A Bill to Establish a Single-Payer Health System Advances in California

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A bill has passed its first legislative hurdle to establish a government-run program of universal coverage in California. The California Senate Health Committee passed the measure 5-2. Next it will be debated by the Senate Appropriations Committee. The sticking point is how to fund such an endeavor.

The bill, SB 562, would establish a publicly run healthcare plan that would cover everyone living in California, including those without legal immigration status. The proposal would drastically reduce the role of insurance companies: The state would pay for all medical expenses, including inpatient, outpatient, emergency services, dental, vision, mental health and nursing home care.

When the issue was studied in both Vermont and Colorado, backers were looking at higher income taxes and dedicated payroll taxes of about 10%. Yet both programs were going to run in the red from day one, with deficits getting larger throughout the following years.

People who support Single-Payer type Medicaid-for-All programs often do not really understand how they are supposed to work. Single-payer programs like Medicare are increasingly turning to private managed care providers to care for seniors. Even fee-for-service (FFS) Medicare is looking for ways to make the program into managed care through Accountable Care Organizations (ACOs).

To be sustainable, a single-payer program in the United States would have to be run as the (nearly) sole payer for medical care. It would have to use monopsonistic powers to drive down provider fee to something below where the quantity supplied and quantity demanded curves intersect. For you non-economists, this means fees would be to be below the market clearing price resulting in mild shortages. That would result in what’s known as rationing by waiting.  Such a system would have to aggressively combat fraud. A single-payer would have to scrutinize hospitals’ Medicare cost reports and pay global budgets with only small bundled payments for actual services. On average, the fees paid to providers would have to be lower than Medicare but probably above Medicaid reimbursements. Price controls are typically used to set prices for drugs and supplies, like is common in Canada, Britain, New Zealand, etc. Services are always rationed.

The error these shortsighted proposals suffer from is they want everyone to have Gold Plated health insurance. That is not how single payer programs work. A better idea rarely used in single payer systems would require consumers to pay for their own primary care out of pocket and have the governmental entity only provide catastrophic care. Only then would payroll taxes of 10% sustain such a program — and possibly that would not even be enough.

As you can see, Single-Payer Utopia is a pipe dream. Americans will never tolerate the overt rationing necessary to provide universal Medicaid-for-All program funded by other peoples’ money.

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