AB 1400, aka CalCare, aims to leave no Californian without health coverage—but at what cost?
UPDATE: On Jan. 31, California’s latest single-payer healthcare bill, AB1400, was withdrawn from the Assembly agenda before receiving a vote. The bill’s chief sponsor, San Jose Democrat Ash Kalra, called the defeat “only a pause for the single-payer movement.” But the future of AB1400 and prospects for further single-payer legislation remained unclear.
When he was running for California governor in 2018, Gavin Newsom declared his support for creating a statewide, government-run health insurance program of the kind generally known as “single payer.”
“Single-payer is the way to go,” he said during a 2018 candidate debate, “to reduce costs and provide comprehensive access.”
The idea had been around for decades. In 1969, Massachusetts Senator Edward “Ted” Kennedy introduced the Health Security Act to Congress, which would have provided health coverage for all Americans, funded by the federal government. More recently, Vermont Senator Bernie Sanders made single-payer health insurance—which he referred to as “Medicare for All”—the main pillar of his campaigns for the 2016 and 2020 Democratic presidential nominations. Obviously, neither Kennedy nor Sanders—nor any other lawmaker who has proposed a single-payer plan—succeeded.
Newsom nonetheless embraced the idea. “There’s no reason to wait around on universal health care and single-payer in California,” he said, as quoted by The New York Times, which described single-payer as a “centerpiece” of Newsom’s run for governor. If the United States federal government wouldn’t institute single payer, Newsom declared, California would go it alone.
“I don’t know how to do it, because it’s never been done. But I believe it can be done. And if any state can prove it, we can,” Newsom said in 2018. “I’m willing to tackle this.”
It would take some tackling. Just the previous year, California’s state senate passed the Healthy California Act (on a 23-14 Senate vote), which would have created a “comprehensive universal single-payer health care coverage program and a health care cost control system for the benefit of all residents of the state,” according to the bill’s text.
The landmark legislation then moved to the state Assembly—where it was smothered by Speaker Anthony Rendon (a Democrat from Los Angeles County) without a committee hearing. Rendon dismissed the bill as “woefully incomplete,” and full of “potentially fatal flaws.”
Despite Newsom’s professed willingness to “tackle” single-payer health insurance, after Rendon spiked the Senate bill the first real step he took over his subsequent three years as governor to propose or advance further legislation on the issue came in December 2019, when he created the Healthy California for All Commission. The 13-member board was assigned the task of creating “a health care delivery system for California that provides coverage and access through a unified financing system, including, but not limited to a single-payer financing system.”
The state Assembly, however, did not wait for the commission to act. On Jan. 6, 2022, Assemblymember Ash Kalra, a Democrat from San Jose, announced details of a new single payer health insurance bill, AB 1400, which he had introduced the previous year. The bill would create “CalCare,” a state-funded system to provide wide-ranging medical, dental and vision coverage for every resident of California.
Unlike in 2017, the bill was quickly given a hearing in the Assembly Health Committee, where committee Chair Jim Wood announced in advance that he would vote to move the bill forward. AB 1400 passed the committee 11-3. Next step was a vote in the Appropriations Committee, where on Jan. 20 it passed by an 11-3 vote, albeit with the condition that the law could not take effect without “a statute to create revenue mechanisms to fund CalCare.” Because it was introduced in 2021, the bill faced a deadline of Jan. 31 to pass the full Assembly and move on to the Senate.
Final passage of the AB 1400 was still a long way away, and uncertain. But for at least a moment the future of California single-payer looked hopeful. What did that mean?
Americans are probably more familiar with the catchier term “Medicare for All” than the dryer, more confusing “single-payer.” When Kaiser Health News published an article in 2018 on the meaning of those phrases, they included a disclaimer stating that most of the voters they tried to include in the story “declined to be interviewed, saying they didn't understand the issue.”
So what does “single-payer” mean?
Healthcare services are provided by medical professionals, hospitals and clinics that collectively come under the heading of, appropriately enough, “providers.” Providers need to be paid. That’s where healthcare “payers” come in. In the current state and national healthcare systems, a multitude of different entities pay for health and medical services. Private insurance companies—there are about 900 in the U.S.—pay for about 28 percent of total national health expenditures, according to statistics from the government Centers for Medicare and Medicaid Services.
Federal and state governments are also “payers.” Medicare is a federal program. Medicaid, the public health insurance program for low-income people, is jointly financed by the feds and state governments. The two public insurance programs pay for another 36 percent of total national spending. “Out-of-pocket” costs, payments made by individuals out of their own funds, account for another 9 percent.
Various other federal and state programs, such as the Veterans Health Administration, the Children's Health Insurance Program (CHIP), the Indian Health Service, and subsidies for individuals who get their insurance through the Affordable Care Act exchanges, also account for a significant share of healthcare spending. (ACA subsidies were increased for 2021 and 2022 under the COVID relief legislation known as the American Rescue Plan).
Administrative costs also consume a outsize chunk of healthcare cash. Depending on how “administrative costs” are defined, estimates of how much total healthcare spending goes into administration range from 19 percent to 25 percent or even higher. One study published in the journal Annals of Internal Medicine put administrative costs at 34.2 percent of all U.S. healthcare expenditures.
Even with all of that spending on healthcare, as of 2020 7.3 percent of California residents still had no health insurance at all, a problem that a single-payer plan would eliminate by providing “universal coverage.” In other words, single-payer is designed to make health coverage available to everyone in the state.
Under a single-payer healthcare system, all payments for covered medical, dental and vision services are paid by one centralized, single entity. In most cases, that entity is the government. Under a single-payer plan, the multitude of payers including Medicare and Medicaid (called Medi-Cal in California) would all be out of the picture.
As a result, for the ordinary patient seeing a doctor, health care services are free. No deductibles, co-payments or “out of pocket” charges.
The government has to get the money somewhere. Typically, that somewhere is taxes. For politicians trying to pass single-payer bills, that’s always been the hangup. Polling by the Kaiser Family Foundation shows that as of 2019, 53 percent of the U.S. public favored a “Medicare-for-All” health care system—but when told that the system would require most Americans to pay more taxes, support dropped to 37 percent.
In California, tax increases must be approved by a two-thirds vote in both the Assembly and Senate. And then, due to limits imposed on tax hikes by the state constitution, voters would have to approve a constitutional amendment to allow the increase.
Most of the funding for the proposed CalCare program would not, in fact, come from new taxes. A 2016 study by the UCLA Center for Health Policy Research found that in California, 71 percent of all healthcare spending was already paid for by public funds, i.e. the taxpayers. That percentage included sources such as ACA subsidies, county-level health spending, and health coverage for public employees.
If the CalCare plan takes effect, all of those funds would be redirected into the state’s single-payer program. That was a big problem for the 2017 version of California’s single-payer legislation. To redirect Medicare and Medicaid funds to other healthcare programs requires a waiver from the federal government. In 2017, under the Donald Trump administration, that process appeared unlikely to go anywhere. The Democratic administration of President Joe Biden is expected to be more open to granting the waivers.
Biden’s secretary of Health and Human Services, who would make decisions on waiver requests, is former California Attorney General Xavier Becerra, a longtime supporter of single-payer healthcare.
If the waivers are granted, tax increases would be required to bring the level of public financing from 71 percent to 100 percent. When the state Senate Appropriations Committee looked at the cost of single-payer in California in 2017, it estimated that “all covered health care services and administrative costs, at full enrollment” would run up a tab of $400 billion per year.
That’s a significant sum considering that in January 2022 Newsom rolled out a proposal for the entire state budget that set a new record high, 9 percent larger than the previous year’s record-setting budget. The total budget was $286.4 billion, still almost $114 billion less than the cost of single-payer health coverage alone.
There are new taxes involved. The proposal for CalCare calls for a new excise tax on businesses of 2.3 percent after the first $2 million of gross receipts. Employers with at least 50 workers would pay a new 1.25 percent payroll tax, while workers earning more than $49,900 per year would pay an additional 1 percent payroll tax.
Finally, higher-income Californians would bear a new tax burden to cover the cost of CalCare. Starting with those who make at least $149,500 per year, who would pay an additional .5 percent per year in new income tax, the additional taxes would cap out at 2.5 percent for Californians earning $2.5 million per year and above.
According to data compiled by the site 24/7Wallstreet.com, it takes a household income of $162,657 to rank in the top 20 percent of California earners, so if that data is correct, slightly more than one of every five households would pay the new income tax.
Because the proposed tax is “progressive,” the highest rates are paid by the highest earners, but that means the top healthcare tax rates affect relatively few people. In 2019 there were approximately 72,500 tax filers in California reporting incomes over $1 million, the financial site SmartAsset reported. There were more than 17 million total personal returns filed, per state data.
Despite what looks like a noteworthy new tax burden on workers and businesses, advocates of single-payer health care state with what one expert called “a belief that borders on the theological” that single-payer healthcare actually saves money.
Theological or not, there are data suggesting that they are right.
As far back as 1991, a Government Accountability Office report found that if the U.S. adopted a Canada-style single-payer system, the cash saved simply by streamlining bloated administrative costs would “finance insurance coverage for the millions of Americans who are currently uninsured.” More recently, a 2020 paper published by PLOS Medicine reviewed more than 20 studies of single-payer healthcare costs conducted over the previous three decades, finding that in every case the single-payer plans would have saved money in the long run, and in most cases, the short run as well.
Largely by slimming down the administration required to make healthcare work, and by negotiating lower drug prices, 19 of the 22 plans covered by the survey would have reduced costs in the first year of their implementation, by an average of 3.5 percent. Plans that eliminated co-payments completely, or offered a full or nearly full range of benefits—both provisions of the proposed CalCare—would take longer to show cost reductions.
The survey also found that the 30 years of studies showed cost savings whether the research was funded by liberal groups or conservative ones, though studies paid for by more left-leaning funders tended to show higher levels of savings.
What would happen to California’s existing health insurance industry if all payments for health services came through state government? Newsom’s Healthy California for All Commission addressed that issue in a July 2021 report, in which it estimated the costs of a “just transition” for administrative workers in the private insurance industry. According to the report, an estimated 219,000 workers, or about 1 percent of the state’s workforce, would face “displacement” if single-payer—or as the commission calls it, “Unified Financing”—were put in place.
That doesn’t mean healthcare jobs would disappear, or that the labor market would contract. Research indicates that the opposite would happen. A 2020 report by the nonpartisan Economic Policy Institute, which studied the possible effects of a nationwide single-player plan, said that the program “is almost guaranteed to substantially expand employment in the health care sector overall.” The reason? With universally accessible healthcare, the number of people using the system would spike.
Nonetheless, administrative healthcare workers “will need to be transferred into other appropriate areas of employment within the public sector,” a 2017 report by the University of Massachusetts Political Economy Research Institute (PERI) noted, in discussing a national single-payer plan.
Using the PERI data, the Healthy California commission estimated that it would cost about $1.73 billion per year over the first 10 years of the program to provide that “just transition” for workers. Using a “framework” formulated by the PERI, the transition funds would cover “pension fund guarantees for all affected workers, a voluntary path to retirement for workers age 60 and older that provides 100% wage replacement until their pension begins, and support for displaced workers via one year of wage replacement and job retraining and relocation support as needed,” according to the Healthy California report.
The state could lower those transition costs by adopting a version of single-payer that used existing health insurance companies such as managed care plans, which is how Medi-Cal operates, as “intermediaries” to distribute the public funds. By using intermediaries, fewer jobs would be displaced and the annual costs would likely be about $900 million per year for the first 10 years, according to the governor’s commission.
A provision of AB 1400 gives the committee in charge of implementing a single-payer system the authority to “determine an appropriate level of, and provide support during the transition for, training and job placement for persons who are displaced from employment as a result of the initiation of CalCare.”
Can single-payer health coverage actually become reality? That’s the question that lawmakers and healthcare experts have debated for decades. Currently 17 countries, including the USA’s neighbor to the north, Canada, have some form of single-payer system in place.
In this country, the idea has been around for decades. In 2003, longtime Michigan Democratic Rep. John Conyers introduced a single-payer bill, “The Expanded And Improved Medicare For All Act,” and kept reintroducing it to Congress in each subsequent session until he resigned in 2017. In 2019, three years after his first campaign for president on a platform with Conyers’ idea at its heart, Sanders introduced his own Medicare for All Act in the Senate. Neither Conyers’ bill nor Sanders’ version ever came to a vote.
On a state level, California voters had a chance to embrace single-payer healthcare way back in 1994. But the ballot initiative, Proposition 186, was overwhelmingly rejected by a 73-27 margin. A single-payer bill failed by two votes in the state Senate in 2012, and two earlier bills that actually passed the full legislature, in 2006 and 2008, were vetoed by Republican Gov. Arnold Schwarzenegger.
Though Newsom has largely dragged his feet on fulfilling his 2018 campaign pledge to address single-payer health care in California, on Jan. 11, 2022, he announced a new measure that would make California—Newsom said—the “first state in the country to achieve universal access to health coverage.”
The word “access” was doing a lot of work in Newsom’s statement. His plan to extend Medi-Cal benefits to undocumented immigrant adults at a reported annual cost of $2.7 billion meant that all residents of the state, regardless of their citizenship or immigration status, would now have the ability to obtain some form of health coverage.
“I campaigned on universal healthcare,” Newsom said in his announcement of the Medi-Cal expansion plan. “We're delivering on that.”
Newsom’s Medi-Cal expansion would cut pretty deeply into that 7.3 percent figure of Californians with no health coverage—undocumented immigrants make up about 6 percent of the state’s population. Patients with Medicaid coverage have much greater access to health services than those with no insurance at all.
But “access” is not the same as “coverage.” Medicaid patients have less access to healthcare services than those with private insurance or Medicare, according to multiple studies. A single-payer system, its proponents counter, would cover everyone in California equally.
In 2014, according to the California Healthcare Foundation, 62 percent of California doctors accepted new Medi-Cal patients, compared to 79 percent who were accepting new patients with private insurance, and 75 percent who took new patients on Medicare. Uninsured patients had the lowest access of all, with only 44 percent of doctors saying they would accept new patients with no insurance at all.
A more recent study of doctors nationwide, by the Children’s Health Insurance Program Payment and Access Commission, found that as of 2019, 71 percent of doctors nationally accepted Medicaid patients, compared to 85 percent who took Medicare and 90 percent who accepted private health insurance.
Why the difference? Money.
Medicaid reimbursements rates—the actual cash doctors are paid for treating patients—are significantly lower than private insurance rates, or even Medicare rates. A 2020 Kaiser Family Foundation (KFF) study reported that compared to Medicare, private insurers paid 199 percent higher rates, and 143 percent higher for the services of individual physicians, on average.
Medicaid rates are even lower, and California’s Medi-Cal program has some of the lowest reimbursement rates in the United States. According to the KFF, whose latest figures are from 2016, California Medi-Cal rates are only about half of Medicare reimbursement rates, and are just 0.76 of the national average. Only New Jersey and Rhode Island pay a lower Medicaid reimbursement rate.
From 2013 to 2015, under the Affordable Care Act, the federal government mandated that Medicaid rates for certain medical procedures must match Medicare rates. The mandate caused Medicaid rates to jump by 60 percent overall (though the actual increase varied widely from state to state). The National Bureau of Economic Research (NBER) used that period to study whether raised rates resulted in increased access to healthcare for low-income people.
Sure enough, the NBER found, it did. For every increase of $10 in Medicaid reimbursements per visit, there was a 0.5 percent greater chance that parents would report no trouble finding a provider for their kids. Adults also were less likely to be told that a provider was not accepting new patients, as reimbursement rates went up.
In January 2022 Newsom continued to describe the single-payer system as “ideal” when it comes to achieving universal health coverage, but appeared to say that he had come to realize that implementing a single-payer program was not practical.
“The difference here is when you are in a position of responsibility, you’ve gotta apply, you’ve gotta manifest, the ideal. This is hard work,” Newsom said. “ It’s one thing to say, it’s another to do. And with respect, there are many different pathways to achieve the goal.”
The comments came in stark contrast to what he said during his campaign, when he chided other politicians for “saying they support single payer but that it’s too soon, too expensive or someone else’s problem.”
His apparent backtrack on support for single-payer health coverage led one of the leading groups who backed his 2018 campaign, nurses organizations, to blast him for it.
“We want to be absolutely clear: This is a flip-flop,” Alyssa Kang of National Nurses United—a group that backed Sanders for president—said during a conference call in January 2022, as quoted by the San Francisco Chronicle. “This is absolutely unacceptable, and he cannot be allowed to have it both ways.”
Stephanie Roberson, government relations director for the California Nurses Association—which endorsed and campaigned for Newsom in 2018—told the Chronicle that Newsom is now “at war with single payer.”
Roberson’s “war” characterization is probably unfair. Newsom’s Healthy California for All Commission has continued to work, meeting 13 times since its formation, and producing three detailed reports, including the “Estimated Effects of Unified Financing in California” which addressed how a single-payer plan would affect the existing private insurance industry.
So despite his public walkback on single payer, Newsom has not given up on the idea. But would he support the CalCare bill? The governor in early 2022 was noncommittal.
“I have not had the opportunity to review that plan,” he said at an early January press conference. “And no one has presented it to me.”