Serious ailments afflict California’s health care system. The "single-payer" model is seen by many as one possible cure. Advocates say such a system would provide universal coverage at less cost. But while single-payer has been much debated in California, it never has been enacted. Why? What are the obstacles it has failed to overcome?

The advantage of the single-payer model, like Canada’s, is that it can dramatically reduce administrative costs and greatly increase control over expenditures because it gives the financing agency an ability to set limits. In multiple-payer systems government also can play such a role. Germany and France both have multiple payers but in both systems, the government sets limits on total expenditure and coordinates the multiple payers and providers, like hospitals and doctors, to make the system function within the limits. This system works very well at creating consumer satisfaction and much greater equity then we even dream about. And there's no evidence that quality of care is diminished in that model. In fact, there's lots of evidence that, in many respects, it is much better.
—E. Richard Brown

The status quo, despite the fact that it's inequitable, is very profitable for a large sector of the American economy. Disrupting that status quo is very, very difficult because the vested interests are very keen on maintaining the advantages they currently enjoy.
—Gerald Kominski

Under a single-payer system, a single agency receives all health-care monies and uses its leverage to bargain with physicians and medical groups to increase efficiencies. Advocates argue such a system would significantly reduce expenses by eliminating administrative duplication inherent in a multi-payer health insurance system and by giving the financing agency the power to contain health care costs. It also would extend medical coverage to all Californians and could channel some of the savings to achieve an increase in quality.

E. Richard Brown, Ph.D., Director of the UCLA Center for Health Policy Research, and Gerald Kominski, Ph.D., Associate Director of the UCLA Center for Health Policy Research, met with Project California to discuss the political and ideological obstacles confronting establishment of a single-payer system in California.

The notion of single-payer came up again at the end of the 1980s because of the rapidly rising costs of health care. In 1989, the U.S. Chamber of Commerce and National Association of Manufacturers said it was beyond the ability of employers alone to control health care costs. We need government assistance, they told Congress. And others were concerned that there were then 37 million uninsured people in the country. This led to a very serious discussion in this country about enacting a single-payer system.

Both the CBO [Congressional Budget Office] and GAO [General Accounting Office] did independent analyses of the single-payer model compared to market-based models, and concluded that single-payer could cover the whole population for about what we were spending currently to cover far less than the whole population.
—E. Richard Brown

The single-payer system, proponents say, responds to the single greatest problem facing health care in California: rapidly growing costs. Both in California and nationwide, health insurance premiums have risen 60 percent since 2001. Rising costs of health insurance are the single biggest contributor to the decline in employment-based insurance coverage. Numerous reports indicate that rising costs have been accompanied by a decline in health care quality. Savings achieved by a single-payer system could be used to cover currently uninsured people, reduce costs for consumers, and/or increase the quality of care.

The single-payer approach primarily would yield administrative savings. Roughly a quarter of health care expenditures in the United States fund administration by health insurance companies, hospitals, doctors’ offices, other providers of care, and government programs. The size of the billing department in any hospital reveals the extent of administrative costs. It is noteworthy that, contrary to popular myths, government programs have much lower administrative costs than private health insurance.

While administrative costs compose a dominant portion of health care costs in the United States, they're a much lower share of health expenditures in other countries. Rather than requiring employers to engage in separate negotiations with every single individual's insurance company – a tedious, inefficient process encompassing multiple payers with different rules and contract rates – governments in countries with national health systems require everyone to play by the same rules.

Enforcement of one set of rules eliminates duplicative administrative mechanisms and systems that take enormous numbers of people to operate, and it is a more effective way to control the growth in health care spending. Experts estimate at least half of medical coverage administrative expenditures could be eliminated by moving to a system that consolidates all administrative functions.
The operation of Medicare during the past 20 years offers a good example of the ways in which centralized payment and administration can save money. In 1983 the program instituted price controls. The "prospective payment system" started with hospitals, expanded to physicians' charges in 1992, and now encompasses every sector of Medicare coverage, including home health care, nursing homes and rehabilitation facilities. The approach has enabled Medicare to contain its expenditures for health care services. Since 2000, Medicare expenditures have increased by 31%, but expenditures by private insurers have increased 46%.
Drug benefit programs that allow the financing agency to control medication costs offer another opportunity for the single-payer system to achieve major cost savings in the United States.
A prescription drug benefit was one of the key provisions of the Medicare legislation passed by Congress a year ago. However, the legislation prohibited the government from using its purchasing power to negotiate discounts.

"This is essentially a windfall for the pharmaceutical industry," said Gerald Kominski. "Congress essentially said, ‘we will give away American taxpayer dollars to the pharmaceutical industry because we're not going to use the purchasing power of 40 million Americans enrolled in Medicare to negotiate lower prices. ’"

Health insurance premiums have gone up 60 percent since 2001. There's a tremendous pressure on employers to meet these rising costs. The way they're doing it is by backing off their commitment to provide health insurance. They're either reducing their rate at which they offer insurance or reducing the amount of their coverage, and so asking employees to take on more and more cost-sharing.
—Gerald Kominski

Although large U.S. corporations would benefit substantially from a single-payer system, they have not embraced it. Kominski attributes their inaction largely to ideology. "Many business leaders," observed Kaminski, "will say, ‘Costs are going to go up faster because the government's tendency is to add even more benefits and not control prices’."

Opposition to single-payer systems runs strong within industry sectors that benefit from the present multi-payer system. The insurance industry, the drug industry, physician groups, hospitals and other health care businesses have a common interest in averting government control of prices. As a result of these factors and others, Brown and Kominski say, the political pendulum is swinging away from a single-payer system and toward individual "health savings accounts."

Said Kominski: "The health savings accounts provide an opportunity for companies to get out of the business of purchasing health care insurance or managing it as much as they have been doing, and to put more personal responsibility on employees. The estimates are that by the end of this year 2005, up to 75 percent of employers nationwide will be offering health savings accounts as an option."

Brown and Kominski predict that over the long term, health savings accounts will not induce cost reductions or make health care more accessible. When that becomes apparent, they say, the political pendulum may swing back to broader support for a single-payer system.

"What we'll experience over a five- to 10-year period [is that] the people who have catastrophic health events not only [will] lose all the money that they have saved, but [also] might have substantial additional out-of-pocket expenses," Kominski said. "And as those casualties begin to pile up, I think we're going to see that maybe we'll need to rethink health savings accounts."

Brown asserted those casualties already are beginning to accumulate, especially in Los Angeles, where the proportion of uninsured is the highest concentration in the State.

"Most people are shocked when they learn that newly hired supermarket workers in Southern California wait 12 months to become eligible for their health insurance," Brown said. "If they have kids, their kids won't be eligible for 30 months. That's an outrage. People should be up in arms about this. We are creating dependence on taxpayer-financed health care through the workplace in this manner."

Report compiled by Project California editorial staff from meeting notes and transcripts.

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