A proposed single-payer health system in California would cost about $400 billion annually, with up to half of that money coming from a new payroll tax on workers and employers, according to a state analysis.
The report by the state Senate Appropriations Committee, issued Monday, put a price tag for the first time on legislation that would make the state responsible for providing health coverage to all 39 million Californians. The state-run system would supplant existing employer health insurance in California, as well as coverage through public programs such as Medicaid and Medicare.
One of the chief obstacles to the legislation, Senate Bill 562, is the prospect of higher taxes. It also has exposed deep divisions among Democrats over whether now is the time to pursue single-payer -- just as the Affordable Care Act comes under attack from Republicans in Washington. At a hearing Monday, one Democratic legislator questioned whether the state can effectively manage a universal health care system.
The legislative analysis estimates a total annual cost of $400 billion to enact the Healthy California program for all residents, regardless of their immigration status.
To put that in perspective, about $367 billion was spent on health care last year statewide, including public and private spending by employers and consumers, according to the UCLA Center for Health Policy Research.
Legislative analysts said federal, state and local taxpayer funding of about $200 billion a year for existing programs could be available to offset the overall tab of $400 billion for universal coverage. But additional tax revenue would be needed to foot the other half of the cost, according to the report, which raised the possibility of a 15 percent payroll tax on earned income.
Of course, the shift to a single-payer system should reduce current spending on health insurance by employers and workers, so those savings could offset some of the new taxes, the analysts said. The report estimated that employers and employees in California spend $100 billion to $150 billion a year now on health insurance and medical care.
"Total new spending required under the bill would be between $50 billion and $100 billion per year," the report said.
The Senate analysis noted that all of its projections were "subject to enormous uncertainty" because the bill would mark "unprecedented change in a large health care market."
A single-payer system likely "would be more efficient in delivering health care," said Larry Levitt, a senior vice president at the Kaiser Family Foundation. (California Healthline is produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.)
But the proposal expands coverage to all and eliminates premiums, copayments and deductibles for enrollees, and that would cost more money, Levitt said. "You can bet that opponents will highlight the 15 percent tax, even though there are also big premium savings for employers and individuals," he added.
State Sen. Ricardo Lara (D-Bell Gardens), a chief sponsor of the legislation, said the present system is unsustainable because health spending continues to grow faster than the overall economy, making coverage unaffordable for too many people.
Lara touted the potential savings from creating a public plan with greater bargaining power and cutting out the administrative overhead and profits of private health insurers acting as middlemen.
Overall, many of the details behind California's single-payer proposal remain in flux. Under questioning from fellow lawmakers, Lara said the 15 percent payroll tax is "hypothetical" and "we don't have a financing mechanism yet for this bill."
Lara said he has sought a review from researchers at the University of Massachusetts-Amherst into potential funding sources for the measure.
Lara also said there's no guarantee the Trump administration would grant the federal waivers necessary for California to shift Medicare and Medicaid funding into a single pot for universal health care.
With so many unknowns, the Senate Appropriations Committee didn't vote on the measure Monday. Backers of the legislation are hopeful for a vote in the full Senate next month and then lawmakers could continue to work on the financial aspects during the summer.
At Monday's hearing, many consumers pointed to Medicare as a model for how single-payer works now and urged lawmakers to make California the proving ground for how it can succeed at the state level.
Business groups and health insurers spoke out in opposition, saying it would lead to massive disruption and escalating costs. Even if it passes the legislature, California Gov. Jerry Brown hasn't endorsed the idea and new taxes may require a statewide ballot measure, which are always hard-fought campaigns.
The California Chamber of Commerce said the costs would likely be far higher than what was projected and the taxes imposed on employers would trigger major job losses.
State Sen. Jim Nielsen (R-Tehama), a member of the Appropriations panel, expressed similar concerns. "The impact on employers will be astounding," Nielsen said. "How can you say this will be fiscally prudent for the state? The state has never gotten anything right in health care."
State Sen. Steven Bradford (D-Gardena) also preached caution, questioning whether state agencies are up to the task. "I don't want California to move toward a program that is not sustainable and one that we can't manage," Bradford said.
Other states have taken a close look at single-payer and balked. Colorado voters rejected a ballot measure last year that would have used payroll taxes to fund a near-universal coverage system.
Kaiser Health News is a national health policy news service that is part of the nonpartisan Henry J. Kaiser Family Foundation.