California Dreaming…

Yesterday’s post, and a number of the comments that followed, acknowledged the importance of health insurance to the social safety net, and lamented the resistance of Congressional Republicans to maintenance–let alone extension– of current coverage.

Fortunately, Washington isn’t the only game in town.

With the collapse of anything remotely resembling governance coming from Washington, D.C., California has become the de facto adult in the room. Those of us appalled at Trump’s retreat from environmental protections, for example, take comfort in the fact that California, with its huge and important markets, is insisting upon fuel-efficient cars and other environmentally-sensitive measures.

In healthcare, apparently, California is also proposing to go where Congress won’t.

In the face of the GOP assault on the Affordable Care Act and Medicaid, California is preparing to vote on a statewide single-payer plan. Californians currently spend about $370 billion annually in a typical, insurance-dominated system that leaves 40 percent of the state’s  population uninsured or underinsured. The single-payer measure is working its way through the legislature, and a fiscal analysis was presented to lawmakers and the public last week by the bill’s sponsor and the California Nurses Association.

The analysis was done by a team led by Robert Pollin, the co-director of the Political Economy Research Institute at the University of Massachusetts and a former UC Riverside faculty member. At a Sacramento press conference, he explained how a single-payer system would enable all Californians to be completely covered. That includes 3.7 million currently uninsured residents and another 12 million who are underinsured, meaning they cannot afford their policy’s co-pays and deductibles.

The universal coverage would be paid for by combining all government healthcare subsidies, which accounts for about 70 percent of California’s current spending, and by two proposed tax increases: a 2.3 percent gross receipt taxes on businesses (which kicks in after the first $2 million in earnings and which exempts small businesses); and a 2.3 percent increase in the sales tax, with exemptions for necessities such as food, housing, utilities, and other services.

Those combined revenue streams would raise an estimated $400 billion annually to pay for universal coverage under a single-payer system.

Assuming the law passes, California will actually spend less than it currently does on healthcare, and the average middle-class family will see out-of-pocket costs fall by 9 percent.

Most businesses will also save money, Pollin explained, because they will no longer be paying for their employees’ health care. Even with the proposed gross receipts tax exempting the first $2 million, typical California businesses employing 10 to 19 people would see costs fall by 13.8 percent, he said. Businesses employing 20 to 99 people would see costs fall by 6.8 percent, he said. Businesses employing up to 500 would see costs fall by 5.7 percent, and the 500-plus businesses would see costs fall by 0.6 percent.

The law would establish a system paying hospitals and providers what they are currently paid under the federal Medicare program. That’s about 22 percent less than what private insurers pay. The new system would also negotiate bulk purchases of drugs, and it would achieve the same sort of administrative efficiencies of scale that Medicare has achieved. Medicare’s overhead, as I’ve indicated previously, runs around 3%, while overhead for private insurers (who must market their policies and pay their top management competitive private sector salaries) runs between 22-25%.

As I write this, the measure is not a “done deal.” But a similar bill passed a few years ago, only to be vetoed by then-Governor Schwarzenegger. Assuming passage of the pending measure, it is likely that Governor Jerry Brown will sign it.

California has a bit over 12% of the U.S. population. If it passes single-payer, it will be a game-changer. (Already, New York’s legislature has begun discussing a similar approach.)

This could get very interesting. I’m gaining a new appreciation for federalism.


  1. I truly cannot understand the resistance to single-payer. We have proof in Medicare that it can be done, we have proof that preventative care reduces health care costs. What do the politicians who support the current version of the health care law get from supporting such a terrible law? Do they get campaign money, are they getting paid under the table by insurance companies, drug companies? How can the voters in Indiana, who supported Trump and the other horrible Indiana Congressmen like Rokita and Messer continue to vote for politicians that vote for policies that actually harm the majority of voters in the state?

  2. This is wonderful and could lead other states to follow, if CA keeps its fiscal head above water. It’s unfortunate that DC will never take heed, as it’s just the ‘loonie left coast’, and not some “real” state doing this.

  3. Thank you so much for this analysis. I’ve often wondered why national business community lobbyists (the National Chamber of Commerce and Manufacturers’ Association are two of the most powerful lobbying organizations in the country) don’t see the benefit of and lobby for single payer health care coverage since providing employer-paid health insurance puts American companies at a distinct competitive disadvantage globally with every other industrialized nation in the world.

    Hopefully California and New York can lead the way to show the rest of America how the rest of the world gathers a large group together to pay a little more in taxes in order to pay a LOT LESS in health insurance and health care costs. They should negotiate discounted prescription and other health care costs and dramatically lower the costs of multi-layered executive salaries in health care coverage and cosst. Americas will be healthier overall with less absenteeism from work and from school, and their bank accounts will be healthier too – at both home and at the workplace. It will be wonderful when businesses can add better care at lower cost and add more employees at the same time to go on a hiring spree. Well paid workers provide the best boost to the economy. It’s hard to imagine a section of the economy that would mave more of a
    positive impact on the entire economy than soling our health care woes. Let’s do it – yesterday. We need it, and we need it now.

  4. It’s too bad we don’t all live in California. Remember when Gerry Brown was called “Governor Moonbeam” by Republicans? I wonder what they’re calling him now.

  5. I am optimistic about what states can do in the way of leadership. Massachusetts was early in healthcare reform in providing coverage for most of its citizens. California has led in many of the environmental areas and now appears on the verge of installing single-payer healthcare. New York has a limited free college plan. New Jersey leads in gun control, etc. The resistant states can either join in the progress or be left in the dust. And if the divide continues to widen there may come the day when there is actually a West Coast America and a Northeast Coast America. Progress will not be stopped even if there are Draconian measures imposed by the US government.

  6. The savings to the health care system could also be huge. The costs of negotiating with carriers and collecting charges are significant.

  7. Teresa, They don’t get paid under the table. The Citizens United decision put that money right on top of the table and directly into the hands of those ambitious and amoral people more than willing to take the money and run (pun intended).

  8. Theresa Kendall; I honestly believe a great number of those against single-payer do NOT understand what it means. They also don’t want to understand what it means because they look at it as another “handout” meaning they will be paying for those who do not pay into it. I have an aunt who accuses me of “being on the dole” because I live on my Social Security (originally Social Security Disability) and my Public Employees Retirement Fund (PERF) after working for the city of Indianapolis for 20 years. Both of which I paid into for all working years of my life.

    Those who support making Medicare a voucher system believe this is another government handout; refusing to accept that WE pay for it monthly from our Social Security checks and that Medicare supplementals, which we pay for, still only covers part of our medical costs. We still have out-of-pocket costs for all medical care, testing and most do not have coverage for prescriptions because it is not beneficial unless we have extremely high prescription costs.

    They also do not consider, as has been mentioned on this blog before, that we pay ALL forms of taxes they pay other than income taxes. Look at your utility and cable bills for the LIST of taxable amounts on those services.

    “There are none so blind as those who will not see.”

    My best friend since 1953 at Tech High School, has lived in California for 60 years and is still appalled when I tell her the situation on many issues here in Indiana.

  9. The federal government currently pays about half of all healthcare cost in The US (presumably thru Medicare, Medicaid, and VA). Assuming that ratio is similar in California, that means, with the single-payer, that medical facilities will see an 11% reduction in revenue (Medicare pays 22% less than private insurance). If you don’t think an 11% cut in revenue will cause reduction in services, you are not paying attention.

  10. Theresa Kendall; I neglected to mention another lack of knowledge on the part of millions in this country who are against Medicare coverage continuing. Medicare does not cover any dental or hearing tests or treatments; they only service the cover for vision is IF you have had lens implants. They do approve Viagra and erectile dysfunction supplies for men.

  11. Ken Glass you do not mention the payroll contributions made to those systems. Do you work for or have stock in United Health Insurance?
    Please gather and publish data on other national systems. You and we NEED single payer.

  12. I cannot even begin to imagine how much cash the insurance companies are pumping into a campaign to fight this. Their business of ripping off consumers is at stake.

    Hospitals and physicians will be able to easily absorb a lower reimbursement because they will no longer have to employ people to negotiate rates with insurance companies and will no longer need staff to maintain knowledge of the extreme variety of insurance plans with different coverages for patients. Dealing with health insurance companies requires maintaining large volumes of data in computer systems and continuous updates to contract language. They each like to have their own set of requirements for coverage and demand health professionals obtain precertification for many procedures. All of this is very time consuming and expensive.

    I sure hope California does pass this. If they do, this will make it very difficult for members of Congress to continue spreading lies against universal coverage.

  13. The costs to every healthcare provider who accepts any form of private insurance are enormous. Just keeping track of what insurance each patient has (not only the company, but the particular plan, with all the crazy variations) is a full time job in many large dental offices (that’s where my experience is, so I use them as an example). If a dental office needs a full time person to “manage” insurance, imagine how large the insurance staff is at a hospital. Under a single payer system, the vast majority of these expenses would disappear.

  14. Remember how Governor Brown turned a $20B deficit into a surplus by, among other things, raising corporate taxes? And remember how those corporations fled California en masse for low-tax states like Indiana? We marveled at how Jerry Brown accomplished that, and no, I don’t remember the exodus, BECAUSE IT DIDN’T HAPPEN. Because corporations find attractive work environments for their employees more important than low taxes. Indianapolis is now wise to that concept, the rest of the state not so much.

  15. Medical mistakes are the #3 killer in the US according to NEJM. When will these medical mistakes be tied in with the denial that pharma is harming millions. That the cdc, fda and other former govt agencies now private corporations are systematically maiming &it murdering millions. Remember vioxx? Just the precurser. Save humanity.

  16. America can’t afford the health care we have and remain competitive in global markets. While that statement includes our woeful insurance system it also, I believe stands correct if one considers only our health care delivery system.

    The only reason we are still in the game at all is Medicare.

    The longer we ignore that reality the lower our position will be competitively and all that means in terms of jobs, markets, investment potential.

    So, single payer is probably a necessary but insufficient step towards financial sanity. But it’s essential in my mind that the single payer be government in order for the impact that Medicare exerts on their markets to be universally employed.

    As there is zero chance in our current Federal Government to keep us energy competitive there is also zero chance for us to become medically affordable.

    We will however be treated to aristocratic pomp and circumstance that hasn’t been seen since the Hapsburgs and we can all enjoy our cake.

  17. Finally, some common sense. The insurance companies will do everything possible to try to make the plan fail or make it appear that the plan is failing. It works in places like Canada, England and France, so it could work here, too. But, they’re not going to give up without a big fight and lots of fear-mongering.

    Thanks again Sheila for a fine piece.

  18. I don’t think CA is undoing Medicare, or VA systems. Those programs will continue – at least until the federal government manages to cut them too. An 11% drop in support, assumes that the people of CA continue to pay for those programs in substantial federal taxes, which for years have sent more money to welfare handout Red states, than it ever gets back for its own use, but doesn’t receive any benefit from them – and that is a silly assumption. CA Version of Medicaid could use an overhaul, and possibly it will get one. Their new system should cover what ACA did, and more, give business a break, and cover more people. I love pragmatic solutions!

  19. While I’m intrigued by single payer and understand the advantages, the California example cited here suggests the average consumer would save 9% as a result. I’m underwhelmed by that number. A radical change ought to have radical results. Were I a Californian I’d appreciate any cost cut, but this is not a problem of 9%. It’s a problem of 25-50%. And when I see some of the asinine rules of Medicare coverage (3 family members on it), I don’t think I’ll be that excited to sign up myself, but would take it over being uninsured. Face it folks, we’re just asking for a change of bureaucracy. I’m thinking tepid excitement, over sheer joy. Sidebar: While I’m here, can we get past this notion that vision and dental care are not somehow medical expenses?? I’ve always found that stupid beyond comprehension! Imagine if you had to have separate policies for your heart and pancreas. I better not say that too loud in case an insurance executive runs with the idea.

  20. California has the sixth biggest economy in the world, surpassed only by the U.S., China, Germany, France and Japan, so when they speak, markets listen. I have been for single payer for many years after hearing that the needless HMOs and insurance companies eat us some 25% or more of premiums paid for administrative costs, profits to shareholders and bonuses to executives that add up to billions and billions that could otherwise be applied to real healthcare. That’s not a liberal position; that’s arithmetic, as the rest of the civilized world has noted by their adoption of single payer or some equivalent means of financing healthcare for all. A paid-off Congress and armies of lobbyists and lawyers would, of course, beg to disagree,
    but arithmetic is arithmetic and also applies to their fees and campaign contributions and the deductions from income HMOs and insurance companies take so that you and I pay what they should be paying in addition to premiums paid to these corporate welfare recipients which will, finally, be abolished by a single payer system. Better healthcare for less? Makes sense to me.

  21. Oregon and a couple of others are also working on similar, or workable plans..It’s not surprising that Indiana, (Pence country), has not even whispered, or at least I haven’t heard a hint of a whisper about universal health care for its citizens.
    Whether or not corruption and greed exists within this country’s group of movers and shakers, including Presidents, there has to be at least one outstanding mind that can sit down and do whatever it takes to figure this out. Why are we not in step with other countries?
    Should we be kicking ourselves again for being asleep for so long, and not demanding Congress do their jobs?
    And, although I am proud of California, at the same time, I am also surprised that California , ( being one state among 6 that make up the richest areas in the world), has tolerated 40% of their population being under and non-insured. Shame

  22. Although not directly on point to California possibly enacting a single payer system, I just read an interesting article on HuffPost by Jonathon Cohn about how California’s Affordable Care
    Act insurance exchange program — Cover California — has worked and is working very well. There is a lot of competition among insurance companies, and the prices are relatively low in most areas of the State.

    The article reports that a good part of the reason “Cover California” has worked better than most State’s ACA exchanges is that California State government has supported the program, and enacted some commonsense provisions that have allowed it to perform better. But another reason it has worked well in California is the State’s dense urban population areas and demographics are favorable to the exchanges. Cohn reports that in the rural less densely populated areas of the State, as in other less populated and more rural states, there is less competition and prices are higher.

    Just another example of how thoughtful, adult government can be part of the solution; not the problem.

  23. As for today’s topic of California, hopefully, adopting a single payer system, and at the very least begin experimenting whether it will cost less and provide at least as good as health care to most citizens. I have never understood or fathomed why large corporations, employers, business owners, etc., aren’t out there lobbying and bribing Congress to enact a single payer system?

    It’s only an accident of history that employers were sucked into providing and paying the largest share of the cost of their employees’ health insurance as a benefit to attract workers. The costs to employers of not only paying for a large portion (admittedly shrinking these days), but the costs to business of administering the programs must be huge (sure some of the more knowledgeable readers of Professor Kennedy’s blog will undoubtedly have the exact figures handy). The savings in those costs to employers and businesses alone would be huge. So why do employers want to keep on being part of the health insurance system? Why aren’t businesses and corporations — excepting the insurance industry — on board the single payer train?

  24. The only thing that should be addressed is physician debt. With med school tuition between $200,000-$500,000 and interest rates around 5-7%, it will be hard to attract doctors to work in the state. Now, if the state could pay off a portion of the debt that would be fine. Agree to work in less desirable parts of CA, get more of the debt. waived.

  25. Ken Glass, how did you factor in hospitals getting paid something, albeit a reduced anount, for all services they provide, rather than the situation that exists now, where they have to write off a significant amount of charges for people who have no insurance?

  26. Hey, maybe Ken Glass is off thinking about this, doing research, asking questions. Or finding a group that agrees with him. Nobody likes being THE TARGET.
    What I want to know is, which new opinion writer in NYT is the ultra conservative? It would be interesting to ask that person his views on all this. We also deserve to know which columnist is very conservative. I always have assumed that the opinion writers for NYT are some variety of liberal or even flaming radicals. I don’t read all of NYT. Why don’t we get them to do a series like Moyers about single payer health care? THIS IS IMPORTANT.

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