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6 big questions hanging over California's single-payer bill

State Sen. Ricardo Lara (D-Bell Gardens) speaks at a May 2016 rally at the Capitol in Sacramento.
State Sen. Ricardo Lara (D-Bell Gardens) speaks at a May 2016 rally at the Capitol in Sacramento.
Rich Pedroncelli/AP

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As Congress works on legislation to replace the Affordable Care Act, the California Senate has approved SB 562, which would create a state-run health care system. Legislators from both sides of the aisle say the bill is "not fully cooked" - because its sponsors still have not worked out a plan to pay for it, and can't see how it might affect the economy.

Lawmakers who voted for the measure say it’s time to start a conversation about getting health care to everyone in the state, especially as Congress and the Trump administration try to repeal Obamacare.
"California has every reason to design and implement its own program for universal health care and that’s what we’re doing," says Michael Lighty, director of public policy at National Nurses United—the bill’s sponsor.
But what about the bill's cost and impact on the economy? Here are six pressing questions: 

1. What would it cost to give health insurance to every Californian?

Californians spent $368.5 billion on health care in 2016. The UCLA Center for Health Policy Research estimates about 71 percent of that price tag is covered by federal, state or local government funding.
There have been two analyses of the potential cost of HB 562. One was drawn up by the office of Sen. Ricardo Lara (D-Bell Gardens), the bill's sponsor. The other came from the University of Massachusetts at Amherst, commissioned by the bill’s main sponsor, National Nurses United.
Both agreed the cost of covering every Californian would be about $400 billion dollars under the current system. UMass-Amherst’s economists say a single-payer system would lower that amount to around $331 billion through administrative cost savings.
Both analyses assume that current public funding for health care would remain. The UMass-Amherst study estimates that means the state would have to raise an additional $106 billion a year, and the analysis by Lara's office pegs that figure at $200 billion.

2. How would the state pay for it?

This is the big question that must be answered before SB 562 can become law. The state senate voted on the bill without a funding mechanism. There are some proposed ways to handle the cost, but they haven’t been added to the bill in its current form.
The Lara office's analysis says one way to raise the $200 billion would be a 15 percent payroll tax. The UMass-Amherst analysis suggests a 3.3 percent payroll tax or a 2.3 percent gross receipts tax on businesses, combined with an additional 2.3 percent state sales tax.

The analysis further recommends that businesses with less than $2 million in annual sales be exempt from the new taxes. It estimates that firms with up to 19 employees would pay taxes on only about one-third of their gross revenues.

UMass-Amherst also suggests that families on Medi-Cal receive a 2 percent income tax credit to offset the sales tax hike.

3. What would single-payer cost businesses?

The economic analysis by UMass-Amherst expects businesses to spend in new taxes about what they spend now on employees' health insurance.

The study finds that the tax exemption for firms with less than $2 million in sales would mean that small businesses (those with fewer than 10 employees) would come out ahead. It estimates that those small firms that have been providing health care insurance for their workers would see their health care costs fall by 22 percent as a share of payroll.

The analysis estimates that firms with under 100 workers would see their health care costs fall between 6.8 percent and 13.4 percent as a share of payroll. It predicts companies with up to 500 workers would see a 5.7 percent drop in health care costs as a share of payroll, and that firms with an average of more than 1,000 workers would see their health care spending decline by .6 percent as a share of payroll.

Critics of SB 562 strongly dispute these estimates.

4. What about jobs?

The bill would largely do away with the private insurance industry in the state. The California Employment Development Department counts more than 31,000 people in the state who work for medical insurance carriers. Many more people work selling insurance and in billing and processing at hospitals and private practices. The California Association of Health Underwriters says HB 562 could put more than a half-million Californians out of work. The bill's supporters contend that number is wildly inflated.

SB 562's backers have asked UMass-Amherst to do an additional study with the aim of determining how many jobs would be lost under the bill. That report will include a proposal for how to retrain people who lose work. The bill calls for a retraining fund.

The legislation's supporters say many of those people would find work dealing with billing for the state. Organizations that represent the medical and health insurance industries remain worried about job losses, and about possible negative ripple effects throughout the economy.

5. What would it cost California families?

Economists from UMass-Amherst estimate that, even with the additional sales tax, most families would pay less for health care than they currently do, once they no longer had to pay for things like insurance premiums, deductibles and co-pays.  

The study estimates that middle-income families' net costs for health care would fall from between 3.4 percent and 9.9 percent of family income down to an average of .8 percent of family income.

The analysis says California families in the highest income brackets currently receive the equivalent of a net subsidy of 1 percent of their income for health care costs. The study estimates their costs would rise to an average of .6 percent of their income.

Critics say the analysis is "overly optimistic."

6. What’s the federal government’s role?

SB 562 calls for existing government funding to pay for the program to the tune of $225 billion. Those dollars go to programs like Medicare and Medi-Cal. This would require a federal waiver.

Aside from the federal funding, SB 562 could set up a conflict with another federal law. The Employee Retirement Income Security Act (ERISA) protects benefits Americans get at work. Since the bill would do away with most health insurance, it could set the stage for legal challenges under ERISA. 

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