Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacted various health care coverage market reforms that took effect January 1, 2014. PPACA required each state, by January 1, 2014, to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. PPACA defines a qualified health plan as a plan that, among other requirements, provides an essential health benefits package. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the purchase of qualified health plans by qualified individuals and qualified small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions.

This bill, the Healthy California Act, would create the Healthy California program to provide comprehensive universal single-payer health care coverage and a health care cost control system for the benefit of all residents of the state. The bill, among other things, would provide that the program cover a wide range of medical benefits and other services and would incorporate the health care benefits and standards of other existing federal and state provisions, including, but not limited to, the states Childrens Health Insurance Program (CHIP), Medi-Cal, ancillary health care or social services covered by regional centers for persons with developmental disabilities, Knox-Keene, and the federal Medicare program. The bill would require the board to seek all necessary waivers, approvals, and agreements to allow various existing federal health care payments to be paid to the Healthy California program, which would then assume responsibility for all benefits and services previously paid for with those funds.

This bill would also provide for the participation of health care providers in the program, require care coordination for members, provide for payment for health care services and care coordination, and specify program standards. The bill would state the intent of the Legislature to enact legislation that would develop a revenue plan, taking into consideration anticipated federal revenue available for the Healthy California program. The bill would create the Healthy California Trust Fund in the State Treasury, as a continuously appropriated fund, consisting of any federal and state moneys received for the purposes of the act. Because the bill would create a continuously appropriated fund, it would make an appropriation.

This bill would create the Healthy California Board to govern the program, made up of 9 members with demonstrated and acknowledged expertise in health care, and appointed as provided. The bill would provide the board with all the powers and duties necessary to establish the Healthy California program, including, but not limited to, determining when individuals may start enrolling into the program, employing necessary staff, and negotiating and entering into any necessary contracts. The bill would also require the Secretary of California Health and Human Services to establish a public advisory committee to advise the board on all matters of policy for the Healthy California program.

This bill would prohibit health care service plans and health insurers from offering health benefits or covering any service for which coverage is offered to individuals under the program, except as provided. The bill would authorize health care providers, as defined, to collectively negotiate rates of payment for health care services, rates of payment for prescription and nonprescription drugs, and payment methodologies using a 3rd-party representative, as provided.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacted various health care coverage market reforms that took effect January 1, 2014. PPACA required each state, by January 1, 2014, to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. PPACA defines a qualified health plan as a plan that, among other requirements, provides an essential health benefits package. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the purchase of qualified health plans by qualified individuals and qualified small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions.

This bill, the Healthy California Act, would create the Healthy California program to provide comprehensive universal single-payer health care coverage and a health care cost control system for the benefit of all residents of the state. The bill, among other things, would provide that the program cover a wide range of medical benefits and other services and would incorporate the health care benefits and standards of other existing federal and state provisions, including, but not limited to, the states Childrens Health Insurance Program (CHIP), Medi-Cal, ancillary health care or social services covered by regional centers for persons with developmental disabilities, Knox-Keene, and the federal Medicare program. The bill would require the board to seek all necessary waivers, approval, approvals, and agreements to allow various existing federal health care payments to be paid to the Healthy California program, which would then assume responsibility for all benefits and services previously paid for with those funds.

This bill would also provide for the participation of health care providers in the program, require care coordination for members, provide for payment for health care services and care coordination, and specify program standards. The bill would state the intent of the Legislature to enact legislation that would develop a revenue plan, taking into consideration anticipated federal revenue available for the Healthy California program. The bill would create the Healthy California Trust Fund in the State Treasury, as a continuously appropriated fund, consisting of any federal and state moneys received for the purposes of the act. Because the bill would create a continuously appropriated fund, it would make an appropriation.

This bill would create the Healthy California Board to govern the program, made up of 9 members with demonstrated and acknowledged expertise in health care, and appointed as provided. The bill would provide the board with all the powers and duties necessary to establish the Healthy California program, including, but not limited to, determining when individuals may start enrolling into the program, employing necessary staff, and negotiating and entering into any necessary contracts. The bill would also require the Secretary of California Health and Human Services to establish a public advisory committee to advise the board on all matters of policy for the Healthy California program.

This bill would prohibit health care service plans and health insurers from offering health benefits or covering any service for which coverage is offered to individuals under the program, except as provided. The bill would authorize health care providers, as defined, to collectively negotiate rates of payment for health care services, rates of payment for prescription and nonprescription drugs, and payment methodologies using a third-party 3rd-party representative, as provided.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacted various health care coverage market reforms that took effect January 1, 2014. PPACA required each state, by January 1, 2014, to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. PPACA defines a qualified health plan as a plan that, among other requirements, provides an essential health benefits package. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the purchase of qualified health plans by qualified individuals and qualified small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, 1975 (Knox-Keene), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions.

Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacted various health care coverage market reforms that took effect January 1, 2014. PPACA required each state, by January 1, 2014, to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. PPACA defines a qualified health plan as a plan that, among other requirements, provides an essential health benefits package. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the purchase of qualified health plans by qualified individuals and qualified small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law provides for the regulation of health insurers by the Department of Insurance.

This bill would make findings and declarations with regard to the availability and affordability of health care coverage and would state the intent of the Legislature to enact legislation that would establish a comprehensive universal single-payer health care coverage program and a health care cost control system for the benefit of all residents of the state.

 THIRD READING  

Bill No: SB 562

Author:

Amended: 5/26/17

Vote:

SENATE HEALTH COMMITTEE: 5-2, 4/26/17

AYES: Hernandez, Atkins, Leyva, Mitchell, Monning

NOES: Nguyen, Nielsen

NO VOTE RECORDED: Newman, Roth

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/25/17

AYES: Lara, Beall, Bradford, Hill, Wiener

NOES: Bates, Nielsen

SUBJECT:

SOURCE: California Nurses Association/National Nurses United

DIGEST: This bill enacts the Healthy California program, which is required to provide comprehensive universal single-payer health care coverage system for all California residents. This bill is prohibited from becoming operative until the date the Secretary of Health and Human Services provides notification that he or she has determined that the Healthy California Trust Fund has revenues to fund the costs of implementing this bill.

ANALYSIS:

Existing law:

1. Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), under which low income individuals are eligible for medical coverage. Medi-Cal provides coverage to adults and parents with incomes up to 138% of the federal poverty level (FPL) who are under age 65, and to children with incomes up to 266% of the FPL. Undocumented children receive full scope Medi-Cal coverage, while undocumented adults receive limited scope services under Medi-Cal (primarily emergency only).
2. Provides federal funds to states to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children through the Children’s Health Insurance Program (CHIP). The program is funded jointly by states and the federal government. CHIP is a capped program and each state is provided an annual CHIP allotment. CHIP is authorized under federal law until September 30, 2017.
3. Requires, under the Patient Protection and Affordable Care Act (ACA, Public Law 111-148), as amended by the Health Care Education and Reconciliation Act of 2010 (Public Law 111-152), each state, by January 1, 2014, to establish an American Health Benefit Exchange (Exchange) that makes qualified health plans (QHPs) available to qualified individuals and qualified employers. Requires, if a state does not establish an Exchange, the federal government to administer the Exchange. Establishes requirements for the Exchange and for QHPs participating in the Exchange, and defines who is eligible to purchase coverage in the Exchange. Limits enrollment in the Exchanges to citizens or nationals of the United States, or aliens lawfully present in the United States.
4. Allows, under the ACA and effective January 1, 2014, eligible individual taxpayers, whose household income is between 100% and 400% of the FPL, an advanceable and refundable premium tax credit (APTC) to use for coverage under a QHP offered in the Exchange. Requires a reduction in cost-sharing for individuals with incomes below 250% of the FPL. Legal immigrants with household incomes less than 100% of the FPL who are ineligible for Medicaid because of their immigration status are also eligible for the APTC and the cost-sharing reductions. Undocumented individuals and incarcerated individuals are ineligible to purchase coverage in Exchanges.
5. Authorizes, under Section 1332 of the ACA, waivers for state innovation under which states can seek federal approval to waive major provisions of the ACA, including the requirement for Exchanges, QHPs, premium tax credits and cost-sharing reductions, the individual mandate and the employer responsibility requirement, provided federal requirements for comprehensive benefits, affordability, and comparable coverage are met and the state proposal does not increase the federal deficit.
6. Establishes, pursuant to federal law, the Medicare program, which provides coverage for seniors and certain persons with disabilities. Medicare is funded by payroll taxes, premiums paid by individuals who enroll in various “parts” of Medicare (Part A is hospital services, Part B is medical services, Part C is Medicare Advantage plans, and Part D is prescription drug coverage) and general revenue. Authorizes the federal Secretary of the Department of Health and Human Services, to develop and engage in experiments and demonstration projects for specified purposes, either directly or through grants to public or private agencies, institutions, and organizations or contracts with public or private agencies, institutions, and organizations.
7. Creates within the Centers for Medicare and Medicaid Services a Center for Medicare and Medicaid Innovation (CMI), the purpose of which is to test innovative payment and service delivery models to reduce program expenditures under the Medicare and Medicaid while preserving or enhancing the quality of care furnished to individuals under those programs.

This bill:

Healthy California purpose and governance

1. Establishes the Health California program in state government as an independent public entity not affiliated with an agency or department. Requires the Healthy California program to provide comprehensive universal single-payer health care coverage and a health care cost control system for the benefit of all residents of the state. Requires Healthy California to be governed by an unpaid (except for per diem) executive board consisting of nine members appointed by Legislature (four) and Governor (five). Four members have to be from the following: a labor organization representing nurses, the general public, a labor organization, and the medical provider community. Requires each person appointed to the board to have demonstrated and acknowledged expertise in health care.
2. Requires each board member to have the responsibility and duty to meet the requirements of this bill, the ACA, and all applicable state and federal laws and regulations, to serve the public interest of the individuals, employers, and taxpayers seeking health care coverage through the program, and to ensure the operational well-being and fiscal solvency of the program. Requires appointing authorities to take into consideration the cultural, ethnic, and geographical diversity of the state so that the board’s composition reflects the communities of California.
3. Requires a California Health and Human Services Agency-appointed 22 member public advisory committee. Requires the board to have all powers and duties necessary to establish and implement Healthy California. Requires the board to provide grants to health planning agencies, and requires the board to provide funds for retraining and assisting job transition for individuals in health and insurance-related fields whose jobs may be or have been ended as a result of Healthy California implementation. Requires the board to provide for the collection and availability of specific hospital-related and health information technology-related data to promote transparency, assess patient adherence, compare patient outcomes, and review utilization.

Eligibility for Healthy California

1. Makes every resident of the state eligible and entitled to enroll. “Resident” is defined as an individual whose primary place of abode is in the state, without regard to the individual’s immigration status.

Enrollee premiums in Healthy California

1. Prohibits members from Healthy California from being required to pay any premium.

Enrollee cost-sharing in Healthy California

1. Prohibits members from being required to pay any co-payment, co-insurance, deductible and any other form of cost-sharing for all covered benefits.

Enrollee benefits in Healthy California

1. Requires all medical care determined to be medically appropriate by the members’ health care provider. Includes a broad benefit package, including all services covered by Medi-Cal, Medicare, the essential health benefits, and all health plan/insurance mandated benefits. Benefits required include chiropractic, vision, dental, ancillary health or social services previously covered by a regional center, skilled nursing facility care, and therapies shown by the National Institutes of Health, National Center for Complementary and Integrative Health to be safe and effective. Permits Healthy California to offer retiree benefits on a voluntary basis.

Choice of health care providers in Healthy California

1. Permits a member to choose to receive health care services from any participating provider, subject to the willingness and availability of the provider, and the appropriate clinically relevant circumstances. Per 9) below, providers generally have to be in California and be California-licensed.

Providers eligible to participate in health care providers under Healthy California

1. Permits any health care provider licensed to practice in California who is otherwise in good standing to be qualified to participate in Healthy California, so long as the provider’s services are performed within the state of California. The Healthy California board is required to establish and maintain procedures and standards for recognizing health care providers located out-of-state for purpose of providing health care coverage for members who require out-of-state health care services while the member is temporarily located out-of-state.

Health care providers reimbursement in Healthy California

1. Requires the Healthy California board to adopt regulations regarding contracting for, and establishing payment methodologies for, covered health care services and care coordination provided to members under Healthy California by participating providers, care coordinators, and health care organizations. Permits a variety of different payment methodologies, including those established on a demonstration basis. Requires all payment rates under the program to be reasonable and reasonably related to the cost of efficiently providing the health care service and ensuring an adequate and accessible supply of health care services. Requires health care services provided to members under the program, except for care coordination, to be paid for on a fee-for-service basis unless and until another payment methodology is established by the Healthy California board.

Funding for Healthy California

1. Contains intent language on broad-based revenue, and intent for the state to work to obtain approval and other approvals so that Medicaid, Medicare, ACA and other federal funds and subsidies paid by the federal government that would otherwise be paid to the State of California, Californians and health care providers would be deposited in the Healthy California Trust Fund.
2. Requires the Healthy California board to apply to the federal Secretary of Health and Human Services or other appropriate federal official for all waivers of requirements, and make other arrangements, under Medicare, any federally matched public health program, the ACA, and any other federal programs that provide federal funds for payment for health care services that are necessary to enable all Healthy California members to receive all benefits under the Healthy California program through the program, to enable the state to implement this bill, and to allow the state to receive and deposit all federal payments under those programs, including funds that may be provided in lieu of premium tax credits, cost-sharing subsidies, and small business tax credits, in the State Treasury to the credit of the Healthy California Trust Fund, and to use those funds for the Healthy California program.
3. Requires all moneys in the Fund to be continuously appropriated without regard to fiscal year for the purposes of this bill, and any moneys in the fund that are unexpended or unencumbered at the end of a fiscal year is authorized to be carried forward to the next succeeding fiscal year.

Care Coordination in Healthy California

1. Requires care coordination to be provided to members, defined to include administrative tracking and medical recordkeeping services, specifies the individual and entities that can be care coordinators, and allows reimbursement to a health care provider only if the member is enrolled with a care coordinator.
2. Requires the Healthy California board to develop and implement procedures and standards by regulation for an individual or entity to be approved as a care coordinator.

Role of private health insurance under Healthy California

1. Prohibits health plans and insurers from offering benefits or services for which coverage is offered under the Healthy California program. Continues to allow plan/insurers to offer benefits to cover health care services that are not offered to individuals under the program, including to non-residents and during the implementation period.

Program standards in Healthy California

1. Requires Healthy California to establish a single standard of safe, therapeutic care for all residents of the state.
2. Requires the board to establish requirements and standards, by regulation, for the program and for health care organizations, care coordinators, and health care providers, consistent with this bill and consistent with the applicable professional practice and licensure standards of health care providers and health care professionals established pursuant to the Business and Professions Code, the Health and Safety Code, the Insurance Code, and the Welfare and Institutions Code, including specified requirements and standards established by this bill.
3. Requires the board to establish requirements and standards, to the extent authorized by federal law, by regulation, for replacing and merging with the Healthy California program health care services and ancillary services currently provided by other programs, including, but not limited to, Medicare, the ACA, and federally matched public health programs.

Healthy California and Medicare

1. Permits the Healthy California to take actions consistent to enable the program to administer Medicare in California, and requires the program to be a provider of supplemental insurance coverage (Medicare Part B) and to provide premium assistance drug coverage under Medicare Part D (drug coverage) for eligible members of the program. Requires a member who is eligible for benefits under Healthy California, as a condition of continued eligibility for health care services under the program, to enroll in Medicare, including Parts A, B, and D.
2. Requires the program to provide premium assistance for all members enrolling in Medicare Part D drug coverage, limited to the low-income benchmark premium amount established by the federal Centers for Medicare and Medicaid Services and any other amount the federal agency establishes under its de minimis premium policy, except that those payments made on behalf of members enrolled in a Medicare advantage plan may exceed the low-income benchmark premium amount if determined to be cost effective to the program.

Healthy California and Medi-Cal

1. Permits the Healthy California board to apply for coverage for, and enroll, any eligible member under any federally matched public health program (such as Medi-Cal) or Medicare. Prohibits enrollment in a federally matched public health program or Medicare from causing any member to lose any health care service provided by the program or diminish any right the member would otherwise have.
2. Requires the Healthy California board, by regulation, to increase the income eligibility level, increase or eliminate the resource test for eligibility, simplify any procedural or documentation requirement for enrollment, and increase the benefits for any federally matched public health program and for any program in order to reduce or eliminate an individual’s coinsurance, cost-sharing, or premium obligations or increase an individual’s eligibility for any federal financial support related to Medicare or the ACA. This provision does not apply for long-term care services. Permits the board, to enable the board to apply for coverage for, and enroll, any eligible member under any federally matched public health program or Medicare, to require that every member or applicant provide the information necessary to enable the Healthy California board to determine whether the applicant is eligible for a federally matched public health program or for Medicare, or any program or benefit under Medicare.

Collective Negotiation with Healthy California

1. Allows health care providers to meet and communicate for the purpose of collectively negotiating with Healthy California on any matter, including rates of payment and payment methodologies. Prohibits this provision from being construed to allow a strike of Healthy California by health care providers related to the collective negotiations. Establishes requirements for collective negotiations.

Healthy California and existing law

1. Requires this bill to apply and prevail to the extent any provision of California law is inconsistent with this bill or its legislative intent extent, except when explicitly provided under this bill.

Requirement that Healthy California develop proposals on workers compensation and long-term care coverage

1. Requires the board to develop a proposal for Healthy California coverage of health care services currently covered under the workers’ compensation system, including whether and how to continue funding for those services under that system and whether and how to incorporate an element of experience rating.
2. Requires the board to develop a proposal, consistent with the principles of this bill, for provision by the program of long-term care coverage, including the development of a proposal, consistent with the bill, for its funding. Requires the board, in developing the proposal, to consult with an advisory committee, appointed by the chairperson of the board, including representatives of consumers and potential consumers of long-term care, providers of long-term care, members of organized labor, and other interested parties.

Local authority to provide additional coverage

1. Prohibits this bill from preempting any city, county, or city and county from adopting additional health care coverage for residents in that city, county, or city and county that provides more protections and benefits to California residents than contained in this bill.

Implementation contingent on revenue to fund this bill

1. Prohibits, notwithstanding any other provision of law, this bill from becoming operative until the date the Secretary of Health and Human Services Agency notifies the Secretary of the Senate and the Chief Clerk of the Assembly that he or she has determined that the Healthy California Trust Fund has revenues to fund the costs of implementing this bill. Requires the Health and Human Services Agency to publish a copy of the notice on its Internet Web site.

Comments

1. Author’s statement. According to the author, despite the incredible gains made under the ACA, almost three million California residents still do not have access to health care because cost or legal status. With the federal governments’ promises to abandon the ACA and undo the progress we have made, leaving even more people without access to care, California has a chance to lead the rest of the nation toward a health care model that is less expensive and provides better coverage. SB 562 will move health care services to one publicly run plan that covers everyone who lives in the state. Every Californian will have access to the same comprehensive health benefits under a single plan. Patients will have the ability to choose their providers without worrying about what their insurance will cover or if they are out of network. SB 562 will consolidate and streamline access to care for patients and simplify the billing for hospitals and providers. SB 562 will fundamentally change California’s health care system and improve health access and care for our residents. SB 562 will change health care in California from commodity to a right.
2. ACA. The federal ACA, approved on March 23, 2010, was the most transformative legislative action the U.S. health care system had seen in 40 years. California has seen a remarkable decline in the number of people without health insurance coverage as a result of the ACA. Most notably, the percentage of Californians under age 65 without insurance declined from 22% in 2011 to 8.6% in 2015 (from 7.3 million in 2011 to 2.9 million in 2015). California experienced the largest percentage point decline in the uninsured rate of any state, according to the United States Census Bureau. The federal Centers for Disease Control and Prevention has indicated a further fall to 7.1% in the first nine months of 2016. The decline in uninsured as a result of the ACA crosses the major race/ethnic and income groups in California.
3. How do Californians receive health coverage now? Unlike other industrialized nations, the American health care system is primarily an employer-based system. Like the rest of the country, most (56%) of California’s 39 million residents receive employer-based coverage, which is subsidized by the state and federal tax code. While estimates vary, somewhere around 2.9 million to 3.1 million Californians are uninsured. Public programs are the other major health coverage source, followed by the individual insurance market.
4. How much is spent on health care expenditures in California? According to an August 2016 Health Policy Brief by the UCLA Center for Health Policy Research, personal health care expenditures in California are estimated to total more than $367 billion in 2016. Approximately 71% of these expenditures will be paid with public funds, broadly defined to include government spending for public employee health benefits, Medicare and Medicaid, tax subsidies for employer-sponsored insurance and ACA insurance exchange and county health care expenditures.
5. Support in concept. The California Pan-Ethnic Health Network, Western Center on Law and Poverty, and Health Access California write that they support this bill in concept in that they support single payer and universal coverage, and suggest additional changes to this bill. Health Access California writes that further work needs to be done on financing, and raises questions about the lack of specifics or provisions that run counter to goals for a universal coverage system related to provisions in this bill regarding transition to a single payer system, system governance, whether existing consumer protections apply to the single payer system, quality improvements/delivery system reform and integrated care, purchasing for cost and quality, cost control and information technology.

NOTE: See the Senate Health Committee analysis of this bill for more detailed background of this bill.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, the fiscal estimates below are subject to enormous uncertainty. Completely rebuilding the California health care system from a multi-payer system into a single payer, fee-for-service system would be an unprecedented change in a large health care market. There are numerous uncertainties about how enrollees, providers, employers, and the state would adapt to such a system. The projected costs and revenue needs for the proposed program are as follows:

• Total annual costs of about $400 billion per year, including all covered health care services and administrative costs, at full enrollment.
• Existing federal, state, and local funding of about $200 billion could be available to offset a portion of the total program cost.
• About $200 billion in additional tax revenues would be needed to pay for the remainder of the total program cost. Assuming that this cost was raised through a new payroll tax (with no cap on wages subject to the tax), the additional payroll tax rate would be about 15% of earned income.
• It is important to note that the overall cost of those new tax revenues would be offset to a large degree by reduced spending on health care coverage by employers and employees. Although precise estimates of total spending for employer sponsored health insurance are not available, the best available information indicates that existing spending is between $100 and $150 billion per year. Therefore, total new spending required under the bill would be between $50 and $100 billion per year.

SUPPORT: (Verified 5/24/17)

California Nurses Association/National Nurses United (source)

California Insurance Commissioner Dave Jones

13 Pages Progressive Alliance for Government Ethics and Sanity

28ers

9to5 Working Women

A New Path

Alameda Progressives

Albany City Council

Albany Democratic Club

Alliance of Californians for Community Empowerment Institute

Alliance San Diego

AM Green Construction

American Association of Community Psychiatrists

American Civil Liberties Union

American Federation of Musicians Local 47

AFSCME Council 57

AFSCME Retirees Chapter 36

Americans for Democratic Action, Southern California

Arbeter Ring/Workmen's Circle

Arlington Community Church

Art Between Us

Asian Pacific American Labor Alliance

Asian Pacific Environmental Network

Bagg Lady Handbags

Bay Area Chapter of Resource Generation

Bay Area Veterans of the Civil Rights Movement

Bay Rising

Bell Everman, Inc.

Bend the Arc

Berniecrats Labor Alliance Chartered Democratic Club of Yolo County

Biomech Incorporated

Breast Cancer Action

Business Alliance for a Healthy California

Butte County Health Care Coalition

Cabrillo College Federation of Teachers, AFT 4400

California Alliance for Retired Americans

California Association of Marriage and Family Therapists East Bay Chapter

California Capital Chapter of Physicians for a National Health Program

California Center for Rural Policy

California Council of Churches IMPACT

California Democratic Party State Central Committee San Gabriel Valley

California Domestic Workers Coalition

California Faculty Association - San Francisco State University Chapter

California Federation of Teachers, AFT, AFL-CIO

California Foundation for Independent Living Centers

California Health Professionals Student Alliance

California Healthy Nail Salon Collaborative

California Labor Federation, AFL-CIO

California National Organization for Women

California One Care

California Partnership

California Physicians Alliance

California Public Health Association-North

California School Employees Association

California Teachers Association

California Youth Empowerment Network

Californians United for a Responsible Budget

Campaign for a Healthy California

Caring Across Generations

Catalina’s List

Central Valley Indivisible

Central Valley-Sierra Progressives

CEO to CEO

Chinese Progressive Association

City and County of San Francisco

City Designworks

City of Berkeley

City of El Cerrito

City of Emeryville

City of Los Angeles

City of Oakland

City of Richmond

City of Richmond- Laurel Park Neighborhood Council

City of West Hollywood

Clergy & Laity United for Economic Justice

Clinica Romero

Code Pink

Communications Workers of American District 9

Community Health Councils

Concilio Latino of West Contra Costa County

Congresswoman Karen Bass

Consider the Homeless

Consumer Federation of California

Contra Costa AFL-CIO Labor Council

County of Marin Board of Supervisors

County of Nevada Board of Supervisors

County of San Clara Board of Supervisors

County of San Francisco Board of Supervisors

Courage Campaign

Courageous Resistance of Humboldt

CREDO Action

Cutting Edge Capital

Decus Biomedical

Dell Arte International

Democracy for America-Marin

Democratic Action Club of Chico

Democratic Club of Carlsbad-Oceanside

Democratic Club of Santa Maria Valley

Democratic Club of Southern Sonoma County

Democratic Party of Contra Costa

Democratic Party of Orange County

Democratic Socialists of America – Los Angeles

Democratic Socialists of America, Orange County Chapter

Democratic Socialists of America, San Francisco

Democratic Socialists of America, Ventura County Chapter

Democratic Women’s Club of San Diego County

Democratic Women's Coalition of Tuolumne County

Disability Action Center

Divine Feminine Yoga

Douglas L. Applegate Law Office

East Bay Democratic Socialists of America

East Bay Single Payer Coalition

East Contra Costa Democratic Club

Easter Hill United Methodist Church

Eastlake Bonita Center for Human Rights

Ecological Farming Association

El Cerrito Progressives

Elder Care Providers' Coalition

Elsdon Organizational Renewal

Empowered Investments

Encore

Far Leaves Tea

First They Came for the Homeless

For Grace

Forward Together

Fresno Economic Opportunities Commission

Friends Committee on Legislation

Giraud Photography, Inc.

Give Something Back Office Supplies

Glenview Area Groups for Action

Gray Panthers of San Francisco

Green Party of Alameda County

Green Party of Contra Costa County

Green Party of San Bernardino County

Green Party of Santa Clara County

Green Party of Yolo County

Haight Ashbury Neighborhood Council

Haiks German Autohaus

Hand in Hand

Harvey Milk LGBT Democratic Club

Health Care for All - Alameda County

Health Care for All - California 15 Chapters

Health Care for All - Contra Costa County

Health Care for All - Los Angeles Chapter

Health Care for All - Marin

Health Care for All - Nevada County Chapter

Health Care for All - Sacramento Valley Chapter

Health Care for All - San Fernando Valley Chapter

Health Care for All - San Gabriel Valley County

Health Care for All - Santa Barbara County Chapter

Health Care for All - Santa Clara County Chapter

Healthy California

Human Agenda

Humanist Society of Santa Barbara

Hunger Action Los Angeles

Independent Living Resource Center San Francisco

Indivisible Claremont

Indivisible East Contra Costa County

Indivisible Ladera

Indivisible Mader

Indivisible Orange County

Inland Coalition for Immigrant Justice

Inland Empire Immigrant Youth Collective

Inland Greens

International Longshore & Warehouse Union Southern California

J. Glynn & Company

Jane Thomas Press

Jobs with Justice San Francisco

Justice for All Ventura County

Justice for Palestinians

Kate Harris Consulting

KNA Copy Centre

Korean Community Center of the East Bay

Kramer Translations

La Jolla Democratic Club

Labor United for Universal Healthcare

Laguna Woods Democratic Club

Lake County Democratic Central Committee

Lamorinda Peace and Justice Group

Latina/Latino Roundtable

Latino Coalition for a Healthy California

Law & Mediation Office of Leslie A. Levy

Law Offices of Douglas L. Applegate

Lawyers for Good Government

League of Women Voters of California

Legal Services for Children

Lonely Liberals Indivisible of San Luis Obispo County

Long Beach Gray Panthers

Loving Way Midwifery

Low-Income Self Help Center

Lucille Design

Maddala Music

March and Rally Los Angeles

Martin Luther King Coalition of Greater Los Angeles

McGee-Spaulding Neighbors in Action

Media Alliance

Merced Collective Action Network

Mi Familia Vota

Mini-Vacation Massage

Mobilize the Immigrant Vote

Monkey Out, Voters In

Monkey Wrench Brigade

Mountain Bears Democratic Club

Mt. Diablo Peace and Justice Center

Multi-Faith ACTION Coalition

Musicians Union Local 6

National Association of Retired and Veteran Railway Employees

National Association of Social Workers

National Association of Social Workers-Fresno County

National Economic and Social Rights Initiative

National Union of Health Care Workers

Nevada County Democratic Women's Club

Nevada County Green Party

No Coal in Oakland

North Bay Jobs with Justice

Oakland Livable Wage Assembly

Oakley, California Mayor Sue Higgins

Occupy Torrance

One Page Plan

Organizacion en California de Lideres Campesinas, Inc.

Otis Chiropractic Neurology, Inc.

Our Developing World

Our Revolution

Our Revolution, Long Beach

Our Revolution, West San Fernando Valley

Pacific Palisades Democratic Club

Pacifica Social Justice

Painters & Allied Trades District Council 36

Peace and Freedom Party of California

People Power of Marina Del Ray

Peralta Retirees Organization

Physicians for a National Health Program CA

Pilipino Workers Center of Southern California

Pomona Valley Democratic Club

Poverty Matters

ProData Solutions

Progressive Action for Glendale

Progressive Asian Network for Action

Progressive Asset Management

Progressive Democrats of America - California

Progressive Democrats of America - Greater Palm Springs Area

Progressive Democrats of America - Lake County Chapter

Progressive Democrats of America - Orange County Chapter

Progressive Democrats of America - San Francisco Chapter

Progressive Democrats of America - Santa Monica Chapter

Progressive Democrats of America - Ventura County Chapter

Project Inform

Rancho Penasquitos Democratic Club

Resource Generation

Richmond Progressive Alliance

Riverside All of Us or None

Riverside County Young Democrats

Riverside Temple Beth El

San Francisco Berniecrats

San Francisco Green Party

San Francisco Labor Council

San Francisco Latino Democratic Club

San Joaquin Valley Democratic Club

San Jose Peace and Justice Center

San Mateo Central Labor Council

Santa Barbara Women's Political Committee

Santa Clara County Board of Supervisors

Santa Clara County Green Party San Francisco Berniecrats

Santa Cruz for Bernie

Santa Cruz Indivisible

Santa Rosa Democratic Club

School of the America Watch Los Angeles

Senior and Disability Action

Sierra Foothills Democratic Club

Sign Display and Allied Crafts Local Union No. 510

Silicon Valley Independent Living Center

SoCal 350 Climate Action

Social and Economic Justice Coalition

Social Justice Alliance of the Interfaith Council of Contra Costa

Sol2Economics

South Bay Labor Council

Steve Giraud Photography

Strike Debt

Sue's Hair Salon

Sunflower Alliance

TDA Investment Group

Tenants Together

The Democracy Project

The Latina/Latino Roundtable

The Refill Shop

Therapists for Single Payer

Together to End Solidarity Santa Cruz

Trout in Hand Productions

Tuolumne County Democratic Central Community

Tuolumne County Democratic Club

UFCW, Local 5

Unitarian Universalist Justice Ministry of California

United Democrats of El Dorado County

United Electrical, Radio, and Machine Workers of America Western Region

United Steelworkers, Local 2801

United Steelworkers, Local 675

UNITE-HERE, AFL-CIO

University Council American Federation of Teachers Local 1474

University Professional and Technical Employees, Local 9119

Uprise Campaigns

Veterans Democratic Club of LA County

Veterans for Peace, South Bay Chapter

Vision y Compromiso

Voices for Mothers and Others

Wellstone Democratic Renewal Club

Word Spark Writing & Editing

Yes We Can Democratic Club

Yolo MoveOn

Numerous individuals

OPPOSITION: (Verified 5/24/17)

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Insurance Companies

Association of California Life & Health Insurance Companies

Bay Area Council

BizFed, Los Angeles County Business Federation

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Business Roundtable

California Chamber of Commerce

California Farm Bureau Federation

California Framing Contractors Association

California League of Food Processors

California Manufacturers & Technology Association

California Medical Association

California Professional Association of Specialty Contractors

California Retailers Association

California Taxpayers Association

California Trucking Association

Camarillo Chamber of Commerce

El Centro Chamber of Commerce and Tourist Bureau

Fresno Chamber of Commerce

Greater Riverside Chambers of Commerce

Greater San Fernando Valley Chamber of Commerce

Health Net

Howard Jarvis Taxpayers Association

Independent Insurance Agents and Brokers of California

Kaiser Permanente

Long Beach Chamber of Commerce

Molina Healthcare

Murrieta Chamber of Commerce

National Association of Insurance and Financial Advisors of California

National Federation of Independent Business

North Orange County Chamber of Commerce

Oceanside Chamber of Commerce

Orange County Business Council

Oxnard Chamber of Commerce

Redondo Beach Chamber of Commerce and Tourist Bureau

Santa Maria Valley Chamber of Commerce

South Bay Association of Chambers of Commerce

Southwest California Legislative Council

Torrance Chamber of Commerce

Valley Industry and Commerce Association

Western Growers Association

Yuba-Sutter Chamber of Commerce

ARGUMENTS IN SUPPORT: This bill is sponsored by the California Nurses Association/National Nurses United and supported by numerous labor organizations, faith-based and consumer groups, certain businesses, and Democratic Party groups, who argue this bill provides publicly funded and progressively financed health care coverage for all California residents regardless of age, income, or immigration status, with no network restrictions, deductibles, co-pays, or other limitations on necessary care. Supporters argue health care is a human right, and the United States continually outspends other wealthy nations on per capita health care costs—some by more than double—while the quality of care and national health outcomes continue to fall behind. Californians as individuals, workers, families, businesses, and taxpayers are driven past their breaking point because of soaring health costs and lack of access. Supporters argue the experience of Medicare and of nearly every other industrialized country shows a single payer system is the most cost-effective and equitable way to provide quality health care as all residents are covered, and the system can eliminate wasteful spending and rein in skyrocketing prices. Supporters argue the Healthy California Act would provide the comprehensive and quality health care coverage that all Californians deserve and would ensure that insurance companies and the corporate ledger no longer determines the health and well-being of our state.

ARGUMENTS IN OPPOSITION: This bill is opposed by business and health insurance groups who argue this bill creates a single-payer government bureaucracy which would control and finance the state’s health care system and ultimately result in significant job loss to the state. Opponents argue California employers cannot sustain an added tax burden after the most recently enacted transportation tax package, that significant job loss will result from this bill, that California voters in 1996 previously rejected a single payer health measure, that single payer costs are unsustainable, and government-run health care is less efficient and effective. Other opponents argue the state has made important progress in implementation of the ACA, but this progress is in a precarious position due to Congressional “repeal and replace” proposals, and this is not an appropriate time to divide the health care and policy community against itself with a symbolic measure that could not be implemented even if it were passed.

Prepared by:

6/1/17 9:12:25

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 562 (Lara) - The Healthy California Act

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 25, 2017

Bill Summary:

SB 562 would create a universal, single-payer health care system in California.

Fiscal Impact:

The fiscal estimates below are subject to enormous uncertainty. Completely rebuilding the California health care system from a multi-payer system into a single payer, fee-for-service system would be an unprecedented change in a large health care market. There are numerous uncertainties about how enrollees, providers, employers, and the state would adapt to such a system.

The projected costs and revenue needs for the proposed Program are as follows. For a discussion of the underlying assumptions, see Staff Comments below.

• Total annual costs of about $400 billion per year, including all covered health care services and administrative costs, at full enrollment.
• Existing federal, state, and local funding of about $200 billion could be available to offset a portion of the total program cost.
• About $200 billion in additional tax revenues would be needed to pay for the remainder of the total program cost. Assuming that this cost was raised through a new payroll tax (with no cap on wages subject to the tax), the additional payroll tax rate would be about 15% of earned income.

It is important to note that the overall cost of those new tax revenues would be offset to a large degree by reduced spending on health care coverage by employers and employees. Although precise estimates of total spending for employer sponsored health insurance are not available, the best available information indicates that existing spending is between $100 and $150 billion per year. Therefore, total new spending required under the bill would be between $50 and $100 billion per year.

Author Amendments:

Make operation of the bill contingent on the availability of revenues to fund the implementation.

-- END --

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 562 (Lara) - The Healthy California Act

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 562 would create a universal, single-payer health care system in California.

Fiscal Impact:

The fiscal estimates below are subject to enormous uncertainty. Completely rebuilding the California health care system from a multi-payer system into a single payer, fee-for-service system would be an unprecedented change in a large health care market. There are numerous uncertainties about how enrollees, providers, employers, and the state would adapt to such a system.

The projected costs and revenue needs for the proposed Program are as follows. For a discussion of the underlying assumptions, see Staff Comments below.

• Total annual costs of about $400 billion per year, including all covered health care services and administrative costs, at full enrollment.
• Existing federal, state, and local funding of about $200 billion could be available to offset a portion of the total program cost.
• About $200 billion in additional tax revenues would be needed to pay for the remainder of the total program cost. Assuming that this cost was raised through a new payroll tax (with no cap on wages subject to the tax), the additional payroll tax rate would be about 15% of earned income.

It is important to note that the overall cost of those new tax revenues would be offset to a large degree by reduced spending on health care coverage by employers and employees. Although precise estimates of total spending for employer sponsored health insurance are not available, the best available information indicates that existing spending is between $100 and $150 billion per year. Therefore, total new spending required under the bill would be between $50 and $100 billion per year.

Background:

The health care system in the state is primarily based upon an employer-sponsored health insurance model (about 45% of the population), with a significant number of people covered by Medi-Cal (26%), Medicare (10%), the individual market (9%), and other federal coverage (2%). Currently, about 8% of the state’s population is uninsured.

Of the 3 million Californians under age 65 who are uninsured, about 1.8 million are undocumented adults (who are not eligible for Medi-Cal or subsidized coverage through Covered California),about 550,000 are individuals who are eligible for Medi-Cal, but not enrolled, about 400,000 are individuals who are eligible for subsidized coverage through Covered California, but not enrolled, and about 550,000 are individuals who are not income-eligible for subsidies through Covered California.

The delivery of health care services in the state varies widely. Some payers, such as Kaiser Permanente, operate fully integrated health maintenance organizations that accept financial risk from payers (typically private employers) and pay for all necessary health care services. On the other hand, most Medicare beneficiaries receive their health care services through a fee-for-service system in which enrolled providers bill Medicare for services provided with no financial risk to the provider and varying levels of care coordination between different providers. About 80% of individuals enrolled in Medi-Cal receive their health care from Medi-Cal managed care plans who bear most of the risk for enrollee health care costs, although the level of clinical integration varies between plans.

In the United States, health care spending represents about 19% of gross domestic product. This is roughly twice the average level of spending in other developed countries. Of the total spending on health care, 32% is for hospital care, 27% is for physician and other professional services, 13% is for prescription drugs, 7% is for health insurance administration, and 5% is for capital investment. It is important to note however, that a significant portion of the nation’s spending on prescription drugs (particularly high cost drugs) takes place in hospitals or physicians’ offices, and is therefore not counted in the estimated 13% of spending that goes for prescription drugs.

With regard to administrative costs, there are two important issues to note. First, the estimated cost of health insurance-related administration does not reflect the significant costs to providers to interact with health insurers. The costs to negotiate contracts with multiple payers and comply with differing administrative requirements are substantial. On the other hand, any health care system will have significant administrative costs, simply to manage enrollment and pay claims made by providers. For example, the administrative cost to operate the Medicare and Medi-Cal fee-for-service systems are about 6% per year. This is lower than the overall cost of health insurer administration, but still a substantial cost.

Proposed Law:

SB 562 would create a universal, single-payer health care system in California.

Key provisions of the bill would:

• Establish the Healthy California Program, to be overseen by an appointed Board;
• Authorize the Board to establish a single-payer health care system;
• Prohibit health insurers or health care service plans from providing coverage for any service covered by the Program;
• Require the Board to develop plans for providing coverage for long-term care services, coverage for retirees who move out of California, providing coverage for existing retirees, and including the existing workers compensation system within the Program;
• Authorize unspecified funding for retraining of workers in the health insurance industry who would no longer be employed under the bill;
• Require collection of certain information from hospitals (but not other providers);
• Make every resident of the state eligible for the Program;
• Prohibit any cost sharing for enrollees such as premiums, copayments, or deductibles;
• Require coverage for “all medical care determined to be medically appropriate by the member’s health care provider”;
• Also require coverage for all health care services covered by Medi-Cal, Medicare, health plans regulated under the Knox-Keene Act, and the essential health benefits mandated in the Affordable Care Act;
• Authorize any licensed health care provider to provide services to a member;
• Authorize members to receive health care services from any willing provider, without needing a referral from a primary care provider or a care coordinator;
• Require care coordination services to be provided to members;
• Prohibit care coordination administrative tracking and recordkeeping from requiring the utilization of electronic health records by providers;
• Require payments to providers to be made on a fee-for-service basis unless other payment methodologies are developed by the Board;
• Require all payments to be reasonable and reasonably related to the cost of providing health care services and to ensure an adequate supply of services;
• Authorize integrated health care delivery systems to choose to be compensated on a capitated or non-capitated system budget;
• Require the Program to negotiate payment rates with providers’ representatives;
• Prohibit payments to for-profit providers or care coordinators to compensate for profits, return on investments, or tax payments made by the provider or care coordinator;
• Require the Board to apply to the federal government for permission to include the participants and funding streams for Medicare, Medi-Cal, and Covered California in the Program;
• State legislative intent to develop a financing plan;
• Authorize providers to collectively negotiate payment rates with the Board.

Related Legislation:

There have been several bills introduced in recent years attempting to create a single-payer system in the state, including SB 810 (Leno, 2011), SB 180 (Leno, 2009), and SB 840 (Kuehl, 2007). None of those bills were enacted.

Staff Comments:

As noted above, this bill would require unprecedented changes to a mature health care system. Therefore, there is tremendous uncertainty in how such a system would be developed, how the transition to the new system would occur, and how participants in the new system would behave.

The following are some of the key underlying assumptions for the fiscal estimates above.

The system is a fee-for-service health care market. The bill would require all payment rates under the program to be “reasonable and reasonably related to the cost…” and require all payments to be made on a fee-for-service basis unless and until another payment methodology is adopted by the Board. While the bill would allow for other forms of payment, the basic requirement in the bill that payments be cost-based and requirements in the bill that patients are able to see any willing provider of services would make it difficult for the Board to create capitated payment systems that would work under those constraints.

Health care utilization levels and administrative costs are based on the existing Medi-Cal fee-for-service system. The state currently operates the Medi-Cal fee-for-service system which provides services to about 2.7 million people in the state, with a variety of beneficiary types served through fee-for-service. This analysis builds upon the costs and utilization for the Medi-Cal fee-for-service system (with adjustments). There are factors that make fee-for-service Medi-Cal an imperfect model for a state-wide single payer system. For example Medi-Cal beneficiaries, on average, tend to have lower health status than the general population. This would indicate that utilization of services may be lower for a state-wide program. On the other hand, low reimbursement rates in Medi-Cal are likely to constrain the ability for beneficiaries to access service, to some extent. On balance, using the Medi-Cal fee-for-service system as the base for modelling a single-payer system seems to be a reasonable assumption.

There is likely to be increased utilization of health care services over fee-for-service Medi-Cal. Under the bill, enrollee access to services would be largely unconstrained by utilization management tools commonly used by health care payers, including Medi-Cal. The ability for enrollees to see any willing provider, to receive any service deemed medically appropriate by a licensed provider, and the lack of cost sharing, in combination, would make it difficult for the Program to make use of utilization management tools such as drug formularies, prior authorization requirements, or other utilization management tools. Therefore, it is very likely that there would be increased utilization of health care services under this bill, compared to fee-for-service Medi-Cal, Medi-Cal managed care, or the current employer sponsored health insurance system. Therefore, this analysis assumes a 10% increase in health care service utilization over fee-for-service Medi-Cal. Given all the factors that would make utilization management difficult, a 10% utilization increase is likely a conservative assumption.

Provider rates are based upon the rates paid by Medicare. Medi-Cal fee-for-service rates are very low, compared to Medicare or commercial insurance reimbursement rates. Under current practice, providers such as physicians and hospitals rely on Medicare and commercial insurance to subsidize the cost to care for Medi-Cal patients. There seems to be consensus that Medicare rates are close to the cost of providing care. This analysis assumes that the Program would need to pay reimbursement rates close to Medicare rates to ensure continued access to services.

Most state residents are included in the program. The analysis assumes that the state is able to enroll most residents, including those currently covered under Medicare, Medi-Cal, coverage purchased through Covered California, employer sponsored insurance, and the uninsured population. This assumes that the state is successful in obtaining federal approval to enroll participants in federally authorized programs and employer-sponsored insurance regulated at the federal level. The analysis excludes certain federal health care programs for federal employees, military personnel, and veterans.

Most existing state and local funding sources for health care program are made available for the program. This reflects the assumption that the federal government would allow the state to combine federal funding sources with state resources to finance the program. In addition, it assumes that the necessary state law and constitutional changes are made to make most existing state and local funding for health care programs available to finance the program.

Costs are presented in 2017 dollars although full implementation would likely take many years.

The following are some of the key implementation issues the state would face in creating a single-payer system.

How long would it take for the state to implement the system? In order to effectively manage the single-payer system envisioned in the bill, the state would need to develop systems to track member enrollment, track provider enrollment, and pay claims to providers. Development of the information technology systems to perform those functions at the scale envisioned in this bill would be a substantial undertaking. For example, the state is in the process of preparing to replace the existing system for paying Medi-Cal fee-for-service claims (for about one tenth the enrollees that would be covered under the bill). That project was started in 2007. In 2016, the Department of Health Care Services severed its agreement with its contractor and is about to begin the process of procuring a new contractor to restart the project.

Because the bill would include coverage for Medicare and Medi-Cal enrollees, any claims processing system developed by the state would probably need to be able to track whether a member is eligible for either of those programs, in order to ensure that the state can access federal matching funds. (This would only be necessary if federal funding continued to be provided as matching funds for state funding.)

The costs to design, develop, and implement the information technology systems to facilitate the operation of the program alone are likely to be in the billions.

How would the state manage the transition? It would likely take many years to fully implement the system envisioned in the bill. It is difficult to foresee how health care markets would react as the operational date approaches. For example, would health insurers and health plans be able to retain enough employees or make necessary investments in their systems to remain viable up to the transition time? Also, as the prospect of comprehensive health care coverage with no cost sharing by members approaches, would young and health consumers drop their existing coverage, knowing that they would soon be able to receive services at no cost?

In the transition to a single-payer system, essentially all workers in the health insurance industry and many individuals who provide administrative support to providers would lose their jobs. The ability for a very large number of workers to successfully find new employment over the short-term is hard to predict. (Even with job retraining programs authorized in the bill.) Predicting the labor market effects the sudden elimination of a significant industry in the state is beyond the scope of this analysis.

Would the federal government cooperate? Under current law, the federal Centers for Medicare and Medicaid Services is authorized to waive certain requirements of the Social Security Act, which governs both Medicare and Medicaid. The federal governments grants “waivers” to a state so that the state can make innovative changes to is Medicaid program. Generally, a waiver must improve health care access or delivery and not increase the federal deficit over the waiver’s lifetime. Currently, the state has a number of waivers in place, governing many aspects of the Medi-Cal program. In theory, the federal government could give the state a waiver to allow the state to incorporate Medicare, Medi-Cal, and Covered California subsidies into a single state program, provided that it met the above requirements. However, there is nothing in federal law that requires a waiver to be granted to a state; it is completely discretionary for the federal government.

Many large employers in the state are self-insured, in that the employer retains the risk for the costs of providing health care to employees. Self-insured employers are regulated under the federal Employment Retirement Income Security Act (ERISA). About 3.7 million Californians receive health care coverage under ERISA plans that are not subject to state regulation. In order for the state to include those individuals in the Program, a change would likely be needed to federal law.

Implementation of the bill would require approval by the voters. There are several provisions of the state constitution that would prevent the Legislature from creating the single-payer system envisioned in the bill without voter approval.

Article XIII B (often referred to as the “Gann Limit”) constrains overall state spending growth based on population growth and inflation. Due to subsequent changes made by the voters, the Gann Limit has not fundamentally constrained state spending since the 1980s. However, the very large tax revenues that this bill would require (almost twice current General Fund revenue) would clearly exceed the Gann Limit. Therefore, to successfully implement the bill, the voters would need to amend the state constitution to either repeal the Gann Limit or exempt the taxes to fund the Program from the Gann Limit.

Article XVI, Section 8 (Proposition 98 of 1988) generally requires the state to make payments for K-14 education equal to about 50% of annual General Fund revenues. (The actual funding formulas for Proposition 98 are complex and vary from year to year based on economic conditions and state budgeting.) In the context of Proposition 98, the term “General Fund” revenue refers to state tax revenues, not simply revenues that are deposited in the state’s General Fund. Any taxes raised to support this bill would be considered the proceeds of taxes and would be subject to the requirements of Proposition 98. Since it would be infeasible to dedicate one-half of the new revenues for this program to education (or to raise twice the amount needed for the bill), the voters would need to exempt the tax revenues generated to fund this bill from the requirements of Proposition 98.

Article XIII, Section 36 (Proposition 30 of 2012) guarantees that certain tax revenues will be provided to counties to pay for services relating to public safety that were realigned to the counties in 2011. Included in the 2011 realignment is funding for certain mental health services and substance abuse services. In order for those funds to be available to contribute to the financing of the Program, the Constitution would need to be amended.

There would be limited ability for the state to control costs under the bill. In general, there are two ways to control health care spending – controlling utilization of services or controlling costs. In theory, having a single, statewide payer for health care services could create significant bargaining power for that payer to manage utilization and/or control costs. A single payer could be in a very strong negotiating position with health care providers such as doctors, hospitals, and drug manufacturers. However, the single-payer system envisioned in this bill strongly limits the state’s ability to control costs.

With respect to utilization of health care services – First, the bill would provide coverage for all medical care “determined to be medically appropriate by the member’s health care provider”. This broad language would allow health care providers to determine what services they are going to provide, without any ability for the Program to set standards or guidelines for providing services. This would seem to prohibit tools such as prior authorization requirements, drug formularies, or other utilization management tools. Second, the bill would make any licensed health care provider eligible to perform services, which means that the state could not use potential exclusion from the system as a means of negotiating favorable prices, as health insurers often do. Third, the bill would prohibit members from needing a referral before seeing a provider (such as a specialist). This would prevent the Program from ensuring that utilization of expensive specialty care is appropriate.

With respect to health care prices – The bill would constrain the Program’s ability to negotiate prices with providers, since it would require all payments to be reasonably related to the cost of providing care. Requiring providers to be paid based on their cost of providing care is likely to lead to increased inflation in costs, since providers would have little incentive to control costs through increased efficiency.

In addition, the ability to negotiate favorable prices for health care services does not necessarily mean that such authority would be used effectively. In practice, any attempt by the state to negotiate favorable prices would be strenuously resisted by health care providers and drug companies. The federal Medicare program is a case in point. Medicare is essentially a single-payer system with about 55 million enrollees. In theory, this should provide Medicare with significant power to bargain favorable prices for services. In practice, the rates that Medicare pays to providers are similar to those paid in the commercial market and are generally thought to correspond to the cost of providing care. Medicare has not been able to successfully use its bargaining power to “bend the cost curve” on health care prices. Further, federal law actually prohibits Medicare from using its bargaining power to secure favorable drug prices. A state-based single payer system would be subject to the same political constraints as Medicare. In addition, it is possible that the federal government would restrict the state’s ability to negotiate favorable drug prices, either as a condition of a waiver or through a federal law change.

Administrative cost savings would be real, but limited. Under a single payer system, the overall administrative cost of the system would likely be lower than it is in the current multi-payer system. In the United States, the cost of the health insurance industry is about 7% of total costs. In addition, providers, such as hospitals and physicians, incur significant administrative costs to negotiate contracts and comply with health insurer billing requirements. If we assume that the costs on the provider side are equal to the costs of the insurance industry, then current administrative costs are likely to be about 15% of total spending. Administrative costs in the Medi-Cal fee-for-service system and Medicare are about 6% of spending. Assuming that dealing with a single payer system reduced provider administrative costs by half, total administrative costs of the system in the bill would likely be about 9-10% of total spending. This does represent a significant savings in a $400 billion health care system. However, administrative savings are not likely to substantially lower the overall cost of providing health care in the state, compared to costs associated with expanding coverage to the uninsured and increased utilization of services under the bill.

How would Medicare and Medi-Cal funding be provided to the Program? If the federal government were to approve a state waiver request to include funding for Medicare and Medi-Cal into the Program, there are two primary ways that could be done, with myriad variations. The federal government could simply allow the state to provide coverage for those populations and draw down federal matching funds for services provided to those populations. This would represent the entire cost for Medicare beneficiaries and varying levels of federal matching funds for Medi-Cal beneficiaries based on their eligibility. This would represent a status quo in terms of payment systems, from the federal government’s perspective. It would have the advantage that the state would not need to accept any new risk for providing coverage for those populations, but it would require the state to develop an information technology system that could accurately track spending on those populations to receive federal matching funds.

Alternatively, the federal government could impose some sort of a “per capita funding” system or a “block grant” system, in which the state either received a fixed amount of funding for each enrolled individual or an overall amount of funding for the program. This would somewhat simplify the state’s administrative obligations. On the other hand, the state would likely face risk for increased in utilization levels or costs. Since no state has ever implemented a single-payer system, it is difficult to know what requirements the federal government would place on the state to allow Medicare and Medi-Cal to be included.

The economic impact from the necessary tax increases is unknown. This analysis assumes that the state would impose a roughly 15% payroll tax to finance the unfunded cost of the Program. Such a payroll tax would raise about $200 billion per year. Because the bill would relieve employers of the responsibility for providing employer sponsored insurance, employers would see a reduction in their costs. In the long-run, it is likely that employers would increase wages to employees, so that total compensation would be roughly equivalent to what it was when employers were paying for employee health benefits. How this would play out in reality would depend on the labor market dynamics in place at the time. For example, in a recession when unemployment is high, employers may be under less labor market pressure to pass cost savings along to employers. The opposite effect could be seen in a very competitive labor market.

Even after accounting for the fact that employers would see a reduction in their costs for providing employer-sponsored insurance, the bill would result in a significant overall increase in the cost of health care for employees. Under the staff estimates above, the gap between current employer spending on health insurance and the additional revenue needs under the bill would be between $50 and $100 billion per year. The cost of that funding gap would fall on employees under a payroll tax. That means that between 25% and 50% of the payroll tax revenues would represent a new tax on employees, not likely to be offset by higher wages. The state-wide economic impacts of such an overall tax increase on employment is beyond the scope of this analysis.

-- END --

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 562

SUBJECT: The Healthy California Act

SUMMARY:

Enacts the Healthy California program, which is required to provide comprehensive universal single-payer health care coverage system for all California residents.

Existing law:

1. Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), under which low income individuals are eligible for medical coverage. Medi-Cal provides coverage to adults and parents with incomes up to 138% of the federal poverty level (FPL) who are under age 65, and to children with incomes up to 266% of the FPL. Undocumented children receive full scope Medi-Cal coverage, while undocumented adults receive limited scope services under Medi-Cal (primarily emergency only).
   
2. Provides federal funds to states to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children through the Children’s Health Insurance Program (CHIP). The program is funded jointly by states and the federal government. CHIP is a capped program and each state is provided an annual CHIP allotment. CHIP is authorized under federal law until September 30, 2017.
   
3. Requires, under the Patient Protection and Affordable Care Act (ACA, Public Law 111-148), as amended by the Health Care Education and Reconciliation Act of 2010 (Public Law 111-152), each state, by January 1, 2014, to establish an American Health Benefit Exchange that makes qualified health plans (QHPs) available to qualified individuals and qualified employers. Requires, if a state does not establish an Exchange, the federal government to administer the Exchange. Establishes requirements for the Exchange and for QHPs participating in the Exchange, and defines who is eligible to purchase coverage in the Exchange. Limits enrollment in the Exchanges to citizens or nationals of the United States, or aliens lawfully present in the United States.
   
4. Allows, under the ACA and effective January 1, 2014, eligible individual taxpayers, whose household income is between 100% and 400% of the FPL, an advanceable and refundable premium tax credit (APTC) to use for coverage under a QHP offered in the Exchange. Requires a reduction in cost-sharing for individuals with incomes below 250% of the FPL. Legal immigrants with household incomes less than 100% of the FPL who are ineligible for Medicaid because of their immigration status are also eligible for the APTC and the cost-sharing reductions. Undocumented individuals and incarcerated individuals are ineligible to purchase coverage in Exchanges.
   
5. Authorizes, under Section 1332 of the ACA, waivers for state innovation under which states can seek federal approval to waive major provisions of the ACA, including the requirement for Exchanges, QHPs, premium tax credits and cost-sharing reductions, the individual mandate and the employer responsibility requirement, provided federal requirements for comprehensive benefits, affordability, and comparable coverage are met and the state proposal does not increase the federal deficit.
   
6. Establishes, pursuant to federal law, the Medicare program, which provides coverage for seniors and certain persons with disabilities. Medicare is funded by payroll taxes, premiums paid by individuals who enroll in various “parts” of Medicare (Part A is hospital services, Part B is medical services, Part C is Medicare Advantage plans, and Part D is prescription drug coverage) and general revenue. Authorizes the federal Secretary of the Department of Health and Human Services, to develop and engage in experiments and demonstration projects for specified purposes, either directly or through grants to public or private agencies, institutions, and organizations or contracts with public or private agencies, institutions, and organizations.
   
7. Creates within the Centers for Medicare & Medicaid Services a Center for Medicare and Medicaid Innovation (CMI), the purpose of which is to test innovative payment and service delivery models to reduce program expenditures under the Medicare and Medicaid while preserving or enhancing the quality of care furnished to individuals under those programs.

This bill:

1. Healthy California purpose and governance

Establishes the Health California program in state government as an independent public entity not affiliated with an agency or department. Requires the Healthy California program to provide comprehensive universal single-payer health care coverage and a health care cost control system for the benefit of all residents of the state. Requires Healthy California to be governed by an unpaid (except for per diem) executive board consisting of nine members appointed by Legislature (4) and Governor (5). Four members have to be from the following: a labor organization representing nurses, the general public, a labor organization, and the medical provider community. Requires each person appointed to the board to have demonstrated and acknowledged expertise in health care.

Requires each board member to have the responsibility and duty to meet the requirements of this bill, the ACA, and all applicable state and federal laws and regulations, to serve the public interest of the individuals, employers, and taxpayers seeking health care coverage through the program, and to ensure the operational well-being and fiscal solvency of the program. Requires appointing authorities to take into consideration the cultural, ethnic, and geographical diversity of the state so that the board’s composition reflects the communities of California.

Requires a California Health and Human Services Agency-appointed 22 member public advisory committee. Requires the board to have all powers and duties necessary to establish and implement Healthy California. Requires the board to provide grants to health planning agencies, and requires the board to provide funds for retraining and assisting job transition for individuals in health and insurance-related fields whose jobs may be or have been ended as a result of Healthy California implementation. Requires the board to provide for the collection and availability of specific hospital-related and health information technology-related data to promote transparency, assess patient adherence, compare patient outcomes, and review utilization.

1. Eligibility for Healthy California
   

Makes every resident of the state eligible and entitled to enroll. “Resident” is defined as an individual whose primary place of abode is in the state, without regard to the individual’s immigration status.

1. Enrollee premiums in Healthy California

Prohibits members from Healthy California from being required to pay any premium.

1. Enrollee cost-sharing in Healthy California

Prohibits members from being required to pay any co-payment, co-insurance, deductible and any other form of cost-sharing for all covered benefits.

1. Enrollee benefits in Healthy California

Requires all medical care determined to be medically appropriate by the members’ health care provider. Includes a broad benefit package, including all services covered by Medi-Cal, Medicare, the essential health benefits, and all health plan/insurance mandated benefits. Benefits required include chiropractic, vision, dental, ancillary health or social services previously covered by a regional center, skilled nursing facility care, and therapies shown by the National Institutes of Health, National Center for Complementary and Integrative Health to be safe and effective. Permits Healthy California to offer retiree benefits on a voluntary basis.

1. Choice of health care providers in Healthy California

Permits a member to choose to receive health care services from any participating provider, subject to the willingness and availability of the provider, and the appropriate clinically relevant circumstances. Per 7) below, providers generally have to be in California and be California-licensed.

1. Providers eligible to participate in health care providers under Healthy California

Permits any health care provider licensed to practice in California who is otherwise in good standing to be qualified to participate in Healthy California, so long as the provider’s services are performed within the state of California. The Healthy California board is required to establish and maintain procedures and standards for recognizing health care providers located out-of-state for purpose of providing health care coverage for members who require out-of-state health care services while the member is temporarily located out-of-state.

1. Health care providers reimbursement in Healthy California

Requires the Healthy California board to adopt regulations regarding contracting for, and establishing payment methodologies for, covered health care services and care coordination provided to members under Healthy California by participating providers, care coordinators, and health care organizations. Permits a variety of different payment methodologies, including those established on a demonstration basis. Requires all payment rates under the program to be reasonable and reasonably related to the cost of efficiently providing the health care service and ensuring an adequate and accessible supply of health care services. Requires health care services provided to members under the program, except for care coordination, to be paid for on a fee-for-service basis unless and until another payment methodology is established by the Healthy California board.

1. Funding for Healthy California

Intent language on broad-based revenue, and intent for the state to work to obtain approval and other approvals so that Medicaid, Medicare, ACA and other federal funds and subsidies paid by the federal government that would otherwise be paid to the State of California, Californians and health care providers would be deposited in the Healthy California Trust Fund.

The bill requires the Healthy California board to apply to the federal Secretary of Health and Human Services or other appropriate federal official for all waivers of requirements, and make other arrangements, under Medicare, any federally matched public health program, the ACA, and any other federal programs that provide federal funds for payment for health care services that are necessary to enable all Healthy California members to receive all benefits under the Healthy California program through the program, to enable the state to implement this bill, and to allow the state to receive and deposit all federal payments under those programs, including funds that may be provided in lieu of premium tax credits, cost-sharing subsidies, and small business tax credits, in the State Treasury to the credit of the Healthy California Trust Fund, and to use those funds for the Healthy California program.

Requires all moneys in the Fund to be continuously appropriated without regard to fiscal year for the purposes of this bill, and any moneys in the fund that are unexpended or unencumbered at the end of a fiscal year is authorized to be carried forward to the next succeeding fiscal year.

1. Care Coordination in Healthy California

Requires care coordination to be provided to members, defined to include administrative tracking and medical recordkeeping services, specifies the individual and entities that can be care coordinators, and allows reimbursement to a health care provider only if the member is enrolled with a care coordinator. Requires the Healthy California board to develop and implement procedures and standards by regulation for an individual or entity to be approved as a care coordinator.

1. Role of private health insurance under Healthy California

Prohibits health plans and insurers from offering benefits or services for which coverage is offered under the Healthy California program. Continues to allow plan/insurers to offer benefits to cover health care services that are not offered to individuals under the program, including to non-residents and during the implementation period.

1. Program standards in Healthy California

Requires Healthy California to establish a single standard of safe, therapeutic care for all residents of the state.

Requires the board to establish requirements and standards, by regulation, for the program and for health care organizations, care coordinators, and health care providers, consistent with this bill and consistent with the applicable professional practice and licensure standards of health care providers and health care professionals established pursuant to the Business and Professions Code, the Health and Safety Code, the Insurance Code, and the Welfare and Institutions Code, including specified requirements and standards established by this bill.