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Single Payer Economics: One Health Plan, Two New Taxes, Three Ways to Save

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A new outside analysis claims a "single payer" health system for California would cost $330 billion a year, not $400 billion, the initial price tag announced last week in a legislative report.

The financial analysis also proposed two new taxes to pay for the system: an excise tax and a sales tax. That's in contrast to the 15 percent payroll tax proposed in last week's report.

The analysis was produced by a team of economists at the University of Massachusetts-Amherst, and paid for by the California Nurses Association, a key leader in the movement to establish a universal health care system in California.

Supporters of a single-payer plan have promised these details for months, ever since two Democrats from southern California, state senators Ricardo Lara and Toni Atkins, introduced Senate Bill 562, "The Healthy California Act." The full Senate must vote on the bill by Friday for it to move forward in the legislative process.

Here's your takeaway:


One Health Plan:  Say goodbye to your employer-sponsored health plan, with its deductible, co-pays and co-insurance. Say goodbye to Medicare and its part B premium. Everyone would be moved into the still-unnamed, state-administered plan. The new plan would also completely absorb anyone now covered by Medi-Cal or Covered California. The seven percent of Californians who are still uninsured -- including undocumented residents -- would be brought into the fold as well.

The economists argue that a single payer plan, by eliminating  private, for-profit insurers in California, and by pooling together public funds from Medicare and Medi-Cal, would create a stream-lined system with lots of bargaining power.

"The good news is that California can get a lot more for our money," said State Senator Lara after unveiling the analysis on Wednesday at the state Capitol.  "When the legislature passes the Healthy California Act, we will actually spend less than we do now on health care."

Two New Taxes:  The analysis assumes California would successfully obtain permission from the federal government -- not a given under a Trump administration -- to continue drawing down federal money for Medicare and Medi-Cal patients, but divert the funds into a single-payer system instead. That would take care of two-thirds of the annual cost.

Then, California could raise the remaining $106 billion by taxing consumers and business. Specifically, the analysis proposes:

  • A new 2.3 percent sales tax, except on basic living expenses such as housing, groceries, and utilities.
  • A new 2.3 percent excise tax on gross business receipts (the first $2 million in receipts are exempted).

Three Ways to Save:  A single-payer plan would actually cost 10 percent less than the current system, the analysis claims.  How would this savings of $38 billion be achieved?

  • Overhead: Having only one insurer, California, eliminates the need to make a profit or spend money on marketing and sales.  The health care "providers" (doctors, nurses, hospitals, nursing homes, etc.), would also save money because they wouldn't have to pay people to administer different insurance contracts and navigate multiple payment systems.
  • Medical Salaries and Drug Prices: As the only entity paying for healthcare, California could negotiate lower reimbursement rates for some services. The state plan could also pressure drug companies to lower prices as a condition of having their drugs included in the state-run formulary.
  • More Efficient Treatment from Cradle to Grave: In a single, streamlined system, doctors won't have to duplicate tests. A unified system of electronic health records could also help identify risk factors for illness, or prompt patients to get necessary vaccines and screenings.

The new report was received skeptically by Charles Bacchi, who leads the industry trade group for private insurers, the California Association of Health Plans. Bacchi predicted the plan would be "incredibly disruptive" and "unaffordable," and implied that doctors might leave the state.

"They assume that every doctor is going to still be here in California providing coverage under this proposal," he said. "And, you know, who knows? Something like this creates a lot of uncertainty."

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