducing fees (pharma and “a more rational fee structure” whatever that might mean), but reducing pharma charges is easier said than done. Kudos, if California can do it; but it seems a far bigger problem than one that even a state as large as California can tackle alone. SB 562 (of course) does not even dip its toes into the reduction of the use of services. In fact, just the opposite given its aim of no copays or deductibles, and the ability to get care wherever Californians want without restriction. Just sayin’.
Should California actually proceed down this path, I would encourage the State to keep close track of certain data so that we all can learn from the experience, such as:
- Administrative expense saved solely on the payor side (one payor of enormous scale, elimination of commercial insurers, etc.)
- Administrative expense saved on the provider side (only one set of rules, one set of claims forms, no copays, etc.)
- The extent and cost of management of claims by the payor, if any
- Changes up or down in fees paid to providers, and which providers experience the greatest increases or decreases
- Changes in per capita rates of use of services by category
- Changes in rates of emergency room and inpatient care use
- Wait time particularly for primary care and mental health care
- Polls of impacts on providers and particularly primary care
- Financial impacts on hospital systems
- Pharma costs
- Member satisfaction
If California eventually proceeds on this course, I strongly urge them to engage in massive patient education on appropriate system access and self-care. It must somehow reduce the rate of use of care to survive.
What is unstated in all of this would be the future role of employers, if any, in the financing of healthcare coverage. Section 1c of the Bill states: “This act does not create any employment benefit, nor does it require, prohibit, or limit the providing of any employment benefit.” Otherwise, the Bill is silent on employer-based coverage. As I read it, employer-based coverage would disappear, and why not from the employers’ standpoint. Presumably employers would be free to offer an added level of insurance as a perk, but why would they given the open-ended access of SB 562?
Indeed, some of today’s perversities in our healthcare financing system derive from the employer-based coverage anomalies. No other country is like the US in that regard. And it must be admitted that single payor universal coverage is much simpler. Like education up to certain levels, it now becomes a right funded wholly by tax dollars. Does burying its costs in our already choking level of taxes make it more palatable? We did that with Medicare and Medicaid for years.
More and more commentators are edging toward varied forms of single payor or increased federal involvement. For example, Dr. Dan Stone in his July 5 post to this website proposes what appears to be a more sensible approach, albeit one that takes us further down the path of single payor.
However, David Johnson, while also discussing the current Congressional morass, warns:
“Constructive health reform does not require more money. It does require redistributing healthcare resources away from acute and specialty care and into preventive health, chronic disease management and behavioral health services. It also demands greater transparency, lower administrative costs and balanced regulatory oversite.
“The challenge is not what to do. It’s how to do it. Beyond the BCRA (Senate bill), Congress must find ways to stabilize health insurance markets, encourage innovation, incentivize health over care, increase coverage, improve access and reduce inequality?
Whew! A mouthful. But as an older lawyer once commented to me while we were considering litigation strategies, “It has the additional advantage of being the truth.”
Joe Flower keeps reminding us that we are having the wrong discussion. Rather than obsessing on who pays, we must obsess on reducing how much we pay by making the systemic changes needed to reduce the need for payment. In that regard, Republican attempts to make huge cuts to Medicaid without concomitant systemic changes seems short sighted.
So only partly tongue in cheek, I join in with the Wall Street Journal in inviting the great State of California, the home of so many other societal innovations, to take the plunge, adopt single payer universal coverage, and show the rest of the country how to do it. One way or the other, we will learn something, I’d hope. And isn’t that the Federalist way?
Who know? Stranger things have happened, and we sure could use something like PERI forecasts.
Categories: Uncategorized
“Constructive health reform does not require more money. It does require redistributing healthcare resources away from acute and specialty care and into preventive health, chronic disease management and behavioral health services. It also demands greater transparency, lower administrative costs and balanced regulatory oversite.
In that vein, before Qliance went under they proved that direct primary care could lower overall healthcare cost for an individual by 20%. The only mechanism in healthcare that could create that drastic of savings. The movement is organically growing and has both passionate doctor and patient advocates, but has been largely ignored as a solution by insurance, state, and federal (not that the movement wants government involvement). Qliance ended up going under because they signed a Medicaid contract and expected the government to play by the rules, not because the model is flawed.
Great primary care can act like a rudder on the massive ship that is US health. Primary care has been essentially destroyed by the insurance industry and obamacare – but is THE preventive and low cost healthcare model.
Very good zamishka.
These guys are trying to artificially alter costs so someone else is picking up the bill. None of their suggestions focus in on how to reduce the rate of growth and all they are doing is promoting wasted costs that have increased health care costs tremendously in recent years.
Not quite right, because we get paid in healthdollars. Employers pay on average 3/4ths of that $18,000, so if employer sponsored insurance was made illegal overnight the average household income would go up $13,500, so families really pay a quarter of their gross income for their health insurance.
As you’ve heard me say many times, I’ve had CAD for 18 years now and counting. Only three of those years were expensive and 15 were pretty cheap. My six generic drugs costs well under $1,000 per year total. My 15 inexpensive years don’t matter to an insurance underwriter. They would view me as uninsurable or, at best, insurable only at very high cost especially now that I’m older. Most of your former patients that you referred to above are likely in the same boat.
I always had insurance because my employers over the years covered everyone whether you have a pre-existing condition or not as long as you sign up for the insurance when you are first hired. Now I have Medicare and it doesn’t decline to cover people with pre-existing conditions either.
Median insurance costs are sky high because of the policies we created. Look a number of years ago at how what the premiums were. They were lower and even then they were higher than need be.
You are setting up a scenario to fail with numbers that are inflated due to the policies you promote. Look at how the price of Lasik has fallen while the quality has improved.
The unknown sick were significantly incorporated into the healthcare policies at least in the past. I treated loads of patients with CAD and CHF along with COPD and the costs averaging over a period of years was no where in the vicinity it appears you think they are in and that combination is one of the more expensive groups of patients.
Median household income in the US in 2016 was $56,000. Median insurance cost was $18,000. Average OOP is about $2000. (These are all from memory but should be close.) Can people afford 1/3 of their gross income going of premiums?
Steve
The issue from an underwriter’s perspective is the definition of unknown risk. To them, someone with known CAD, CHF, COPD, or ESRD is a known risk even if their disease is currently stable and well controlled with inexpensive medication. The same is true for cancer that has been driven into remission and well controlled diabetes, asthma, and hypertension. Alzheimer’s and dementia patients are walking long term care claims even if they’re currently being cared for by family members at no cost to taxpayers / Medicaid. All of these people would either be declined for insurance outright or be quoted much higher than standard rates because of their known risk. Only healthy people with no history of any of these diseases and conditions would be considered unknown risks and even the older members of that group would be quoted comparatively high rates just because of their age.
The unknown sick are already incorporated into the premiums so only those with long standing expensive illness end up in trouble. Healthcare costs are much higher today than need be due to government interference.
Absolutely not. The percentage of chronically ill with very high costs is small. Those that have sudden high costs one year may not have another problem for decades. Think of how people buy homes and cars.
I agree that the percentage of the population needing a safety net, including a subsidy, is closer to 50%-60% than a few if you include people who can’t afford their premium even if they’re healthy, people who need expensive care right now and those who have a history of a disease or condition that carries an above average risk of requiring expensive care in the future even if it’s well controlled at the moment. Such conditions include CAD, CHF, COPD, ESRD, cancer, hypertension, asthma, diabetes, depression, Alzheimer’s, dementia, among others.
I have thought for a long time that we are really headed for a true two (at least) tiered system. I think the key is “those that can afford”. I think that your “few” is actually more like 50%-60% of people.
Steve
What do you do about all those end of life cases in the ICU where family members can’t or won’t let go and want doctors to continue to do everything possible even if only marginally useful at best or even futile? Expecting taxpayers to pay for that without limit doesn’t seem right to me. What about the advanced cancer cases where doctors continue to offer treatment that they know won’t work but don’t want to be seen as abandoning the patient or withdrawing hope? I’m not too wild about paying for that either.
In the more socialistic countries, part of the social compact is to not impose unreasonable costs and expectations on your fellow citizens. That’s not our way in the U.S. That cultural difference, along with our much greater litigiousness, goes a long way toward explaining why our healthcare system is considerably more expensive. I have some questions about whether the cost comparisons are truly apples to apples but that’s a whole separate discussion.
Too large a trial. Try it in a smaller jurisdiction. We should try it only on inpatient hospital care at first and give it a chance to succeed. No claims. No FFS. Make it a public good. No billing paperwork. Admission triage has to be smart and by docs. Only those patients who might die or be made insolvent or disabled by their illness should be admitted. All employees and docs and administrators on salary. Politicians have to commit on monopsonic purchasing for drugs and supplies and services. I.e. one purchaser has to bargain like hell to get the lowest prices out there. No lobbying by drug firms and no campaign contributions to politicians by any stakeholder allowed. For funding….have to get kick start innovation grant at first from feds or state…as local taxes will not be enough until effect of large monoosonic purchasing settles
I’ve never supported a single payer system because I think it is likely to have a significant adverse effect on medical innovation and it will result in rationing of services especially for tests and procedures to treat diseases and conditions that are not immediately life threatening.
That said, I would like to see CA try it out on its 40 million population – one-eighth of the country’s total. As proposed, I predict the following effects: (1) much more fraud, (2) greater utilization with no cash due at the point of service, (3) more use of expensive drugs when less expensive alternatives would work just as well, (4) people coming out of the woodwork by the hundreds of thousands to claim expensive long term custodial care and home health benefits and (5) more use of the ER when people can’t get a timely appointment with their doctor.
Yes there will be some savings in administrative costs for the government insurer and for providers who will only have one set of rules to comply with. If the system embraces Canadian and European style price controls on drugs, it could slow drug related innovation significantly. Depending on where provider reimbursement rates are set, it could have an adverse effect on the supply of doctors and the quality of candidates applying to medical school in the future.
If CA decides to try a single payer system, it should thoroughly understand the consequences of being wrong in terms of saving money. That’s why I think it would be dangerous to eliminate the private insurance companies because it would be difficult to reconstitute them if the single payer system takes several years to self-destruct. For that reason, I think it would be better if CA hedges its bets with the equivalent of a more comprehensive Medicare Advantage for all approach as opposed to a standard Medical for all system. In the meantime CA, enjoy your MUCH higher tax burden that will be needed to finance your single payer system.
How about the free market for the reasonably healthy and the unknown sick and those that can afford their illnesses and then some safety net for the few that actually require a safety net?
Sounds good. At the same time have Texas go total free market. No government involvement at all. See what happens.
Steve
Thanks for this piece, Jim. It seems to me that some of these ideas could be test-driven by having a segmented pilot rollout phase.
For instance, let’s say we take youth healthcare and apply standardized adminstrative processes, fees and treatment standards. It’d be a learning experience and I’d wager that the quality of care for many youths – particularly from low income communities would skyrocket. Costs would be high but the expansion of quality care to children would probably be more palatable to both sides of the aisle. Not to mention that rates of acute and speciality care should be more manageable among this test segment.
Canada is interesting. Everyone thinks of my homeland as single payer central but I’ve recently written about a key flaw in Canadian healthcare – namely, that it generally doesn’t cover dental care until it’s too late and expensive to treat. So when it comes to youth, you see a divergence in how provinces deal with the issue. While some provinces have universal dental care for children, others have more convoluted schemes based on parental income, etc. It appears that focusing on youth for the delivery of expanded universal dental care is costly but has positive knock on effects for years in terms of lowering future costs through such preventative care as well as leveling out social inequalities. This might be instructive for California in terms of goal and metric setting as it grapples with the introduction of single payer.
Just a thought.
I read the first and last few sentences. First I would like to let you know that these “Social Experiments” need to stay the hell away from California. We are over populated and over taxed. We Californians have nothing to show for these touted successes other than being thrown into financial ruin. The nurses just want to unionize, which in the public sector needs to be made illegal. That’s a big fat thanks to Brown during his first term in office. We are already calculating over a trillion dollars in pension debt. Our gas prices start sky rocketing in November. I’m a native Californian of over 42 years and while we have always been progressive the last 2 decades our politicians have slowly perverted even that term. If you want Single Payer Healthcare trials in another state go for it. Start with Children for the 10 years. Do a tax rate on “EVERYBODY” of 2.5% per paycheck. Once the kid gets a job they pay into the healthcare. After 10 years if it’s working add anyone over 65 Who is not working. Go from there. Progression is meant to be a processes not all at once and that’s where the government fails.