California Is One Step Closer to Single-Payer Healthcare

Last Friday, the California’s state senate passed a bill called the Healthy California Act that would institute a single-payer healthcare system in California. It still has to get through the Assembly and get signed by the governor in order to become law, but it has passed a major milestone on the path to implementation.

In my view, this is actually good news. But I have a major bias–because I don’t live in California.

The Proposal

Writing in opposition to the new bill, the editorial board of The Sacramento Bee offers a fair critique on the proposed law. The title is harsh and so is the analysis:

Universal Health Care in California? In Fantasyland, maybe.

What makes the Bee’s position particularly interesting is that they are not approaching it from a pro-market or limited government position at all. They actually close with some praise for Obamacare.

Their opposition to the single-payer bill is on purely pragmatic grounds. Among other pitfalls, the law is expected to have a price tag of $400 billion per year–$200 billion of which California would have to raise in brand new revenues. This is likely to prove challenging since California’s entire budget is only $184 billion per year.

So in other words, in order to pay for the bill and not create massive deficits, California would have to more than double its current level of taxation. And that assumes the cost estimate is correct–but of course, massive government programs have a tendency to run overbudget.

The Good News, Sort of

All of the above probably sounds like a disaster. And if the economics on central planning work out like normal, it probably will be.

But while the policy may not prove beneficial to the actual taxpayers involved, it will be an invaluable economic experiment for the rest of us.

Also, it’s worth noting here that most Californians and indeed, most Americans, appear to support a single-payer system. That doesn’t mean it’s a good idea of course, but it does mean they are less like lab rats and more like participants in a sketchy drug trial. Or at least, that’s the case for 58%-70% of Californians that support it.

For the remaining third that oppose it, unfortunately they are the lab rats in this analogy, and they deserve our sympathy.

In any case, here’s a few reasons the California single-payer experiment will be educational if it gets through.

Single-payer as “Honest” Redistribution

One of the goals of the Affordable Care Act was to force the healthy and relatively well-off subsidize the sick. It was always structured to redistribute income. It just went about it in a very convoluted way that still preserved most superficial features of the private insurance system.

Forced redistribution still occurs in the Obamacare model. But the primary mechanism for this is not through an actual tax. Instead, the redistribution effectively takes place through the insurers themselves. Insurers were required to offer expensive new benefits to everyone, and to pay for this, premiums rose disproportionately for everyone. To the extent that healthcare premiums on healthy people exceeded their expected cost to insurers, this was, for all intents and purposes, a tax. To the extent that premiums for unhealthy people were lower than their expected cost, this was a subsidy.

One of the problems with this indirect system is that blame for the high costs falls in the wrong place. The high “tax” here was caused by the government policy. But because the private insurers are the ones raising the prices and collecting the money, it may not be readily apparent that government is at fault. Instead, fingers will often get pointed at insurance companies and their well-heeled executives. People focus on a symptom of the problem instead of its root cause.

One virtue of a single-payer system is that most of these causality complications are removed. If costs are high and access is poor under single-payer, there should be much less doubt about who is to blame. In this way, it’s a much more “honest” redistribution policy.

And when it likely fails, it will offer more compelling evidence that government is not the solution to healthcare.

A True Test of Single-payer in the US

One recurring problem in economic arguments is the inability to conduct controlled experiments. Instead, economists must rely on natural policy experiments that play out in the real world.

In theory, these experiments should be able to provide persuasive evidence. This requires people to agree on what is a true test of a certain policy, and which episodes are compromised by confounding circumstances that prevent drawing conclusions.

In practice, this tends to result in an endless cycle of goalpost-moving and cherry-picking. You say the present-day hellscape of Venezuela proves the failure of socialist economic policies? Nope, that’s only happening because they didn’t implement socialism correctly.

You say that raising the minimum wage will lead to a weaker labor market and harm poor people? Well, then how do you account for Card and Krueger 1994 (a study that found no adverse impact from a raising the minimum wage)? I belabor the point, but you get the idea.

So this trend applies to healthcare as well. But one hopes that both sides could agree single-payer in California really would be a fair test. After all, California by itself has the 6th largest economy in the world, meaning it could readily achieve the requisite economies of scale. This also means California’s GDP is much larger than many countries that have a single-payer model that progressives often praise–like Sweden or Canada. And given that California leans very far to the left, it’s unlikely the opposing party would be able to sabotage the law politically if and when it does get implemented.

Limited Collateral Damage

Finally, if single-payer does get implemented in California, the consequences are confined to its borders. If the policy turns out poorly, only a subset of Americans will be affected instead of everyone. We will get all the informational value that can be had from an economic experiment in single-payer, and the scope of the adverse consequences is capped.

Just as important, anyone who suffers under the law has a realistic option to move if single-payer is limited to California. If single-payer was implemented nationwide, one would have to relocate outside the country to get away, which is a much larger obstacle.

Summary

If I lived in California, the educational value of the single-payer experiment probably wouldn’t convince me to give up 15% more of my paycheck. But for those of us on the outside, this policy could have a very positive impact on the healthcare debate.

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