Canadianizing the Golden State

California marches backward on health care

A plan to outlaw private health insurance in California has been proposed by state Sen. Sheila Kuehl (D-Los Angeles). Senator Kuehl's bill, SB840, proposes to create the California Health Insurance Agency, a state government run single payer system for financing the health care of all Californians. Her bill, if enacted, would abolish all private health insurance in the Golden State. Her legislation essentially aims to replicate the system of socialized medicine in Canada which, until a recent court ruling in Quebec, made all private health care illegal. Her health care proposal is more authoritarian than the health care systems in the United Kingdom or Germany in which citizens can buy private insurance if they so choose.

Remarkably, Kuehl's proposal to socialize California's health care is being made just at the time when the Canadian system it resembles is falling apart at the seams. For instance, Canada's single payer system is projected to absorb more than half the budgets of most Canadian provinces. In addition, the amount of time a Canadian patient must wait before receiving medical care is notorious. "This is a country in which dogs can get a hip replacement in under a week and in which humans can wait two to three years," said Dr. Brian Day in a recent New York Times article on Canada's health care crisis.

Kuehl flatly denies that her plan is "government-run health care." She prefers to style it as "a publicly administered finance system." Of course, as the old saying goes: "He who pays the piper, calls the tune." In this case, the new California Health Insurance Agency (CHIA) will be paying, and thus every health care provider and patient in the state would have to dance to its tune.

Kuehl maintains that her government single payer health insurance system will cover all Californians including the one-fifth who are uninsured now and be cheaper at the same time. How? In order to control rising health care costs, Kuehl's plan pegs annual growth in health spending to growth in California's economy. But is that the right amount of spending? In fact, we know that as people earn more, they generally choose to spend higher percentages of their incomes on health care. For instance, economic studies show that for every one percent increase income, families generally prefer to increase their spending on health care by 1.6 percent.

Let's consider a simplified example of how Kuehl's plan would lead to less spending on health care than most Californians would like. Take the California median household income of $50,000 and assume that each household spends an average of 20 percent, or $10,000, on health insurance and out-of-pocket medical expenses each year. Then let's assume that California's economy continues to grow and that median family income climbs to $80,000.

If economists are right, this means that California families on average would prefer to spend $19,600 annually on health care. In other words, people would rather buy health care than the biggest houses or fastest cars that they could afford with a higher income. However, under Kuehl's proposal to fix health care spending at the growth rate of the economy, California health insurance bureaucrats would allocate only an average of $16,000 per year to each family. And since it would be illegal for California families to buy supplemental private insurance, they would be getting much less access to doctors and modern treatments than they would prefer.

Like all politicians Kuehl promises voters all good things. For example, she vows that under CHIA, "You will choose your own doctor and you and your provider, not insurance agents, will decide your care. All needed services, drugs, hospital stays, therapies, and medical equipment will be covered."

Looking at the fine print, you find that Kuehl's government-run single payer system will be cheaper because it will actually ration health care. In other words, decisions about what treatments will be available to Californians and when they will become available will be in the hands of government health care bureaucrats. Just like the Canadian socialized health care system, the new California Health Insurance Agency will determine how much it will pay pharmaceutical companies for new more effective medicines. This means that Californians, like Canadians today, will wait a long time, possibly forever, to get access to modern therapies. In 2002, Sally Pipes, head of the Pacific Research Institute, a free-market think tank in San Francisco noted,, "One hundred new drugs were launched in the United States from 1997 through 1999. Only 43 made it to market in Canada in that same period. Canadians are still waiting for many of them."

California health bureaucrats will also set doctors' fees. Kuehl likens her plan to the Federal government's Medicare system for seniors. She overlooks the fact that physicians are fleeing Medicare in droves because the program doesn't adequately reimburse them. Doctors are like anybody else; they work less when they get paid less. If Kuehl's system is adopted, you will eventually see waiting lines lengthening and doctors treating fewer and fewer patients. California doctors and other health care workers will leave for other states where they are better compensated, and few new doctors, nurses and other personnel will be attracted to California. Another side effect will be that many of California's innovative biotech companies will relocate to friendlier business environments.

Kuehl plans to finance the California Health Insurance Agency through a dedicated payroll tax in which employers would pay 8.2 percent and workers would pay 3.8 percent. And when the system runs short of money, as it inevitably will, the new health bureaucracy will impose cost control measures that include the "postponement of introduction of new benefits or benefit improvements; a temporary decrease in benefits; a postponement of planned capital expenditures, and limitations on aggregate reimbursements to manufacturers of pharmaceutical and durable and nondurable medical equipment." Translation: California health care bureaucrats, not doctors or patients, will be deciding what new treatments will be offered; what new hospitals and laboratories will be built; and what new drugs and new biomedical technologies will be permitted in the state.

Today, as the Canadian health care system implodes, more and more Canadians are seeking private medical care across the border in the United States. Within a decade after Kuehl's single payer system has been adopted, I predict that many Californians will similarly be fleeing across the border into Arizona and Nevada looking for modern private medical care in state-of-the-art hospitals and clinics.