California is once again mulling whether to effectively deprivatize its health insurance market and put in place a Canadian-style publicly funded insurance program. SB 810 would create the California Healthcare Agency that like Canada’s Medicare program would pay all medical bills out of tax levies. The idea is to create a market monopsony that would shift bargaining power from providers of medical coverage to purchasers — in this case making the state the 800-pound gorilla purchaser.
The legislation is a reintroduction of a bill of the same number and author that died in final days of the previous legislative session last year. Even had the bill had passed out of the Legislature, it faced near certain death at the hands of then-Governor Arnold Schwarzenegger, a Republican who vetoed previous single payer bills that reached his desk. Schwarzenegger instead preferred reform that aggregates purchasing power — particularly among individuals and small employers that currently have little to none — through purchasing exchanges. That approach was pioneered in Massachusetts and ultimately adopted as the national standard in the Patient Protection and Affordable Care Act (PPACA). The PPACA establishes the American Health Benefit Exchanges in the states; the exchanges must be ready to begin operations by January 1, 2014.
SB 810 would require California’s health and human services secretary to seek a waiver from the exchange requirement as well as the PPACA’s standards for the inclusion of “qualified health plans” in the exchanges under a PPACA provision allowing for waivers for innovative state health plans that offer coverage beginning January 1, 2017. So even if SB 810 becomes law, California would have three years of experience with the PPACA’s benefit exchange demand aggregation approach. While the exchanges in theory should exert enhanced market forces to hold health insurance and managed care plan premiums in check, it remains unclear as to whether they will meaningfully accomplish that goal. As payers continue to respond to rapidly rising medical treatment costs for their insureds and members, the state exchanges could end up being nothing more than large pass through mechanisms for those higher costs. That situation would bolster single payer advocates, who apparently hope to have their preferred alternative primed and ready to go in 2017. Or possibly at the same time the benefit exchanges begin operations. President Obama said on Monday, Feb. 28 he supports legislation that would amend the PPACA to allow states to start their own programs sooner then 2017 provided their plans provide the same extent and quality of coverage as under the PPACA and don’t add to the federal deficit.
Will SB 810 unlike its predecessors actually be signed into law? During Schwarzenegger’s administration, the chances were slim to none. Under recently installed veteran democratic Gov. Jerry Brown, it’s more likely but nevertheless still unclear. Democrats have a solid majority in the state Legislature and with the exception of 2010 have been willing to give their blessings to single payer. Whether Brown would be inclined to sign SB 810 into law will probably be largely influenced by the extent of voter outrage at having to pay more for less coverage as insurers raise premiums and shift more risk to their customers. With California’s economy still in bad shape, it won’t take much to spark that anger. Brown might also be convinced to sign the measure if it were presented to him as a backup plan in case the benefit exchange doesn’t hold down premium increases.
However, even if Brown were to support SB 810 in concept, there’s a political complication. In order to keep his campaign pledge to allow voters to ratify tax levies, an appropriation measure to fund it (drafted as a companion measure to previous single payer proposals) would have to go before the electorate. Minority Republicans in the Legislature wouldn’t likely provide the necessary supermajority vote to place a tax measure on the ballot. The same issue currently threatens to stymie Brown’s budget proposal calling for extending temporary tax increases to balance the state’s deficit-plagued budget.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email