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Rising Costs and Universal Health Care in California

[Editor’s note: These are the remarks Senator Sheila Kuehl delivered to the California Assembly Appropriations Committee on Wednesday on SB 840, her universal health care bill that is making progress towards the Governor’s desk. Kuehl is Chair of the Senate Health Committee.]

As you know, since most of you are co-authors of this bill, SB 840 is California’s plan to establish a functional, modern, universal health care system for the 21st Century.

This bill covers every California resident with comprehensive, affordable health benefits, contains the growth in health care spending while improving quality.

And most importantly it guarantees every patient with total choice of their doctors and hospitals.

Each year health care costs grow 2-3 times faster than wages. The Journal of Health Affairs recently reported that health care spending will nearly double over the next decade. This means that, in 10 years, healthcare will cost 20 cents of every dollar our nation produces.

With that kind of cost inflation, discussions about covering the uninsured are pointless. Our failure to address this problem is close to gross negligence.

In the real world, 50% of bankruptcies are due to medical costs, employers are eliminating benefits if they can, and if not, like so many school districts and other public employers, they may face bankruptcy.

Our own budget crisis is greatly affected by the rising health care costs. The state budget buys a lot of healthcare - directly through public programs and as employers.

If costs grow 2 to 3 times faster than wages, but the taxes that pay for the health care are a function of wages, then we are basically stuck in quicksand - each year sinking deeper and deeper.

In response to exploding health care costs, we are dismantling our system. Not one of us in this room has the level of health care benefits we had 10 years ago – and we’re paying a lot more for what we still have.

The US is now in a state of severe health care rationing. Doctors’ reimbursements are frozen. Coverage for the insured is very fragile and unreliable due to rescission, improper denials, gutted benefits, and growing deductibles. Patients experience shockingly long wait times, shorter hospital stays, fewer specialist visits, limited drug formularies, and rushed doctor visits. And yet…costs keep rising.

In 2005, the Lewin Group completed a financial analysis of the bill which found that the bill would be fully funded in 2006 with a combined payroll tax of about 12%. The report additionally found that the bill would produce savings of about $29 billion in the first year alone, most of which will be spent on insuring the uninsured and improving the health care benefits for all of us.

The Lewin study found that SB 840 would save California businesses 16% off their employee benefit costs, while families would save hundreds of dollars a year and state and local government would save nearly $1 billion in the first year alone.

Many of you have heard about the recent LAO report that evaluated the health care funding model developed for the Lewin Report in 2005. However, the LAO did not evaluate SB 840. The LAO was not asked to evaluate the impact that SB 840 would have on total health care spending. It was asked whether the funding numbers I developed to fund the bill in 2006 would still work in 2011, 5 years after massive health cost inflation.

SB 840 actually establishes a premium commission to determine the right numbers in whatever year that single payer is enacted. Numbers that will have to be approved by a 2/3 vote in the Legislature or by the voters in order for SB 840 to take effect.

SB 840 is the plan which lays out how California will take its existing health care spending and use it more efficiently to cover everyone.

The LAO wrote that the Lewin findings, which determined that the funding plan would ably fund SB 840 in 2006, were reasonable. The LAO assumed all of the same kinds of administrative and other cost efficiencies that Lewin assumed and determined that SB 840 would in fact slow the growth in health care spending.

The LAO analysis confirmed that under SB 840, current health care spending in 2011 would be more than sufficient to fund the system in that year. Therefore, whatever they expect costs under SB 840 to be, they will be higher without single payer.

The LAO analysis is a terrifying wake up call about rising health care costs. If their estimates are correct then your coming years as legislators will be entirely absorbed by the tidal wave that is coming.

SB 840 is the only health reform proposal that has been proven to effectively contain health care costs without totally dismantling our system.

SB 840 provides truly universal health care. Affordable, patient centered health care. With doctors in charge - not insurance companies. It’s tested, it’s possible, a majority of Californians support it and it’s time. I urge your ‘aye’ vote.

Posted on July 18, 2008

Comments

Californians should NOT demand universal health care. All health care systems want to achieve three things: (1) cost control; (2) universal access; (3) a full range of medical services. Unfortunately, one cannot achieve all three things simultaneously.

We all want the latest, greatest medicine and by some folk’s notion we are all entitled to it. If government gives us universal access and a full range of medical services, costs very quickly spiral out of control.

So let us get the wealthy to pay their fair share. The truth is, there aren’t enough wealthy individuals around to pay for universal access and a full range of medical services.

Government universal health care means that government will establish a regulatory agency (a bureaucracy, if you will) to administer health care. The legislature will appropriate a set amount of money each year and the bureaucracy will allocate it according to some formula. This will do several things. It will shelter the legislature from complaints (the blame for problems will fall on the bureaucracy). It will allow the bureaucracy to decide what will be treated and what will not. And, as is the case with all bureaucracies, this bureaucracy will be totally unanswerable to the electorate.

The demand by a lot of people for a lot of medical services will overwhelm whatever the legislature appropriates. The legislature will have difficulty in increasing taxes. Ultimately what will happen is that things will get rationed. The rationing will occur in several ways. One will see the queues that are common in Canada and the United Kingdom. One will probably see an exclusion of the elderly for many forms of medical service. Innovation in medicine is extremely expensive. We will see a huge diminishment in new medical technology. Drug discovery is also very expensive and will be greatly diminished under any government universal access health care plan.

Any government universal access health care plan just trades what we have for universal access to queue where we will wait for treatment at levels less than the state of the art.

We are a nation of people that want the very best medical treatment and want it now. We also mostly want someone else to pay for it. It just doesn’t work that way. There is no free lunch.

California's proposed single payer health care plan would replace all private health insurers and existing government insurance programs, including Medicare, with a new state government administered system.

One review of this proposed system points out that the bill contains many elements to control costs. A global budget will place a constraint on total spending. New capital expenditures would be controlled through a Commissioner and regional planning directors. The Commissioner would set or negotiate payment rates for providers and use the state’s purchasing power to achieve the lowest possible prices for health care.

Consumer choice of plans will become limited to those that the state chooses to contract with. Because of a need to limit costs, the state would impose controls on the acquisition of new equipment and facilities. Presumably efforts would focus on limiting acquisitions of expensive technologies and avoiding excess capacity of costly equipment and facilities. This could result in consumers’ having less freedom to consume the medical resources they might otherwise choose, or they might have to wait a bit longer to get access to some technologies.

This approach embodies a high degree of compulsion. Although everyone is automatically covered, everyone has to pay for this coverage in one way or another through some kinds of taxes. Many insurers and associated businesses would be forced out of business. Government oversight and monitoring of health care financing and the quality of care would replace private oversight and monitoring.

Posted by: Rick1357 at July 23, 2008 10:54 AM

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