False Promise of Single-Payer Healthcare:
A Close Look Inside the
"California Health Security Act"*

Executive Summary

A sweeping health-care reform proposal that would install a Canadian-style "single-payer" government-monopoly system has qualified for the November ballot in California. This initiative, "The California Health Security Act," raises in acute form nearly all of the key issues in the national health-care debate, such as universal coverage, administrative efficiency of the private market, global budgets, rationing, and employer mandates.

Backers of the initiative claim that the proposed single-payer system is a cure-all for the challenges California's health-care system currently faces. Promotional materials and the Act itself assert that in making the government the faucet through which all spending on health care must flow, costs will be contained, a generous package of benefits will be provided, and universal coverage will be assured.

These claims, however seductive, do not withstand scrutiny. This briefing closely analyzes the initiative's text and shows conclusively that single-payer health care would devastate California. Among its findings, this briefing concludes that the single-payer initiative would:

• Destroy nearly 300,000 California jobs by 1998, its first full year of implementation
• Replace the choice of insurance plans that Californians currently enjoy with a one-size-fits-all package of government approved benefits
• Limit Californians' ability to choose their physician
• Infringe upon physicians' professional judgment by restricting the procedures that are allowed to be performed
• Restrict Californians' access to high-technology by centralizing equipment through the Health Commissioner and then rationing access
• Triple the state budget while putting it at risk due to chronic health- system deficits in the range of $40 billion annually
• Risk disruption of care due to increased strikes and labor disputes
• Turn private hospitals into government facilities
• Force California taxpayers to pay for even more health care for illegal immigrants than they do currently
• Force California taxpayers to pay for the health care of jobless migrants from neighboring states
• Place huge new burdens on California businesses just as the state struggles to emerge from a crippling recession

All passages in this briefing are fully cited so that readers can go directly to the source, as have these authors, to educate themselves.

Background

Californians will soon vote on one of the most sweeping health-reform proposals yet offered in the United States: "The California Health Security Act," a Canadian-style, government-monopoly, single-payer initiative. This initiative raises in acute form nearly all of the key issues in the national health-care debate, such as universal coverage, administrative efficiency of the private market, global budgets, rationing and employer mandates. As such, a close examination of its implications is instructive.

Proponents and drafters of the initiative, relying on the Canadian experience, make a seemingly compelling case for the government provision of health care. The drafters claim that under a government-run system, rational planning will reduce administrative costs, eliminate frivolous unproved procedures, and centralize expensive high-tech equipment.

Enormous savings will be achieved in California upon institution of a single-payer for health care. Savings will be achieved by decreasing wasteful administrative overhead, bargaining for the best possible prescription drug prices, providing more cost-effective primary care, and by providing more long term care at home.

(25001. (I))

The savings achieved by government intervention will be used to "fund universal coverage for all medical care services and extend benefits to include long term care, mental health care, and some dental services and increase the resources available to prevent disease, all for the same amount of money currently spent on health care in California" (25001. (i)).

These claims are as seductive as they are doomed to failure. They are seductive because they offer a total solution to what is increasingly being perceived as an intractable social problem. But they are doomed to fail because the initiative is built on the tried-and-failed institutions of big government.

A New Bureaucracy and all
the Taxes Necessary for its Support

California's Health CZAR

The California Health Security Act, if passed, will create the fourth largest health-care system in the world (only Japan, Germany, and France would be larger).¹ The initiative creates a new state agency-the Office of State Health Commissioner-charged with the planning and administration of all health services in California. A Health Commissioner, appointed by the governor at the outset but elected every four years after the initial term, is to head this agency and essentially manage California's entire health care system. The initiative entrusts the Commissioner with extraordinary powers.

The Commissioner's powers include any and all powers necessary and proper to implement this Act, and to promote its underlying aims and purposes. These broad powers include, but are not limited to, the power to set rates and promulgate generally binding regulation on any and all matters relating to the implementation of this Act and its purposes (emphasis added). (25063.)

The Commissioner, relying on Czar-like powers, is charged with a variety of tasks including:

• Establishing a list of standard procedures covered by the state (25065. (a)(2))
• Setting the rates at which the state will reimburse doctors (fee schedules) (25065. (a)(11)) and (25195. (d))
• Setting a global system budget (25155. (a)(1))
• Setting regional budgets (25155.(a)(2))
• Setting hospital and HMO budgets (25155. (a)(3))
• Establishing a list of reimbursable pharmaceuticals (25216. (a)(1))
• Setting the rate at which pharmaceuticals will be purchased (25216. (a)(2)), (25216. (a)(6), and (25065. (a)(11))

The Commissioner will also be responsible for:

• Establishing capital budgets for hospitals and clinics (capital budgets are to be kept separate from operating budgets) (25155. (a)(4))
• Approving any capital improvement (plant or equipment) that costs more than $500,000 or establishes a new procedure for the hospital or clinic (25213. (a)(4)(a)(b)(c))

The Commissioner can be assisted in these Herculean tasks by appointing a "Health Policy Advisory Board," which serves to advise him/her on important matters; "Regional Administrators," which serve as local managers of the system; and "Regional Consumer Advocates," who are to ensure that consumers are well served. In addition to the regional consumer advocates, the Act provides for establishment of a "Consumer Council" to "represent and promote the interest of health care consumers as a class before the Commissioner . . ." (25080.(a)(3)). This Council, designed to serve as a political base for the Commissioner, is to be funded with voluntary annual membership fees of at least $10. (It is not clear whether the consumer council will exist if no one volunteers to pay the membership fee for a service from which they will benefit regardless of their contribution.)

Financing the Leviathan

California's "Health Security System" will extract its funding from a multitude of sources. Once fully implemented in 1998, the Health Security Act will cost the state approximately $140 billion annually (approximately tripling the state's current $58 billion budget). A sizable portion of this budget-$54 billion-will come from new taxes.² This represents more than $1,500 in new taxes for every Californian.

New taxes include:

• A business payroll tax increase of 4.4 to 8.9 percent of payroll (33001.) ³
• An individual income surtax of 2.5 percent (33004. (b))
• An additional 2.5 percent surtax on income over $250,000 for individuals and $500,000 for couples (33007. (a)(b))
• A dollar a pack tax on cigarettes ($.05 per cigarette) (30123.5 (a))

The California Health Security System will also annex all the money currently spent on health care by federal, state, and local governments. There will be only one payer-the government.

Claims for California vs. the Initiative's Text: What they aren't telling you about government-monopoly health care

Private Care Is Promised but Government Care It Shall Be

Recognizing that Californians are endowed with an inherent distrust of government, backers of the initiative are turning rhetorical backflips to convince the public that single-payer health is not government care. Of course, government provided health care is exactly what it is.

Under this Act, no hospital, clinic, or professional provider will be allowed to make capital improvements without prior approval by the Commissioner. This is ostensibly in the service of cost control and rational planning, but it will effectively bias the system toward government providers. For example, "[a]ll capital improvements made from the Capital Improvement Account shall remain the property of the state of California under the Health Security System" (25215. (b)). Moreover, "the funds in the Capital Improvements Account shall be disbursed, for a period of at least 3 years, in a manner proposed by the Commissioner, to give priority to the capital needs of those [government, eds.] facilities" (25253. (b)). Since under the single-payer system it is hard to envision another pool of capital from which improvements will be funded, these stipulations will ensure incremental state dominance of health-care provider facilities. ⁴

Other anti-private biases in this initiative include:

• Special budgetary treatment of academic hospitals (this initiative was partially written by a University of California at San Francisco Medical School professor) (25275.)
• A stipulation that academic and county hospitals be the tertiary centers where specialized diagnosis and treatment is performed for each region (25265. (a)(3))
• The exclusion of anyone who works for a "for-profit" health care entity or insurance company from serving on any advisory board established by the initiative (25068. (b)(3))
• The restriction of profits to a "fair rate of return" for "for-profit" providers (25200. (b)(1))

Proponents of this initiative are fond of citing Canada as an example of single-payer medicine under which actual practices have remained private. This is especially apt because under single-payer, Canada has seen virtually all of its health-care facilities transformed into public entities.

State Management of Hospital Services

The fact that the Commissioner's powers are, for practical purposes, unlimited, undermines any claims that single-payer would be a system of private providers in which government merely pays the bills. There isn't a single component of California's health care system that the Commissioner is not empowered to alter at whim. The Commissioner, for instance, has the authority to "approve the temporary or permanent conversion of general acute care beds to skilled nursing beds" (25213. (e)). This means that the Commissioner-an omnipotent Sacramento-based bureaucrat-can dictate to local hospitals how they must utilize their facilities. Moreover, any expertise a hospital manager might possess relevant to the needs of the facility and its clientele is no longer important. The initiative clearly states that "[n]o health facility, clinic or professional provider shall increase the ratio of patients to licensed or registered nurses without the approval of the Commissioner" (25310. (a)). Since there is no exemption for proprietors of small practices, this means that under this Act physicians may be required to apply to Sacramento before they accept new patients, as any new patients would lower the staff to patient ratios. Although this is an extreme example, it highlights the degree to which bureaucrats will have control over the smallest aspects of the health care of Californians.

Single-Payer Savings vs. the Excellence of Choice

The most credible assertion by backers of government health care is that under a single-payer system, some initial savings will be reaped from the elimination of insurance company bureaucracies. Administrative costs under government-run health programs are in fact lower than the administrative costs incurred by private-sector insurance companies. The assertion that private-sector administrative costs float in the 25 percent range, however, is largely overblown. The most efficient integrated health-care providers, Kaiser and Group Health, have administrative costs in the 7 to 8 percent range and the trend is moving in this direction. According to single-payer proponents, Canada's single payer and the U.S. Medicare programs spend 1 percent and 2.5 percent respectively for administrative costs. It is this 6 percent reduction in administrative spending that single-payer proponents claim could guarantee health access to all Californians and finance a generous expansion of benefits.

The argument that Canada's single-payer system is more efficient than the U.S. decentralized system because its administrative costs are lower is fallacious. This argument assumes that the factor that generates administrative costs-multiple payers-produces no benefits. Most likely, administrative costs-marketing, selling, and invoicing-were a lot lower for the East German Trabant than for a Honda or a Ford. But it does not logically follow that the Trabant is superior. Indeed, the opposite is the case. Multiple payers, or producers, whether in cars, housing, food, clothing, or health care, produce product differentiation and spur competition that promotes the production of excellence. In the health-care sector, multiple payers provide personalized health-care options for U.S. citizens. These options take the form of health plans tailored to individual needs-low cost plans for youths, catastrophic plans, comprehensive fee for service plans, Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs).

Under a single-payer system, the need for invoicing is greatly reduced, but so is choice-everyone is forced to pay high premiums in the form of taxes and accept the benefits that the government is willing to provide.

The False Choice of Government Care

Proponents of the single-payer act tout as the system's primary virtue the fact that it retains individual choice of doctors and hospitals. Unfortunately, a close look reveals single-payer choice as a distinction without a difference. The current decentralized health system maintains choice on two levels: choice of doctor or provider, and choice of insurance package that pays the doctor. Single-payer greatly diminishes the first choice while completely eliminating the second.

California's single-payer initiative erodes an individual's ability to choose his or her own doctor. Although promotional materials state that individuals can choose their doctor, the reality is that one may be able to choose only a primary care doctor, a major discrepancy.

The Commissioner may require that all care under a fee-for-service payment be coordinated by a designated primary care provider, and that all individuals select such a primary care provider . . . [C]are provided by specialists without referral from a designated primary provider shall be reimbursed at the primary care rate rather than that for specialty care.

(25190. (b))

Whereas before a Californian might head directly to a cardiologist for heart conditions or directly to an orthopedic specialist with a sprained or fractured limb, under the proposed single-payer system, patients would be forced to first see their primary care doctor who would then choose the referral.

Fliers explaining the initiative claim that it covers all medical care, but this is misleading. The California Health Security Act defines medical care as follows:

"Medical Care" means all health care items and services, except for items and services not reasonable and necessary for the diagnosis, treatment or prevention of illness or injury or to improve the functioning of a malformed or injured body member, according to guidelines established by the Commissioner based on recommendation of the Advisory Board (emphasis added).

(25004. (s))

In other words, the Commissioner defines medical care. And he/she reserves plenty of wiggle room for denying care by invoking the "not reasonable and necessary" clause. It must also be noted that no provision exists for services that eliminate pain and discomfort, proper objectives, many would argue, of any advanced and humane health-care system. This omission is cause for concern because in the face of budget pressures, the Commissioner is to "identify and eliminate wasteful and unnecessary care" (25226. (a)(2)). Today, most Californians choose and pay for a package of benefits that meets their individual needs. Under single-payer, Californians will be compelled to pay higher taxes and accept the care that the Commissioner is willing to approve.

Government Enters the Operating Room

Proponents of the Act claim that single-payer health will free doctors from the irritating scrutiny that insurance companies and HMOs place on the services they provide. This, too, misrepresents the facts.

Promotional material states under the Act's benefits: "All medically appropriate medical care as determined by the patient's provider of choice." While the stipulation "determined by the patient's provider" is a cause for concern, even this overstates the amount of medical freedom that will exist under this Act. The initiative defines medically appropriate in restrictive terms:

"Medically appropriate" means all health care services and procedures chosen by the patient's health care provider subject to the guidelines established by the Commissioner based on recommendation of the Advisory Board (emphasis added).

(25004. (u))

It must also be pointed out that the initiative would not relieve doctors from the practice of utilization review and other insurance company meddling that have given impetus to bitter complaints in recent years. In fact, it might even promote these practices as it hardens such bureaucratic oversight in legal concrete.

Any individual professional provider whose billing volume or distribution suggests the possibility of impropriety may be subject to investigation by the Commissioner through either the Regional Administrator or Regional Consumer Advocate and may be subject to exclusion or other penalties pursuant to Chapter 9, commencing with Section 25282.

(25196. (b))

Penalties for digressing from the government's billing orthodoxies include hefty fines and suspension and exclusion from the health system.

Under a decentralized system, exclusion from an HMO or PPO, although disruptive, is not mortal. But the government has a monopoly on payment under a single-payer system and exclusion from it, in effect, deprives a doctor of his livelihood. This grants the government enormous powers over the professional practices of physicians.

Competitive Benefits or Eroding Care

Proponents of government care for California claim the government can guarantee a package of comprehensive health services (including mental-health care, substance-abuse treatment, long-term care, and public-health education) to all Californians without increasing total health spending through the reduction of administrative costs, price and wage controls and global budgets.

History proves this claim to be specious. Although the government has demonstrated abilities in check writing, its track record on containing costs is, to say the least, poor. In 1967, at the end of its first year of operation, Medicare cost $3.4 billion. The House Ways and Means Committee, in a conservative estimate that allowed for inflation, projected a $12 billion price tag for Medicare in 1990. In 1990, Medicare actually cost $107 billion and the Congressional Budget Office estimates that its cost will skyrocket to $223 billion in 1997. ⁵

Even in the wake of this prolific spending, however, Medicare has failed to live up to its promises for seniors. By 1988, due to increasing co-payments and deductibles, Medicare paid less than half of all medical expenses incurred by its recipients-the same proportion that was covered by private insurance before Medicare was passed.⁶

Similar results can be expected in California. There are no guarantees that the California Health Security System will limit its costs to the current expenditures plus increases in the state's gross domestic product and population, as the drafters of the initiative assume. In Canada, health care spending in Ontario and British Columbia increased at an annual rate of approximately 5 percent greater than the Consumer Price Index from 1982 to 1992.⁷ The California initiative explicitly allows for these spiraling costs:

In the event that cost control is required by Section 25150, subdivision (b), the Commissioner may request that the Legislature increase appropriations for the Health Security System. (25240. (a))

If the systems' costs outrun the optimistic projections of the initiative's drafters, the Commissioner must "establish restrictions or co-payments on elective services" (25240. (b)). If these co-payments fail to balance the State's health-care books, "the Commissioner may request the Legislature to increase Health Security System funding either by increasing tax rates on the sources described or from other sources of revenue" (25147. (b)).

These provisions for tax increases are extremely important in light of the chronic deficits the California Health Security System is expected to produce. In papers published in July of 1994, two independent researchers found that, in its first year of full implementation, 1998, the California Health Security System will face a deficit of more than $40 billion.⁸ California's current budget is only $58 billion.

Global Budgets and the End of the Line

The Health Security Act relies on a maze of global budgets for cost control. The Commissioner is to set:

• A global budget for the whole system (system budget) (25155. (a)(1))
• Regional global budgets (25155. (a)(2))
• Global budgets for fee-for-service providers, hospitals, capitated providers (HMOs) (25155. (a)(3))
• Global capital budgets (25155. (a)(4))

In addition to these budgets, the Commissioner, in consultation with the Regional Administrators, sets budgets for the fee-for-service providers, capitated providers, and hospitals and clinics in each region.⁹

Global budgets may control short-term costs, but they do so at great expense to the served population. Besides being extremely difficult to set accurately (think of all the information necessary to establish all the budgets previously listed), global budgets transfer costs to patients in the form of lost work time and prolonged suffering incurred while waiting for care. In other words, costs are not averted, they are simply born in ways that do not reveal themselves to government accountants.

In Canada, reliance on global budgets as a procedure to control costs has created long waiting lists for surgical procedures. In 1991, according to Statistics Canada, there were over 1,379,000 Canadians awaiting medical service, of whom 45 percent reported to be in pain.¹⁰ In 1992, a study by the Fraser Institute, a think tank based in Vancouver, Canada, found that 177,000 Canadians were waiting for treatment, with average waiting times varying from 11.2 weeks in Ontario to 21.2 weeks in Prince Edward Island.¹¹ Figure one shows the average time Canadians must wait both by province and specialty. Figure two shows the relationship between waiting lists and global budgets.

Waiting Times in Canada: A Graphical Presentation of Data

Figure 1: Average waiting By Province; Average Waiting By Specialty

Figure 2: Per Capita Health Expenditure and Waiting

Figure 3: Technology Per Million People

Medical waiting lists, in addition to being a painful inconvenience, can be deadly.

• Malcolm Stevens died of a heart attack after languishing in line for two months.
• Charles Coleman died shortly after a heart operation which had been postponed 11 times.
• Joel Bondy, a two-year-old whose heart surgery had been repeatedly postponed, died after spending the night in a hotel because the only hospital at which he could get the surgery he urgently needed lacked a bed. He was to be operated on the following day.

These are but three examples from the scores of medical horror stories emerging from Canada.¹²

Closer to home, the federal government's Veterans Health Administration (VHA) medical program operates under global budgets. The result: from 1982 to 1992, the VHA's overall spending on health care increased by only 32 percent, less than half of the 72 percent increase in overall health-care spending during this period. This was achieved, however, by rationing care. A GAO study found that 14 percent of VHA centers turned away veterans who were legally entitled to care and 17 percent of VHA centers lacked advanced diagnostic equipment, such as CAT scan machines. An internal VHA survey revealed a 39-day average wait for appointments, with waits as long as 65 days for some procedures.¹³

Price Controls and Provider Problems In addition to global budgets, the Act relies on fee schedules, both for doctors' wages and pharmaceuticals, to control costs. The Commissioner is empowered to "negotiate for, or set rates, fees and prices involving any aspect of the Health Security System" (25065. (a)(11)). Although the Act instructs the Commissioner to negotiate with provider associations and hospitals in order to set reasonable fees, the ultimate result need not be bi-laterally palatable.

In the event that negotiations with professional providers and others are not concluded in a timely manner, the Commissioner may set rates, fees and prices for services reimbursed by the Health Security System.

(25195. (d))

Mandated medical fee schedules create two principal problems that must be noted:

• They skew the incentives for care
• They create the opportunity for devastating strikes under single payer

Fee schedules create perverse incentives for physicians. Providers compensated under a fee-for-service scheme are encouraged to see as many patients as possible. The most efficient way to generate income is to dispense assembly-line medicine. In Japan, for instance, where fees are low, the average time a patient spends with his doctor is extremely short.

The drafters of California's initiative, recognizing this problem, charged the Commissioner with establishing "a limit on the aggregate annual payments to an individual professional provider" (25196. (a)). But this solution is only partial. Recognizing that their annual earnings are capped, doctors will keep shorter hours or achieve their quota early in the year and take a long holiday. What good is choice if consumers, upon falling ill, face a sign reading "the doctor is out?"

The equivalent of fee controls for hospitals-global budgets-have produced perverse results in Canada. In spite of the more than 177,000 person waiting list, one in five hospital beds remains empty.¹⁴ Furthermore, approximately 25 percent of acute-care hospital beds are occupied by chronically-ill patients (commonly referred to as "bed-blockers") because it is less strain on a hospital's budget to provide hotel services than intensive health care.¹⁵

Perhaps the most foreboding aspect of a single-payer system and its price controls is its implications for labor relations. Under a multi-payer system, health care workers are employees of hospitals, clinics or, HMOs, or are self employed. Under a single-payer system, all those employed in the health care sector are effectively government employees in the sense that virtually all of their income is derived from the public purse. The initiative explicitly calls for all health care providers to unify under the auspices of union-like regional "professional associations." These organizations are to negotiate with the Commissioner and "all professional providers within a category shall be bound by the results of the negotiations" (25195. (c)) regardless of whether they support their association. If the negotiations fail to meet the Commissioner's expectations, he can simply "set rates, fees and prices" (25195. (d)).

The initiative's drafters see collective bargaining as an effective mechanism for controlling costs. While that may be, it also makes the entire health-care system vulnerable to debilitating strikes. Although strikes occur in our present system, other facilities are able to absorb their ill-effects. Under a single-payer system strikes could shut down the provision of health-care for entire regions.

Canada has experienced a growing number of strikes in recent years, each one exacerbating the problem of already long waiting lists. In 1989, after a hospital strike severely restricted services in British Columbia and lengthened the waiting time for heart bypass surgery, the government of British Columbia was forced to send 200 heart patients to Washington State for surgery. With only a single-payer, no safety valve exists.

Rationing High-Tech Equipment, Waiting Lists, Long Commutes, and Increased Pain

Single-payer enthusiasts claim that the ubiquity of high-technology capital equipment unnecessarily raises the cost of U.S. medicine. Single-payer medicine, it is asserted, would avoid this by centralizing high-technology in a few regional centers where nearly all advanced operations would be performed. The money saved through restricting expensive procedures is to be used to expand preventive medicine and public health programs. To ensure that hospitals only perform the procedures the government deems necessary, the Commissioner must approve any capital improvement that "exceeds $500,000, changes the bed capacity of the facility . . ., adds a new service or license category" (25213. (a)(4)(a)(b)(c)). The Commissioner's control over hospital and clinical management, for all practical purposes, is total.

As for rationally planning away the excess capacity of high-technology in U.S. health care, the results could be hazardous to the health of Californians. As figure three illustrates, U.S. citizens enjoy far greater access to high-technology medicine than do Canadians. And although Canadians eventually have access to the same procedures as Americans, their "wait and see if it is cost effective" approach retards the adoption of these methods. In the mid-1970s, for example, the rate of pacemaker implants in the United States was nearly 20 times that of Canada; the U.S. treatment rate for kidney patients was 60 percent greater than Canada's.¹⁶

Proponents of government planning point to similar rates of surgery in Canada and the United States as evidence of the system's success. But these statistics fail to include the costs incurred by individuals in the form of pain, suffering and time away from work caused by the necessity of travel and the inevitable waiting time. In the United States if you need high-technology, you receive it; in Canada, unless you are near the throes of death, you wait, assuming the procedure is available in Canada.

Taxpayer Supported Care: Reserved for Californians or Available to Everyone?

Providing health care, even under price controls, global budgets, and restricted technology, is expensive. California taxpayers, if they are to ensure quality approaching what they now enjoy, are going to be forced to dig deep and ante up some hefty taxes. It follows, then, that drafters of the initiative would restrict this system to California taxpayers. Not so. Although eligibility is ostensibly limited to California residents for general care and to those who have paid into the system for two years for long-term care, the initiative is replete with loopholes big enough to drive bus loads of out-of-state indigents through.

For instance, those who show up at emergency rooms and clinics who are "unable because of his or her physical or mental condition to document eligibility" shall be presumed to be eligible (25008. (a)). In addition to giving out-of-state residents and illegal aliens a free ride, this exception will also thwart the drafters' efforts to shift services away from expensive emergency rooms to more cost-effective clinics. It is hard to imagine that well organized advocates for illegal immigrants won't seize this loophole, costing California's taxpayers millions of dollars annually.

The most egregious violation of the California taxpayer, however, is contained under the heading of "miscellaneous":

[A] participating health facility, clinic, or professional provider [virtually every facility in California will be forced to participate since there is to be only one payer, eds.] may not charge any person, including individuals not eligible for benefits under this Act, for services or procedures that are covered benefits under this Act, other than for a co-payment as permitted by this Act (emphasis added).

(25421. (a))

Since doctors, under this Act, bill the state for all the care they deliver, either taxpayers will be forced to pay for the care of anyone who shows up at a doctor's office or doctors will have to provide care for free if the state refuses to reimburse them. Because this clause is not limited to emergency care, and because, at least at the outset, the benefits provided by taxpayers are to be extensive, including long-term care, mental health, drug and alcohol treatment, and acute care; neighboring states could transfer their expensive alcoholics and other indigents to California.

California Jobs: There They Go "Again"

Even if the medical claims of the initiative's supporters were accurate, the creation of this mammoth entitlement would mortally wound California's economy. The Act's onerous new taxes on businesses, especially the small businesses that do not currently pay for their employees' health care, will kill nearly 300,000 California jobs by 1998. ¹⁷

Drafters of the initiative deny that the Act will cripple the economy and even go so far as to advertise that individuals will spend less money on health premiums under a single-payer system than they do at present. Mr. Gary Schneider, executive director of Neighbor to Neighbor, the group spearheading the campaign, called the initiative "the biggest premium decrease in history." The numbers belie this assertion. First, the payroll tax paid by employers appears to be conveniently absent from the premium calculations published on promotional pamphlets. This either assumes that payroll taxes are borne exclusively by employers or that payroll taxes will simply replace the premiums that employers presently pay. Both of these assumptions are false. Economists are in wide agreement that rarely are payroll taxes borne exclusively by the employer. This means that Californians can expect a downward adjustment of wages if the initiative is successful.

Second, the claim that new payroll taxes will replace insurance premiums of equal magnitude currently paid by companies ignores crucial facts. Any payroll tax imposed by this Act will constitute an absolute tax increase on the 15 percent of small California businesses who don't currently provide their employees with health insurance. This tax increase will have the most pronounced effects on entry level and restaurant jobs where per-employee operating margins are often less than even the smallest payroll tax rate. These jobs will either disappear or go underground. Either of these scenarios will impact in a negative way on California's citizens and on the state's tax revenues.

Perhaps more importantly, the tiered payroll tax will act as a disincentive for small businesses contemplating expansion. If adding a new employee will boost everyone's taxes, some small companies may very likely forego expansion.

Another issue that puts the proposed system's financing at risk is the number of self-insured corporations in California which are exempt, by federal pre-emption, from state regulation of their health care. Currently, self-insured corporations pay $62 billion in wages, which accounts for 22 percent of the $280 billion in private-sector wages paid in California. The initiative sanguinely assumes that California will be able to secure federal waivers that will incorporate these businesses into the system. But if these waivers fail to materialize and self-insured corporations elect to stay outside of California's system of government health care, it is unclear where the money will come from to support the system.

Single-Payer Government Monopoly Health Care:
It is the Wrong Medicine for California and Hazardous to Your Health

California's health-care system, contrary to the claims of government enthusiasts, is not in a state of advanced crisis. While targeted reforms could improve the system, a government takeover would prove disastrous for the long-term health of both Californians and California. Government health care would:

• Replace the choice that Californians currently enjoy with a one-size-fits-all package of government approved benefits
• Limit Californians' ability to choose their physician
• Infringe upon physicians' professional judgment by restricting the procedures that are allowed to be performed
• Restrict Californians' access to high-technology by centralizing equipment and then rationing access
• Triple the state budget and put it at future risk due to chronic deficits in the range of $40 billion
• Risk disruption of care due to increased strikes and labor disputes
• Turn private hospitals into public facilities
• Force California taxpayers to pay for even more health care for illegal immigrants than they do currently
• Force California taxpayers to pay for the health care of jobless migrants from neighboring states
• Kill nearly 300,000 California jobs by 1998
• Place huge new burdens on California businesses just as the state struggles to merge from a crippling recession

There are ways to address the ailments of California's health-care system. But single-payer is the health care version of destroying the village in order to save it. Government-monopoly health care will injure the health of California and its citizens.

- By Sally C. Pipes, President,
and Michael Lynch, Public Policy Fellow

End Notes

* Nothing contained in this briefing is to be construed as necessarily reflecting the views of the Pacific Research Institute for Public Policy or as an attempt to thwart or aid the passage of any legislation.

1. Richard C. Carlson, "Economic Impacts: 1994 California Health Initiative," Spectrum Economics, July, 1994, p. 1.

2. Dwayne A. Banks, "The California Single-Payer Initiative: Revenue and Expenditure Projections (1996-2000)," Working Paper #PS8, Berkeley Institute for Research on Policy Solutions, Graduate School of Public Policy: University of California at Berkeley, 1994, p. 28. Note: The numbers cited are this paper's moderate projections.

3. The rates schedule is as follows:

• 4.4 percent for employers with less than 10 employees
• 6.0 percent for employers with 10-24 employees
• 7.0 percent for employers with 25-49 employees
• 8.9 percent for employers with 50 or more employees

4. Although the Act does not specifically prohibit private investment, it establishes a capital account and requires that the Commissioner approve all capital improvements, even those which are private. The drafters of the initiative are clear in their belief that excessive use of capital equipment and an oversupply of hospital facilities are major causes of cost escalation. That is why they mandate separate budgets for operation and capital improvements. Since the Act is replete with price controls including the regulation of hospital profits, it is reasonable to believe that sources of private capital for the expansion of health care facilities will quickly disappear.

5. Steven Hayward and Erik Peterson, " The Medicare Monster: A Cautionary Tale," REASON Magazine, January 1993, pp. 19-25.

6. David U. Himmelstein and Steffie Woolhandler, The National Health Program Book: A Source Guide for Activists, Common Courage Press, ME, 1994 p. 35.

7. I. Horry and M. Walker, "Comparative Growth and Forecast Accuracy for Canadian Health Care Spending," The Fraser Institute, April 27, 1994, p. 2.

8. Carlson 1994 and Banks 1994.

9. California Health Security Act, Sections: 25155., 25156., 25157., and 25213.

10. Statistics Canada General Survey-Health, 1991.

11. Joanna Miyake and Michael Walker, "Waiting Your Turn: Hospital Waiting Lists in Canada, Third Edition," Fraser Forum, May 1993.

12. John Goodman and Michael Walker, "What President Clinton Can Learn From Canada About Price Control and Global Budgets," Pacific Research Institute, 1993, p. 6.

13. See, VA Health Care: Veterans' Efforts to Obtain Outpatient Care From Alternative Sources, July 16, 1993; VA Health Care: Variabilities in Outpatient Care Eligibility and Rationing Decisions, July 16, 1993; VA Health Care: Restructuring Ambulatory Care System Would Improve Services to Veterans, October 15, 1993; and Investor's Business Daily, August 31, 1993.

14. Schieber, Poullier and Greenwald, "Health Care Systems in Twenty-four Countries," Exhibits 4 and 5, pp. 27,29.

15. Neuschler, Canadian Health Care: Implications of Public Health Insurance, p. 18.

16. John Goodman and Michael Walker, "What President Clinton Can Learn From Canada About Price Control and Global Budgets," Pacific Research Institute, 1993, p. 6.

17. Carlson 1994, p. 5.