Single-Payer Health Care Won’t Come Cheap in California and Adds Payroll Taxes

According to a state analysis, a proposed single-payer health-care system in California would cost about $400 billion per year, with up to half of that money coming from a new payroll tax on workers and employers.

The report issued Monday by the state Senate Appropriations Committee put a price tag on legislation that would make the state responsible for providing health coverage to all 39 million Californians for the first time. The state-run system would replace existing employer-provided health insurance in California, as well as public-sector coverage such as Medicaid and Medicare.

The prospect of higher taxes is one of the primary impediments to Senate Bill 562. It has also exposed deep divisions among Democrats over whether now is the time to pursue single-payer, just as Republicans in Washington are attacking the Affordable Care Act. One Democratic legislator questioned whether the state could effectively manage a universal health care system during a hearing on Monday.

The legislative analysis estimates that implementing the Healthy California program for all residents, regardless of immigration status, will cost $400 billion per year.

According to legislative analysts, federal, state, and local taxpayer funding of approximately $200 billion per year for existing programs could be available to offset the overall cost of $400 billion for universal coverage. However, additional tax revenue would be required to cover the other half of the cost, according to the report, which suggested a 15% payroll tax on earned income.

Of course, the transition to a single-payer system should reduce current spending on health insurance by employers and employees, which could offset some of the new taxes, according to the analysts. According to the report, employers and employees in California now spend $100 billion to $150 billion per year on health insurance and medical care.

“Total new spending required under the bill would be between $50 billion and $100 billion per year,” the report said.

The Senate analysis stated that all projections were “subject to enormous uncertainty” due to the bill’s “unprecedented change in a large health care market.”

According to Larry Levitt, senior vice president at the Kaiser Family Foundation, a single-payer system “would be more efficient in delivering health care.” (Kaiser Health News, an editorially independent program of the Kaiser Family Foundation, produces California Healthline.)

However, the proposal expands coverage to everyone and eliminates premiums, copayments, and deductibles for enrollees, which would cost more money, according to Levitt. “You can bet that opponents will highlight the 15% tax, despite the fact that there are significant premium savings for employers and individuals,” he added.

The current system, according to state Sen. Ricardo Lara (D-Bell Gardens), is unsustainable because health spending continues to grow faster than the overall economy, making coverage unaffordable for too many people.

Lara emphasized the potential savings from establishing a public plan with greater bargaining power and eliminating the administrative overhead and profits of private health insurers that act as middlemen.

Many of the specifics of California’s single-payer proposal are still being worked out. Under questioning from colleagues, Lara stated that the 15% payroll tax is “hypothetical” and that “we don’t have a financing mechanism for this bill yet.”

Lara stated that he has requested a review of potential funding sources for the measure from researchers at the University of Massachusetts-Amherst.

Lara also stated that there is no guarantee that the Trump administration will grant the federal waivers required for California to consolidate Medicare and Medicaid funding into a single pot for universal health care.

Because there are so many unknowns, the Senate Appropriations Committee did not vote on the bill on Monday. Supporters of the legislation hope for a vote in the full Senate next month, after which lawmakers could work on the financial aspects over the summer.

Many attendees at Monday’s hearing cited Medicare as a model for how single-payer works now and urged lawmakers to make California the proving ground for how it can work at the state level.

Business groups and health insurers spoke out against it, claiming it would cause widespread disruption and increase costs. Even if it passes the legislature, California Gov. Jerry Brown has not endorsed the proposal, and new taxes may necessitate a statewide ballot measure, which are always contentious campaigns.

According to the California Chamber of Commerce, the costs will most likely be much higher than anticipated, and the taxes imposed on employers will result in significant job losses.

Similar concerns were expressed by State Sen. Jim Nielsen (R-Tehama), a member of the Appropriations Committee. “The impact on employers will be incredible,” Nielsen predicted. “How can you claim that this is fiscally prudent for the state?” The state has never gotten anything right in health care.”

State Sen. Steven Bradford (D-Gardena) cautioned as well, questioning whether state agencies are up to the task. “I don’t want California to move toward a program that is not sustainable and one that we can’t manage,” Bradford said.

Other states have looked into single-payer and rejected it. Last year, Colorado voters rejected a ballot measure that would have used payroll taxes to fund a system of near-universal coverage.

This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.

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