Single Payer Insurance in California

It looks like California is going to go the route of Canada and much of Europe and enact a single payer health insurance system.

The Democratic-controlled Legislature is on the verge of sending Gov. Arnold Schwarzenegger a bill that would create a state-run universal health care system, testing him on an issue that voters rate as one of their top concerns in this election year.

Here are some of the provisions of the legislation,

  • It would abolish any and all private health care plans.
  • Provide comprehensive medical, dental, vision, hospitalization, and prescription drug coverage to every California resident.
  • There is no accounting for costs in the legislation.
  • The plan could be paid for with all the money now being spent on health care.
  • Require seperate legislation to establish the financinc system.

The song and dance is that by cutting administrative costs the plan will allow all California residents to go to a doctor or hospital. What is not discussed is the change in quality/availability of health care for those who already have health insurance. After all, it looks like the plan is not to spend anymore than we are already spending. Thus, if this notion of cutting administrative costs is not realized, there wont be anymore health care resources, but there will be more people consuming those resources. Hence quality/availability will have to decline for those who already have access to health care.

If there is no decline in quality/availability of health care/resources and administrative costs are not reduced then health care spending will sky rocket. At least initially which will exacerbate the already precarious budget situation here in the state.

Basically, quite a bit seems to be hinging on this notion that administrative costs can be cut. The reason I find this dubious is that firms, even health insurance companies, are generally profit maximizers. As such, this implies that firms are also cost minimizers at the profit maximizing level of output. Hence, the idea that there is lots of fat to be cut strikes me as dubious. The only way for this to be the case is that the firms in question are at least partially shielded from competition. Even if this is the case, replacing these firms, with their weakened cost minimizing incentive, with an entity that has virtually no cost minimizing incentive at all strikes me as just plain naive.

Of course, who knows. Maybe soon we’ll all have health care like they do in England.

FILED UNDER: Economics and Business, Health, US Politics, , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. madmatt says:

    Ask anybody who hads ever had a claim denied by an insurance company which they would prefer…a 6 month wait for non urgent operations, or have to declare bankruptcy after a medical crisis.
    Ask the 40% of people inthis country who have NO INSURANCE which system they would prefer!

  2. madmatt says:

    and don’t forget…all that insurance money that is going to keep stockholders happy..imagine what could be done if that was actually used to treat people….I would imagine a dozen or so executive salaries could also pay for a small towns health care needs!

  3. Steve, the great thing about this is, even if it’s a huge disaster as you predicted, it will never be abolished.

    Once these programs are created, they can never be destroyed – no matter how obviously ineffective they are.

  4. just me says:

    One giant gaping hole is when has the government ever been good at reducing administrative costs?

    California has the advantage of a large risk pool, so it may be somewhat workable, although what are they doing with all those illegals, most universal healthcare type countries only cover emergency care for non residents.

  5. So what happens if an innocent traveler from another state goes to California, gets hurt and …

    Is it now illegal to use my insurance?

    Am I covered by California’s insurance?

    Can California doctors and hospitals have pre-negotiated rates in a PPO like I have, or does that go out the window?

    Will I have to personally pay the difference because part of the California scheme would be to jack the prices up by people not covered (aka people from out of state)?

    Is there a constitutional issue that California is treating people differently?
    Lets say I am one of those people that Matt refers to who doesn’t have insurance (can’t afford it, don’t want it, saving costs, healthy as a horse so don’t need it, can’t qualify, rather spend the money on beer, or whatever). I have something like cancer. Can I move to California over the weekend and then get my medical bills covered on Monday? I remember a supreme court decision that struck down Alaska sharing out the oil money based on length of time in the state as unconstitutional because it treated the citizens differently.

    Is there any good reason I wouldn’t want to send my high cost, low income producing, elderly parents to California?

    What happens to illegal aliens when they show up at the doctor or hospital?

    In short, wouldn’t this make California the magnet for every hard to insure, high medical maintenance person in the country?

    I served on a jury that had a person claiming she got the flu from her employer in the first three days on the job and wanting full medical disability for the rest of her life because of it. One of the facts that came out was that she had over 200 visits to emergency rooms in the previous year. If this passes, I think I can name someone who will be shortly moving to California.

  6. Another thing, does dental cover braces?

    What about getting caps?

    Bleaching my teeth?

    Are breast reduction/enlargement covered?

    How about trans-gender operations?

    Cosmetic surgery covered?

    What if I am in an accident. Who says that I have had enough therapy, cosmetic surgery or whatever? What if Christopher Reeves wants to pay for more out of his own pocket?

    Mental health?

    What if I want those neat transition lenses that change shades in sun light? Can I get an expensive frame with my glasses or do I have to pick from the birth control section (glasses so ugly that you will never get laid)? Contacts vs glasses?

    What incentive is there for a doctor to not say that my medical condition requires a longer hospital stay?

  7. Steve Verdon says:

    I would imagine a dozen or so executive salaries could also pay for a small towns health care needs!

    And back here on earth….

    Ask anybody who hads ever had a claim denied by an insurance company which they would prefer…a 6 month wait for non urgent operations, or have to declare bankruptcy after a medical crisis.
    Ask the 40% of people inthis country who have NO INSURANCE which system they would prefer!

    Of course, they’d prefer a system that works on other people’s money.

  8. Dave Schuler says:

    Steve, are you in favor of encouraging demand restraint for consumption of healthcare services by getting rid of (employer-funded) insurance programs? Sounds like the implementable part of this law would do just that.

  9. >Ask the 40% of people inthis country who have
    >NO INSURANCE which system they would prefer!

    Uh, this statistic is bullshit. There are not more than 120 million unisured people in the US.

  10. Personally, I hope they do pass the bill. The inevitable aftermath will serve as a warning to other states.

  11. M1EK says:

    The idea that health insurance companies have any kind of motive to improve efficiency is laughable. They make their money by denying claims; and their customers are employers, not individuals; so there’s no accountability to the actual service user whatsoever.

    ANYTHING, and by that I include the worst socialized first-world systems, would be better than the morass we’re descending into.

  12. Steve Verdon says:

    The idea that health insurance companies have any kind of motive to improve efficiency is laughable. They make their money by denying claims; and their customers are employers, not individuals; so there’s no accountability to the actual service user whatsoever.

    Is this incoherent jumble supposed to make sense? Insurance companies deny claims of employers? What data do you have to back up the claim denial assertion?

    Dave,

    I’m in favor of constraining demand, but not by replacing it with a government system where the constraints might become things like mandantory wait times, simply denying various procedures, etc. And having the government provide something usually isn’t a good recommendation for reigning in spending.

  13. JKB says:

    Outstanding investment opportunity – hospital and medical clinics in western Arizona and Nevada.

    Of course breast implants, liposuction and teeth whitening will be covered. Those are absolutely required medical procedures in California. Were they to be denied, it would damage self-esteem.

  14. jpe says:

    By and large, admin expenses are lower in single-payer countries. And it makes sense: doctors spend gazillions of hours navigating all the different procedures from multiple insurers. It may make sense that insurers want to cut back back on admin costs, but something is obviously being missed, since the data doesn’t match the theory.

  15. My friends in California like to tell the following joke: How do you get a small business in California? Answer: Start with a large one.

    If this happens, I predict quote a noticeable collapse of the real estate market in California as those who can begin to pack their bags to leave. There are a large number of relocated Midwesterners who have accumulated substantial assets in their homes in sunny California and are absolutely fed up with all the other nonsense. They just need one more challenge to their core beliefs to pack their bags and return home with enough money to buy the biggest home available in the towns and cities they had left previously. A little snow and rain is vastly preferable to losing your health care at the altar of socialized medicine.

  16. Bad Ideas Abound…

    I head for home tomorrow, thru 9 hours of Southwest short-hops. But before I get the pleasure of that, I figured I’d point out comments on 2 politically bad ideas out there. 1) McCain-Feingold: Captain Ed at Captain’s Quarters discusses…

  17. gar says:

    goofy, just another way for the DumbaKrats to suck up to the Illegal Invasionistas with MY money.

    Because we all know that if Arnie wasn’t going to veto that idiotic socialistic brainfart, the Invasionists would wind up being coverd too.

    ppttui, I spit on them.

  18. Jim says:

    Does anyone notice the irony of the ‘fiscially responsible’ democrats creating a single payer health plan and state basically ‘we will figure out how to pay for it later?’

  19. […] Single Payer Insurance in CaliforniaOutside Beltway – Of course breast implants, liposuction and teeth whitening will be covered. Those are absolutely required medical procedures in California. Were they to be denied, it would damage self-esteem. Posted by: JKB at September 5, 2006 18:58 Permalink […]

  20. Bandit says:

    ‘Personally, I hope they do pass the bill. The inevitable aftermath will serve as a warning to other states. ‘

    Stormy you’re living in the common sense world. Which is obviously not where these policies come from. If Cal goes single payer do you think MA, HI, NY, MD and others are going to be left out no matter how much of a disaster it is? What are you a mean spirited oppressor something-phobe? Look at every Great Society program as evidence.

  21. Michael says:

    The reason I find this dubious is that firms, even health insurance companies, are generally profit maximizers. As such, this implies that firms are also cost minimizers at the profit maximizing level of output. Hence, the idea that there is lots of fat to be cut strikes me as dubious.

    Steve, have you never worked for a large corporation? By the above statement alone I am inclined to think you’ve never had the pleasure of such an experience. The logic behind your statement is good, but unfortunately the people usually charged with identifying the “fat” that can be “cut” are usually the ones who are the “fat” that should be “cut”. Only top executives have incentive to cut costs, as only they report directly the the board of directors and shareholders. Middle managers usually only have incentives to increase the number of direct reports under them (and thus their own budget and salary), whether they increase the productivity of the company or not.

  22. […] Single Payer Insurance in CaliforniaOutside Beltway – The idea that health insurance companies have any kind of motive to improve efficiency is laughable. They make their money by If this happens, I predict quote a noticeable collapse of the real estate market in California as those who can begin […]

  23. […] Single Payer Insurance in CaliforniaOutside Beltway – Of course breast implants, liposuction and teeth whitening will be covered. Those are absolutely required medical procedures in California. Were they to be denied, it would damage self-esteem. Posted by: JKB at September 5, 2006 18:58 Permalink […]