Single Payer in CA? The impediments are mountainous

The widely reported topline of the analysis of California's single payer bill released by the state Senate Appropriations Committee is a highly uncertain forecast that the state would need to roughly double its revenue to pay for the benefit. That is, the total cost of care could run to $400 billion per year,  offset by up to  $200 billion in existing federal funding for Medicaid and Medicare -- if  HHS granted basically every waiver sought to transfer that funding from multiple programs. The spending would also replace an estimated $100-150 billion in employer-sponsored insurance. Funding it would require an estimated 15% payroll tax or equivalent revenue.

That level of spending, and cost-shifting from the private to the public sector, could be defensible, in the abstract. But the report, released under the name of committee chair Ricardo Lara and consultant Brendan McCarthy, asserts a host of practical impediments to implementation, including:

1. No cost control: The Healthy California Act imposes no premiums, no deductibles and no copays on enrollees (who include every resident in the state) and mandates no gatekeeping functions -- any enrollee can contract with any accredited provider and get 100% coverage for service.  Payment is essentially on a fee-for-service basis:

While the bill would allow for other forms of payment, the basic requirement in the bill that payments be cost-based and requirements in the bill that patients are able to see any willing provider of services would make it difficult for the Board to create capitated payment systems that would work under those constraints.

Consequently, and given the participation of every provider in the state, "the analysis assumes a 10% in health care service utilization over fee-for-service Medi-Cal...likely a conservative assumption."


The report assumes that provider payment rates negotiated by the state would be comparable to Medicare rates, but also asserts, oddly, that "the rates that Medicare pays to providers are similar to those paid in the commercial market." I'm not sure where that comes from.  MEDPAC reports commercial rates for physician payments to be about 128% of Medicare, and a recent CBO report estimates that commercial rates for hospital inpatient services average about 188% of Medicare. Rates do vary by region -- are commercial rates in CA unusually close to Medicare rates? Checking...

2. A wee technical challenge: The report notes rather drily that developing a system to to track member enrollment, track provider enrollment, and pay claims to providers might take a while:

For example, the state is in the process of preparing to replace the existing system for
paying Medi-Cal fee-for-service claims (for about one tenth the enrollees that would be covered under the bill). That project was started in 2007. In 2016, the Department of Health Care Services severed its agreement with its contractor and is about to begin the process of procuring a new contractor to restart the project.

3. State Constitutional changes or waivers required -- and these in turn would require voter approval. Constitutional provisions that would need to be amended or overridden include constraints on overall state spending growth based on population growth and inflation; a requirement that payments to K-14 education equal about 50% of annual General Fund Revenues; and that counties receive certain tax revenues for certain public safety services, including mental health and substance abuse services, which would presumably have to be rolled over into the single payer funding.

4. Economic disruption; The report warns:

In the transition to a single-payer system, essentially all workers in the health insurance industry and many individuals who provide administrative support to providers would lose their jobs. The ability for a very large number of workers to successfully find new employment over the short-term is hard to predict. (Even with job retraining programs authorized in the bill.) Predicting the labor market effects the sudden elimination of a significant industry in the state is beyond the scope of this analysis.

Also, insurance companies under sentence of execution would have a hard time functioning during a long transition period.

5. ERISA: As Nicholas Bagley has noted, state freedom of action in healthcare is constrained by the Employment Retirement Income Security Act, the federal law that also governs self-funded employer-sponsored health plans (go figure). Self-funded plans cover more than half of all people who get their health coverage from employers. The report notes that 3.7 million Californians receive health coverage under ERISA plans, and "to include those individuals in the Program, a change would likely be needed to federal law."

6. Administrative savings offset: The report forecasts a reduction in total administrative costs in the neighborhood of 33-40%, from about 15% of total spending to 9% or 10%. But it also forecasts that those savings would be largely offset by "expanding coverage to the uninsured and increased utilization of services under the bill."  Of course, paying for coverage expansion by reducing administrative costs is a good deal by most measures, while increasing utilization by the insured may be a very mixed bag of productive and unproductive utilization (per Dylan Scott/Adam Sacarny convo here).

Given these mountainous impediments, I was surprised to read that Senator Lara is a leading supporter of the Healthy California Act.

I am also somewhat mystified by the propensity of state single payer bills to provide benefits to everyone far richer than those offered by most employer-sponsored plans or by Medicare. New York, like California is considering a bill that would impose no premiums, deductibles or copays.  The Vermont proposal, pulled by Governor Peter Shumlin after four years of work when the costs were fully estimated, would have provided coverage with an actuarial value (AV) of 94% to all enrollees. Colorado's single payer initiative, defeated in a 2016 referendum, would have had no deductibles and low copays.  Employer-sponsored insurance, by contrast, has an average AV a bit north of 80%, as does traditional Medicare -- with no cap on enrollees' out-of-pocket costs.

I suppose the thinking is, why do the heavy lift if you're not going to make coverage really affordable.  But given the outsized cost of care in the U.S., the broad public affection for Medicare, Americans' aversion to taxes and the intense competition among states over tax rates, I would think a sliding scale of AV from, say,  80-100% would be more manageable.

I also think state-based single payer is basically impossible. I would prefer to see a state try a bottom-up expansion/upgrading of Medicaid. Begin with an ACA innovation waiver proposal to replace the ACA marketplace with something like an ACA Basic Health Program -- a "marketplace" of plans resembling Medicaid MCOs, paying rates somewhere between Medicaid and Medicare. Offer a buy-in to anyone who lacks access to affordable insurance -- basically replacing the individual market. Allow a buy-in to small employers, then to all employers. Eventually such a program might swallow the state healthcare system. This is basically the Cornerstone Plan proposed in New York in 2009, which I described here.  Of course it presumes ACA survival, or the survival of ACA-level funding to extend healthcare coverage.