Universal Healthcare Dies in California Again
Not knowing how to swim doesn't matter because "the fall will probably kill ya."
This thing never had a chance. I’ll explain why in a minute. Universal healthcare is a topic that is often discussed and debated between Democrats and Republicans. The concept is not too hard to understand, and it is generally agreed by all that its goal (to give everyone affordable healthcare) is a good thing pursue. Like with everything, though, the devil is in the details.
There is never much discussion on how we would achieve universal healthcare and, more importantly, what the negative side effects of universal healthcare would be.
The whole debate started up in California again as they considered another proposal to have a state universal healthcare system. It is not the first time the Golden State has struggled with this idea or proposed it in legislation. In fact, the first time it came up was in the form of a ballot initiative in 1994. It was soundly rejected by the voters. In the early 2000s, legislation calling for universal healthcare passed the state legislature twice and was vetoed by Governor Arnold Schwarzenegger (R).
In 2017, there was another attempted called Healthy California. It passed the state Senate but died in the Assembly. Healthy California died because Governor Jerry Brown (D) knew it would harm the state’s economy and he was going to veto it. Current Governor Gavin Newsom (D) campaigned on universal healthcare but has been silent about the current legislation.
Recall that in the 2020 presidential election, every single Democrat running in the primary campaigned on universal healthcare. We will almost certainly see more of that this year. So how is it, then, that a Democratic controlled state legislature with a Democratic governor, who campaigned on universal healthcare, cannot pass this piece of legislation?
The devil is in the details.
The California state budget currently tallies up to about $262 billion annually. The estimated cost for the universal healthcare system that was proposed this year would add about $356 billion more to that. You read that correctly. Universal healthcare in California would cost more in the state budget than anything else combined.
If those cost estimates are correct, that means the state of California would need to increase its taxation by about 135 percent. I say “if” only because there has been question as to whether that is a conservative estimate. I’ll explain.
If the $356 billion estimate is correct, that means that California would spend about $8900 per person, per year for healthcare. It sounds like a lot, but it is lower than the national average. The national average for yearly spend on healthcare is $11,172. Now, you answer me this: what in California is ever cheaper than the national average?
This means that if the projections are incorrect and it would really cost California about $11,000 per person, per year which adds up to about $445 billion on top of the $262 billion current state budget. These numbers are staggering and if it is paid for through taxation, it would cause California’s tax rates to be much higher than any other state in the country. By far.
I was proven right last night about what I said at the beginning. This bill failed without even a vote. Assemblymember Ash Kalra (D), the author of the bill, said "It became clear that we did not have the votes necessary for passage, and I decided the best course of action is to not put AB 1400 for a vote today.”
What would it have done to the state? California voters knew, Mr. Schwarzenegger knew, Mr. Brown knew, and given his silence it is clear that Mr. Newsom knows.
If this bill were to pass and it were signed into law, the first thing that would happen is that employers would probably leave the state (more so than they already have). They would face a significant increase in taxation and if they are able to move, they most likely would. Large companies have already done this because of California’s high taxes, including the Daily Wire and Tesla.
Mr. Karla and other supporters of his bill might counter that the cost would be offset because they would no longer have to pay healthcare costs for their employees. The problem with this argument is that not all employers would face a net reduction in costs. A significant portion of healthcare costs are paid for by employees, the members of the plan. Additionally, many large employers are self-funded and their current healthcare costs may be less than what the tax increase would be. It would be devastating to California if multiple large employers left because they could do business cheaper in another state.
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Another problem is that the “free” healthcare would attract many people to California simply because they could have “free” healthcare. Some of those people might be employed and bring tax revenue to the state, but other may be unemployed or underemployed and only moving to California for this perk. This migration for healthcare coverage could not only put a strain on the California state budget, but it could also strain the healthcare delivery systems, such as hospitals.
Having a state where employers are leaving and taking their tax revenue with them, while at the same time unemployed individuals flock to the state to get free healthcare could be an economic death spiral.
Another thing to consider is how this might affect healthcare delivery and reimbursement in California. The first question that should be asked about any universal healthcare plan is how much it is going to pay the providers for the services they render. An easy answer would be to say “100 percent of Medicare rates.” In California, some providers would think this is great, but many others would have to make cuts (which would affect the quality of care) or go out of business altogether. Commercial insurance, on average, pays about thirty percent more than Medicare does. Hospitals, on average, are paid about eighty percent more than the Medicare fee schedule. It is well known that commercial insurance rates are so high because they subsidize Medicare rates which are so low. The Medicare rates, at least where they are now, are not a sustainable for healthcare delivery. This is what economists call a hidden tax.
What happens then if that extra revenue or reimbursement is suddenly taken away and everyone is paid at straight Medicare rates? Well, to be honest we don’t really know, but we can expect that it will change the way healthcare is delivered and the quality and availability of that healthcare. It is not unfathomable to think that some hospitals would fail, and some physicians would too.
A final outcome to consider could be a physician migration out of California. A mass retirement of physicians would put an enormous strain on California’s already burdened healthcare delivery system.
If any or all these possibilities were to happen, wait times would significantly increase and the quality of healthcare would significantly decrease. It would create a scenario where everyone has “free” healthcare, but no one can actually use it. This is why this latest attempt to enact this legislation failed.
This reminds me a bit of a scene from the 1969 film Butch Cassidy and the Sundance Kid. Butch and the Sundance Kid are being chased by a large posse and are finally trapped at the edge of a cliff. Hundreds of feet below them is a river. The posse is closing in and our heroes are outgunned and outmanned. There is a discussion between the two and Butch recommends that they jump off the cliff. The Sundance Kid is having none of it and suggests they shoot it out. Butch points out that there is no way they could win the gunfight with that many men and jumping is their only chance. The Sundance Kid again protests because he can’t swim. Butch reminds that that it does not matter because “the fall will probably kill ya.”
This argument is a bit what it’s like when people debate universal healthcare. We spend all out time discussing the merits of covering everybody, be it in the state or the nation, with universal healthcare, but we are missing that fact that coverage is not the problem. Our problem is how do we provide that coverage without breaking the current system which would create a bigger problem than the one we already have. Just like Butch said, it’s not about whether we can swim or not, it’s the fall that will kill us.
P.S.: In case you’re curious, here is the scene from Butch Cassidy and the Sundance Kid.