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HEALTH INSURANCE
PROGRAMSBROWSE TOPICSABOUT CHCFMY PROFILE
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This review of SB 840 examines the bill as written on 7/12/05. "Features" provides a synopsis of the legislation and "Assessment" applies a Framework analysis to the bill. General approach. Senate Bill 840 would establish a single-payer health insurance system for California. A new government-administered system would replace all private health insurers and existing government insurance programs, including Medicare. An elected Health Insurance Commissioner would oversee all aspects of the new system, including contracts with health care providers, the allocation of health care workforce and capital equipment, and the introduction of new technologies. Eligibility and benefits. All residents of California—defined as those with a physical presence in the state with intent to reside—would automatically be covered under the system. The benefit package would be very comprehensive, including not only the usual range of inpatient and outpatient services, diagnostic and laboratory services, and prescription drugs, but also mental health services, dental and vision care, chiropractic services, adult day care, and 100 days of skilled nursing care following hospitalization. Long-term care would not be covered. Copayments and deductibles could be established for other than preventive care. Patients could choose to receive services from any willing provider and providers would determine what services are medically necessary. Each person would have a primary care physician responsible for approving care to be received from specialists. People could choose to enroll with an integrated health care system, which would be responsible for all their care. Administration. The health insurance commissioner, elected to eight-year terms, would be independent and have very broad powers, assisted by a Health Insurance Policy Board, which would help to set system goals and priorities and determine the scope of services provided. A number of other new agencies and offices would also be established, including a public advisory committee, an office of consumer advocacy, offices of health care planning and quality, a technology advisory committee, a chief medical officer, and an officer of the Inspector General with broad powers to protect against financial misconduct. The commissioner would have major responsibility for controlling total expenditures and allocating resources. He or she would annually set a total health system budget as well as regional budgets, taking into account growth in state gross domestic product, demographic factors, technological change, etc. The commissioner would use the state's purchasing power to negotiate for provider services and would implement cost controls to ensure that the system remains financially viable. The state would acquire drugs and medical devices on a bulk-purchasing basis. Cost control measures would include making decisions about which new technologies would be introduced, setting limits on health provider reimbursement rates, and requiring changes in the delivery system to improve efficiency and quality. The commissioner would negotiate payment rates with providers, but if agreements were not reached within a specified time, the commissioner would set binding rates. System administrative costs would be legally limited, initially to 10% and later to 5%. If the system experienced a revenue shortfall, benefits could be temporarily reduced. The commissioner would also be responsible for establishing evidence-based standards to guide the delivery of care, creating a formulary for prescription drug and medical equipment, and implementing advanced electronic technology for maintaining medical records, payment administration, etc. Regionalization. Although the commissioner would have overall responsibility for guiding the system, up to ten regional health insurance systems would be established to decentralize some activities. The regional entities would be responsible for assessing local health care conditions and needs and establishing plans and budgets to meet those needs. Financing. The bill does not identify a primary source of funding. However, the expectation is that all of the funds that support California public programs at the state, county, and federal level—including Medi-Cal, Healthy Families, and Medicare—would be redirected to the Health Insurance Fund. In addition, an attempt would be made to recover a portion of the money that was transferred to California foundations when nonprofit health plans converted to for-profit status, specifically any portion that is spent to provide patient care services. A companion bill, SB 1784, has been introduced to address financing, but the February 24, 2006, version lacks specifics. According to the sponsor's staff, additional details will be provided in the coming months. Coverage. This approach ensures universal coverage for all people in California who intend to reside there, including undocumented immigrants. Benefits. The benefit package is very comprehensive, including dental, vision, chiropractic, and mental health services but excluding long-term care. Consumer cost sharing would be permitted. Quality of care. Because the state, in essence, would be the only buyer of medical services for the standard benefit package, the state would have access to extensive, uniform encounter data that would have the potential to be used to detect quality problems and develop solutions. The Commissioner would be charged with the responsibility to assess performance, to hold providers accountable, and to institute changes to improve quality. Integration and coordination of care. Whether this approach would encourage integration of care would depend upon how many people choose to join multi-specialty, prepaid group practice plans rather than selecting a fee-for-service option. Portability of coverage and continuity of care. Problems related to portability virtually disappear under this approach since all residents would be covered under the same system all the time. Changes in marital status, job status, geographic location within the state, etc., would not require any change in coverage. Continuity of care should be very great because people could choose any provider participating in the system and because virtually no providers could afford to stay outside the system. Changes in individual circumstances except for moving into a different geographic area should not require a change in providers. Resource and real costs. Newly insured people, as well as those who are now underinsured, would consume substantially more medical resources than they do now, which would add to real costs. But, of course, this is the logical result of the desired policy. Real costs could increase for other reasons. If many people now in prepaid, integrated plans were to switch to the fee-for-service option, costs could rise. Integrated plans are generally thought to be more efficient; fee-for-service payment is generally thought to encourage providers to prescribe more services. The consumer cost-sharing provisions should partially offset this tendency, however. Another potential source of cost increases would be an influx from other states of people who need expensive medical care but lack good insurance coverage. To a degree, California is protected more than other states from in-migration of unhealthy people because it is not bordered by states with large population concentrations close to California's borders, which would make moving to California much easier. In addition, the cost of living is such that many people would not be able to easily relocate to the state. Nevertheless, there would be a temptation for people with chronic diseases or other needs for expensive medical services to move to the state to become eligible for coverage under the single-payer plan. While it might be possible to impose some residency restrictions to limit eligibility—as is done for people seeking in-state tuition rates at California's universities—the administrative and enforcement problems could be imposing. The proposed legislation requires the Commissioner to address this problem. Other aspects of the reform would reduce real resource costs. Many of the administrative economies that the single payer system would produce, as described below, would be reflected in real resource cost reductions. This conclusion is based on the evidence that shows that administrative costs for the Medicare program are substantially lower than those for even large firms that offer health coverage and much lower than the administrative costs associated with providing coverage for small employers and individuals. In addition, the large amount of administrative duplication that is a result of having many different insurance companies would be eliminated, as would all the functions around medical underwriting, determining eligibility, collecting premiums, coordination of benefits, etc. Providers would also realize real resource savings by not having to deal with multiple payers. The sum of these savings should be quite large. The extensive cost containment elements of the plan, outlined below, should also produce significant savings over time. (The bill's sponsor asserts, based on a study by The Lewin Group, that implementation would be possible without any net increase in total health care spending.) Cost containment. This bill contains many elements to control costs. A global budget places a constraint on total spending, and various sub-global budgets apply to geographic regions and other cost elements. The Commissioner, regional planning directors, and various entities within the system are responsible for ensuring that budgets, which cover a three-year period, are not exceeded. New capital expenditures would be controlled through the Commissioner and regional planning directors. The Commissioner would set or negotiate payment rates for providers and use the state's purchasing power to "achieve the lowest possible prices" for pharmaceuticals and durable medical equipment. Facility performance would be monitored, and the Commissioner could take actions to correct deficient practices. Administrative costs for the new system are limited by law, initially to 10% and later to 5%. Appropriate ratios of primary care physicians to specialists would be established, and incentives would be put in place to achieve those ratios. The Commissioner could also temporarily adjust benefits and lower provider reimbursement if a revenue shortfall is expected. Budgetary cost. This single-payer approach would cause a very large increase in the state's budget because nearly all the costs currently financed by private sources—except out-of-pocket cost sharing—would be shifted to state government. What were private household and employer premiums would now be financed through government. In addition, people currently covered through Medicare would be covered by the state, and the funding would go through the state budget. And, of course, many more people would be covered, which would also raise the total budgetary cost. (The bill says little about how the budgetary expense would be funded. A companion funding bill has been introduced as placeholder; it is not complete at this point.) Ease of implementation and departure from the status quo. This approach represents a very large departure from the status quo. Existing insurers (except for integrated plans with which the state would choose to contract), insurance agents and brokers, third-party intermediaries, and most of the businesses and the individuals associated with the sale and administration of insurance and employer-sponsored plans would have a greatly reduced role or no role at all in the new system. The state might contract with some of these business entities to administer parts of the new program, just as Medicare depends upon fiscal intermediaries for administration. Most if not all employers would choose to get entirely out of the business of providing health insurance. While this would relieve employers of burdens that many find onerous, it would affect the administrative and employment structures of these firms, which would be somewhat disruptive, especially for the individual workers whose jobs would be eliminated. Counties' responsibilities would be reduced, since they would no longer serve as administrative entities for Medi-Cal eligibility, nor would they provide as many services directly. Some jobs would be lost in the public sector: state employees working within the Medi-Cal and Healthy Families programs would have to find new jobs. New government jobs would be created under the Commissioner and the regional planning authorities. The state would have to establish extensive new machinery to administer the program. The Commissioner and the regional planning authorities would have to perform many entirely new, complex functions. Negotiating with the federal government to contribute to the plan in lieu of the federal matching amount for Medicare, Medi-Cal, and SCHIP would probably be a difficult process, and an outcome favorable to the state is not assured. Ongoing administrative costs. Once this program was underway, the ongoing administrative costs should be quite low, probably comparable to those experienced under Medicare. Administrative costs for providers should be reduced because they would be dealing with only one payer and one set of administrative requirements. Households would also be relieved of the considerable administrative burdens associated with dealing with multiple insurers, filing claims, changing carriers when they change jobs, etc. The system would be much less complex to navigate. Locus of control and accountability. The Commissioner has very broad powers and extensive responsibilities and is thus ultimately accountable for the system's performance and with the power to hold others accountable as well. The potential for holding providers accountable is great because the state would be collecting uniform data on virtually all provider encounters. Such a vast data source would make it possible to detect outlier practice behavior, both in terms of quality problems and inefficient use of resources. It is less clear how the state, as essentially the only buyer of provider services, would be held accountable to ensure that it was using its power in an appropriate way. Mechanisms to provide oversight for state activities would be desirable. Accountability for cost control rests directly with the Commissioner. If costs rise more rapidly than the rate at which the state economy grows, the Commissioner would have to take actions, which would be very visible and probably controversial. In some ways, this makes the problem of health care cost escalation highly visible to the public and makes it more likely that the alternatives for controlling costs would be seriously considered and debated and that the response would reflect some public consensus. The present mixed public and private financing arrangement makes it easier for people to overlook the critical need to find fair and rational ways to limit utilization of scarce resources. Access to coverage and subsidies. By generally accepted standards of fairness, this approach rates high. It achieves universal coverage on a uniform basis for everyone. Income is no barrier to receiving care. Financing of costs. It is not possible to assess the equity of the financing arrangements because they are not specified. Sharing of risks. This approach represents the broadest possible sharing of risk because everyone is in a single pool and because contribution to funding (from whatever source is eventually identified) does not relate in any way to risk. The risk is spread across all who pay to finance the program. In other words, this is social insurance. Consumer choice. Because anyone can choose the fee-for-service option, choice of providers is unlimited. Consumers can instead opt to enroll in integrated health plans. Their choice of plans would be limited to those that the state chooses to contract with. Because of a need to limit costs, the state would impose controls on the acquisition of new equipment and facilities. Presumably efforts would focus on limiting acquisitions of expensive technologies and avoiding excess capacity of costly equipment and facilities. This could result in consumers' having less freedom to consume the medical resources they might otherwise choose, or they might have to wait a bit longer to get access to some technologies. Provider autonomy. All providers would be subject to negotiated or set fees for all of their patients, so they would have less control over payment rates than they do now. The Commission has responsibility to ensure that money is spent in a cost-effective way and to promote best quality practices. It seems likely, therefore, that the new system would put pressure on providers to adopt accepted practice guidelines and to practice in a cost-effective way, and the authorities would have the data to detect anomalous practices and take steps to correct deficiencies. Compulsion and government regulation. By most people's standards, this approach embodies a high degree of compulsion. Although everyone is automatically covered—so that technically speaking there is no individual mandate to buy coverage—everyone has to pay for this coverage in one way or another through some kinds of taxes. People with relatively low health risks (and the employers that hire them) can no longer gain any financial advantage by paying lower premiums. Many insurers and associated businesses would be forced out of business. Government oversight and monitoring of health care financing and the quality of care would replace private oversight and monitoring. Providers would have substantially less autonomy than they do now. As the single buyer of health care, state government would have great market power, although subject ultimately to the check that the Commissioner is elected. The single-payer approach achieves universal coverage; greatly reduces ongoing administrative burdens and costs; is highly equitable in terms of treating equals equally; and produces the broadest possible sharing of risk. The trade-offs are that it has a very high budgetary cost because it covers everybody; it substitutes public dollars for financing now financed privately; and it involves a major departure from the status quo—by eliminating most private insurers—and a large extension of government authority and control. From hospitals' standpoint, the approach eliminates problems related to uncompensated care and the complexity of dealing with many payers, but it limits their autonomy with respect to payments rates and capital investment and subjects them to additional regulation regarding data reporting.
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