California Scheming

A referendum on single-payer health care

Michael W. Lynch & Steven Hayward from the August/September 1994 issue

(Page 2 of 2)

Other indicators of anti-private bias are more explicit. Any person employed by a for-profit health-care entity or insurance company (or any person with a family member who works for such an entity) is ineligible to serve on any of the advisory boards created by the initiative.

Finally, the initiative prescribes that for-profit health-care providers "shall have their profits restricted to a fair rate of return to be negotiated with the commissioner and are subject to the same restrictions on capital expansion that apply to all other health facilities." In other words, private, for-profit health providers will be transformed into public utilities.

The fiscal linchpin of the California initiative is a payroll tax. The proposed payroll tax, which would operate on a progressive scale of 4.4 percent for firms with fewer than 10 employees, 6 percent for firms with 10 to 24 employees, 7 percent for firms with 24 to 49 employees, and 8.9 percent for firms with more than 50 employees, would raise about $40 billion a year in new revenue.

The proponents argue that most companies will pay less in payroll tax than they spend currently for health insurance, though data from the U.S. Department of Commerce suggest the average cost of employer-provided health insurance in California is 7.5 percent of payroll, less than the 8.9-percent rate that larger companies would pay.

But even if the proponents are right that the payroll tax would cost less than existing private health insurance, it would still be a job killer. First, for the 15 percent of California employers who do not currently provide health insurance, the system would impose an absolute tax increase. Many of these jobs are entry-level positions (especially restaurant jobs) with per-employee operating margins less than the payroll tax rate. These jobs would tend to disappear entirely, or go underground.

Second, there is no exemption or threshold for part-time employees. So the payroll tax will be a significant barrier to part-time employment opportunities, especially within small companies that will be reluctant to add the next employee who will bump them into the higher payroll-tax bracket.

The initiative supposedly guarantees that rationing of health services will not take place and that the health system budget will grow each year only at the rate of inflation and population growth. When expenditures begin to exceed the budget, "mandatory cost controls" kick in, at which time "the Commissioner may request that the Legislature increase appropriations for the Health Security System." At this point, the health commissioner may begin to "establish restrictions or co-payments on elective services."

Nearly every page of the initiative's text offers an eye-popping or budget-busting feature of one kind or another. Benefits include long-term care and free prescription drugs. Doctors and other health-care workers are encouraged, and may eventually be compelled, to unionize and engage in collective bargaining with the health commissioner.

So what are the prospects for such an initiative? California voters seem increasingly suspicious of complicated initiatives. Two years ago, California voters rejected by a 2-to-1 margin a far milder "pay or play" initiative that would have required all employers to provide health insurance to full-time employees or pay a payroll tax to a state-run system. That measure was backed by the formidable California Medical Association, which for the moment is sitting out the single-payer initiative.

While national polls have shown more than 30 percent in favor of the single-payer concept, more-recent national surveys, such as a Gallup poll and a Los Angeles Times poll (both conducted in mid-April) report a majority against a "government-run" health system. An early poll emphasizing the tax-increase features of the California initiative found that 65 percent of voters reject the single-payer idea, with only 26 percent in support. "This is as close to `dead on arrival' as a proposition gets," said Robert Nelson, the Republican-oriented Sacramento political consultant who conducted the poll. "It will only get worse once voters really focus on how much it will cost them."

Perhaps. But unlike the "pay or play" initiative, the proponents of the single-payer plan have targeted one of the most unpopular interests in California: insurance companies. There is some precedent for the success of such a strategy. In 1988, a Ralph Nader-inspired grass-roots campaign defeated several well-funded insurance-industry initiatives with the simple slogan, "Another insurance company trick," and passed a monstrous measure, Proposition 103, that created an elected insurance commissioner and attempted to roll back insurance prices by decree.

The single-payer initiative is an attempt at a rerun of Prop. 103. A large infusion of labor-union cash might turn it into a close contest. By the same token, a big loss for the initiative would likely be a major setback for a single-payer system on the national level.

But would a loss also be a setback for other health-care reforms, such as the Clinton or Cooper plans? Or would these become the "moderate" fallback positions? The question that will be raised in the campaign to come is whether the usual sound bites about higher taxes and massive bureaucracy will lead voters to ponder how the supposedly more reasonable reforms will do the same thing, and whether such a controversy has any prospect of awakening among the public an awareness that even for the mysterious world of health care, re-establishing the proper market signals is the right fix.

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