California’s Surprisingly Cheap Single Payer Plan

There is coverage today of a new report from the California Senate Appropriations committee estimating the budgetary implications of a proposed single payer health plan for the state (Sacramento Bee, LA Times, Vox). I’ve not yet been able to access the report directly, but the coverage of it is pretty encouraging.

After the implementation of single payer, the report says, health expenditures in the state of California would total $400 billion per year, or 15 percent of the state’s GDP. This is 3 percentage points lower than the share of GDP the US overall spends on health care.

The reports indicate that, currently, government spending on health care in California is around $200 billion and employer spending on health care is between $100 billion and $150 billion. There is no indication of how much individuals currently spend on top of employers and governments on individual premiums and out-of-pocket expenses. Nonetheless, net of current government spending ($200 billion) and employer spending ($100-$150 billion), the single-payer plan requires an additional $50 to $100 billion of spending, or 1.9% to 3.8% of CA GDP.

For that extra 1.9% to 3.8% of GDP:

The state would pay for almost all of its residents’ medical expenses — inpatient, outpatient, emergency services, dental, vision, mental health, and nursing home care — under the plan, and Californians would not have any premiums, copays, or deductibles.

That’s an incredible deal for just 15% of GDP, which again is lower than the US as a whole already spends on health care.

Of course, there are challenges to implementing single payer on the state level. States have to deal with all sorts of federal laws like ERISA that could disrupt their plans. States have to hope the federal government will chip in the share they currently contribute to the state’s health care sector. States have to worry about rich people leaving to avoid tax to some degree. And states have to worry about what will happen during a recession when the state’s budget contracts in ways the federal government’s budget does not.

But if the plan would work like this report says it does and at the cost this report says it does, it is a no-brainer.

  • Andrew

    Matt – people need numbers. 50 to 100 billion per year, if taxed equally per person, would be $106 to $212 per month per Californian in additional taxes, in exchange for an elimination of all premiums, deductibles, copays and dental expenses they would otherwise have.

  • nope

    Andrew, averages won’t work because the individual side will be a progressively-structured payroll tax on workers, not the total population. The poor and middle class will pay less than the simple average. The formal study will be released in a few days and the bill is subject to amendments to adjust things like the percentages for each income bracket. Hang tight, very smart people are navigating this through the legislature.

  • Andrew

    I perfectly understand that the taxation won’t be equally shared, but it gives a pretty solid idea of what additional amount this costs in digestible terms – which is why I feel it’s an important piece of information.

  • eean

    Payroll isn’t that progressive. And it can’t be too progressive because California needs healthcare during recessions.

  • Victoria Fierce

    Blue Shield wants me to pay $550/mo for insurance. $212/mo Sounds like a deal to me.

  • Ian Aleksander Adams

    It’s currently 1400 a month for my spouse an I, on the plan we need to see our specialists.

  • eean

    Wouldn’t you expect single payer to shrink the size of the health sector by squeezing hospitals, not leave it roughly the same size? So I’m a bit suspicious of the numbers.

  • eean, What do you mean by shrink the size of health care by
    “squeezing” hospitals? Under Single Payer, hopefully , ones that had to close under the current system will be able re-open, esp. in remote areas. As more and more care is outpatient some units are closing due to low census. For example, 3 pediatric units closed locally because most care is outpatient now(asthma treatment, same day surgery,etc.).And under SP there will be a lot more people who now have the ability to see a doctor , have surgeries previously denied them,etc.so the health sector will be larger..In fact we are short already 90,000 primary care MD’s nationwide.

  • eean

    Other countries have healthier people with less healthcare. That’s part of the promise of single payer. Healthcare is counterintuitive in many ways; our current pay for service system encourages a lot of unnecessary tests and treatments. Single payer would transfer all the market power from hospitals (where they have a lot) to the state.

    If we truely are short 90,000 doctors single payer won’t help. That’s what UC is for.

    It has been pointed out often that uninsured people often end up costing the govt more in ER visits; this means you shouldn’t expect more money for healthcare from single payer. And indeed the estimate referenced in the blog says California healthcare industry stays the same size; I disagree and think it will be smaller probably.

  • PeonInChief

    That’s an important point. The ACA provided some money for rural facilities, which the ACHA would, of course, take away. Single payer would probably fund rural facilities the way the state funds necessary small schools for children who live in small, remote communities.

  • Chris Knight

    eean, single payer will reduce administrative costs, which are particularly high in hospitals, around 25% I’ve seen. I’m also suspicious of the estimate from the Appropriations Committee because it doesn’t seem to adequately model reductions in admin expenses.

  • eean

    Medi-Cal is 6% which is a lot imo. Both Medi-Cal and Healthy California are pay-for-service. Imagine if public schools billed the state by class taught and homework graded. It would be a lot of work.

  • PeonInChief

    MediCal is means-tested. This costs money. Single payer would be like Medicare, so the admin costs would be lower.

  • eean

    …the vast majority of the admin is fee for service billing I’m sure.

  • It wouldn’t change administrative costs in hospitals by much, though. Sure, they wouldn’t need much accounts receivable staff, but their administration would mostly not change.

    It’s single-payer not single-provider.

  • Chris Knight
  • Tatil_S

    Are they assuming the usual “fee for service” or a new “payment for outcomes” system? If it is the former, costs will go up quickly. Why should I spend time to find a lower cost provider (when almost none of them give accurate price estimates in the first place) if my out-of-pocket expenses are zero in any case and why should hospitals & doctors recommend lower cost options if it means they will get paid less?

  • I am not sure what your point is. Under Single Payer you have the choice of any licensed provider. There won’t be a “lower cost” provider. What do you mean by expenses will be zero? You will be paying payroll taxes just like you do for Medicare( and most of the other countries). Look at your paycheck stub. There will be incentives to get good outcomes since all providers are competing with each other for business.And where did you get the idea that hospitals and doctors would recommend lower cost options-like what?? If someone need s CT scan they will get a CT scan-there is no lower cost option. If you need a complete blood count there is no cheaper option..Providers will be paid by the system they choose(fee for service, capitated) and work with the entity who decides reimbursement rates. No one will be paid “less” if they are in the same category. Just like is done now. Health Care institutions and doctors enter into contracts with payers and decide the reimbursement.

  • Chris Knight

    A single payer healthcare market doesn’t necessarily rely on consumer or provider choice of cheaper procedures to drive down costs, it leans more on the bargaining power of the state to hold costs down.

  • Under Single Payer the patient gets whatever procedure is needed. The government isn’t gong to pay for a ridiulously high price of a procedure which happens now. You can have a colonscopy at one facility which costs $3000 and at another $1500! Reimbursement for tests, doctors,etc. will be negotiated by the Health Board that will govern the new system. It’s the only business where you don’t know how much you are being charged for a test/procedure like they have at an auto repair shop! It’s all to see what they can get away with- it’s purely arbitrary.

    Unlike now where the insurance cos. can deny some tests. That’s why MD’s want SP so they have NO ONE telling them how to do their job. There is no MARKET under SP.Because providers will pretty much be paid the same there will be competition for patients.

    All it is is a public INSURANCE plan like Medicare. It just pays the bills just like Medicare. And under SP the care will finally be coordinated so one health care provider coordinates ALL of the health care services a pt. needs.Under the ACA it’s called a medical HOME.

    Another savings will be the bargaining power of the govt. to get lower prices like Kaiser and the VA where they can currently do bulk purchasing for much better prices of medications and DME(durable medical equipment) like wheelchairs, oxygen, breathing machines, crutches, braces,etc.

  • eean

    The current proposed law is fee for service. That said I doubt providers will be able to send any ole bill to the state that they want. The fear is mostly unneeded tests & procedures, like with our current Medicare/Medicaid/private-that-isn’t-Kaiser system.

  • DINGERS!

    Sign me up.

  • Kevin Withers

    Removing insurance companies (& profits) from the equation would yield the biggest savings.

    The overall decision, however, to move to single payer will not be driven by an accountants numbers. It would be a societal shift, and anyone thinking it’s a simple change to make is naive.

  • fredfnord

    The problem, as always, is that we always and only seem to bring this up when it has no chance of being enacted. We sent it to Schwarzenegger several times, because we knew he’d veto it. We didn’t send it during the Davis years or the Brown years, because they would either have to sign it (and piss off the insurance industry) or veto it (and piss ON the citizens.)

    And now? What are the chances of this being allowed to go forward with the government we now have in Washington? Guaranteed, they will find a way to stop it. So we’re allowed to dream again. Hooray? I guess?

  • frednord, It wasn’t re-introduced until we had a 2/3 Democrat majority in both houses. That didn’t occur until this year. That could also override a Jerry Brown veto. The only way the Feds could affect our situation is if they refused the ERISA waivers, section 1332 of the ACA. If the state’s proposal is equal to the ACA benefits or BETTER then the plan would qualify for these waivers. This bill is crafted after the NY SP bill not our previous bills. This is a MORAL issue. 44,000 die in the richest country on Earth due to lack of access to preventive care and thousands go bankrupt. The ACA premiums are increasing with ridiculous deductibles so folks are dropping coverage altogether. We(and the Canadians who have single payer) feel that HEALTH CARE IS A HUMAN RIGHT.

  • TheBrett

    Would this include the Medicare recipients with some type of waiver, or are they still in their own standalone system?

    In any case, I agree that this is a great idea. It’s unlikely that California will get the waiver from the government to do it, though, so they might have to do multiple funds like the French to get it.

  • TheBrett, Under California’s Single Payer, Medicare for All, EVERY resident is covered regardless of documentation status. Everyone would get whatever health care they need. There’s no discrimination related to age. See the list of “benefits” in the bill. https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB562

  • ChrisPK

    CA will have to apply for the waiver to use Medicare funds for the single-payer system. The R’s may deny CA the waiver but if so will be in open conflict with their states’ rights agenda.

  • Tom James

    The reports are being misquoted. The analysis says that we SPENT $367b overall in 2016. But our healthcare spending is going up 6% per year. This means we’re currently on track to spend ~$389b in 2017 and ~$412b in 2018. So a $400b program would mean a $12b savings next year.

  • Fall OfReach

    That sounds about right. Everyone will spend around the same only EVERYONE is covered, even for dental!
    What they DON’T say is how much this will drive down costs in the future, since now everyone is covered, everyone will get early screenings and detections. Many unneeded losses of life will be prevented which is beautiful but also helps the States GDP overall.

  • nofway

    The biggest issue with SB 562 is there is no information about how it will be funded so we have to speculate. And possibly because the tax rates will be so high.

    It will probably be both a payroll tax of about 10% and an income tax of 10% at some level of income. I base on two similar proposals: Colorado Creation of Colorado Care System, Amendment 69 (2016) which was voted down with 78.77% no votes, 10% payroll tax with employers paying two-thirds of that (6.67 percent), and employees would pay one-third (3.33 percent). Self-employed individuals would pay the full 10 percent. Additionally there will be a 10% tax on non wage income (investments, rentals, pensions, IRA withdrawals, etc.) as follows: this new tax will apply to the first $350,000 in taxable income for single filer taxpayers and the first $450,000 in taxable income for joint filers.

    The other is a paper which New York used in promoting their current Universal Health Care. While the New York state bill again does not mention tax rates, Gerald Friedman, PhD proposes payroll rates and income taxes starting at 9% at 25,000 topping at 16% at 200,000+. Source: ttp://www.infoshare.org/main/Economic_Analysis_New_York_Health_Act_-_GFriedman_-_April_2015.pdf

    Taxpayers do move to escape high state income rates. One Top Taxpayer Moved, and New Jersey Shuddered By ROBERT FRANK APRIL 30, 2016 https://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-new-jersey-shuddered.html?_r=1

    Why hasn’t either CA or NY released what the new taxes will be?

  • nofway

    15% payroll tax. “About $200 billion in additional tax revenues would be needed to pay for the remainder of the total program cost. Assuming that this cost was raised through a new payroll tax (with no cap on wages subject to the tax), the additional payroll tax rate would be about 15% of earned income.” Source: http://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=201720180SB562

  • Jack Frost

    Single payer will totally destroy what’s left of the American health-care system that was the best in the world

    Please do everything you can to stop this absurd idea from happening. No longer will you be able to get health care you will have insurance but you won’t have care.

    If you really like single payer get the hell out of our country and go somewhere else where they have it

  • Appleaday

    As opposed to the people who die in this country because they have no health care at all? Or because the closest ER is sixty miles away? Or because the policy they have doesn’t cover dental–which can’t be treated in the ER (and yes, people die of dental problems)? Or because their policy doesn’t include adequate MH tx? Or because they can’t get treatment for addiction (I refer you to the AHCA and the President’s proposed budget)?

    There is no such thing as a perfect health care delivery system, but there are better ones and worse ones. Among advanced nations, the US’ outcomes are shown in study after study to be worse, both in human lives and in cost/outcome measures, than most other countries’. The fee-for-service model must die. The state must use its massive buying power to bring down pharmaceutical costs. Hospital pricing and doctors’ fees must be transparent. If insurance companies are still around (and they are in most single-payer models), pricing and coverage must be streamlined and clarified. Under the current system, exactly none of these things will happen. I’m rooting for California.

  • Watch the Press Conference this AM at 9:30AM in Sacramento where the economic study will be announced as to how much the taxes will be to fund the half of SP funding. The other half comes from Medicare, Medicaid and SCHIP. There are some state funds,also. Remember you are already paying taxes for health insurance(Medicare). This is how most industrialized countreis ap for their health care-employer and employee payroll taxes- in lieu of expensive premiums with Co-Pays, Deductibles.
    .

  • Jack, Several of your facts are totally incorrect!! Number one there is NO SYSTEM! It’s very disorganized.Single Payer legislation has language to make sure health care is integrated finally.

    And If our system is so great why do we rank 37th in the world??? France is #1.In the richest country on Earth, 20 million in America have NO health care!! The other SP countries have a longer life expectancy and lower infant mortality.

    Remember, Jack, that the WAIT is FOREVER for those without insurance!!! Those wait statistics ,which are exaggerated, are in countries that have much fewer MRI’s, doctors, specialists because they are much smaller than us. And the waits are not for emergency care! In the US you can wait 4-10 hours in an ER because that’s not where minor illnesses should be treated. That’s yet another stupid par of our non-system. And it’s expensive.Please enlighten us with the proof that the UK folks die because of their health system.

    Also, remember the Americans who live in rural areas may have to travel long distances to see a doctor. That’s why telemedicine is being used now.

    You are under 65 because you wouldn’t be saying these ignorant facts. Medicare is the best SINGLE PAYER system in the world. You probably don’t know that you are paying TAXES with every paycheck for health coverage for you down the road.

    All we are doing is expanding it, improving it(adding dental, hearing,vision, chiropractic, acupuncture,etc.) to cover EVERYONE. Like I said we already have a SINGLE PAYER system whose over head is 3% instead of 20% like the insurance cos. You need to use Google to get your facts straight! Under SP you can choose ANY licensed health care provider you want unlike now where you often have to go to the doctors on your plan. There is MORE choice, not less. And 60% of doctors and 70% of Americans want Single Payer!! Study up on it and you may end up liking it!

  • We the People