In SummarySpending on health care in the state now exceeds $400 billion a year — more than $10,000 per person. That has led to an explosion of political attention, just as agriculture and industrial activity dominated California's political landscape in their heydays.
Ask Californians to identify the largest single component of the state’s $2.6 trillion economy, fifth largest in the world, and chances are they will reply with high technology, agriculture, motion pictures or even tourism.
Only rarely will they name medical care. However, over the last half-century, as California’s economy transitioned from long-dominant natural resource and industrial sectors into services and technology, taking care of Californians’ health has become — by far — the state’s single largest economic activity. It’s also growing rapidly, creating jobs that are a microcosm of the state’s diverse, post-industrial, service-oriented economy.
How big is it? Federal, state and local governments, employers and individual Californians are spending well over $400 billion a year on medical care, an average north of $10,000 for every Californian, with half coming from Uncle Sam.
That makes it, to cite one comparison, eight times as much as California’s largest-in-the-nation agricultural output.
Not surprisingly, that growth also spawned an explosion of political attention, just as agriculture and industrial activity dominated the state’s political landscape during their heydays — with the added psychological element that the availability and cost of health care touch virtually every resident of the state.
The medical industry, including insurers, is a major source of campaign funds for politicians. Each session of the Legislature generates hundreds of bills on the issue, and hundreds of lobbyists prowl the Capitol, urging passage of those that help their interest-group clients, trying to kill those deemed to hurt the clients or hoping to modify them to soften their effects.
Health care’s very personal and emotional impact also generates passionate activism, such as with this year’s version of the battle over mandatory vaccinations of schoolchildren or the perennial debates over abortion.
Population growth and demographic change, particularly the aging of the Baby Boom generation, will continue to expand medical care’s share of the economy and intensify political activity over how the enormous financial pie is divided. And the mother of all medical-care battles will erupt if Gov. Gavin Newsom tries to make good on his campaign promise to wipe the slate clean and install a European-style single-payer system in California.
How we got here
The roots of California’s megamedical industry can be traced back more than a half-century. That’s when Congress passed, and then-President Lyndon Johnson signed, what came to be known as Medicare, offering guaranteed health insurance for those over 65. An obscure provision of the authorizing legislation also offered federal funds to states to subsidize care for the poor, a program known as Medicaid in most states but dubbed Medi-Cal in California.
The injections of federal money for both Medicare and Medi-Cal were a boon to health care providers, particularly county-operated hospitals committed to dealing with all who entered regardless of economic circumstance; those institutions had treated the elderly and poor as charity cases. Medi-Cal now covers about 14 million Californians, more than a third of the state’s population, costing taxpayers more than a $100 billion a year.
As spending on medical care jumped, so did the prominence and intensity of its politics. In the early 1970s, for example, a proliferation of new hospitals and new medical technologies, such as very expensive three-dimensional X-ray machines known as CAT scanners, led to new state regulations requiring expansion projects to prove they were needed — and to a brisk trade in carving out loopholes.
One such loophole, slipped into a 1972 bill, allowed a chain of for-profit hospitals in Orange County to be constructed without state permission. However, a few years later a politically powerful Santa Ana doctor who benefited from the loophole, Lou Cella, was sent to federal prison for using the hospitals to defraud Medicare and Medi-Cal.
Many of the conflicts over portions of the huge medical-care pot have pitted one specialty against another. State law governs which specialists can practice on which parts of the human body, and changing that “scope of practice” has produced bitterly fought battles.
The most intense, in the 1970s and 1980s, pitted podiatrists – foot doctors – against orthopedic surgeons over the right to perform surgery on the ankle. The orthopedists, represented by the powerful California Medical Association, repeatedly turned back the podiatrists’ efforts to slide their scalpels a few inches up the leg. But the latter finally raised a ton of campaign money one year, buried their rivals in a blizzard of checks to key legislators and achieved their goal.
Since then, scarcely a year has passed without a scope-of-practice fight: nurses vs. doctors, psychologists vs. psychiatrists, ophthalmologists vs. optometrists, dentists vs. dental technicians. Oral surgeons specializing in oral and maxillofacial surgery fought plastic surgeons over the legal right to do cosmetic facial makeovers (and eventually won).
Another field of conflict pits advocates for victims of particular diseases or medical conditions against insurers, and often against employers, over legislation that would specify which treatments must be covered by insurance and how extensive that coverage must be.
This year, the California Association of Health Plans — medical insurers — identified nine such “benefit mandate” bills for specific conditions or medical devices that it said would raise their costs by more than $800 million a year.
One measure signed by Newsom, Assembly Bill 290, typifies the Capitol’s perennial medical-money conflicts. It’s aimed at eliminating what critics depicted as a monopoly by two companies that run clinics to treat people with kidney failure. It followed voter rejection of a ballot measure with the same goal. The two firms spent more than $100 million to defeat that union-backed measure.
Another arena for medical/political quarrel is workers’ compensation, the state’s multibillion-dollar system for compensating workers with job-related illnesses and disabilities. Insurers, employers, unions, lawyers and medical providers joust perennially over control of medical costs.
Finally, there’s the nearly perennial battle over the Medical Injury Compensation Reform Act, or MICRA, that Jerry Brown signed in 1975, a few months after becoming governor the first time. Pushed through the Legislature by medical providers and insurers, it limits “pain and suffering” damages in medical malpractice cases to $250,000. Personal-injury lawyers have tried for decades to undo the law but failed. The battle may be rejoined in a ballot measure next year.
The political battles over these and many other medical issues are waged more or less publicly in the legislative arena. Others occur behind closed doors within a multi-agency bureaucracy, including the ones that license and discipline medical professionals and decide which drugs can be prescribed to Medi-Cal patients – and at what cost.
Two separate and somewhat competitive agencies, the Department of Managed Care under the governor and the Department of Insurance under an independently elected commissioner, oversee insurers, who play a central role in determining who is paid what for treating patients.
The Obamacare effect
Another big state government player has emerged in the last decade: Covered California, charged with implementing Obamacare in the state by providing subsidies to low- and moderate-income Californians who may not qualify for Medi-Cal or don’t have employer-financed coverage.
Obamacare has been the latest incarnation of the federal government’s central role in paying for Californians’ medical care. The expansion of Medi-Cal eligibility in recent years to more than a third of the state’s population, along with subsidies to the working poor, have sharply reduced the number of medically uninsured residents from 6.5 million in 2013 to about 3 million today.
Most of the uninsured are undocumented immigrants not eligible for federally subsidized care such as Medi-Cal. In response, the state has slowly been extending Medi-Cal coverage to those immigrants, beginning with children and, in 2019, adding young adults.
This year, with Newsom’s active support, the state also increased subsidies for some parts of Covered California and imposed a new requirement that all state residents have health insurance, replacing a federal mandate voided by President Donald Trump’s administration. And Newsom’s first budget, enacted last summer, eased Medi-Cal eligibility requirements for the low-income elderly.
Newsom’s moves drew praise in a study by UCLA’s Center for Health Policy Research and UC Berkeley’s Labor Center. It projected that by 2022, the 2019 actions “would prevent 770,000 Californians from becoming uninsured and reduce premiums for 1.55 million, benefiting a total of 2.2 million of the state’s residents.”
However, Newsom balked at legislation to expand Medi-Cal eligibility to older undocumented adults, citing cost, while insisting that he still wants California to move to a single-payer system that would cover everyone regardless of legal status.
Obamacare has clearly reduced the number of medically uninsured Californians. But it’s not clear whether that expansion has actually improved Californians’ health or merely pumped more money into insurers and medical care providers.
A study this year by the state Office of Statewide Health Planning and Development found that more Obamacare coverage has cut the amount of charity care by acute-care hospitals in half. Implicitly, Covered California didn’t change what the hospitals were doing for their poor patients, just provided them with new money for that care.
A similar, albeit somewhat critical, study of Obamacare’s effects was generated at Stanford University, by a team headed by economist Mark Duggan, and published by the National Bureau of Economic Research.
Duggan’s team found that “a substantial share of the federally-funded Medicaid expansion (in California) substituted for existing locally-funded safety net programs (and) produced a substantial increase in hospital revenue and profitability.”
However, its report continued, “On the benefits side, we do not detect significant improvements in patient health, although the expansion led to substantially greater hospital and emergency room use, and a reallocation of care from public to private and better-quality hospitals.”
In other words, Obamacare has been something of a financial windfall for those who administer and provide medical care, but its effects on recipients’ well-being are questionable. And while expanding public and private insurance coverage has increased the demand for services, California faces a serious shortage of facilities and care providers to meet that demand.
A study by the Healthforce Center at the University of California’s San Francisco medical school warns: “In the next 15 years, California could face a substantial shortage of primary care clinicians. The number of physicians completing primary care residencies in California does not appear adequate to replace primary care physicians who are likely to retire in the coming decade.”
Discrepancies in care
In June, an Alameda County judge cleared the way for a lawsuit against the state Department of Health Care Services, which administers Medi-Cal, alleging that low reimbursement rates for doctors and other providers means that poor Californians who now have insurance still can’t get quality care, or must travel long distances and endure long waits to get medical appointments.
The suit is being pressed by a coalition of unions and Latino civil-rights advocates and is the latest incarnation of a years-long political conflict over reimbursement rates. Republican politicians have often supported increases against the reluctance of Democratic governors to raise those rates and shoulder the additional costs.
A recent report by the state auditor, Elaine Howle, rapped the department for failing to meet its obligations for Medi-Cal-financed care in the state’s rural areas, a deficiency largely affecting Latinos, who make up a disproportionately high number of Medi-Cal patients in those areas.
Some patients must “travel hundreds of miles to reach certain health care providers, including obstetricians, oncologists, neurologists, and pulmonologists,” Howle’s office concluded.
While the deficiencies in care for Latinos with Medi-Cal coverage have been documented, a UCLA study also found that “In California, Latinos are more than two times more likely than other nonelderly racial/ethnic groups to be uninsured, even with full implementation of the ACA (Obamacare).”
What about single-payer coverage?
Newsom and other advocates of single-payer health care — especially the California Nurses Association and other medical unions — contend that it would resolve most, if not all, of the countless medical care conflicts and issues, particularly by covering those now without health insurance. Their advocacy, however, raises two pithy questions: Would it work, and how would it be financed?
The state Senate actually passed a single-payer bill, dubbed Healthy California and sponsored by the nurses’ union, two years ago. Newsom, already running for governor then, backed the measure, saying there was “no reason to wait around.”
“I’m tired of politicians saying they support single-payer but that it’s too soon, too expensive or someone else’s problem,” Newsom said during the campaign.
However, the speaker of the state Assembly, Anthony Rendon, put the bill on hold, saying it would be irresponsible to move it without a financing mechanism. The union denounced Rendon and at one point declared an intention to unseat him.
The Legislature and then-Gov. Jerry Brown subsequently created a “Healthy California for All Commission” to study the issue; Newsom has since altered its makeup to give him more control over its work.
A staff analysis of the 2017 measure, Senate Bill 562, estimated the cost of providing comprehensive health care to 40 million Californians at $400 billion a year, relying heavily on a 2016 study by UCLA’s Center for Health Policy Research that pegged current expenditures at $367 billion.
The UCLA study determined that the federal government was paying half of those expenditures through Medicare, Medi-Cal, Obamacare subsidies and coverage for federal workers and federal and military retirees. State and local governments were picking up another 21%, with employers and individual consumers providing the final 29%.
Gerald Kominski, a co-author of the UCLA study, said in a recent interview that it missed a significant cost borne by consumers for out-of-pocket payments, such as co-pays for treatment. Including them and adjusting the 2016 estimate for inflation, he said, would push the current total to about $425 billion a year.
The analysis of SB 562 said that if the federal government would contribute the money it spends on Californians’ health, perhaps $200 billion a year, and the money already being spent by state and local governments would be added to the pot, the remaining cost, about $100 billion a year, would have to come from taxes.
Although the bill didn’t contain a financing mechanism, its advocates assumed that some kind of special health care tax would be levied to capture the costs now borne by employers and consumers.
But what kind?
Early this year, two professors at UC Berkeley’s School of Public Health, Drs. Richard Scheffler and Stephen Shortell, published a paper entitled “California Dreamin.’ ” They postulated that a system of “integrated health care,” more or less on the Kaiser Permanente model, serving all Californians would be practical and cost-effective enough to include the 3 million residents who still don’t have coverage.
Assuming current government and private medical care funds would be applied to the system, they said, the remaining $17 billion a year to cover everyone could be financed through several specific taxes, including one on airline tickets, a revenue source tapped in other countries for health care.
Before considering any single-payer taxes, however, Newsom and others would have to clear the issue’s highest hurdle: persuading the federal government to give California control of the $200-plus billion it is spending on medical care in the state each year.
That certainly wouldn’t happen as long as Trump or any other Republican occupies the White House. And, in fact, as the California Nurses Association and other single-payer advocates pressed Newsom to make good on his promise after he took office, Ann O’Leary, his chief of staff, declared, “It’s not possible to do single-payer in California without federal partnership.”
Newsom’s reluctance to proceed angers the nurses’ union and other advocates. But the need for federal cooperation gives the governor a convenient excuse for not moving forward, even as he continues to publicly advocate a single-payer system.
However, even were another president willing to help Newsom achieve such an historic goal, other political hurdles would remain. They include reluctance from those who already have strong health insurance coverage — such as the elderly, working and retired public employees, military retirees and union members — to put their care in the hands of a new state bureaucracy that would be needed to run the new system.
Health care unions, such as the nurses’ organization, might relish using their political influence to slice off bigger pieces of the medical pie under single-payer. But other powerful elements of the medical industry, such as doctors and hospitals, would resist being shifted into governmental or quasi-governmental status.
It would be political World War III, with a very uncertain outcome.