BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
810 (Leno)
Hearing Date: 1/21/2010 Amended: 1/13/2010
Consultant: Katie Johnson Policy Vote: Health 7-4
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BILL SUMMARY: SB 810 would establish the California Healthcare
System (CHS), an entity that would provide affordable and
comprehensive health care coverage for all Californians.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Premium Commission $0 hundreds of thousands toGeneral/
millions of dollars
beginningPrivate
in FY 2011-2012 through
FY 2012-2013 ongoing costs
unknown
CHS Implementation Major implementation cost
pressure of General
at least $200 billion annually
and ongoing
likely starting in the latter half
of FY 2012-2013
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STAFF COMMENTS: SUSPENSE FILE.
Health insurance and coverage in California is currently
provided by a web of public and private providers. Medi-Cal and
the Healthy Families Program are state and federally funded
programs that provided coverage to low-income aged, blind, and
disabled, families, pregnant women, and children. The federal
government administers Medicare, a health insurance program
available to Americans aged 65 and over and other eligible
individuals. Private insurance in the form of health care
service plans or insurance policies is generally paid for by
employers and enrollee premiums. Additionally, there are public,
private, for-profit and non-profit clinics, hospitals,
laboratories, physicians, and other providers.
This bill would establish the California Healthcare System
(CHS), a single-payer health care system that would provide
coverage for which all 37 million Californians would be
eligible. Essentially, this bill would combine under one
administration existing state-administered health care programs
with the privately funded insurance industry, and the state's
uninsured. The CHS would, on a single-payer basis, negotiate
with providers or set fees for health care services and would
pay claims for those services.
This bill would prohibit the existence of a health care service
plan contract or health insurance policy, except for the CHS,
that would be sold in the state that provided for the same
services as the system. This would 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 would be
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SB 810 (Leno)
administered by the California Healthcare Agency under the
control of a Healthcare Commissioner appointed by the Governor
and confirmed by the Senate.
This bill would require the commissioner to seek all necessary
federal policy and financing waivers, exemptions, agreements,
and legislation to implement the CHS. This bill would provide
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.
Implementation
This bill would create various offices and boards to aid in the
administration of the CHS, including a Premium Commission that
would 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, 2004). The other offices within the
California Healthcare Agency would 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 would require 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 would specify that only the provisions relating to the
Premium Commission would become operative on January 1, 2011,
and that the remaining provisions would become operative on the
date that the Secretary of California 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 would require 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 would be borne by state
departments and agencies that are members of the commission,
including the State Board of Equalization, the California Health
and Human Services Agency, the Employment Development
Department, the Legislative Analyst's Office, the Department of
Finance, and the Franchise Tax Board and would be funded by
either the General Fund or private funds.
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SB 810 (Leno)
Although the cost is unknown, it would 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 FY
2011-2012 and ongoing depending on the ongoing role of the
commission. This bill would require the Premium Commission to be
funded in the Budget Act of 2011.
This bill would establish the Healthcare Fund, which would
consist of two accounts-one to pay annual state expenditures for
health care and another to maintain a system reserve. This bill
would provide that the premiums collected each year would be
roughly sufficient to cover that year's projected costs. This
bill would require the Commissioner of CHS to, during transition
to the system and annually thereafter, determine an appropriate
level for a reserve fund for the system.
This bill would assume that all current local, state, and
federal trust fund monies used to provide health care coverage
to enrollees in state health care programs would be transferred
to the system. In many cases, it would 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.
Cost Projections and Previous Bills
This bill is nearly identical to SB 840 (Kuehl), which the
Governor vetoed in 2008 saying, "According to the Legislative
Analyst's Office, the bill is estimated to cost $210 billion in
its first full year of implementation and cause annual
shortfalls of $42 billion. To place this in proper
perspective-our state budget deficit this year started at $24.3
billion." Since this bill is nearly identical to SB 840, and as
such, would have a similar fiscal impact on the state, it does
not address the veto message.
This bill is also similar to SB 921 (Kuehl, 2004), a bill that
would have implemented a single-payer health care system. SB 921
was held in the Assembly Health Committee.
Additionally, in 2008, SB 1014 (Kuehl) was introduced as a
companion measure and a potential funding source for SB 840
(Kuehl, 2008) and was held in the Senate Revenue and Taxation
Committee. It contained 5 taxes:
1) 1 percent tax on a taxpayer's taxable income that exceeds
$200,000, but is not over $1 million.
2) Unspecified tax on self-employment income not less than
$7,000 and not over $200,000.
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3) Unspecified tax on nonwage income not in excess of $200,000.
4) 3.78 percent tax on an individual's wages, but does not
include the first $7,000 or an amount of over $200,000.
5) 8.17 percent tax on wages paid by every employer, except
those wages paid to an individual in excess of $200,000.
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 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.
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Conclusion
It is likely that the costs associated with the implementation
of this bill would result in costs similar to those projected in
both the LAO and Lewin Group analyses-roughly $200 billion
dollars upon implementation and increasing annually thereafter.
Since this bill would set in statute the framework for a
single-payer health care system and would require the Premium
Commission to determine the actual cost of the system, develop a
rate structure, and make recommendations to the Legislature,
there would be considerable cost pressure of approximately $200
billion dollars annually to fund full implementation. Since no
revenue source is currently identified, it would be pressure on
the state General Fund. The initial Premium Commission costs
would likely be in the hundreds of thousands to millions.
Additionally, there would be transition costs from the current
health care system to a single-payer system, including
implementation of a claims payment system, electronic medical
records, labor market disruptions, reduced tax revenue, and job
loss from insurance companies.
There would be ongoing General Fund pressure in the millions to
billions of dollars because this bill would provide that the
General Fund would be responsible for providing loans to the
Healthcare Fund in the event of a shortfall or the delayed
passage of the state's annual Budget Act. This bill would also
permit the Commissioner to use reserves and to borrow funds in
such a situation and to take cost control measures.
The LAO analysis cautions the state to consider the volatility
of the proposed revenue source. In harder economic times,
revenues would decrease and place stress on the system.
Additionally, per Proposition 98, roughly 40 percent of any
additional tax revenue goes directly to education funding. A
constitutional amendment would be required to circumvent
Proposition 98. The Premium Commission would want to consider
this when proposing a funding source.
Also, an outstanding issue is whether or not Medicare would be
included in the system. This bill would require the system to
use Medicare revenue if it obtains federal authorization. The
LAO cites data from the federal Centers for Medicare and
Medicaid Services (CMS) from 2004 that indicated that federal
spending for Medicare beneficiaries in California totaled about
$32 billion. The LAO estimate assumes that Medicare would remain
a separate system. It is unknown whether the state would be able
to retain 100 percent federal funding for Medicare recipients
receiving their care under the single-payer system. Other
discrete sources of revenue could include a shift of existing
tobacco tax revenues to the system.
Since California would be the only state in the United States to
offer coverage to all state residents, there is the potential
for the underinsured and uninsured to migrate to California from
other states in order to obtain coverage. This bill would
provide for a waiting period if the Commissioner determines that
migration is an issue. Although this would increase the
population for which the system would provide coverage,
presumably any new residents would be paying into the system.