Big Winners in California's New Health Care Plan: Study Says Households and Small Businesses

By Michael Monasky | June 1, 2017 |  

A study by a distinguished group of university economists, released yesterday at a Capitol press conference, contradicted recent claims by the California State Department of Finance that unfunded health care costs would be greater than the entire state budget, or at least overwhelm it. 

The State Senate Appropriations Committee analysis for SB 562, The Healthy California Act, declared the bill would cost $400 billion annually. With between $300 billion to $350 billion currently available expenditures, finance staff noted a shortfall of $50 billion to $100 billion. 

There were no firm details in the state's financial analysis supporting these claims. California Nurses Association policy consultant Michael Lighty chimed in saying “The Senate Appropriations analysis was wrong.”

Enter Robert Pollin, director of the Political Economy Research Institute, and a professor of economics at the University of Massachusetts at Amherst. During a State Capitol news conference, Pollin introduced a study, Economic Analysis of the Healthy California Single-Payer Health Care Proposal (SB 562), co-authored with three colleagues and focused upon four components of the bill - cost estimates of the current system at full coverage; cost savings upon implementation of the bill; financing the bill; and impacts upon individual households and various business types.

Pollin said that nearly $370 billion is already being spent on health care in California. Of 33.5 million Californians with health insurance, 12 million are under-insured; 2.7 million are without any health insurance at all. His research group calculated that a 15-percent increase in payments were needed to repair system problems for the under-insured; and a 50-percent increase was needed to cover those without health care. Collectively, under the current health insurance scheme, costs would increase about 10%, from $370 to about $400 billion.

Additionally, Pollin noted that savings came from structural changes and applied efficiencies. Structural savings came from decreased administrative costs, and as much as 30-percent decrease in drug costs, according to the Veterans Administration and the Canadian national system. Further savings came from applying MediCare fee structures for providers. Such structural changes total 13-percent in savings.

Inefficiencies in the current system constitute the second area of savings. The report lists unnecessary services, fraud, inefficient deliveries of health care services, and missed prevention opportunities. Pollin said that he assumed a five-percent savings in this area, a conservative figure gleaned from a 2010 Institute Of Medicine report that set those savings at 19-percent. When asked if universal access to health care drives up utilization of services, he said that the report considers a five-percent increase in provision of services. He said that the report “does not adjust downward for acuity of care” as for fewer emergency room visits and fewer unnecessary hospital days for neglected medical conditions.

           

Between the savings changes in structure and efficiencies (about 18-percent), less the increased costs of universal coverage and expansion (almost 10-percent), the new health bill should reduce costs by about 9-10%, from $370 to $330 billion. Pollin said that public funds constitute 70-percent of  California's health care expenses, or about $225 billion per year. Therefore, an additional $105 billion is needed. To meet this need, he proposed two taxes: one on gross business receipts (which will raise about $93 billion), and a sales tax (which will raise about $13 billion), both at 2.3-percent. 

Pollin pointed out two charts at the news conference - households and businesses. He said that the bill is a “windfall for middle income families” who will see about a net nine-percent lower health care costs, noting that “wealthy households will pay more” (about one to two-percent) as they “now get a net subsidy” (about one-percent) from health care expense tax credits. Pollin declared that “small businesses won't have to pay anything” below an exemption level of $2 million gross receipts. Health care expenditures will fall for those small businesses which cover their own employees. Poor, MediCal-eligible households will receive a two-percent tax credit. Pollin stated “this measure is good for businesses...and good for households.”

When asked about the study's methodology, Pollin said that it was “simple arithmetic,” the  results of which “should be reproducible.” He said that the report has “no econometrics yet for spillover effects” of the data. 

In response to a question about how dental and mental health costs were included, Pollin said that the study group used “MediCare fee structures” which are 22% below private insurance but 15% above MedicAid (MediCal) reimbursement rates. “Dental costs should go down,” he said.

Pollin responded to a question about the Kaiser model of care. He said “Kaiser operates at a relatively high rate of efficiency” and that “integrated care...yields efficiencies.” But, Pollin warned, The Healthy California Act “does not adopt the Kaiser model.” Kaiser Health Foundation, which sells its health insurance, opposes the bill.

Nurses' union leader Rose Anne Demoro said that “unnecessary human suffering has propelled this organization” to propose this bill. She said “the national narrative is so horrible...the Affordable Care Act is unaffordable.”

Senator Ricardo Lara, who authored the bill, said it's important that Pollin is “friends with the governor.” He said it's time to eliminate the “network of limits” that is the current health care system. Lara said he is pushing this bill to “combat what is happening in DC.”

Yesterday the Sacramento Bee highlighted the taxes proposed by the bill with the saturnine headline, Higher taxes on cars and dining to pay for California health care? Nurses have a proposal. The Bee's editorial board recently criticized the bill under the headline, Universal health care for California? In Fantasyland, maybe. 

Health care foundations have active media companies, including Kaiser Health News, which was absent and made no mention of the study on its media page today. The California Health Care Foundation granted $110,000 to Capital Public Radio in 2014 to fund a health care reporter in Sacramento. There was no mention by the station of the study or press conference.