Choice Stories

February 16, 2022

Potential Impact of Single Payer on Group Health Plans

In case you missed it, the California legislature’s sixth attempt to pass single-payer legislature died on January 31, 2022. As proposed, Assembly Bill 1400 (AB 1400) would have eliminated health care in California as it is known today.

AB 1400

AB 1400 aims to establish a single-payer, government-run system known as “CalCare.” It would affect health care services for all residents in the state. Had it moved forward, the State Assembly, State Senate, and governor would need to give final approval.

The funding to support AB 1400 also require approval by the legislature, governor, as well as voters. The proposed funding would come through a state constitutional amendment.

Under AB 1400, the following programs in California would be eliminated:

  • All existing individual and group health insurance, including employer-sponsored coverage
  • Medicare
  • Medicare Advantage
  • Medi-Cal (the state’s Medicaid health care program)
  • CHIP (the federal government’s Children’s Health Insurance Program)
  • TRICARE (health care for uniformed service members, retirees, and dependents)
  • Long Term Care plans
  • Covered California (Individual and Small Business plans + Premium Tax Credits)

Covered services under AB 1400 and CalCare generally include:

  • All traditional medical services
  • Dietary and nutritional therapies
  • Dental care
  • Chiropractic care
  • Vision services
  • Acupuncture
  • Prescription drugs
  • Necessary transportation for health care or long-term care
  • Rehabilitative services
  • Mental health treatment
  • Skilling nursing substance use treatment
  • Additional services authorized by the CalCare Board of Directors (nine unelected, government-appointed individuals)

Costs for Single-Payer

Estimates for Single-Payer in California exceed $400 billion annually. That’s nearly 50% more than the 2022-2023 state budget of $285+ billion. The proposed funding source is new taxes on businesses, employees, and individuals. Additional funding would come from the federal government, including funds currently reserved for these existing programs in California: Medicare, Medicaid (Medi-Cal), CHIP, and subsidies for Individual plans purchased through Covered California.

The Assembly Constitutional Amendment 11 (ACA 11), if approved by voters as a companion measure to AB 1400, imposes new excise taxes, payroll taxes, and State Personal Income CalCare tax as follows:

  • Gross Receipts Tax: Annual excise tax of 2.3% of gross income above $2 million for all qualified businesses in California (gross income, not profit)
  • Payroll Taxes – Employer Share: Employers with 50 or more employees pay 1.25% of payroll tax on wages and other compensation of employees
  • Payroll Taxes – Employee Share: Employees earning more than $49,900 in wages or compensation pay 1% payroll tax
  • Income Tax: 1.45%+, on a sliding scale for higher-income earners, as an added personal income tax

Roles for Insurers, Employers

Generally, insurance companies and employers would have no role in delivering health insurance. The Single-Payer legislation shifts responsibility to a new state bureaucracy. Coverage for dental, vision, and chiropractic or acupuncture would also be part of CalCare.

That means no plan choices made by the employer or individuals. Coverage would be the same for all Californians. The role of brokers also goes away with a Single-Payer program.

Role of Physicians, Care Networks

If AB 1400 became law, all physicians in the state would work exclusively through CalCare. The state would also fund hospitals. For example, Kaiser Permanente health care facilities and staff would instead work for the state.

Obstacles to Single-Payer Health Care

Even if AB 1400 was passed by the State Assembly, it required approval by the State Senate. Then the governor would need to sign for it to become law. The funding source also required approval through the proposed Assembly Constitutional Amendment 11. Thisneeds a two-thirds approval in the legislature as well as voter approval.

Leading up to the Assembly’s failure to pass the legislature by its January 31, 2022, deadline, getting Governor Gavin Newsom’s final approval was not a certainty.

Governor Newsom has an alternative plan to provide more Californians with access to care. He has proposed expanding Medi-Cal in California to more low-income adults regardless of citizen status. This would close the six percent “uninsured gap” and push the state toward 100% universal coverage. (Ninety-four percent of residents have access to health care through existing California programs and options.) The Newsom alternative proposal would cost taxpayers $2.2 billion annually. That compares to an anticipated $400 billion cost for CalCare.

Without funding through ACA 11, the Single Payer program set forth in AB 1400 could not have moved forward.

The Biden Administration generally does not favor Single Payer. Instead, it wants to build upon the existing successes of the Affordable Care Act (ACA). Approval and support by the White House would be an ongoing struggle. That is especially true as it relates to future presidential administrations. The ACA 11 proposal assumes the federal government would provide waivers to California, allowing the state to use existing federal funds for Medicare, Medicaid, and other programs for the new California initiative.

Another potential obstacle to AB 1400 (or future, similar legislation) is federal pre-emption. More than 4.6 million Californians are covered through self-funded or union plans managed by ERISA. The federal Employee Retirement Income Security Act sets minimum standards for voluntary health plans in private industry. The latest Single Payer legislation did not define how Californians covered by those plans would be regulated.

Also not addressed in AB 1400 were Proposition 98 and the Gann Limit (Proposition 4). Passed by California voters in 1988, Prop 98 establishes a guaranteed minimum level of funding for public schools and community colleges. Prop 4 limits growth of expenditures for publicly funded programs.

Universal Health Care vs. Medicare for All vs. Single Payer

There is often confusion when it comes to describing alternate, government approaches to health care. It goes by many names. Among them is “Universal Health Care,” which means everyone has access to, and is covered by, health insurance, regardless of how it is attained. That includes employer-sponsored or individual private health insurance, Medicare, Medi-Cal, CHIP, TRICARE, etc.

Universal Health Care can be achieved through actions like AB 1400. Or, it could be expanded at the federal level through the existing Medicare program for seniors and disabled Americans. Medicare, funded largely by payroll taxes, allows eligible persons to obtain low-cost or premium-free health coverage, while offering relatively inexpensive copays, deductibles, and coinsurance.

Other coverage in the Medicare program, such as doctor visits, outpatient care, prescription drugs, etc., can be purchased separately for relatively inexpensive premium payments. The current Medicare program is successful. However, it often has solvency issues. “Medicare for All” is a proposal to extend this program to all Americans – instead of only seniors and the disabled.

A “Single Payer” health care system is when only one system exists for all individuals and families to access, receive, and pay for health care. All other systems would cease to exist. This type of program can be enacted federally, across all 50 states, or it can be implemented by individual states. About a dozen U.S. states, including California, Colorado, and Vermont have attempted to create single-payer laws. All have largely stalled due to the costs.

What’s Next?

While AB 1400 is now history, California legislators have tried six times to implement Single Payer or similar legislation. So, a similar effort could occur during a future legislative term. Whether those future efforts succeed, many questions remain:

  • Could the state legislature really pass such a measure, if it couldn’t gain approval in 2021 when Democrats already have a super-majority in the state Assembly and Senate?
  • Is it too ambitious to propose a system that eliminates all private and supplemental health insurance in California? Would it be better to make changes in stages?
  • Do Californians really want a state-run agency in charge of their personal health?
  • How would a move to Single Payer be funded?
  • Would Californians favor a system where everyone’s coverage is the same? (In other countries with a government-run health program, critics say the wait for care is often too long.)
  • What would the job losses be? A move to Single Payer would mean job cuts in many fields. It would affect brokers, insurance companies, hospitals, and many others.
  • What jobs would a Single Payer system create? (Would they be enough to offset anticipated job losses?)
  • If there were a move to “Medicare for All” at the federal level, would it overhaul the existing health care system? Or, would it continue to incorporate a role for employers, brokers, insurance companies, and doctors?

Talk With a Broker About Your Options Today

Health care is changing . . . and no one knows for sure what’s ahead. Right now, providing employees with health insurance and other employee benefits is a proven winner – and employer differentiator – for workers. The 2021 MetLife Annual Benefit Trends Study found 85% of employees put health insurance at the top of their “must-have” list. Another 10% say it is “nice-to-have.” If being able to attract and retain your most valued workers is important, employee benefits are important, too. To learn more about the potential benefits costs to your business, talk with a broker. If you don’t have a broker, you can search for one on the MyCalChoice website.

Your Beginner's Guide to Choosing a Small Business Employee Benefits Program

Do you need help choosing the right health benefits for your employees?
This guide can help!