California’s ‘Free’ Health Care Won’t Come Cheap

(Note: After the column went to print, SB 562 passed the State Senate on June 1 by a vote of 23 to 14.)

Democrats in California’s state Senate spent Thursday hemming and hawing over Senate Bill 562, the Healthy California Act. When this column went to print, the Democratic caucus was still debating whether to bring the bill to a vote. The legislation would create a single-payer health-care system to cover all Golden State residents. This proposal would kneecap California’s economy and saddle millions with the life-threatening wait times, rationed care and out-of-control costs that plague all single-payer systems.

The Healthy California Program the bill envisions would cover all medical expenses without premiums, deductibles or copays. All state residents, including illegal immigrants, will be eligible. It would also ban insurers from covering anything already paid for by the legislation. Medicare and Medicaid enrollees, the privately insured, and those who get insurance through work—all would lose their existing coverage and become subject to the new state system.

Such a sweeping overhaul won’t come cheap. An analysis from the state Senate Appropriations Committee puts the cost of the plan as originally proposed at around $400 billion a year. The committee floated the idea of a new 15% payroll tax on earned income to cover half the cost. The remaining $200 billion would come from existing federal, state and local funds that could be “repurposed” toward the single-payer system.

A May study funded by the California Nurses Association puts the cost of the bill at $331 billion a year, $225 billion of which would come from existing federal and state government sources. That report proposes raising California’s state sales tax by 2.3 percentage points, and creating a 2.3% gross receipts tax for businesses, to come up with the remaining $106 billion.State Sen. Ricardo Lara, the bill’s sponsor, promised this week to incorporate the Nurses Association’s financing recommendations into the measure.

Total state spending for the 2017-18 fiscal year is projected to be roughly $183 billion. If passed, the bill would increase the size of the state budget by anywhere from 58% to 110%, though even these estimates could be low.

Tax hikes of that magnitude aren’t likely to go down well. California already burdens its citizens with the highest top marginal tax rate in the nation, 13.3%. A recent poll from the Public Policy Institute of California found that only 42% of Californians support SB 562 if it would raise taxes.

It wouldn’t be the first time that a high price tag torpedoed a government takeover of health care. In 2014, Vermont’s attempt at single-payer ended abruptly when Gov. Peter Shumlin rejected the 11.5% payroll tax hike and 9.5% individual tax hike required to fund the program.

Yet the financial costs of single-payer are practically negligible compared with the human costs. Consider the Department of Veterans Affairs’ scandal-plagued single-payer health program. Last month, the agency’s inspector general found that more than 100 veterans died while waiting for care at a Los Angeles VA facility between October 2014 and August 2015.

Hospitals in the United Kingdom’s single-payer system, the National Health Service, are so overcrowded that the British Red Cross earlier this year labeled the situation a “humanitarian crisis.” In my native Canada, patients face a median wait time of 20 weeks from seeing a primary-care doctor to getting treatment from a specialist, according to a November 2016 report from the Fraser Institute, a Canadian think tank. These delays have more than doubled since 1993. Is it any wonder that around 45,000 Canadians left the country in 2015 to seek medical treatment?

Instead of avoiding Canada’s example, supporters of the Healthy California Act want to emulate it. In March, three Democratic state senators—including Mr. Lara—toured Canada to solicit advice from health officials.

By installing the state as a health-care monopolist, lawmakers would empower bureaucrats to slash reimbursement rates, forcing doctors to take a massive pay cut. The state’s most talented physicians would have a strong incentive to leave the state or retire early. Top medical students would likely head elsewhere after graduation.

In making the case for his bill, Mr. Lara said in a statement: “I believe we can get to a number where we are not overtaxing people and have a sustainable funding source that guarantees universal healthcare for all.” Recent history shows it’s just not possible. Long wait times, substandard care and backbreaking tax hikes are far too high a price to pay for “free” health care.

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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