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What You Need to Know About Single Payer in California

Image via LA Times

Single payer healthcare could prove to be disastrous for California.

In the midst of the GOP health care debacle, public officials on the Democratic side of the aisle are beginning to take advantage of the situation and praise radical alternatives to our current health care system. When speaking about the future of health care in an interview with the Wall Street Journal, Senator Elizabeth Warren asserted her position saying, “Now it’s time for the next step. And the next step is single payer.” Senator Bernie Sanders is calling for “Medicare for All,” and is planning to introduce a bill to Senate floor in the upcoming weeks.  During his 2016 presidential bid, he provided a detailed, yet very costly plan on his website.

Here is the bad news for the left wingers of the Democratic Party: when it comes to advocating for universal health care in the United States, talk is cheap. If implementing single payer health care was so simple, Colorado and Vermont would’ve succeeded in their recent attempts to do so. With momentum in its state legislature, California is next on the list to try.

If California was a country, its approximately $2.5 trillion economy would  rank directly behind the United Kingdom as sixth largest in the world. Thus, California has the capacity to experiment with a single payer system. However, the state must be prepared to pay the bill and displace the private insurance market.

The Healthy California Act, a bill to implement a single payer system that passed California’s State Senate, would cost anywhere from $331 to $400 billion dollars, which is more than the state’s entire budget. Under the bill, those receiving private insurance, employer-based coverage, Medicare, and Medicaid would all lose their existing coverage and be subject to the centralized state system. Illegal immigrants will also be eligible for coverage. Copays and deductibles would be prohibited, and all 40 million California residents would be eligible to see a specialist without a referral.

There’s one tiny issue. How does California come up with sufficient revenue to pay for it? Totalstate spending for the fiscal year 2017-2018 is projected to be $183 billion. The Wall Street Journal estimates that a single payer system could increase the size of the state budget by 110%. State legislative analysis proposes that California would have to implement a $200 billion tax increase. The other $200 billion would come from federal, state, and local funds already in place that includes funding from Medicare and Medi-Cal (the state’s system of Medicaid). The Legislative analysis suggests that the extra $200 billion could be raised by implementing a 15% payroll tax. Californians would thus experience a tax increase coupled with the 15.3% they already lose from their paychecks due to federal taxes (FICA and MEDFICA).

A study from the University of Massachusetts-Amherst, which projects that the bill would cost $330 billion, says that $225 billion would come from Medicare and Medi-Cal, while another $106 billion would be generated by a 2.3% gross receipts tax on businesses, a 2.3% sales tax, and tax credits for families that are currently qualified under Medi-Cal. The sales tax would exempt basic needs including food, housing, and utilities.

One thing the state doesn’t take into account is its diminishing popularity as a desirable residential territory. California already burdens citizens with a top marginal tax rate of 13.3% – the highest in the entire country. Data Analysis from CoreLogic concluded that for every 2 home buyers coming into the state from 2000 to 2015, 5 are selling and moving. Sam Khater, deputy chief economist at CoreLogic. even said to CNN, “The middle and lower middle can no longer afford to live in California.” In 2015, California had the largest number of out-migrants across the country. How will California keep its middle class from leaving? What doctors would even want to stay if the state tells them how much they can make and who they can treat? Paying for universal health care surely won’t help.

Former Governor of Vermont Peter Shumlin realized back in 2014 that the 11.5 % payroll tax and exorbitant premiums required to pay for Green Mountain Care, Vermont’s universal health care initiative, would cause immense “economic disruption” for businesses, families, and the state’s economy. Pre-existing law puts Vermont on track to collect $1.7 billion in tax revenue. However, green Mountain Care would’ve needed $2.6 billion in additional revenue provided by a 151% increase in state taxes. Green Mountain Care would’ve also amounted to a 16% cut in payments to doctors and hospitals.

Colorado miserably failed in its efforts to establish ColoradoCare. Amendment 69 was a public referendum to establish single payer health care in the state via constitutional amendment. After the 2016 election, a whopping 2,065,362 (78.9% of the vote) voted no. ColoradoCare would have had an estimated $25 billion annual cost that would’ve been paid for by a 10% state income tax hike. This would have tripled the rate to 14.63% and made it the highest in the country. The non-partisan Tax Foundation summarized all the issues with the plan with this:

“In 2019, the first possible year of ColoradoCare’s health care delivery system existing, the tax is estimated to generate $25 billion. This would almost double Colorado’s general fund budget, which is $27 billion in 2016. The revenue raised from the new tax will be combined with Colorado’s federal Medicaid matching contribution to fund ColoradoCare’s $36 billion annual budget, but those funding sources are likely inadequate. Even in the first year, the Colorado Health Institute estimates that ColoradoCare would have a deficit of $253 million, suggesting that the 10 percent tax rate is set too low.”

So much for that.

Secretary Price should let California experiment just to prove the infeasibility of such a proposal. That might ensure that single payer never gains any more momentum in the United States ever again.

Mitchell Siegel studies public policy at Duke University. He is a healthcare policy intern at the Heritage Foundation.

Editor’s Note: The opinions expressed in this article do not represent the views of The Heritage Foundation or its associated bodies.

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