The California Health Benefits Review Program (CHBRP) yesterday published an analysis of AB 1400, a bill that would establish a single payer health system covering all the state’s residents. Healthy California NOW welcomes detailed discussion on how to finance a “Medicare for All” program, but we are concerned that this report is badly misleading.
CHBRP underestimates total health spending in CA by $80 billion per year or more – nearly 25% of the total it claims
Estimating total health spending in California is a difficult project – far more so than it should be given the importance of health care to our state’s well-being and economy. Nonetheless, CHBRP’s assertion that we spend $330 billion per year on health care massively understates the total and, by using this artificially low baseline, massively understates the value of the savings that can be achieved against it. The analysts take a federal dataset, the National Health Expenditures (NHE) from 2014, and trend it forward using the urban Consumer Price Index as a measure of inflation. Yet the NHE projections themselves state that health costs have grown far more than the CPI – 34% instead of 12% – from 2014 to now. CHBRP acknowledges this fact deep in its analysis, yet builds its analysis on the far lower number regardless. Any serious analysis of proposed health system change should have performed much more nuanced and careful modeling.
CHBRP overestimates public health fund reserve requirements
Health fund reserves are necessary to ensure there are always sufficient financial resources available to pay for services. In the public sector, they are a function not just of benefit costs, but of revenue variability. CHBRP asserts that reserves should equal 50% of total annual health spending ($159-196 billion), but doesn’t explain the logic that would require such a high figure. Consider, for example, that federal dollars today pay for more than 40% of total health care costs in California (through Medicare, Medi-Cal, Covered California premium and cost-sharing subsidies, Tricare and Veterans Administration services, Indian Health Services and other programs). Any transition to a state Medicare for All system will require negotiating how California continues to receive the benefit of those funds. Given the comparative reliability of federal health care payments over extended periods of time, that portion of health fund revenue can be backed by more limited reserves. Moreover, not all health care costs pay for year-to-year service delivery expenditures. Some costs, like infrastructure and public health expenditures, are more variable and discretionary, and don’t need the same level of backing. We estimate that prudent reserve levels ultimately will be determined not to exceed $100 billion.
CHBRP does a good job of summarizing potential savings, but misses key points
A growing body of research details the savings available by switching to a single payer system. Such a system would incur additional costs from caring for the currently uninsured, as well as from removing barriers to care like deductibles and co-payments. But studies show those additional costs would be more than offset by eliminating insurance profits, negotiating reductions in excessive drug and hospital prices, and cutting administrative costs. CHBRP highlights this well.
Its report omits key points though. For one, the “meta-analysis” it cites found 10-year savings estimates to range around 20%. At current trends, health costs in California will exceed $650 billion per year in ten years’ time; anything close to 20% savings would be a huge boost for our state’s economy and competitive position. Those savings would have other important effects too. Unfunded liabilities due to retiree health costs would be erased from public books (coincidentally, those liabilities closely match the amount necessary to cover state Medicare for All health fund reserves). In addition, local governments and public agencies – which spend close to $30 billion annually on health care – would be among the biggest winners, reducing high pressure on their strained budgets. All these points deserve close analysis and discussion.
Much remains to be figured out, but the urgency is clear
CHBRP’s report buried the lede when it said, “In the United States, administrative and overhead costs of health care exceed other countries by at least 15%.” Our health system costs far more than any other country’s because it is driven by huge corporate profits going to insurers and providers – a fact that is damaging our health and sapping our economy. Additionally, our health system is wracked and riven with the unacceptable, extreme inequities exposed by COVID-19. Designing and implementing a single payer system is complicated, but it has been done many times around the world. That is why Healthy California NOW is calling on Governor Newsom to start work right now with his partners President Biden and Secretary Becerra on the details of a Medicare for All plan that they will agree to fund with federal dollars.