California’s Costly, Inaccessible Healthcare System

More than one-third of California’s $200 billion budget goes toward health care. Private health insurance spending in the state, meanwhile, exceeds more than $100 billion a year.

Unfortunately, all that spending doesn’t appear to make health care more accessible. That’s the troubling finding of a comprehensive new analysis of health care accessibility and openness by the Mercatus Center at George Mason University. The study ranked California’s healthcare system 40th of the 50 states.

Healthcare accessibility is about more than just the uninsured rate. After all, insurance is useless if a patient can’t find a hospital or doctor who will see him — or if his coverage doesn’t afford him access to the right medications and treatments.

For example, even as California vastly expanded its Medicaid program, called Medi-Cal, doctors were increasingly refusing to see its beneficiaries because of extremely low reimbursement rates. In 2017, Medi-Cal reimbursed providers at roughly half the rate of Medicare and far less than the reimbursement rate of private insurers. By 2015, the share of doctors participating in Medi-Cal had dropped to 63 percent, according to a survey by the California Health Care Foundation.

The insurance plans available on the state’s exchange, Covered California, are notorious for their narrow provider networks. One study found that 75 percent of Obamacare plans in the state strictly limit enrollees’ choice of doctors — one of the highest rates in the country. Another found that exchange customers have access to fewer hospitals than other privately insured patients.

As a result, emergency room visits in California have increased about 10 percent since Obamacare went into effect — the exact opposite of what was supposed to happen. Patients either can’t find a doctor or can’t afford to see one because of very high deductibles on exchange plans.

California’s official 7.8 percent uninsured rate obscures data points like these, which offer far more insight into how accessible the state’s healthcare system is.

The Mercatus study evaluated each state’s healthcare system on several measures of openness and accessibility beyond the uninsured rate. For instance, patients in different states have varying levels of access to telemedicine and drugs. Some states impose higher taxes on health care; that increases its cost and diminishes patient access to it. Providers face different levels of state regulation and legal liability that can hurt or help patient access to care.

California scored better than the national average on a few measures — and is at or near the bottom on most of the rest.

For example, the Golden State does well on “medical liability,” where it ranks ninth, mainly because of the MICRA law signed by Governor Brown in 1975, which capped non-economic damages at $250,000. This measure looks at states’ medical malpractice climates. Doctors are disinclined to set up shop in states where there’s a greater risk of facing a malpractice suit. That reduction in the supply of care can drive up its price, and thus reduce access for patients.

Doctors also tend to respond to malpractice risk by practicing defensive medicine, whereby they order more tests and procedures than necessary to protect themselves if they ever get called into court. PricewaterhouseCoopers put the cost of defensive medicine at $210 billion a year.

Second, California does better than average when it comes to provider regulations. It has fewer “certificate of need” rules that protect existing hospitals from competition by requiring new entrants to prove there’s a “need” for a new facility before building one. In every other sector of the economy, we depend on the invisible hand of the market to make that determination for us.

The Golden State also has few restrictions on pharmacies that do their own compounding. Fewer rules for these facilities can lead to lower costs.

On several other measures, California performs worse than the average state.

Take taxes, where California comes in dead last. The state has among the highest tax rates on providers and medical devices. And unlike most states, it taxes money put into Health Savings Accounts.

HSAs are among the most effective ways to lower health costs. Patients own the funds in their HSAs and can roll them over, tax free in most states, from year to year. So they have a financial incentive to spend their healthcare dollars wisely.

To encourage patients to fund HSAs, the federal government exempts money deposited into them, as well as earnings, from income tax. California doesn’t follow suit. That makes accumulating assets in an HSA slightly more difficult for the state’s residents.

The state also imposes too many restrictions on ownership, business structure, and employment in the healthcare sector. As the Mercatus researchers explain, the state “inhibits the development of innovative business models that could potentially lower the cost and improve the quality of care.”

Nor is the state friendly to “direct primary care,” in which patients pay a retainer for a doctor’s primary care services. This model has become increasingly popular as the cost of insurance and the hassles associated with it have multiplied.

The state does worse than average on occupational regulation — mainly because it is hostile to nurse practitioners. Research shows that such professionals can deliver a significant amount of primary care as effectively as doctors at much lower cost.

California has made driving down its uninsured rate a big priority. That’s been an expensive effort; one in every three of California’s 39.5 million residents is now covered by the state via Medi-Cal.

But California has undermined its goal of expanding access to care by failing to roll back its many onerous taxes and regulations, which limit flexibility for patients and providers, stifle innovation, restrict the activities of consumers, and ultimately raise costs.

As the Mercatus Study makes clear, access to coverage is not the same as access to care. California’s leaders would be wise to keep that maxim in mind.

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

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