Column: The challenges in setting up a California single-payer system are daunting — but not insurmountable

Let’s start with what we can almost all agree on: single-payer healthcare is the most effective system for achieving universal health coverage in the U.S.

Single-payer almost certainly would be cheaper and simpler than the ridiculous contraption we have now, a mishmash of employer, government and private plans all with different rules and standards. It’s favored by a clear majority of Americans in opinion polls, at least in theory, and it’s a linchpin of popular political movements like Sen. Bernie Sanders’.

It would work like the closest thing we have to a single-payer system in this country, Medicare. Enrollees generally know what’s covered, and they don’t have to get on the phone with four insurance companies to get a single bill paid.

And it would potentially cut the insurance industry entirely out of the system. Corporate overhead has been calculated at as much as 15% of healthcare spending, not counting the crushing expense of billing management incurred by U.S. doctors and hospitals.

All that helps explain why a bill to enact a statewide single-payer plan in California is moving through the Legislature. On Thursday, SB 562, which is backed by the California Nurses Assn. and sponsored by state Sens. Ricardo Lara (D-Bell Gardens) and Toni Atkins (D-San Diego), passed Lara’s Appropriations Committee by a 5-2 vote, with the panel’s two Republicans in the minority.

Don’t count it a done deal yet. Creating a single-payer plan on a national scale could be a decades-long project, and creating one at the state level, even in a state as big as California, could be harder yet. It would be “an unprecedented change in a large healthcare market,” as a staff analysis from Lara’s committee put it last week. The analysis says that the healthcare board established to run the program would need funding of $400 billion a year.

State single-payer programs have been a dream of healthcare reformers for years. An effort in reform-minded Vermont faltered in 2014 when cost estimates soared and then-Gov. Phil Shumlin, a leading supporter, bailed out. A proposal in New York remains stalled in the state Senate and hasn’t won the endorsement of Gov. Andrew Cuomo.

But it’s also too early to count out California’s proposal. Setting up a state single-payer program would be hard — but not a fantasy. Still, there are considerable obstacles in its way. For a primer, single-payer, universal healthcare proposals failed on the California ballot in 1994 and in the Legislature in 2012. Plans passed by the Legislature were vetoed by Gov. Arnold Schwarzenegger in 2006 and 2008.

“Doing single-payer at the state level is harder than doing Medicare for all,” acknowledges Michael Lighty, director of public policy for the nurses association. “But the politics are in our favor. The argument we’re going to make to a middle-class person is that you’re going to pay less and get better service, and your money’s worth.”

California certainly has the size to absorb shocks, such as the occasional hugely expensive patient, that might crash systems in smaller states.

Under the Senate bill, the “Healthy California” program would take over payment for almost all medical spending in the state. It would absorb funding currently going to federal and state programs, and relieve employers, their workers and buyers in the individual market of premiums, deductibles and co-pays.

All California residents would be eligible to obtain “all medical care determined to be medically appropriate” from any licensed doctor in the state. Dental and vision care and prescription drugs would be provided. Insurance companies would be barred from offering any services offered under the program.

Doctors and hospitals would be paid rates roughly analogous to Medicare reimbursements. The program board would be empowered to negotiate prices with providers and pharmaceutical companies, presumably to capture savings that come from offering access to more than 39 million potential patients.

The biggest pitfall isn’t money but politics. We don’t mean partisan politics, but two other political challenges. One is persuading the public that the shift of resources and responsibilities from the federal government and employers to the state makes sense for them. The other is fighting off opposition from constituencies vested in the current system— especially insurance companies, which won’t take kindly to being put out of business.

“No matter what you do,” says Jonathan Gruber, the MIT expert who was involved in developing a healthcare reform system in Massachusetts and consulted on the development of the Affordable Care Act, “they’re going to fight you.” That’s why one of the key compromises in getting the Affordable Care Act passed was to leave them at the center of the healthcare delivery system.

“You can have a picture of what the final system would look like,” says Katharine London of the University of Massachusetts, coauthor of a series of studies of a Vermont single-payer plan that eventually was abandoned. “But the biggest hurdle for single-payer is how you get from here to there.”

That journey involves persuading voters that the system they’re so enthusiastic about in the abstract will function to their advantage in reality. That’s a hard task.

“People by and large like the health insurance they have,” in part because most people have limited or infrequent interactions with the healthcare system, Gruber says. “They’re not willing to give up something they like enough for something unknown.”

States trying to go single-payer on their own face a passel of legal obstacles. They need multiple waivers from the federal government to refashion Medicaid (known in California as Medi-Cal), Medicare and other federally funded health programs and redirect federal dollars into their own systems.

California’s proposal assumes that those dollars would keep flowing at least at current rates — not a perfectly sound assumption, as congressional Republicans currently are trying to strip more than $830 billion out of Medicaid over 10 years and to cap its future funding. But it’s an essential assumption, because the federal government accounts for nearly 60% of all the healthcare money spent in California, via Medicare and Medicaid funding and tax deductions for premiums paid by employers and employees.

A big problem is the Employee Retirement Income Security Act, or ERISA, which reserves for the federal government the right to regulate self-funded employer health plans such as those offered by large corporate employers. California’s plan would shift all employer plans to the state, but changing ERISA would require congressional action. That would set up a whole separate political battle in Washington.

The most important political obstacle may stem from the sheer size and cost of the state system. The Appropriation Committee’s $400-billion estimate is more than twice the state’s projected spending next year of $180 billion (which includes $60 billion in health and human services spending).

But that figure shouldn’t surprise anyone. Last August, the Center for Health Policy Research at UCLA estimated that healthcare expenditures statewide would come to $367 billion in 2016, including government funding and employer and private premiums — and that left out California’s 3 million uninsured residents (including undocumented residents), who would be absorbed into the state plan. That implies that most of the money identified by the committee already is being spent in the state, through it’s spread among multiple payers often in ways invisible to the average taxpayer. The single-payer reform ostensibly would relieve payers of this invisible burden.

The bill’s drafters have left murky the details of funding for the program beyond claiming federal funds, leaving it up to the Legislature to “develop a revenue plan” some time in the future. Presumably that would include a tax levy on individuals and employers. That would mean “you’re replacing an implicit tax with an explicit tax,” Gruber observes — and explicit taxes have a way of generating political opposition even if they don’t represent an increase in spending.

The Lara bill represents the very start of a statewide conversation, not the endpoint. Over coming months and possibly years, the proponents and critics of a California single-payer system will hash out its underlying assumptions and how its costs and benefits would be distributed among the state’s residents. We should welcome the process, because it might conceivably result in a better and saner healthcare system than we have now.

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UPDATES:

10:10 a.m., May 28: This post has been updated with the correct vote on SB 562 by the Senate Appropriations Committee: It passed on a party line vote of 5-2, not 7-0.