Unified Financing Of Health Care In California: The Road Ahead – healthaffairs.org

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The inequitable, ineffective, and wasteful health care system in the US has been extensively analyzed and documented. In the last presidential election cycle, Senator Bernie Sanders (D-VT) proposed a single-payer system, Medicare for All, to solve our health care system deficiencies. He aroused wide public support for it. In early 2022, Congresswoman Pramila Jayapal (D-WA) led 120 congresspersons to introduce the Medicare for All Act of 2022 in the House (H.R. 1976). However, the passage of any federal single-payer bill seems dim because of the strong opposition of powerful vested interest groups and lack of a political majority. Hence, it’s more likely that states may take major initiatives in the intermediate future. What can states do?
The governors and legislatures of several states, including California, Washington, Massachusetts, and Oregon, have appointed commissions to develop concrete action plans for implementing single-payer systems. Re-engineering the financing and delivery of our health system will require a well thought out, sound, and bold plan.
California, the largest and wealthiest state in the US, appointed the Healthy California for All Commission with a chair plus 12 voting members to develop a Unified Financing (UF) plan—one type of single-payer system. We were the two academics appointed by California Governor Gavin Newsom as voting members of the Commission. Based on our experience on the Commission, we highlight the key outcomes and lessons for other states.
After two years, the Healthy California for All Commission just released its report, with $5 million spent on the effort, plus additional funding from California foundations. The analysis and drafting of the report were under the direction of Chair Mark Ghaly, Secretary of the California Health & Human Services Agency.
The Commission recognized that California’s health care system is fragmented, poorly organized, and financially unsustainable. Costs will continue to rise, and marginal tinkering will not address systemic problems. The pandemic highlighted how our health system in its current form costs lives and the health of Californians, especially the most vulnerable.
The Commission agreed on a unified financing plan—a form of single-payer plan—that pools all sources of financing, public and private, into one source to finance a unified benefit package for everyone. The consensus of the Commission was that unified financing would improve equity, be less costly, and increase access to better-quality health care.
The Commission identified unified financing as the North Star, although there were differences in views on how to get there and the speed with which the needed changes should move.
There are several hot button issues related to introducing unified financing. The Commission examined two of them in depth without resolving them. Additional issues were identified but not analyzed or discussed in detail.
Even with California’s size and enormous wealth, the Commission found that the state cannot move to a unified financing system without the cooperation of the federal government. There are two key barriers to doing so: federal waivers and legal requirements for raising California taxes. While the Commission did not analyze how to overcome these barriers, it estimated that the federal government funds 40 percent of California’s total health expenditures of $517 billion in 2022 (p. 30). Unless the federal government waives its rules and continues its funding while allowing California to operate a unified financing system, the state must raise an enormous amount of new taxes, which will not be a popular option.
An important next step for California will be development of a specific funding proposal, assuming a federal waiver.  Such a proposal would illustrate the distributional impacts of the UF plan, showing which groups of California residents and employers are most likely to benefit from the UF plan and which ones may pay more. Sources of funding also affect the sustainability of a UF plan.
To move the current multi-payer financing system to a unified financing or single-payer approach, the public must be educated and trust the government. An approach to UF can entail higher taxes and/or social insurance contributions from households, while lowering their current premium payments and out-of-pocket costs. There would be a net reduction in health expenditure for most households. However, the public does not fully understand these dynamics and mostly focuses on the potential increase in taxes. The public must understand this trade-off before they, as well as the legislature, would support the adoption of a UF plan. Development of a concrete plan for educating the public is a critical next step in moving California toward a UF system.
There were several additional hot button issues that the Commission identified as requiring further work: What, if any, would be the role of private insurance and health plans? How should the state use its enormous purchasing power to lower cost and improve quality and equity? How do we control the irrational high prices of many health services and drugs in California that affect millions of Californians’ access to health care? How can we best address the lack of real competition in our system and excessive profits it generates to those with market power?
However, the Commission did put forth several technical building blocks necessary to implement any sound UF plan, outlining steps that California can take on its own, starting with changes and policies to address health care disparities and continuing to improve our understanding of how to move towards unified financing.
To improve the continuity of health care and reduce duplication of tests and services, the Commission recommends the State consider the estimated benefits of a statewide uniform clinical record system, which health practitioners and policy makers could use to improve quality of care and reduce total health care cost by .
Similarly, to reduce fraud and abuses in claims filings in both public and private insurance, the Commission recommends exploring the feasibility of developing a statewide uniform claim record system. When effective, such a system could save an additional in total health expenditures every year.
To address the irrational high prices of many health services and tests, the State could require all hospitals and testing centers to calculate and publicly disclose the actual cost of services and test by using certified cost accounting methods. Then, rational prices could be negotiated between payers and providers.
To contain the rapid inflation of health expenditures, the Commission recommends closing the open checkbook to health plans and providers by establishing a prospective total budget for California, similar to what Massachusetts has done. On this last point, there is good news. As part of the Governor’s budget, which just passed, California will expand health insurance coverage to the 750,000 non-documented immigrants in the state, and an Office of Health Care Affordability will be established within the Department of Health Care Access and Information. The new Office will analyze health care cost trends and the drivers of spending and set spending targets similar to those in Massachusetts but with an enforcement hammer—health care providers and institutions will be fined for exceeding their target. Although there is a five-year phase in period, it is a major step forward.
The Commission charges the Governor and the Secretary of the Health and Human Services Agency with developing a detailed implementation plan and timetable for these key building blocks. The Commission did not discuss giving the public a role to monitor the progress of these actions and hold the agencies accountable for the results.
In short, the Commission has identified unified financing as the North Star for the direction of California’s health care system reform, but does not provide a timetable on how to get there. What it does is lay groundwork for the UF plan.
Going beyond what the Commission has done, California must craft reform options to balance two potent opposing forces: the strong and enthusiastic public support given to a single-payer system (a major type of a UF system) by nearly three quarters of Californians and numerous Californian grassroot organizations, versus the powerful and well-organized opposition to a single-payer system mounted by strong vested interest groups. The follow-up actions by the Governor, state legislature, and Secretary of Health and Human Services Agency will determine how the interest of Californians will be served. Otherwise, the nightmare is that we simply stumble on with our broken health care system.
California is the fifth largest economy in the world, ranking just behind Germany and ahead of India, and the state’s health care spending represents over 2 percent of the Gross National Product of the entire U.S. economy. Making changes in a system of this size is very complex and challenging. Still, the 100-page report was well-received by the Commission with an 11-to-1 vote of approval. The only nay vote was from the California Nurses Association representative. Despite its lack of a firm plan of action, the report moves the ball forward toward a uniform financing system or a single-payer approach that States can implement. States and policy makers have much to learn from the Healthy California for All Commission report.
We would like to express our appreciation to Vishaal Pegany, Assistant Secretary at the California Health and Human Services Agency, for his insightful comments and Crystal Haryanto, an undergraduate research assistant at Petris Center in the School of Public Health, UC Berkeley, for all her help in preparing the article.
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DOI: 10.1377/forefront.20220809.327210

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