BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 810| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 810 Author: Leno (D), et al Amended: 1/13/10 Vote: 21 SENATE HEALTH COMMITTEE : 7-4, 4/15/09 AYES: Alquist, Cedillo, DeSaulnier, Leno, Negrete McLeod, Pavley, Wolk NOES: Strickland, Aanestad, Cox, Maldonado SENATE APPROPRIATIONS COMMITTEE : 6-3, 1/21/10 AYES: Kehoe, Corbett, Leno, Liu, Price, Yee NOES: Cox, Denham, Walters NO VOTE RECORDED: Alquist, Wyland SUBJECT : Single-payer health care coverage SOURCE : California Nurses Association California School Employees Association California Health Professional Students Association California Teachers Association Health Care for All - California League of Women Voters DIGEST : This bill establishes the California Healthcare System, an entity that would attempt to provide affordable and comprehensive health care coverage for all. ANALYSIS : CONTINUED SB 810 Page 2 Existing law: 1. Establishes several publicly financed health insurance programs, including Medicare, Medi-Cal, and the Healthy Families program, that provide health coverage to eligible individuals and families, including children, the aged, blind, and disabled, and pregnant women. 2. Provides for the regulation of private health care service plans by the Department of Managed Health Care and health insurance policies by the Department of Insurance. This bill establishes the California Healthcare System (CHS), a single-payer health care system that will provide coverage for which all 37 million Californians would be eligible. Essentially, this bill combines under one administration existing state-administered health care programs with the privately funded insurance industry, and the state's uninsured. The CHS will, on a single-payer basis, negotiate with providers or set fees for health care services and will pay claims for those services. This bill prohibits the existence of a health care service plan contract or health insurance policy, except for the CHS, that will be sold in the state that provided for the same services as the system. This will reduce the California health plan and insurance industry to either third-party administrators for the system or entities that would provide coverage for benefits not covered by the system. It will be administered by the California Healthcare Agency under the control of a Healthcare Commissioner appointed by the Governor and confirmed by the Senate. This bill requires the Commissioner to seek all necessary federal policy and financing waivers, exemptions, agreements, and legislation to implement the CHS. This bill provides that if the system does not receive federal or local permission to transfer revenues to the Healthcare Fund for existing federal, state or local governmental programs, the system's responsibility to provide health care services would be secondary. SB 810 Page 3 Implementation This bill creates various offices and boards to aid in the administration of the CHS, including a Premium Commission that will determine the cost of CHS, develop an equitable and affordable premium structure, and consider the existing financial simulations and analyses of universal health care proposals, such as that completed by the Lewin Group in January 2005 of SB 921 (Kuehl), 2003-04 Session. The other offices within the California Healthcare Agency will be the Healthcare Policy Board, the Office of Patient Advocacy, the Office of Health Planning, the Office of Health Care Quality, the Healthcare Fund, the Public Advisory Committee, the Payments Board, and the Partnerships for Health. This bill requires that the premium structure be means-based and generate adequate revenue to implement CHS, ensure that all income earners and employers contribute an affordable amount of premiums, maintain the current ratio for aggregate health care contributions from employers, individuals, government, and other sources, provide a fair distribution of monetary savings achieved from the single payer system, coordinate with existing and ongoing state and federal funding sources, comply with federal requirements, and include an exemption for employers and employees who are subject to a collective bargaining agreement and participate in a Taft-Hartley Trust Fund. This bill specifies that only the provisions relating to the Premium Commission will become operative on January 1, 2011, and that the remaining provisions will become operative on the date that the Secretary of the Health and Human Services Agency states that sufficient funding exists to implement the CHS. This bill prohibits any state entity from incurring transition or planning costs prior to this determination, except the Premium Commission. This bill requires the Premium Commission to submit a recommendation for a premium structure to the Governor and the Legislature on or before January 1, 2013. The costs to the Premium Commission will be borne by state departments and agencies that are members SB 810 Page 4 of the Commission, including the Board of Equalization, the Health and Human Services Agency, the Employment Development Department, the Legislative Analyst's Office, the Department of Finance, and the Franchise Tax Board and will be funded by either the General Fund or private funds. Although the cost is unknown, it will be a substantial undertaking requiring many hours of expert staff time to determine the cost of a system and to determine a rate and premium structure, as well as consult with stakeholder organizations, policy institutes, and experts in health care financing and universal health care models. Costs could be in the high hundreds of thousands to millions of dollars in fiscal year 2011-12, and ongoing, depending on the ongoing role of the Commission. This bill requires the Premium Commission to be funded in the Budget Act of 2011. This bill establishes the Healthcare Fund, which will consist of two accounts - one to pay annual state expenditures for health care and another to maintain a system reserve. This bill provides that the premiums collected each year will be roughly sufficient to cover that year's projected costs. This bill requires the Commissioner of CHS, during transition to the system and annually thereafter, to determine an appropriate level for a reserve fund for the system. This bill assumes that all current local, state, and federal trust fund monies used to provide health care coverage to enrollees in state health care programs will be transferred to the system. In many cases, it will be necessary to seek federal waivers to ensure the continued receipt of federal funds. For example, $27.9 billion of Medi-Cal's $40.6 billion projected program budget are federal funds. The state must meet minimum federal requirements to be eligible for federal matching funds, known as the Federal Medical Assistance Percentage (FMAP). California's current base FMAP rate is 50 percent federal funds and 50 percent General Fund. The state is receiving an enhanced FMAP rate of 61.59 percent federal funds and 38.41 percent General Fund pursuant to the American Reinvestment and Recovery Act for benefit claims from October 1, 2008, through December 31, 2010. SB 810 Page 5 Comment SB 921 (Kuehl), 2003-04 Session, and SB 840 (Kuehl), 2007-08 Session, would have implemented health care policy substantially similar to this bill. SB 921 was held in the Assembly Health Committee and SB 840 was vetoed. Background According to the Senate Appropriations Committee analysis: "The Lewin Group and the state's non-partisan Legislative Analyst's Office (LAO), in response to SB 921 in 2004 and to SB 840 and SB 1014 in 2008, respectively, produced detailed fiscal analyses on the concept of a single-payer health care entity in California. "The LAO report analyzed SB 840 and its funding mechanism SB 1014 (Kuehl, 2008), which would have imposed a combined 12 percent tax on employers and employees, as well as other unspecified taxes (the LAO estimated a rate of 11.5 percent) for the purposes of providing a funding source for SB 840, as a comprehensive "single-payer proposal" and assumed an implementation date of January 1, 2011. The LAO estimated annual costs of $210 billion in the first year of implementation, which would grow over subsequent years to $250 billion in 2015-2016. The analysis predicted a net shortfall of $42 billion in the FY 2011-2012, the first full year of implementation, and $46 billion in 2015-2016, due to a faster rate of growth for health benefits costs relative to SB 1014 revenues. The LAO estimated that it would take a combined tax of 16 percent on employers and employees and 15.5 percent on the other taxes to mitigate the predicted shortfall in revenues. The LAO estimate did not include the 1 percent tax in SB 1014. "The LAO assumes that the state would realize savings due to reduced physician and hospital administration costs and that the system would be able to operate at relatively low administration costs. The analysis also assumes that federal, state, retired state employee SB 810 Page 6 health contributions, and local government contributions would shift to the single-payer system. "The Lewin Group's analysis of SB 921 estimated costs would be $167 billion in 2006 and would increase to $280 billion in 2015. The group assumed similar tax revenues to those later proposed in SB 1014 in 2007. "Both the Lewin and LAO reports cited potential administrative savings under a single-payer system, but their estimates differed: the Lewin report estimated administrative costs of 1.9 percent of health benefit costs, a rate that is similar to that of the Medicare program, versus a rate of 12.7 percent for private insurer administration. The LAO report estimates system administrative costs of 3.9 percent in the first year of implementation and 2.9 percent after 5 years. This bill would require that system administrative costs not exceed 10 percent of system costs in the first 5 years of transition and would limit them to 5 percent of system costs within 10 years of completing transition to the system. This bill would also require the commissioner to establish a budget to support the training, development, and continuing education of health care providers needed to meet the needs of the population and the goals and standards of the system." FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund Premium Commission $0 hundreds of thousands to General/ millions of dollars beginningPrivate in FY 2011-12 through FY 2012-13 ongoing costs unknown CHS implementation Major implementation cost SB 810 Page 7 pressure of General at least $200 billion annually and ongoing likely starting in latter half of FY 2012-13 SUPPORT : (Verified 1/20/10) California Health Professional Students Association (co-source) California Nurses Association (co-source) California School Employees Association (co-source) California Teachers Association (co-source) Health Care for All - California (co-source) League of Women Voters (co-source) AFSCME District Council 36 and 57 AFSCME Local 444, 955, 2019, and 2428 AFSCME Retirees Chapter 36 Alameda-Contra Costa Transit District Alliance for Democracy, Mendocino Coast AP Goodyear Construction American Association of University Women American Association of University Women, Pasadena Branch American Civil Liberties Union, Southern California American Medical Students Association, UCLA Pre-medical Chapter 5/6/09 American Federation of State, County and Municipal Employees American Medical Students Association, National American Medical Students Association, Davis School of Medicine Chapter Bay Area Veterans of the Civil Rights Movement Bell-Everman, Inc. (Goleta, CA) California Alliance for Retired Americans California Chiropractic Association (if amended) California Commission on the Status of Women California Communities United Institute California Federation of Teachers California Foundation for Independent Living Centers California Health Professional Student Alliance California Labor Federation, AFL-CIO California Maternal, Child and Adolescent Health Directors California Nurses Association/National Nurses Organizing Committee SB 810 Page 8 California Pan-Ethnic Health Network California Physicians Alliance California Professional Firefighters California Retired Teachers Association California School Employees Association California Senior Coalition California Society for Clinical Social Work California Student Physicians for Healthcare Reform California Teachers Association California Women's Agenda Cities of Albany, Berkeley, El Cerrito, Oakland, Richmond, San Pablo, and Santa Monica Coalition of Lavender-Americans on Smoking and Health Coastside Democrats Committees of Correspondence Concerned Citizens of Laguna Woods Village Congress of California Seniors Consumer Federation of California Contra Costa County Advisory Council on Aging Contra Costa County Board of Supervisors County Health Executives Association of California Democratic Alliance for Action Democratic Party of Contra Costa County Democrats of Rossmore (Walnut Creek) Diablo Valley Democratic Club Doctors Medical Center, West Contra Costa County East Bay Peace Action Easter Hill United Methodist Church El Cerrito Committee on Aging El Cerrito Democratic Club Elsdon, Inc., (Danville, CA small business) Evergreen Democratic Club Federation of Retired Union Members of Santa Clara County Glendale City Employees Association Having Our Say Health Access of California Health Care for All, Contra Costa County Health Officers Association of California Hubert Humphrey Democratic Club International Alliance Theatrical Stage Employees Local 33 International Association of Machinists The Kennedy Club of San Joaquin Labor Task Force for Universal Health Care Lamorinda Democratic Club SB 810 Page 9 Lamorinda Peace and Justice Group League of Women Voters, Davis; Diablo Valley; El Dorado County; Oakland; Palos Verdes Peninsula/San Pedro; San Diego County; San Joaquin County; San Jose/Santa Clara; Santa Maria Valley; and Southwest Santa Clara Valley Los Angeles Unified School District Lumina Media Productions (Richmond, CA) Lutheran Office of Public Policy Mane Event Salon, Grass Valley Manteca Democratic Club Marin County Board of Supervisors National Association of Social Workers, California Chapter National Council of Jewish Women, Long Beach North Richmond Municipal Advisory Council Officescapes, Newport Beach, CA Old Lesbians Organizing for Change Older Women's League of California Older Women's League, East Bay Older Women's League - San Francisco Chapter Organization of SMUD Employees Progressive Jewish Alliance Promotores de Salud of Behavioral Health Services Rainbow Coalition, West Contra Costa Richmond Commission on Aging Richmond Progressive Alliance San Bernardino Public Employees Association San Fernando Valley Interfaith Council San Francisco Tobacco Free Coalition San Jose Peace and Justice Center San Luis Obispo County Employees Association Santa Barbara County Action Network Santa Clara County Democratic Club Santa Clarita Valley Clean Money for Better Government Committee Santa Cruz County, Board of Supervisors Santa Monica Community College District Santa Rosa City Employees Association Service Employees International Union Social Justice Alliance St. Mark Presbyterian Church, Health Ministries Commission (Newport Beach) Students of University of CA Program in Medical Education Union for Reform Judaism, Pacific Southwest Council Unitarian Universalist Fellowship of Santa Cruz County SB 810 Page 10 United Nations Association-USA, Santa Barbara and TriCounties Chapter United Nurses Assoc. of California/Union of Health Care Professionals United Steelworkers, Local 1440, AFL-CIO Valley Women's Club West Contra Costa Concilio Latino West Contra Costa Latina/o Democratic Club West Contra Costa Unified School District Western Center on Law & Poverty Women's International League for Peace and Freedom - Peninsula Branch OPPOSITION : (Verified 1/20/10) America's Health Insurance Plans Anthem Blue Cross Association of California Life and Health Insurance Companies California Association of Health Plans California Association of Health Underwriters California Chamber of Commerce California Independent Grocers Association California Taxpayers' Association Concerned Women for American Health Net National Federation of Independent Business ARGUMENTS IN SUPPORT : Supporters state that as health insurance costs steadily rise, employers are increasingly reducing or dropping coverage for employees, that the increase in high deductible health plans, which require deductibles and co-payments which are generally unaffordable, have failed to stem the rise in health care costs, and that half of all bankruptcies in the United States are now related to medical costs. Supporters cite this as evidence that Californians can no longer rely on the current system of private insurance, as no one is guaranteed to receive care when they become ill, and many who are insured often have inadequate coverage. Supporters state that this bill would provide every Californian with health care coverage that would provide comprehensive benefits and a high quality of care. Supporters state that this bill would simplify the currently complex, multi-payer SB 810 Page 11 system, eliminate billions of dollars in administrative waste, generate savings through increased access to primary and preventive care, as well as bulk purchasing of prescription drugs and durable medical equipment, allow patients to choose their own doctors, eliminate coverage exclusions for preexisting conditions, and ensure continued coverage regardless of employment status. ARGUMENTS IN OPPOSITION : Opponents state that costs associated with this bill would create an expensive labyrinth of bureaucracy, and that competition among private companies leads to lower costs and better care. Opponents assert that a state-run health care system would eliminate private health plans and insurers, thereby forcing people to rely upon the state to take care of their health needs, and limiting medical advances because of decreased competition. Opponents argue that this bill would extend taxpayer obligations too far, and damage the state's competitiveness for jobs. They state it would be impossible to replace the current system of health care without major increases in taxes, both to cover currently insured individuals, as well as the uninsured, which would discourage business growth, and hurt state investments, and that out-of-state individuals would move to California to take advantage of the new health care system adding to the state's economic burden. Opponents disagree with the premise that a single payer system will generate substantial savings from lowered administrative costs and profits, as administrative costs will not be eliminated under a single payer system. They assert that competitive forces in the marketplace are vital in health care, and that while California's premiums have increased, they are still lower than other large markets. Opponents also state that single payer systems in other countries have demonstrated limited access and longer waiting times for services. CTW:mw 1/25/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****