Uncertain prognosis

Should state government become the health insurer for all Californians? With support for that idea growing amid federal efforts to dismantle the Affordable Care Act, the California Senate passed a measure June 1 that would create a new state agency to oversee health care and pay providers directly, eliminating premiums and co-pays for patients.

Similar proposals have been made before—even passed the full Legislature, then fell short of gubernatorial approval. Proponents hope this year will be different, given the new momentum for a health care overhaul and the support of powerful unions.

But the measure has a long way to go, facing the same challenges that bedeviled earlier efforts: cost, a skeptical governor, deep-pocketed opponents and the need for certain federal approvals.

State Sens. Ricardo Lara (D-Bell Gardens) and Toni Atkins (D-San Diego) authored the “single-payer” proposal that has gone to the Assembly. They say California today can be a leader on universal health care while Congress regresses by attempting to repeal the Affordable Care Act and change Medicaid funding.

“We are on a collision course for rising health care costs and a crisis for California’s middle class,” Lara said while presenting SB 562 to his Senate colleagues. “The good news is that California will get a lot more for our money.”

SB 562 would cover all California residents, including those without legal immigration status—a notable departure from previous efforts, although the bill lacks information about how much this group adds to the bottom line. Many such residents are already covered with public funds; however, a Senate Appropriations Committee analysis of the bill says 1.8 million undocumented adults are not covered under any program.

That is the only substantive new provision. The bill has drawn criticism for lacking a guaranteed financing plan and for a hefty price tag: perhaps as much as $400 billion a year, more than twice the state’s entire budget. Four Democratic senators voted against SB 562.

The $400 billion figure came from the Senate Appropriations Committee, which Lara chairs, though at least one other analysis attached a lower figure ($331 billion). The senator, who is a candidate for California insurance commissioner, says a cost projection or a financing plan is coming.

The committee’s analysis said half the cost of the new system could be covered by money diverted from existing government programs such as Medicare and Medicaid—assuming federal waivers on those funds are granted. Most of the rest likely would come from new taxes. The committee estimates a new payroll tax for this purpose could be 15 percent of earned income but offers no information about how such a tax might be split between employers and workers.

New taxes require a two-thirds vote of the Legislature—a tough ask despite Democrats’ domination of the statehouse.

Currently, Lara says, Californians spend $367 billion annually on their health care. He told the Senate that his bill would cut expenses “through better administration and lower prescription drug costs. Having one publicly run system will reduce inefficiency and missed prevention opportunities.”

Lara will use a new financing study, commissioned by the California Nurses Association and released May 31 (the day before the Senate vote), as a jumping off point for his own funding plan, according to his staff. The study pegged the annual price at $331 billion, with savings culled from such areas as Lara cited: administration, pharmaceuticals and unnecessary services.

The study, done by a researcher at the University of Massachusetts at Amherst, also says taxes could fund costs not covered by Medicare or Medicaid, through a new 2.3 percent fee on some businesses and a new 2.3 percent sales tax on nonessential purchases. Alternatively, the study outlines a potential new 3.3 percent payroll tax on both employers and employees, combined with the sales tax.

Even with the higher taxes, the study says, some California families could save as much as 9 percent annually on health care and some small businesses as much as 22 percent (the largest employers might save 1 percent). The taxes would replace consumers’ premiums, co-pays, deductibles, and other costs.

Supporters concede that funding is a challenge. But they say it’s surmountable with the government’s power to negotiate limited rates in a state the size of California and with the elimination of insurance companies from the equation.

“We spend the money on hospitals and doctors and drugs already; the question is reorganizing those dollars,” said Anthony Wright, executive director of Health Access California, a consumer advocacy organization.

Still, according to the Senate analysis, nearly $40 billion more could be needed to cover such things as a spike in the use of health care services and administrative costs.

Large insurers such as Kaiser Permanente, Blue Cross and Aetna, for whom California is a huge market, strongly oppose the bill. So does the California Chamber of Commerce, which considers it a “job killer.” Those interests have well-paid lobbyists fighting the proposal in the Legislature.

Business interests also say employers and workers would be hard pressed to absorb additional taxes.

Beyond the cost and tax issues is the question mark that hovers over federal waivers. Lara acknowledges there are no guarantees. But he notes that the federal government has previously granted waivers to states when they amended or added programs to their healthcare system, including California.

Washington’s inclinations and the need for more bill details notwithstanding, state lawmakers have political incentives to pass SB 562. The influential nurses union, for example, has threatened to campaign in the next election against those who vote no.

Still, many who are following the issue say they don’t expect the bill to be signed into law. Gov. Jerry Brown, who’s fiscally prudent, has expressed concern about the cost.

“This is going to a be a long-term, fiercely fought battle in California,” said Rob Lapsley, president of the Business Roundtable, a Bay Area group that opposes the current measure.

“The stakes are enormous,” he said. “People’s health is at stake, jobs will be at stake, the state’s financial footing will be at stake.”