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Why California Wants a Single Payer Insurance System

With more than 39 million residents, California is the most populous state in the nation, and with a gross state product of $2.5 trillion, this is the nation’s leading state economy.  So, when California pursues a major health care initiative intended to grant all taxpayers access to health care, it becomes front page news. 

Recently, a proposal to adopt a single-payer health insurance system passed through the state Senate.  Under this proposal, all Californians would pay into a government sponsored insurance system.  This system would grant health coverage to these taxpayers like how Medicare now operates.  This would eliminate the need for private insurance, premiums and out-of-pocket expenses, empowering the state government to pay medical providers directly for services.

The bill, sponsored by the California Nurses Association, would raise sales and business receipt taxes by 2.3 percent.  This would help generate $106 billion, while another $225 billion of needed funds would come from current federal funding for Medicare and Medicaid. A 15 percent payroll tax has also been proposed that could generate $200 billion. The projected cost of the program would top $400 billion.

There is considerable opposition to the proposal, especially from fiscal conservatives. Republicans like Sen. Ted Gaines have argued that the new program would impose an overwhelming tax burden on families and businesses.  They also argue that a program of this size would cripple the state budget which currently stands at only $183 billion.

Why Now?

For many Americans, the issues of health care cost and access to medical services are some of their most important priorities.  According to the U.S. Department of Health and Human Services, the average cost of health care per American reached $10,345 in 2016.  Furthermore, this is expected to grow annually at a rate of 5.8 percent through 2025. 

This is a mounting problem, not only for American households, but also for the nation as a whole. This year, the country is expected to spend $3.35 trillion on health care.  This is almost 20 percent of the entire national economy.  Because health care spending growth is far outpacing economic growth, health care expenditure could soon begin to short circuit job growth and business expansion. 

Healthcare Investment

For California, the burgeoning cost of health care is already eating into business potential.  A study by the California Senate found that employers in the state already spend from $100 billion to $150 billion on health insurance.  While it would appear that the new single-payer system would add another $50 to $100 billion to the current financial burden on employers, that may not be the case.  Another study by University of Massachusetts, Amherst economists found that the price of the new initiative would only be $331 billion. The lower cost in this study is primarily due to the state government’s newly acquired bargaining power which would help lower drug prices and reimbursement rates for medical providers.

This is also a response to the new push by the Trump administration and the Republican-controlled Congress to repeal Obamacare. Almost 1.5 million Californians are currently enrolled in Obamacare, making it the most of any state population. Furthermore, 13.5 million Californians are enrolled in Medi-Cal, the state’s Medicaid program.  If the federal government succeeds in repealing the Affordable Care Act, millions of Californians would lose health coverage.

Opposition to Single-payer Insurance

While the vast majority of Californians would benefit from a single-payer insurance program, there are some very large obstacles to overcome.  Among the most powerful interests that oppose this new initiative is the private insurance industry.  Obviously, if the largest state market were to suddenly shut out private insurers, they would likely lose a huge amount of revenue.

Another key interest group that is likely to oppose single-payer insurance is the state’s business community.  As one of this group’s most important representatives, the California Chamber of Commerce has come out strongly in opposition, calling the proposal a job killer. This opposition is firmly rooted in the steep tax increase that most businesses in the state would face if the proposal passed.

Additionally, the federal government is another roadblock on the path to a single-payer system.  In order to utilize federal funds that the state receives for Medicare and Medicaid for this new program, the federal government would need to approve a waiver.  Even if this program aligned with the political ideology of the ruling Republican party, it would be unlikely to obtain this waiver, and since the new proposal would extend benefits to illegal immigrants, the likelihood of Congress granting this waiver is vanishingly small.

Finally, the people of California are also likely to stand in the way of a single-payer system, once they get a look at the price tag.  Although a Public Policy Institute of California survey found that 56 percent of Californians supported a single-payer system, this number dropped to 43 percent when combined with increased taxes.  Because any funding mechanism for the proposal will almost certainly be tied to a tax hike, public support is likely to decline.

The Likelihood of Passage

After earning approval in the state Senate, the single-payer bill SB 562will now proceed to the state Assembly, the other legislative house. In the Assembly, legislators will have to find a way to fund the bill.  Due to the large cost of the program and the unlikeliness of obtaining federal assistance, the only viable method of funding is to increase taxes on employers, households or both. California already has one of the top state tax burdens in the union, so it will be extremely difficult to convince taxpayers to shoulder more financial responsibilities, even for something as beneficial as universal health care.

That is the primary reason why Assembly Speaker Anthony Rendon shelved the proposal a few weeks ago. Legislative leadership described the bill as “woefully incomplete” and decided not to bring it up for a vote this year. The prospects of this bill could change markedly in the near future, especially if the U.S. Congress does repeal the Affordable Care Act.

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