Healthy San Francisco raises costs for everyone

Two years ago, our family moved from San Francisco to Marin County, motivated partly by high prices in San Francisco restaurants. Now we mostly dine north of the Golden Gate Bridge and for 2008 we were prepared to give up on San Francisco entirely.

The reason? San Francisco’s Health Access Plan, which would have laid a payroll tax of $1.17 to $1.76 per hour per worker on businesses that do not offer health benefits, on top of a minimum wage of $9.36. There’s no way the government can force a restaurateur or small retailer to pay his entry-level workers an effective minimum wage of $10.53 an hour without the increased cost showing up on the menu or clothing tag.

The city sold the Healthy San Francisco plan as a way to deliver “universal” health care. The actual result would have been unemployment among our most vulnerable, lowest-earning workers and lost revenue for restaurateurs and shopkeepers. Fortunately, a federal judge ruled in December that the payroll tax violates ERISA, a complicated federal law that governs (among other things) non-wage benefits.

The legal decision aside, Healthy San Francisco was a harmfully expensive policy. Proponents argued that uninsured, low-income workers show up at San Francisco General Hospital’s emergency room, don’t pay their bills, and therefore become a cost to taxpayers. Increasing taxes to save taxes, while expanding bureaucracy at the Department of Public Health, does not reduce costs to taxpayers.

Furthermore, California and national data show that far more Medicaid and insured patients show up unnecessarily at ERs than uninsured patients do, and the same is surely true for San Francisco. This is due to a national shortage of primary-care physicians. The pay gap between family doctors and specialists has been increasing, so fewer doctors go into primary-care practice.

Even worse, primary-care doctors are increasingly unwilling to see Medicaid patients; and the same would have been true for patients enrolled in Healthy Access San Francisco. Government health programs pay so little that doctors cannot cover the rent if they rely too much on these programs. As it happens, the main problem with primary-care practice is the way America pays its physicians.

Today, of every $1 a physician earns, only 10 cents comes directly from patients; the rest comes from insurers or government. After World War II, those third parties controlled less than 20 cents of every dollar a physician earned. As recently as 1980, patients still paid their physicians directly 40 cents per dollar. It’s no wonder the sacred doctor-patient relationship gets closer to the breaking point every year. Third-party payers have no way of valuing hard-to-measure primary-care consultations versus easily measurable hospital procedures – so they underpay.

Can San Francisco do anything about this, without causing economic hardship for our businesses? Yes. Instead of increasing taxes, allow businesses that offer health benefits to credit up to $1.36 (the difference between San Francisco’s minimum wage and the state’s $8 minimum wage) toward the minimum wage. This will allow workers to choose whether they prefer health benefits or all-cash wages. Even better, take advantage of a new federal Medicaid pilot project called “Health Opportunity Accounts,” that would attract some low-income workers who are undoubtedly eligible for Medi-Cal but are not enrolled.

Health Opportunity Accounts give money to Medi-Cal beneficiaries that they can spend responsibly on primary care that they choose, instead of being limited to providers contracted with a county agency – often leaving them no real choice other than the ER.

The solution to San Francisco’s health crisis is not more taxes and government bureaucracy that make life more expensive for everyone – and not just those who like to dine out. The solution is to give money and power back to the patients who need it.

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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