The Pitfalls of SB840 and "single-payer" Health Care

It's no secret that I am in staunch opposition to SB 840, the legislation before the California Legislature that would create a system of socialized medicine in the state. I've written about it, and the adverse effects, many many many many times. My general aversion to the bill is that it will cost too much, decrease the quality of health care, and is unconstitutional (in several regards). As one who general believes in the power of the free market.

Despite the fact that bill is on the verge of passage, my opinion remains that it will be disastrous for the state. Supporters continue to extol the virtues of the "free health care for everyone" mantra, ignoring the harsh realities of the proposed system. Today I stumbled across an erudite and thorough analysis by the Health Economics Consulting Group (HECG), which affirms my suggestions. Below is my abstract of the report, but I strongly suggest that anyone with an interest in the subject read the (very concise) report.

The report addresses eight major areas, "1) access; 2) quality; 3) administrative costs; 4) technology and adaptation; 5) regulatory instruments; 6) tax-based financing; governance; 7) costs; and 8) implementation." The findings don't suggest that the single payer system would be successful (which any Canadian could have informed them).
1) ACCESS:

to extend health care coverage to all is laudable.... However, centrally planned systems, by design, require rationing, typically in the form of waiting lists... Waiting lists are also susceptible to fraud and abuse.

2) QUALITY:

There is insufficient evidence to suggest that centrally-planned systems result in better quality of care than private systems... If the single-payer plan has benefits that are around the current average, roughly half of people with above-average coverage now will have less coverage under reform.

3) ADMINISTRATIVE COSTS

The assumption that CHIS will be able to achieve 1.8% administrative costs is weak.

4) TECHNOLOGY AND ADAPTATION

The CHIS is at risk for failing to innovate quickly enough to keep pace with the rapidly changing health care industry.

5) REGULATORY INSTRUMENTS

Throughout the text of the legislation, references are made to the role of CHIS as the regulator of price and capacity. However, the cumulative knowledge on economic regulation suggests, consistently across studies and industries, that the imposition of economic regulation on an industry results in higher costs and prices than would have been observed in the absence of regulation

6) TAX-BASED FINANCING

Residents of countries in which single-payer plans are available consistently indicate that the single most important action that government can take to improve the system is to “spend more money”

7) COSTS

The following three issues are perhaps the most critical: 1) the system’s administrative costs are likely to be higher than expected; 2) the system will have to deal with provider market power, moral hazard and new technology, all of which apply significant upward pressure on cost and 3) the system’s mechanisms to limit adverse selection are insufficient.

8) IMPLEMENTATION

According to our simulation analyses, replacing the private system with a government system will result in a net loss of $33 billion over the 5-year post-CHIRA enactment period. This loss more than offsets the $8 billion net gains estimated by the Lewin report

This very thorough analysis has very little to say in favor of the plan. In fact, in addition to the above summary, they also suggest that the plan will attract low-wage unskilled labor from other states, and likely other countries, and that it "does not appear to make any provisions for the effects on the California economy of eliminating a $64 billion industry."

Supporters still claim that this is in the best interest of California.

Cross Posted at