Summary of “Key Design Considerations for a Unified Health Care Financing System in California”
Healthy California for All Commission Final Report
April 2022

This report reflects a deliberative and comprehensive investigation and analysis of the healthcare system in California conducted by a Commission convened by Governor Newsom. It provides the rationale for adopting what it terms “unified financing” (UF) to replace the current fragmented, inequitable, and costly system. Its conclusions should motivate policymakers to take the steps necessary to establish guaranteed healthcare and achieve the health system cost savings available to California.

The Commission found that, absent a shift to unified financing, California will spend $158 billion more annually on health care in 2031. By contrast, residents, businesses, and government agencies would save money within the first year of the new system — and those benefits would increase over time. The Commission’s report finds California could save up to $500 billion or more over the next decade if the state shifts to unified financing, a portion of which could pay for long term care services covering every resident in the state.

What’s more, 4,000 or more lives would be saved annually under universal healthcare.

The report summarizes the characteristics of the new “unified financing” system as:

  • All Californians will be entitled to receive a standard package of health care services;
  • This package could include Long Term Care Support and Services, which would relieve huge and growing burdens that are falling on millions of families;
  • Entitlement will not vary by age, employment status, disability status, income, immigration status, or other characteristics; and
  • Distinctions among Medicare, Medi-Cal, employer-sponsored insurance, and individual market coverage will be eliminated within the system of unified financing.

It’s noteworthy that the Commission comprised of a diverse group of policy analysts, providers, and advocates came to a shared conclusion in favor of a fundamental transformation of the current healthcare system, specifically the report includes:

  • An endorsement of and the rationale for a system of unified financing that is accessible, affordable, equitable, high-quality and universal;
  • A description of key decision points required to craft such a system for California; and
  • Observations about next steps underway and planned that would move California toward the envisioned unified financing system.

The report’s description of the present fragmented and wasteful system, which disproportionately harms low-income and communities of color, is compelling and provides the rationale for a new single, government-administered funding system. The report notes that

There is no central accountability for spending and ample opportunity for plans, providers, and other health care interests to seek financial rewards without improving health outcomes or offering the services and supports that provide clinical benefits and/or that people value.

By contrast, it notes that “A system of unified financing would also create significant opportunities to deliver health care more effectively efficiently, and equitably.” And the report calls for the elimination of corporate profit-making as the basis of healthcare decisions.

The magnitude of the change from the status quo in terms of cost savings and impact on Californian’s access to health services that the Commission contemplates represents a profound breakthrough in health policy and would establish California as the leader in the nation towards achieving health equity.

In summary, the Commission’s analysis found that:

  • Absent a shift to UF, aggregate health care spending in California is estimated to increase by $158 billion in 2022 dollars over nine years, representing an increase of approximately 30% over baseline spending;
  • Under almost all scenarios analyzed, in the first year of implementation unified financing is expected to result in lower total health care expenditures than under the status quo;
  • If, as expected, UF reduces the rate of growth of health spending, savings over time would be achieved under all scenarios examined, even when long-term care services and supports (LTSS) are included as covered services, and even where there are no out-of-pocket costs for people who access health services;
  • Assuming that the federal and state governments support UF at the level they would have supported under status quo fragmented financing, the savings from UF will accrue to California employers and households, who will on average pay less to support UF than they pay in the status quo;

Unique in the history of California health policy making, the report reflects a commitment of the California Department of Health and Human Services to “to build the foundation for a system of unified financing” and “to further refine UF design options, engage with the federal government, and develop creative legal, policy and political solutions that can engage and inspire Californians to embrace change.”

As the report indicates, much work remains to be done, and key design elements were beyond the scope of the Commission and rightly belong to the executive and legislative authority that established the Commission.

Two key design issues stand out: cost-sharing for health services and the role of “intermediaries” (eg health plans and health systems). As the report acknowledges, an ideal single payer system would not have any cost-sharing, and all agreed that low-income residents should be exempted. More cost-sharing creates substantial reductions in tax financing requirements but can be barriers to care. Although the report cites the reduction of administrative costs as a key feature of UF, it provides rationale for a transformed role for health plans and health systems in the administration of benefits. Risk-based capitation, about which HCN has raised strong concerns, also received favorable, though in our view unconvincing, evidence for its use.

Though we may disagree with some of these and other characterizations of specific policy elements, those will be resolved in the future debate over the actual design of the system. For now, this report is a huge step forward that points toward a profound improvement in the health of Californians. The goal is clear: guaranteeing healthcare through a system of unified financing.

Next Steps toward “universal, accessible, affordable, equitable and high-quality healthcare.”

  • The crucial next step envisioned by the report is the necessity for immediate engagement with the Federal government to define the parameters of federal support and develop the elements necessary for legislative approvals in California. The report mentions dedicated staff assigned to this effort, which is essential.

As the report notes

In order to navigate issues related to federal funding and permissions, an iterative process is likely to be needed in which California seeks further clarity via federal engagement, then consults with state constituencies and stakeholders to refine and specify its preferred approach, and then bring a specific proposal to federal authorities.

  1. Lay the Foundation: The report promotes these activities that “set up the structures, resources, and capabilities essential to supporting UF, but are not necessarily prerequisites to UF. Many are already underway and most yield benefits under existing financing arrangements, though their relevance will be heightened, and their impact deepened under UF.”
  2. Workforce: Investing in and support a workforce that is diverse, that can meet the cultural, socioeconomic, and linguistic diversity of California’s residents and that is responsive to consumer and patient needs.
  3. Enact Office of HealthCare Affordability: Establish healthcare cost targets and address cost drivers in order to slow growth in health care spending.
  4. Cost of Delivering Care: Leverage existing data and identify data gaps that have to be overcome to understand the actual cost of delivering frequently performed medical services (such as inpatient care, imaging, etc.).
  5. Role of Health Plans: Evaluate whether health plans under the status quo add value by furthering access, affordability, quality and equity while accounting for excessive administrative costs and profits and burden on providers. If health plans are retained and reimagined under UF, what functions would they perform?
  6. Uniform Clinical Data Record: Once policies for data sharing are in place under the forthcoming Data Exchange Framework, explore the potential benefits and feasibility of developing a statewide uniform clinical record.
  7. Administrative Costs: Further study of the administrative burden on providers under the status quo and potential administrative cost savings under UF.
  8. Fraud and Abuse: Upon implementation of the HealthCare Payments Data Program, identify and take action on claims fraud and overbilling.

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