May 24, 2017

Single-Payer Health Care in California, Part 1

The question of what the American left is going to do after they lost the 2016 election has been answered: expand the welfare state.

Ever since the War on Poverty began in 1964 they have used the federal government as their vehicle for advancing egalitarianism in America. With delightful help from Republicans, they have grown entitlement spending under every president since Lyndon Johnson; it remains to be seen if Donald Trump will break that trend. (Given that his first budget includes an entirely new entitlement program, loaded with a structural deficit, that appears to be unlikely.) But even if he wants to do that, it is likely that he will run into tough resistance from Congressional Republicans.

Meanwhile, the liberal strategy for expanding the welfare state has shifted toward states. It is very likely that we will see multiple efforts, in multiple states to create three types of entitlement programs: paid family leave, single-payer health care and universal child care.

The third program has yet to materialize as a major issue on the liberal agenda; paid leave exists in California, New Jersey, Washington state and Washington, DC, and is being aggressively promoted by egalitarians in Colorado.

As for single-payer health care, egalitarians have now turned California into Ground Zero. From the Sacramento Bee:
State Democrats’ three-day convention had a raucous start Friday, as liberal activists booed and heckled Democratic National Committee Chair Tom Perez after marching from the state Capitol to promote a universal heath care program. The leader of the nurses’ union that opposed Perez’s recent election had just warned California Democrats that they would put up primary election challengers against lawmakers if they don’t support a bill to create public-funded, universal healthcare. “They cannot be in denial anymore that this is a movement that can primary them,” RoseAnn DeMoro, executive director of the California Nurses Association, told hundreds of nurses and health care advocates gathered for a rally at the Capitol.
Evidently the radical left wants to trounce the less radical left by out-entitling them. The strategy seems to be "highest bidder wins":
The showdown over health care exposed deep rifts within the party that may have scabbed over, but have not healed, since last year’s primary fight between Hillary Clinton and Bernie Sanders, a favorite of the nurses union, which also backed Perez’s opponent in the chair’s race, Rep. Keith Ellison. Sanders has called for a national single-payer system, and earlier this month called on Californians to adopt the model at a speech in Los Angeles.
Under a “single-payer” system like Canada’s, the government would pay health care bills instead of multiple insurance companies. Private hospitals and doctors would provide the care. Premiums, copays and deductibles would disappear. The money would come from state and federal governments and new taxes, likely on earnings, and paid by employers and employees. It’s the same way Medicare functions, essentially. Proponents say it’s a practical way to rein in rising health care costs, expand access and improve quality. Critics argue that such systems lead to unacceptable levels of taxation, rationed care that can make people sicker and long wait lists for primary and specialty care appointments.
There is probably a mile's worth of bookshelves with literature showing how bad single-payer health care works in the countries that have tried it. My own small contributions consist of, among other items, an entire chapter in my upcoming book The Rise of Big Government (Routledge, due out in October), and my book from 2010 where I chronicled the Swedish single-payer disaster 

For now, though, let us just concentrate on one of the challenges that will be facing California's egalitarians. Among their selling points for a state single-payer system is that it will contain the costs of health care. As with every other single-payer system in the world, it is unclear exactly how those savings will materialize, other than in the form of system-wide rationing and other means to restrict and prevent people from the health care they need.

The cost containment problem sits right in the intersection between health care costs and the suggested funding model, which - according to the Sacramento Bee - in part consists of a new tax on personal income. Starting with health care costs, there are many different ways to track them. The most honest way to do it is by itemization: using the standard system of national accounts, employed by the Bureau of Economic Analysis (BEA) in measuring GDP, we can estimate the costs for assorted pieces of medical technology.* Similarly, the Bureau of Labor Statistics (BLS) offers comprehensive data on employment and earnings of medical professionals. 

BLS data is broken down elegantly by state, while BEA industry data is not. Therefore, there is a moment of inexactness in estimating the costs of producing health care in California. We have to assume that the costs of medical equipment, as reported nationally by the BEA, are representative of the costs in California. With this caveat in mind, we can add up the costs, then let them evolve as they actually did from 1999 and on.

We then add personal income, specifically for California, and assume that we put a tax on it to pay for the two types of health-care operating costs in the Golden State. We then compare the growth rates of health care costs and of the tax base, personal income. Starting in 1999. we assume that we raise $100 in taxes to pay for $100 worth of of medical equipment, and equally $100 of personal-income tax to pay for medical staff salaries. Figure 1 explains how the tax revenue would keep up with costs: 

Figure 1
Sources: Bureau of Economic Analysis and Bureau of Labor Statistics

Medical equipment costs would outrun its tax base already in 2001, while staff costs would exceed the tax base from 2007 and on. By 2010, equipment costs would exceed tax revenue by 27.2 percent; staff salary costs would outrun tax revenue by more than one third. 

This is, of course, an incomplete account for all health care costs. One big item, pharmaceuticals, is not included. One of the problems with including that part is that your typical single-payer system comes with centralized, bulk-purchased medicine, where one government agency decides what medical drugs to buy, and which ones not to buy, and then negotiates prices with pharmaceutical companies. This makes it somewhat difficult, though by no means impossible, to include pharmaceuticals here. However, to do that part justice, I will return in a Part 2.

For now, let us note that single-payer advocates in California are playing with fiscal fire.  
*) In tracking the costs of medical equipment, the following items in industrial accounts were chosen (numbers representing IO codes): 333314-15; 334514-16; 339112-16; 233210; 325411-14; 334510. Changes in costs, staff salaries and personal income are all in current prices.

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