Health care spending in the United States far exceeds that of other Western nations and results in far-worse outcomes than in countries with single-payer systems.
The Centers for Medicare and Medicaid Services reports that U.S. health care spending grew 9.7% in 2020, reaching $4.1 trillion, or 19.7% of our Gross Domestic Product. The United States now spends $12,530 per person on health care. Compare that to countries such as Germany ($6,731), France ($5,564), the United Kingdom ($5,268), Australia ($4,918) and Japan ($4,691).
The United States must switch to a more cost-effective system to remain competitive in the global marketplace. But that requires a prudent financial plan that drives down costs, improves health care outcomes for all and has the support of business and labor.
The single-payer legislation proposed by Assemblyman Ash Kalra, D-San Jose, and under consideration in the California Legislature fails to meet that standard. It’s small wonder that Gov. Gavin Newsom, who campaigned in favor of single-payer health care, has remained largely silent on the Kalra proposal.
Kalra’s bill, AB 1400, which needs to pass the Assembly by Monday to move forward, lacks a financial plan and offers a funding mechanism that raises more questions than it answers.
California spends more than $300 billion in health care costs every year. For perspective, that’s more than Newsom’s entire proposed state budget of $286 billion for the next fiscal year. To cover those health costs, Kalra proposes a new payroll tax on businesses with 50 or more employees equal to 1.25% of total annual wages and a new excise tax on businesses of 2.3% of annual gross receipts in excess of $2 million.
But Kalra’s plan relies on the federal government for 70% of the funding, roughly $210 billion annually. The legislation assumes that the federal government would agree every five years to grant waivers so California could tap Medicare and Medicaid money to fund the state’s single-payer system. That’s a huge gamble because California wouldn’t have the resources to make up the difference if leaders in Washington refused to go along.
The soonest Kalra’s bill could take effect is 2024, following approval by the Legislature and a statewide ballot initiative. Three other states — Colorado, Vermont and Massachusetts — have tried to pursue single-payer and failed, largely due to uncontrollable costs that demanded unacceptable tax increases. All three states relied heavily on payroll-tax increases to fund their efforts, ranging from 6.67% in Colorado to 7.5% in Massachusetts to 11.5% in Vermont.
In 2011, Vermont Gov. Peter Shumlin campaigned for office saying he would implement a single-payer system. Three years later he was forced to abandon the plan, calling the tax hikes needed to make it work “enormous.” Because of California’s size, the complexity of its effort would be exponentially higher. Indeed, it might be impossible to implement a successful statewide program given the impact of the federal government’s role in health care.
Californians’ frustration with Congress’ inability to act on major issues is understandable. But moving to a more cost-efficient health care system requires leadership from the federal government. It’s naïve to think California can go it alone.