Saturday, January 29, 2022

California Refuses to Learn from Vermont’s Single-Payer Failure

In location, size and population, Vermont and California couldn’t be more different. But eight years after Vermont’s effort to enact a state single-payer healthcare system went over a cliff, California is galloping toward the same precipice. Lawmakers in Sacramento should have learned from Montpelier’s experience. Instead, they seem eager to repeat it.

Vermont Gov. Peter Shumlin campaigned on a promise to enact single payer but shelved his plans in 2014. The idea was “just not affordable,” he said after getting a look at the cost to Vermont’s economy. “We were pretty shocked at the tax rates we were going to have to charge.” The single-payer bill pending in the California Legislature goes far beyond the proposals Vermont considered.

For starters, a single-payer system in California would require a greater coverage expansion than the Vermont plan. According to Census Bureau data, Vermont had a 5% uninsured rate in 2014, when the state abandoned its single-payer push. The most recent Census data show a 7.7% uninsured rate in California. The bill would provide benefits to all residents “without regard to the individual’s immigration status,” a provision that would almost certainly attract even more undocumented immigrants to the Golden State.

The California bill would cover far more medical services than Vermont’s single-payer proposal. While the draft Vermont plan proposed excluding adult dental and vision benefits along with long-term care the California bill includes them all. These additional benefits won’t come cheap. The Urban Institute estimated that nationwide coverage of long-term care would cost $3.6 trillion over 10 years. Since more than 10% of the nation’s population lives in California, it’s fair to assume that providing long-term-care expenses in the state would cost tens of billions a year.

California would also go beyond the Vermont plan by abolishing all forms of medical cost-sharing. That means no deductibles or copayments. The California bill would even prohibit prior authorizations for treatment or the use of step therapy, trying one treatment before a more expensive option, to contain costs. Instead, the legislation would permit the state to create a drug formulary, which the program’s unelected board would likely use to restrict access to treatments to contain spending.

The combination of a higher uninsured rate, greater benefits and more-generous coverage means that California’s single-payer bill would almost certainly cost more than the Vermont plan. That proposal suggested that paying for the new program would require significant payroll and income tax increases. California’s plan relies in part on a new 2.3% gross receipts tax, which would hit businesses struggling to eke out a profit especially hard, including those whose capital costs mean they have lower payroll expenses relative to their revenue—among them retailers, manufacturers and restaurants.

On the individual side, California would institute a “surcharge” for households with taxable income of more than roughly $150,000. This is different from the Vermont plan, which proposed that every resident with income over the Medicaid eligibility line pay at least 2.5% of income in premiums, with no one paying more than the cost of an expensive family policy—$27,500 a year. Instead, the California bill would allow lower-income households to consume all the “free” healthcare they want, in the belief that someone else—i.e., “the rich”—would pay for it.

But the California proposal ignores something important: The $10,000 limitation on state and local income-tax deductions enacted in the Tax Cut and Jobs Act of 2017. By prohibiting private employer coverage, and imposing a “surcharge” on affluent taxpayers to fund the single-payer system, the bill would effectively replace tax-free employee benefits with a government-run system funded by taxable payments, in the form of a “surcharge” that most residents couldn’t deduct on their federal returns. It would be a double whammy, as Californians would both pay a new tax and lose an existing deduction.

The assumption that readily mobile Silicon Valley workers and entrepreneurs will tolerate both the loss of their private health benefits and a tax increase to pay for the privilege seems a questionable one. “Listen,” Mr. Shumlin warned in 2019, “changing health-care systems is wonky work.” Never try to “sell an idea to Americans that you can’t achieve. That’s the mistake I made.” California lawmakers don’t seem keen to heed that good advice.

This post was originally published at The Wall Street Journal.