State-Run Single-Payer Health Care Would Be Prohibitively Expensive—and Possibly Illegal
Would the Trump administration give states permission to pursue government-run health care? That's what California and New York would need.
State lawmakers in California and New York voted this year to pass state-run single payer health care plans, despite the fact that both states would need to double their existing tax revenue to pay for the new entitlement.
Both proposals have cleared one legislative chamber—in California, the state Senate; in New York, the state Assembly—and still need further approval before they can become law.
But even if those political hurdles are overcome, and even if the two states figure out how they are going to come up with the necessary tax revenue—about $400 billion in California's case, and somewhere between $91 billion and $225 billion in New York's—to make those systems functional, both may run into another problem: The whole thing could be against the law.
"Technically, it would be illegal for a state to set-up a single-payer health care system without getting permission from the federal government," says Gail Wilensky, a health economist who worked in the George W. Bush administration and now serves as a senior fellow at Project HOPE, an international health foundation.
That permission, granted by the Department of Health and Human Services in the form of a waiver, would allow states to repurpose federal funds for Medicaid or Medicare, for example, into a newly established state-run health care system. Wilensky told Reason that there's no reason to assume the federal government would block single-payer plans, but not all waiver requests have been granted in the past and politics are sure to play a role in how the Trump administration would handle such a request.
California's single-payer proposal, which cleared the state Senate with a 23-14 vote last week, contains language instructing the state "to work to obtain waivers and other approvals" for California's medical assistance program (Medi-Cal, which is partially funded by Medicaid, the joint federal-state insurance program for the poor), the state's Children's Health Insurance Program, and the federally funded health insurance exchange program established as part of the Affordable Care Act. Getting those waivers means "any federal funds and other subsidies that would otherwise be paid to the State of California, Californians, and health care providers would be paid by the federal government to the State of California and deposited in the Healthy California Trust Fund. That trust fund would become the literal "single payer" for all Californians.
To get those waivers, California would invoke Section 1332 of the Affordable Care Act, which remains the law of the land for federal health care policy until and unless Congress repeals it. Under that provision of the ACA, states are allowed to request waivers "to pursue innovative strategies for providing their residents with access to high quality, affordable health insurance," as long as they met the basic standards outlined by other parts of the ACA. Under the terms of the federal health care law, waivers could not be granted until 2017 and are only good for five years, although they can be renewed.
Guidance documents issued by CMS regarding the Section 1332 waivers say the Department of Health and Human Services and the Department of the Treasury are "interested in working with states on Section 1332 that would lower premium for consumers, improve market stability, and increase consumer choice."
Depending on how the feds choose to look at it, a single-payer proposal might fail to satisfy those intended goals. While California's proposal would lower premiums (by abolishing them altogether), it's unclear whether destroying the state's private health insurance market would count as improving stability. Further, it is difficult to argue that a single-payer system would "increase consumer choice," since the only choices provided by the Healthy California Act would be to accept government-run health insurance or to leave the state.
Wilensky says the Trump administration could take a more expansive view of waivers to let states out from under some Obamacare regulations, but whether that permissive approach would extend to waivers for single-payer systems like those proposed in California or New York will remain unknown until a state asks.
Beyond the obvious reasons—HHS Secretary Tom Price is no fan of single-payer health care and would be able to block a waiver proposal if he wanted—there's plenty to suggest that the Trump administration would be skeptical of plan's like the one being crafted in California. For example, the fact the Healthy California Act would provide health coverage to undocumented immigrants. Writing at National Review, Austin Yack says that provision of the plan makes it "especially unlikely" federal officials will look favorably on California's waiver request. In a review of single-payer legislative efforts in several states this weekend, The New York Times similarly conceded that getting federal waivers "might be difficult with Trump appointees running the Department of Health and Human Services."
In general, the Times concluded, "state and federal single-payer proposals appear mainly to embody the sweeping ambitions of a frustrated party, rather than to map a clear way forward on policy."
The legal issues are the most important, but it's worth noting that states have little hope of being able to pay for a single-payer plan without getting a federal waiver—or, rather, they have even less hope of paying for it without them.
Again, California's proposal is instructive. A new analysis released last week by researchers at the University of Massachusetts-Amherst suggests that California's single-payer system would cost about $400 billion annually.
The study's authors say that considerable cost savings would be achieved through efficiency, but there's good reason to doubt that a government-run system would be more efficient than a private one. Even if the state somehow achieves those efficiencies, however, it would need to come up with about $330 billion. The majority of that total, according to the Amherst analysts, would come from repurposing existing federal health care funds.
"Assuming the state is successful in obtained these waivers, these funds will provide $225 billion in funding for the state's single-payer program," the Amherst analysis estimates.
With the waivers granted and repurposed federal funds flowing to the Healthy California Act, the state would still be facing more than $100 billion in tax increases to pay for the rest of the single-payer plan. Without the waivers and accompanying federal cash, the plan would be even more prohibitively expensive and would never have a chance of becoming reality.
That's a lesson one state has already learned. Vermont experimented with single-payer health care, but ultimately abandoned the project in 2014 because it was too costly. The legislation passed by the Vermont legislature and signed by Gov. Peter Shumlin instructed the state to seek a Section 1332 waiver, but the state never got far enough down the road to begin that process.
California and New York are both one step away from following Vermont down that path—and both will likely discover that the costs are similarly too high. The waivers might be the ultimate stumbling block, but hardly the only one.
Wilensky says the debate over the waivers is secondary to the bigger questions about the future of health care in the United States, and how we pay for it. Will people support health care proposals that come with massive tax increases? Will they give up the right to make their own choices about their health care?
"At the end of the day," she says, "it's really a question of whether people in states will give that much power to the state government to make those decisions."