Background information for SB 840

July 17, 2006

Single payer insurance: a viable solution to the health care crisis

The crisis

• California's current financing system for health care leaves millions of residents uninsured or underinsured, creates an inefficient and fragmented system of health care delivery, and controls costs ineffectively.
• Employment-based coverage is declining due to the rapidly rising costs of insurance premiums each year. Fewer employers are now offering health insurance and others are dropping it altogether. Many are instigating cost sharing by asking their employees to pay part of their premium cost, offering policies with higher co-pays or switching to policies that require high deductibles to be met before any costs are paid.
• Under the current trend, many retirees are at risk of having health benefits reduced or eliminated. Companies like General Motors and IBM, as well as some public retirement systems, are backing away from commitments they made to retirees because of the economic burden of costly health care premiums.
• The number of uninsured continues to increase. Working adults and/or their dependents make up 76 percent of California's six million plus uninsured residents. Most get their health care in an emergency room. They do not get the care they need on a regular basis, including preventive care. Many uninsured individuals die prematurely. The Institute of Medicine estimates that 18,000 die each year in the United States because they lack health insurance.
• When providers negotiate rates with insurance companies, costs for the uninsured are shifted to the insured who often end up paying higher premiums. People in good health, with or without health coverage, are paying taxes for the costly care that the uninsured receive in emergency rooms.
• Emergency rooms often are not available because they are heavily burdened with uninsured residents who have nowhere else to get care. When an emergency room is not available, everyone who needs emergency care suffers. Many overburdened emergency rooms have closed and more are likely to do so.
• Current out-of-pocket costs for the insured could easily increase due to multiple treatments, expensive prescriptions, and ongoing office visits that could become a financial burden because of serious or chronic illness. Insurance companies place a cap on how much they pay in total annual benefits, and the cap could be reached quickly.
• Almost half of personal bankruptcies in the United States are the result of high medical bills. Further, nearly 80 percent of people who had a medically related bankruptcy had health insurance when they first became ill. Bankruptcy due to the cost of medical illness is unheard of in any other industrialized country.
• A recent international survey found that the United States leads other advanced countries in medical mistakes, medication errors, and inaccurate or delayed lab results. Each year, as many as 600,000 people die from preventable errors in both hospitals and outpatient facilities, infections acquired in hospitals, and misapplications of technology.
• The United States also is positioned low in overall population health compared to countries that have universal health care systems. The World Health Organization ranks the United States 37th among other industrialized countries in health outcomes, such as infant mortality.

SB 840, an affordable and viable solution

• SB 840 (Kuehl), The California Health Insurance Reliability Act, is a major reform that goes to the root of the problems causing our health care crisis. It provides for affordable insurance for all Californians by establishing a single insurer, administered by the state, that would replace the hundreds of private insurers who administer thousands of different policies. The state insurer would pay all covered charges for health care delivered by providers, hospitals, clinics and pharmacies.
• The new state-managed insurance system would provide all residents with comprehensive health coverage. The total operating cost of this new single-payer insurance system would be less than the cost of maintaining the agencies and insurance policies that it would replace. Hundreds of private insurers operating in California spend an excessive amount of heath care dollars that could be used to provide health care on administration instead.
• SB 840 would keep the best part of California's health system and change the basic flaw that causes its current problems--how health care is financed. The new insurance system would provide for public financing of privately delivered health care. The financing method would be changed, but doctors and hospitals would remain independent.
• The new system would eliminate waste and save by reorganizing the way health care dollars are spent, implementing improvements in care quality, reducing prices by using purchasing power, and increasing preventive care to keep people out of emergency rooms and hospitals. Savings and revenue generated by the new system, combined with the monies already spent on state programs, would be more than enough to provide secure, comprehensive health care for every Californian.
• Governments of all other industrialized countries have found it more efficient and less expensive to provide comprehensive universal coverage. Current health care spending for the United States' market-driven system is $6,100 per person, more than double the amount spent by Canada ($2,980) or France ($2,740) per person to provide universal coverage.
• SB 840 provides for streamlined administration, using the state's purchasing power to negotiate price discounts on pharmaceuticals and medical equipment, controlling cost increases and saving money on an ongoing basis. The Lewin Group, a national health care consulting firm, finds that a single payer insurer model similar to SB 840 would save $343 billion in overall health costs over a 10-year period. Of that savings, $44 billion would be state savings on public employees' health insurance costs.
• SB 840 would provide comprehensive benefits to all residents. This would include, but not be limited to, preventive, primary, specialist, emergency, hospice, and home health care; hospitalization and surgery; dental, vision and hearing care; mental health and substance abuse treatment; and prescription drugs and prescribed medical equipment.
• Everyone could choose his or her own primary doctor and dentist. Women also could choose their ob-gyn doctor. Choices could be made from qualified pay-per-visit physicians or primary care physicians within a capitated payment provider like Kaiser. Primary care providers and emergency doctors would make referrals to specialists, but patients also could choose to pay for a specialist without a referral.
• SB 840 also would eliminate the risk of financial ruin due to health care costs. Under SB 840, health care costs would not increase for someone who becomes ill. This feature is a safeguard from financial ruin
• Health care costs for businesses would stabilize under SB 840 because overall health care costs would be stable. The competitive position of California products in global markets would improve when their prices no longer reflect the ongoing rise in health care costs. These costs are expected to go down significantly for employers who currently provide insurance. In addition, these employers would be relieved of the high costs of negotiating new premium rates each year as well as managing complex programs.

Funding the single payer insurance system under SB 840

• SB 840 provides for the new system to be funded by federal and state monies currently being spent on health care and by revenues that would be collected by the state insurance fund. The new state revenues would replace what businesses and individuals now pay to HMOs, insurance companies and other providers. The Lewin Group finds that in single-payer insurer models similar to SB 840, these revenues would be less than most are now paying for insurance premiums, co-pays, coinsurance and prescribed drugs taken together. In addition, the Lewin Group finds that the overall cost would be less than all current system costs, and that most individuals, businesses, and governments would save money.
• The funding for the new health insurance system would be more equitable than the current market system's funding that does not provide secure comprehensive benefits for all residents. For instance, employees would have to pay only their health care premiums under the new system--no deductibles, co-pays, cost sharing or prescription drugs costs. Age, race, employment status, pre-existing conditions, the amount of coverage one needed or could afford, or the high inflation of current health care premiums would not affect the premiums.
• Employee wages are expected to be the basis of employer contributions under SB 840. When everyone shares the costs of the new system, employers who already provide insurance would pay less. In addition, the new premium costs would be more affordable than current insurance premiums for businesses that do not provide insurance. Under the new system all businesses would be on a level playing field when it comes to health care costs.

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