For a change, we have something good to report: SB 562, The Healthy California Act, a bill proposed to make single-payer healthcare a reality in California, was shelved by Assembly Speaker Anthony Rendon on June 23 when he decided that the proposed bill will remain in the Assembly Rules Committee until further notice. The bill, which had passed the State Senate by a vote of 23-14, was supported by San Francisco politicians Scott Wiener and David Chiu (no surprise). Rendon, himself an advocate for single-payer, was nevertheless apprehensive about the bill and noted, “It certainly wasn’t a bill. There was absolutely no funding attached to a $400 billion proposal, no service delivery mechanism.” For his hesitation to allow the Assembly to vote on the bill and cave in to the powerful California Nurses Association, Rendon received death threats and a cartoon was posted with a California bear being stabbed in the back with a butcher knife that said “Rendon.” So much for civility on the left.

SB 562 would have abolished voluntary health care coverage for all 39 million Californians, and the moment such a system would have gone into effect, all voluntary (private) health plans, Medicare, Medi-Cal, and Covered California would be out the window. One-size-fits-all to be serviced by a government-run bureaucracy with unelected appointees who would make all the decisions about health care services and prices. Since 18% of California’s workforce currently works in the health care industry, SB 562 would have increased the unemployment rate in California immediately, not to mention the doctors and health care professionals who would have left the state to seek greener pastures elsewhere. The proponents of SB 562 proclaimed, “Californians can choose their doctors from a full list of health care providers, not a narrow network chosen by insurance companies.” Everything would be completely covered, including dental, vision, reproductive services, and mental health services. There would have been no co-pays, no deductibles, no premiums, and no medical forms to fill out—everything would have been completely and unconditionally “free.”

Well, not exactly. How would such a massive changeover from a mostly voluntary system to complete government monopoly been paid for? The estimate ranged from the optimistic $331 billion per year from the Californian Nurses Association to the more realistic $400 billion per year from the Senate Appropriations Committee. Three revenue sources were mentioned most often regarding SB 562: an additional 15% payroll tax, an additional sales tax of 2.3%, and a gross receipts tax of 2.3% of all revenue over $2 million. In addition to increasing the payroll tax on employees and employers, the proposed payroll tax increase would have had no cap on it, unlike Social Security, disability insurance, and unemployment insurance, which are currently capped at various levels. In addition, even though the proposed single-payer system would have abolished Medicare, both employees and employers would have continued to pay for it anyway. As for the proposed sales tax increase over what is already the highest state sales tax in the country, the bill’s proponents wanted to add many services to this increase, so it would no longer just be physical goods that would be subject to sales/use tax in California. The plan’s proponents preferred the gross receipts tax because “it does not discriminate in its impact between labor-intensive and capital-intensive firms” (equal misery for all), but a gross receipts tax is less popular these days as a tax funding mechanism and several states have repealed their gross receipt taxes in recent years, and those that retain them have very low rates, mostly way under 1%. Oregon voters rejected a gross receipts tax of 2.5% last year by over 19 percentage points, so while Bay Area voters would easily approve a 2.3% gross receipts tax, statewide it would likely fail. Any way you cut it, and whichever extraction method the politicians use, including a combination of all three taxes, this “free” medical care will be anything but.

The proponents of single-payer point to the savings that would result from California employers just switching from paying insurance companies to paying the state in taxes. Furthermore, they say SB 562 would have cut overall state spending on healthcare by 18%. They say that California businesses that currently have health plans for their employees would see a decline in their payroll costs of 22% for small businesses and 13% for medium-size businesses. They say that single-payer will cut costs through better administration and lower drug prescription costs. They point to the purported lower administrative costs of Medicare (the closest thing we have to single-payer right now) as “proof” that there are huge savings to be gained by single-payer. Administrative costs in the voluntary sector have been estimated at 11-14% of premiums while Medicare’s administrative costs are estimated at 3%. The reasons cited for the higher voluntary insurance companies’ expenditures are the superior efficiency of government, voluntary insurance companies’ charges on marketing, efforts to deny claims, unrestrained profit, and higher executive salaries. Superior efficiency of government—we won’t touch that one! The problem here is that they aren’t comparing apples to apples. Medicare administrative costs are being measured as a percentage of total costs, and with Medicare patients being older, disabled, and generally with more health problems than the general population, it stands to reason that Medicare administrative costs are going to be lower because of the much larger denominator. Furthermore, voluntary insurance companies provide disease management services for patients with chronic conditions and on-call nurses for patients to consult by phone, and most states impose a premium tax on health insurers—obviously Medicare is exempt—and both of these extra costs count as “administrative” costs. Also, other government agencies help administer Medicare: the IRS collects the taxes, the Social Security Administration helps collect some of the premiums paid by the beneficiaries, and the Department of Health & Human Services helps to arrange accounting, auditing, fraud control, and marketing; voluntary insurance companies do not have this off-budget help. Lastly, denying claims is a legitimate part of the health insurance industry where fraud is concerned, and while voluntary insurance companies do spend more money combating fraud than Medicare, is that so terrible? Fraud prevention is said to return $15 back for every dollar spent, so if voluntary insurance companies spend more, that benefits their customers but makes their administrative costs look higher than Medicare’s. According to the Medicare Payment Advisory Commission, “The Centers for Medicare & Medicaid Services estimated that about $9.8 billion in erroneous payments were made in the fee-for-service program in 2007, a figure more than double what CMS spent for claims processing and review activities. In Medicare Advantage, CMS estimates that erroneous payments equaled $6.8 billion in 2006, or approximately 10.6% of payments…The significant size of Medicare’s erroneous payments suggests that the program’s low administrative costs may come at a price.” If you actually compare the administrative costs of Medicare versus voluntary insurance on a per-person basis, rather than as a percentage, the “efficiency” of the government-run program doesn’t look so great. In fact, in 2005 it was $453 per beneficiary for voluntary insurance companies and $509 per beneficiary paid by Medicare—and that’s with all the differences noted above.

Finally, no discussion of SB 562’s problems would be complete without mention of the legendary wait times experienced by Canadian residents in their single-payer system that at least allows some voluntary insurance in some areas. In 2004 Canadian provincial governments committed to a 10-year plan to reduce waiting times in 5 primary areas: cardiac care, cancer care, diagnostic imaging, joint replacement, and sight restoration. Ten years—and many tax dollars—later Canadian residents have seen little improvement in the wait times. But according to the Wait Time Alliance, an organization formed by Canadian doctors in 2004, “Don’t forget to congratulate your elected representatives and health care providers when you have received timely access to care!” As for the Veterans Administration scandal in Phoenix, the secret waiting time list, and the 40 (at least) deaths caused by the bureaucratic nightmare of single-payer in action, we won’t even go there.