Should state government become the health insurer for all Californians? With support for that idea growing amid federal efforts to dismantle the Affordable Care Act, the state Senate passed a measure Thursday that would create a new state agency to oversee health care and pay providers directly, eliminating premiums and co-pays for patients.

Similar proposals have been made before — even passed the full Legislature, then fell short of gubernatorial approval. Proponents hope this year will be different, given the new momentum for a health care overhaul and the support of powerful unions.

But the measure has a long way to go, facing the same challenges that bedeviled earlier efforts: cost, a skeptical governor, deep-pocketed opponents and the need for certain federal approvals.

State Sens. Ricardo Lara (D-Bell Gardens) and Toni Atkins (D-San Diego) authored the “single-payer” proposal that now goes to the Assembly. They say California today can be a leader on universal health care, while Congress regresses by attempting to repeal the Affordable Care Act and change Medicaid funding.

“We are on a collision course for rising health care costs and a crisis for California’s middle class,” Lara said while presenting the bill to his Senate colleagues. “The good news is that California will get a lot more for our money.”

Sen. Ricardo Lara (D-Bell Gardens). Photo by Max Whittaker for CALmatters

Sen. Ricardo Lara (D-Bell Gardens). Photo by Max Whittaker for CALmatters

The proposal, SB 562, would cover all California residents, including those without legal immigration status — a notable departure from previous efforts, although the bill lacks information about how much this group adds to the bottom line. Many such residents are already covered with public funds; a Senate Appropriations Committee analysis of the bill says 1.8 million undocumented adults are not covered under any program.

But that is the only substantive new provision. The bill has drawn criticism for lacking a guaranteed financing plan and for a hefty price tag: perhaps as much as $400 billion a year, more than twice the state’s entire budget.

What is single payer health care?

A single-payer health system is run by one entity, typically a public agency, which oversees all aspects of coverage, negotiates care costs and pays doctors, hospitals and other providers directly. The kind of health insurance that many people have through their employers is unnecessary in such a system, and the delivery of care remains in the private sector — a bit like the way Medicare operates.

Single-payer plans customarily provide universal coverage. In California, under the most recent legislative proposal, the health program would be state-run and all residents of California would be covered for nearly all medical services.

What would that proposal do?

The current proposal, SB 562, would cover mental, physical, vision and dental health. It would include preventative care, prescription drugs, emergency services, surgeries, hospital stays, home health care, day care, and hospice care. The bill would establish an independent governing body, called the Healthy California Board, to oversee the structure, financing and implementation of the new system. A fund would be created under the state treasury department to house all health-designated money, including tax revenue and federal and local government funds.

How would the system be paid for?

Single-payer health coverage would mostly likely be financed with a combination of tax increases and the federal dollars that are already spent on Medicaid and Medicare — if Washington agreed to allow the diversion of its funds. Medicaid and Medicare patients would then be absorbed into the state-run system. The redirected federal funds and the new state taxes would replace premiums, deductibles and copays for patients. The bill does not yet contain an actual funding mechanism, so it is not clear whether the taxes would be higher or lower than those out-of-pocket expenses.

Various estimates put the cost of a single-payer system in California somewhere between $331 billion and $400 billion a year. About a third to one-half of that expense is expected to come from taxes.

Has California tried to do this before?

The push for a single-payer system in California goes back more than two decades. In the early 1990s, an effort to copy Canada’s single-payer system failed in the Legislature. Then California voters rejected a ballot initiative that proposed a single-payer plan. Lawmakers later passed single-payer bills, but those were vetoed — twice — by then-Gov. Arnold Schwarzenegger, who cited cost concerns.

What do supporters and opponents say?

Backers include large unions, led by the California Nurses Association, some physician groups, consumer groups and immigrant groups. They argue that the overall costs of health care for Californians would decrease in a single-payer system and that both access to care and the quality of care would increase. They say that with Congress seeking to repeal the Affordable Care Act (Obamacare), now is the time to establish single payer in California.

Opponents include business interests such as the California Chamber of Commerce and health insurers like Kaiser Permanente, Blue Cross and Molina Health, companies for which the state is a huge market. They argue that new taxes would hurt businesses and cost jobs. Insurers say single payer could deprive patients of the option to choose coverage and providers they like, among other objections.

What’s next?

The state Senate passed SB 562, which is now awaiting a vote in the Assembly. Gov. Jerry Brown has expressed skepticism about the measure, and it is unclear if he will sign the bill if it reaches his desk.

Sen. Ben Hueso (D-San Diego) said during Thursday’s floor debate that he couldn’t vote for the bill, despite his approval of the single-payer concept. “I want to support a single-payer bill that covers the important elements of how to do delivery of service and how we are going to pay for it,” he said.

The $400 billion figure came from the Senate Appropriations Committee, which Lara chairs, though at least one other analysis attached a much lower figure. The senator, who is a candidate for California insurance commissioner, has not yet issued a cost projection or a financing plan, although he says those are coming. The committee’s analysis said half the cost of the new system could be covered by money diverted from existing government programs such as Medicare and Medicaid – assuming federal waivers on those funds are granted. Most of the rest would likely come from new taxes.

The committee estimates a new payroll tax for this purpose could be 15 percent of earned income but offers no information about how such a tax might be split between employers and workers, or whether it would fall wholly on one or the other. And new taxes require a two-thirds vote of the Legislature — a tough ask despite Democrats’ domination of the statehouse.

Currently, Lara says, Californians spend $367 billion annually on their health care. He told the Senate on Thursday that his bill would cut expenses “through better administration and lower prescription drug costs. Having one publicly run system will reduce inefficiency and missed prevention opportunities.”

Costs and taxes remain potential obstacles to a single-payer plan.

Costs and taxes remain potential obstacles to a single-payer plan.

Lara will use a new financing study, commissioned by the California Nurses Association and released Wednesday, as a jumping off point for his own funding plan, according to his staff. The study, done by a researcher at the University of Massachusetts at Amherst, pegged the annual price at $331 billion, with savings culled from such areas as administration, pharmaceuticals and unnecessary services.

The study also says taxes could fund costs not covered by Medicare or Medicaid, through a new 2.3 percent fee on some businesses and a new 2.3 percent sales tax on non-essential purchases. Alternatively, the study outlines a potential new 3.3 percent payroll tax on both employers and employees, combined with the sales tax.

Even with the higher taxes, the study says, some California families could save as much as 9 percent annually on health care and some small businesses, as much as 22 percent (the largest employers might save 1 percent). The taxes would replace consumers’ premiums, co-pays, deductibles, and other costs.

Supporters concede that funding is a challenge. But they say it’s surmountable with the government’s power to negotiate limited rates in a state the size of California and with the elimination of insurance companies from the equation.

“We spend the money on hospitals and doctors and drugs already; the question is reorganizing those dollars,” said Anthony Wright, executive director of Health Access California, a consumer advocacy organization. “The money we spend already on taxes and through premiums and deductibles would be funneled into one payer. And it would not be an increase in cost, but it would be collected differently.”

Still, according to the Senate analysis, nearly $40 billion more could be needed to cover such things as a spike in the use of health care services and administrative costs.

Large insurers such as Kaiser Permanente, Blue Cross and Aetna, for whom California is a huge market, strongly oppose the bill. So does the California Chamber of Commerce, which considers it a “job killer.” Those interests have well-paid lobbyists fighting the proposal in the Legislature, where some members may be on board with the concept but not necessarily this proposal, at least in its current form.

“I support the goal of universal health care, but we need to figure out a real plan on how to pay for it,” said Assemblyman Al Muratsuchi (D-Torrance).

Business interests also say employers and workers would be hard pressed to absorb additional taxes.

“There’s a well-established reason that previous governors and other states have rejected such a concept – it’s poor policy,” said John Kabateck, president of Kabateck strategies and former California executive director of the National Federation of Independent Business. “Californians are already faced with some of the highest tax burdens in the nation.”

Beyond the cost and tax issues is the question mark that hovers over federal waivers. President Trump, in his 2000 book, “The America We Deserve,” praised universal health care as a way to improve life for everyone. He has said little about single-payer health care since he took office. But he has railed against California’s opposition to his administration, saying the state “is out of control.”

President Trump has said little about single-payer health care since taking office. Image by Gage Skidmore/Flickr

President Trump has said little about single-payer health care since taking office. Image by Gage Skidmore/Flickr

Lara acknowledges there are no guarantees. But he notes that the federal government has previously granted waivers to states when they amended or added programs to their healthcare systems — even states that eexpanded their Medicaid programs, as California did under the Affordable Care Act. California has several past and ongoing waivers, approved under both Democratic and Republican administrations.

“We’ll make sure under state rights that we will be able to get the waivers like other states,” Lara said at the committee hearing.

The Centers for Medicare & Medicaid Services said it does not comment on pending or proposed legislation or waivers.

Washington’s inclinations and the need for more bill details notwithstanding, state lawmakers have political incentives to pass SB 562. The influential nurses union, for example, has threatened to campaign in the next election against those who vote no.

Still, many who are following the issue say they don’t expect the bill to be signed into law. Gov. Jerry Brown, California’s fiscally prudent chief executive, has expressed concern about the cost.

Proponents say that if the measure does fail in the Assembly or at the governor’s desk, the current spotlight on the issue will help build support for a future effort — putting the matter before the next governor or on the ballot again. That is unlikely to happen without a fight.

“This is going to a be a long-term, fiercely fought battle in California,” said Rob Lapsley, president of the Business Roundtable, a Bay Area group that opposes the current measure. “The stakes are enormous,” he said. “People’s health is at stake, jobs will be at stake, the state’s financial footing will be at stake.”