Single-Payer Health Care Systems Are No Easier in the States

March 31, 2019by Lauren Clason
California Gov. Gavin Newsom speaks to members of the media at Long Beach Community College on February 19, 2019, in Long Beach, Calif. (Dania Maxwell/Los Angeles Times/TNS)

WASHINGTON — The hurdles for a government-run, single-payer health care system are amplified at the state level, where universal coverage ambitions are hampered by politics, costs and federal restrictions.

These realities ultimately undercut efforts in two of the nation’s most liberal states — Vermont, which ended its attempts to institute a single-payer system in 2014, and California, which is expected to fall short again this year.

One major reason is cost. It’s politically difficult to sell the public on massive tax increases to pay for shifting coverage costs to the government, and experts disagree on whether such a system is financially sustainable.

Another barrier to a true state-run, single-payer system is federal law, such as the Employee Retirement Income Security Act, or ERISA, which regulates self-funded insurance plans like those offered by large employers. States have little sway over those plans.

Trish Riley, executive director of the National Academy for State Health Policy, says that ERISA stands for “every roadblock for innovative state action.”

“At the core of this issue is how costly the health care system is,” Riley said. “Unless and until we can figure out the cost issues, and unless and until we can figure out the ERISA issues, a state has not a lot of options.”

William Hsiao, a Harvard University economics professor who designed Vermont’s original plan, said it’s possible to design a single-payer system without violating federal law. Hsiao consulted a number of legal scholars who believe that a state could establish a single-payer system by regulating organizations other than the health care plan itself, such as rates or fees that medical providers or insurance plan administrators charge.

But the final proposal championed by Peter Shumlin, Vermont’s Democratic governor at the time, left self-insured plans and Medicare untouched. Shumlin’s version also deviated from Hsiao’s plan by initially withholding tax increases to finance the system over concerns they could tank the proposal politically.

Gubernatorial terms last just two years in Vermont, so Shumlin had political calculations to consider for himself as well. In 2014, he failed to capture more than 50 percent of the vote, which sent the decision about who would be governor to the General Assembly. The legislature confirmed him in January 2015, after Shumlin announced in December he would abandon the push for single-payer health care.

The bungled rollout of Vermont’s state health insurance exchange under the federal health care law in late 2013 and early 2014 had further destroyed trust in the government’s ability to implement a single-payer system.

Shumlin said in a discussion at Harvard in 2017 that an 11.5 percent payroll tax and 9.5 percent income tax that would have been needed to finance the system were too high. The state would have needed to build up reserves, just as insurance companies do. The final bill was too much for the state to bear, he said.

“The biggest problem was money,” Shumlin said at Harvard.

And he couldn’t promise lawmakers that they wouldn’t need to hike taxes again later to accommodate rising health care costs.

“I couldn’t with a straight face turn to them and say, no, we’ve got this figured out,” he said. “There’s going to be so much cost containment immediately.”

Shumlin was out of the country and unavailable to comment for this story.

Hsiao dismissed Shumlin’s financial concerns, instead placing the blame on the political factors at play.

“To me, it’s an accident of history,” Hsiao said.

Hsiao, who has worked on single-payer systems around the world, said he has declined a number of opportunities to design programs for other state governments since then, citing politics and industry opposition as insurmountable roadblocks. Vermont’s proposal would have used a public-private partnership to run the program, which helped temper industry backlash, but Hsiao said the resistance often can be powerful.

“The private insurance companies and pharma really mobilize and oppose you,” he said.

Similar struggles have played out several times in California. In 1994, voters rejected a state ballot measure to implement a single-payer system.

The following decade, Gov. Arnold Schwarzenegger vetoed two single-payer bills in 2006 and 2008.

Advocates maintain that the country as a whole is already spending the amount needed to finance a government-run system. A single-payer bill moving through California’s legislature last year was estimated to cost $400 billion, the same amount spent on health care in the state in 2017.

“The cost is there. It’s just currently being shared by multiple payers,” said Andrew Bindman, a professor at the University of California, San Francisco, and a former congressional aide who helped write the 2010 health care law, known as the Affordable Care Act. “The issue is, is there a means by which to redirect the money to a public pool to give the state the money it needs?”

But Robert Graboyes, a senior research fellow with the Mercatus Center, a libertarian think tank, disagreed that the money could simply be shifted to the public side of the equation because the necessary tax increases would upend the system.

That’s because states would likely move from a largely flat-rate system, where everyone pays the same amount for a certain insurance plan regardless of income, to an income-based scale that would create “massive inefficiencies” through decreased work incentives resulting from higher taxes, he said.

Income-based taxes discourage workers from taking more challenging, higher-paying jobs, according to Graboyes, because the additional pay would be minimal after taxes are deducted. Investors would face a similar type of disincentive to risk their money on new ventures, he said.

“You are doing something that is going to be considerably less efficient,” he said. “You are going to create massive disincentives to work. You are going to create massive disincentives to invest.”

Graboyes said lawmakers should instead focus on dialing back what he called bureaucratic rules that stifle innovations like telemedicine, which allow medical professionals to treat patients from afar, and move away from fee-for-service payment systems.

States are still tackling cost and access in other ways. More than a dozen states are considering allowing individuals to buy into their Medicaid programs, or offering a government-run public option as an alternative to private insurance.

California Gov. Gavin Newsom is proposing to expand coverage to undocumented immigrant youth up to the age of 26, while a plan from New York City Mayor Bill de Blasio would extend the city’s public option to all New Yorkers, including undocumented immigrants.

But those Democratic initiatives fall short in the eyes of true single-payer advocates like Hsiao. Any overhaul should show the public that it will save the nation money, he said.

“That’s the appeal,” he said. “A public option does not do that. The Affordable Care Act doesn’t do that.”

Still, Hsiao said he is considerably more optimistic about lawmakers passing a single-payer bill at the national level within the next decade, although he predicts it will be considerably less generous than what progressive Democrats are currently proposing.

“When the American public acknowledges we have a broken system, then public support will ask, what will be a better system, rather than putting a Band-Aid on whatever wound we have?” he said.

“Our problem is not a cut here or a bruise there. It’s a fundamental system weakness.”


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