LAO report on SB 840 (California)
A fiscal analysis of SB 840 (Kuehl), which would establish in California a single-payer health care system and its companion financing mechanism.
By Elizabeth G.Hill, Legislative Analyst
California Legislative Analyst’s Office (LAO)
May 22,2008
Fiscal Projection Overview. We estimated the revenues and costs of the SPP for 5.5 years, assuming an implementation date of January 1, 2011. Our estimate indicates that that the SPP would result in a net shortfall of $42 billion in 2011-12 (the first full year of operations) and $46 billion in 2015-16.
Significant Factors Contributing to Shortfall
A substantial portion of our analysis relies on modeling and estimates described in the Lewin report, which concluded that SB 921 (2004) would generate sufficient resources to pay the costs for universal coverage. Nonetheless, our estimates indicate the SPP would incur annual shortfalls over our projection period. The estimates for our first full year of implementation in 2011-12 differ from those estimated by Lewin for the first full year of implementation (2006) primarily for the three reasons discussed in more detail below.
Interim Growth Rates.
The Lewin report estimated costs and revenues assuming full implementation in 2006. Between that year and 2011-12, we estimate that health benefits costs would grow at a higher rate than the SPP proposed tax base and redirected health funds. This difference in growth rates accounts for over one-half of the shortfall we project in 2011-12.
Data Sources.
The Lewin report used data from a variety of sources, much of which originated between 1998 and 2003, including some data from national surveys. Our analysis uses more recent data that, where possible, is more specific to California and based on actual reported data rather than surveys. For example, we used wage data provided by EDD instead of survey data, resulting in a lower estimate of payroll taxes than projected in the Lewin report. In total, these various data differences contributed roughly 40 percent to the shortfall we project for 2011-12.
Some Different Assumptions.
While we generally agree with many of the assumptions regarding savings and costs used in the Lewin report, our assumptions differed somewhat in a few areas. Our estimates assume somewhat lower costs from health care utilization as well as somewhat higher costs for administration and drug purchasing. Our estimates also include the costs of establishing an operating reserve, which the Lewin report did not include. Additionally, we estimated that greater amounts of state and local funding could be redirected to the SPP than did the Lewin report. We describe these differences in greater detail below. The net effect of these assumptions contributed to most of the remaining shortfall.
http://www.lao.ca.gov/2008/hlth/sb840/SB840_analysis.pdf
Comment:
By Don McCanne, MD
California’s single payer bill, SB 840, authored by Sen. Sheila Kuehl, has already been approved once by the California State Legislature, only to be vetoed by Gov. Arnold Schwarzenegger. It is back before the legislature, has passed in the Senate and is now in the Assembly Appropriations Committee.
A previous analysis of the bill by The Lewin Group has confirmed that it would provide comprehensive benefits for all residents of California with no increase in total health care spending.
A new analysis by the Legislative Analyst was just released showing that the bill would result in a $42 billion shortfall in its first full year of operation. Opponents of single payer reform will jump on this to loudly proclaim that single payer is a fraud and cannot result in savings that would be used to pay for care needed by the uninsured and underinsured. One columnist has already labeled this as “a financial train wreck” (Daniel Weintraub, The Sacramento Bee, June 15).
What will not be reported by those who wish to demonize single payer is that the Legislative Analyst confirmed that the features of single payer would perform as previously modeled. Truly comprehensive benefits would be provided for absolutely everyone, while the rate of cost escalation would slow. Although she made relatively minor adjustments in the assumptions, she did not report any previously unrecognized significant flaws in the single payer model.
So what is this $42 billion shortfall that did not show up in the previous Lewin analysis?
Over half is due to the fact that California has faced another five years of outrageous health care inflation, and that alone has raised the baseline by over $20 billion.
Almost half (40 percent) is due to use of more recent wage data indicating that payroll tax revenue would be less because wages are comparatively lower than previously modeled.
Different assumptions used by the Legislative Analyst account for most of the remaining shortfall - a very modest amount.
This $42 billion shortfall is not a reason to turn away from single payer, but rather it confirms that single payer reform is even more urgent. Health care inflation is killing us, and it must be harnessed immediately. The financial burdens of wage earners are killing them (sometimes literally), and they must have immediate relief from the financial hardships caused by their health care needs.
The LAO report confirms that single payer provides the financing structure that we need, and enacting it has become an emergency.