Will California Dictate Your Health Care?

Remember big jars of free pickled eggs in bars? It used to be fairly universal. A few years ago, I went into a bar in Dusseldorf, Germany, and to my delight saw one. After reaching in for a few, a bill was presented for several Euros apiece. That’s also the story of healthcare, here and there: There’s no such thing as a free lunch.

Our and their health care costs are increasing, with ageing populations, medical marvels, and senses of entitlement. Our and their premiums and co-pays are consequently increasing. There, however, one faces waiting lines, rationed care, limited remedies that are available here, and medical innovation and pharmaceuticals taken at forced discounts that shift costs across the Atlantic, on to us

Nonetheless, proponents of what they call “single-payer” healthcare, actually government-run and dictated health care, continue to peddle a “free lunch” panacea that is illusory, if not dishonest.

With 1 of 8 Americans living in California, what happens in California doesn’t stay in California. The impact of government programs in California is felt in public policy debates elsewhere, and occasionally the sheer economic weight of California impels changes elsewhere.

One of California’s preeminent columnists, Dan Waters of the Sacramento Bee, writes about the health care stakes in the November Schwarzenegger- Angelides governor race: (free registration)

This year's version is Senate Bill 840, carried by Sen. Sheila Kuehl, D-Santa Monica, that cleared the Senate on a straight party-line, 25-15 vote, and will be passed by the Assembly in the next few days. It would create a California Health Insurance Agency that would contract for health care for all Californians, bar private health insurance for services the agency provides, with financing from "an equitable and affordable premium structure."

Based on what's happened in other countries, it appears inevitable that a California single-payer system that envisions freezing or even reducing total expenditures would shrink the insured medical services that many enjoy to expand coverage to the nearly 20 percent of Californians who have no insurance now and often depend on hospital emergency rooms or "doc-in-the-box" clinics for care. It is, as much as anything, an ideological question that's affected by the simple fact that the vast majority of Californians who vote -- 90 percent or more -- already have health care coverage, while the vast majority of those lacking coverage do not vote.

Twelve years ago, by a 3-1 margin, California's voters rejected a Canadian-style, universal health care ballot measure that the California Medical Association proposed. Two years ago, albeit by just 1.6 percentage points, they nullified another stab at universal health care, centered on employer mandates, that a very liberal Legislature and former Gov. Gray Davis had enacted.

A recent poll conducted for the California Association of Health Underwriters -- insurance companies that write health policies and oppose SB 840 -- found Californians sharply divided over health care, especially over whether government should adopt the lead role in providing it, but opposed to increasing taxes to expand health care access and in general leaning against the SB 840 approach.

Schwarzenegger's Democratic challenger, Phil Angelides, has embraced, conceptually, universal health care, and the governor's campaign apparatus has cited that as one example of Angelides' alleged intention to saddle Californians with billions of dollars in new mandates and taxes. Given that, the chances of Schwarzenegger's signing Kuehl's bill are virtually zero.

I wouldn’t be so sure of that. Schwarzenegger indicates he will sign off on a scheme that will lead to California using its purchasing power over MediCal (California’s version of Medicaid) to force pharmaceutical companies to give discounts to uninsured Californians, thus reducing economic incentives and ability to innovate new drugs.

The sweeping program would serve the uninsured who earn up to $60,000 a year for a family of four – about triple the federal poverty level – providing them with discounts of up to 40 percent on brand-name drugs and 60 percent on generic drugs…

Those companies that don't comply would face having one or more of their drugs taken off the list of medications approved for Medi-Cal patients.

Medi-Cal, the federal/state program that serves about 6 million low-income residents, spends about $4 billion a year on prescription drugs.

Once a drug is taken off the Medi-Cal list, physicians have to obtain special permission to prescribe it, which could dramatically lower sales, costing drug companies millions in revenue.

The sponsor of the health care bill passing the legislature is described by her local Santa Monica newspaper thusly:

State Senator Sheila Kuehl – often seen tooling around Sunset Park in her red Porsche – is taking a shot at changing legislative and health care history with her “California Health Insurance Reliability Act,” which comes up for a vote in the State Assembly next week, most likely on Monday.

One of her supporters says:

“There’s going to be a huge fight to make this happen,” predicted Savage, whose organization is leading a year-long public relations blitz to raise the consciousness of voters throughout the state.

The Health Economics Consulting Group, comprised of “faculty affiliated with a number of research universities across the United States, including the University of Iowa, Texas A&M University, University of California - Berkeley, Emory University, University of Louisville, University of Nebraska, Purdue University, and Washington University,” issued an analysis of the California “single-payer” bill, divided into the following sections:

ACCESS: …centrally planned systems, by design, require rationing, typically in the form of waiting lists. Waiting lists, together with increasing tax burdens, are often cited as the principal drivers of discontent with centrally-planned systems.

QUALITY: …According to a recent study of 21 quality indicators from Australia, Canada, New Zealand, England, and the United States (Hussey et. al. 2004), the U.S. ranked either best or second-best in more than half of the indicators….In addition, single-payer plans imply some degree of “regression to the mean” in the scope of benefits and, perhaps, the quality of care. According to Newhouse and Reischauer (2004), “If the single-payer plan has benefits that are around the current average, roughly half of people with above-average coverage will have less coverage under reform, something that they are unlikely to take kindly…and if the single plan is much better than the current average, costs explode.”

ADMINISTRATIVE COSTS: …the assumption that CHIS [the bill] will be able to achieve 1.8% administrative costs is weak. Apart from the aforementioned accounting problems [For example: “It is likely that a non-trivial proportion of capital costs in countries with government-run health plans is not counted as administrative costs to the program.”] …the estimated savings from the statewide reduction in administrative costs is inaccurate because the Lewin report overstates private health insurance administrative expenses [by a third].

TECHNOLOGY AND ADAPTATION: …Incentive attenuation includes reduced incentives to attract new customers, reduced incentives to invest in up-to-date capital and equipment, reduced incentives to innovate (processes and products), and reduced productivity (i.e., from reduced ability of decision-makers and risk takers to share in entrepreneurial returns.)

REGULATORY INSTRUMENTS: …Throughout the text of the legislatuion, references are made to the role of CHIS as the regulator of price and capacity. However, the cumulative knowledge on economic regulation suggests, consistently across studies and industries, that the imposition of economic regulation on an industry results in higher costs and prices…Rate and capacity regulation has been shown to have similar effects in the U.S. hospital industry….

TAX-BASED FINANCING: …There is no guarantee that bureaucrats and politicians will be able to finance the system at levels aligned with consumer demand, nor is there any guarantee that, in the aggregate, consumers would be willing to vote in favor of tax increases sufficient to fund adaptation and growth. Residents of countries in which single-payer plans are available consistently indicate that the single most important action that government can take to improve the system is to “spend more money.” …A related issue, which has been voiced by residents of single-payer countries, is the extent to which medical decision making becomes “politicized.”…

COSTS: The proposed single-payer plan is not immune to the cost inflation problems common to the existing health care system….

IMPLEMENTATION: …replacing the private system with a government system will result in a net loss of $33 billion over the 5-year post-CHIRA enactment period. This loss more than offsets the $8 billion net gains estimated by the Lewin report.

Schwarzenegger needs to be reminded of these facts, for California’s and other states’ sake.