BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 840
                                                                  Page  1


          SENATE THIRD READING
          SB 840 (Kuehl)
          As Amended August 11, 2008
          Majority vote 

           SENATE VOTE  :23-15  
           
           HEALTH              12-5        APPROPRIATIONS      12-4        
           
           ----------------------------------------------------------------- 
          |Ayes:|Dymally, Bass, Berg, De   |Ayes:|Leno, Caballero, Davis,   |
          |     |La Torre, De Leon,        |     |DeSaulnier, Furutani,     |
          |     |Hancock, Hayashi,         |     |Huffman, Karnette,        |
          |     |Hernandez, Jones, Lieber, |     |Krekorian, Lieu, Ma,      |
          |     |Ma, Salas                 |     |Nava, Solorio             |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Nakanishi, Emmerson,      |Nays:|Walters, Emmerson, La     |
          |     |Gaines, Huff, Strickland  |     |Malfa, Nakanishi          |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY :  Creates the California Healthcare System (CHS), a  
          single payer health care system, administered by the California  
          Healthcare Agency (CHA), to provide health insurance coverage to  
          all California residents.  Makes CHS become operative when the  
          Secretary of Health and Human Services determines the Healthcare  
          Fund will have sufficient revenues to fund the costs to  
          implement this bill.   Specifically,  this bill  : 
           
          1)Establishes CHS in state government, to be administered by  
            CHA, an independent agency under the control of the Healthcare  
            Commissioner (Commissioner).

          2)Prohibits any health care service plan or health insurance  
            policy, except for CHS, from being sold in California for  
            services provided by CHS.

           Governance  :  
           
          3)Provides for a Commissioner, appointed by the Governor and  
            confirmed by the Senate, to be the chief officer of CHS and to  
            administer all aspects of CHA.

          4)Gives the Commissioner broad powers to establish CHS budget,  








                                                                  SB 840
                                                                  Page  2


            goals, standards, and priorities, set rates, and perform other  
            duties, as specified.

          5)Establishes conflict-of-interest rules for the Commissioner. 

          6)Requires the Commissioner to oversee the establishment of  
            several boards and committees, including:

             a)   The Healthcare Policy Board (Board), to set system goals  
               and priorities, determine the scope of services provided,  
               and determine when a change in premium structure is needed;

             b)   The Office of Patient Advocacy, headed by a patient  
               advocate;

             c)   The Office of Health Planning, to plan for the short-  
               and long-term health needs of California; 
             d)   The Office of Health Care Quality, to support the  
               delivery of high quality care and promote provider and  
               patient satisfaction;

             e)   The Healthcare Fund within the State Treasury, to be  
               administered by a director  appointed by the Commissioner;

             f)   The Public Advisory Committee, to advise the Board on  
               all matters of health insurance system policy;

             g)   The Payments Board, to establish and supervise a uniform  
               payments system and compensation plan for providers and  
               managers; and,

             h)   Partnerships for Health, to improve health through  
               community health initiatives, support the development of  
               innovative means to improve care quality, promote  
               efficient, coordinated care delivery, and educate the  
               public, as specified.

          7)Directs the Commissioner to carry out numerous duties,  
            including establishing health care regions; overseeing the  
            establishment of real and virtual locally-based integrated  
            service networks, as specified; creating a systematic approach  
            to measuring and managing care quality; ensuring that state  
            purchasing power achieves the lowest possible prices for CHS  
            without adversely affecting needed pharmaceutical research;  








                                                                  SB 840
                                                                  Page  3


            assessing projected revenues and expenditures to assure  
            financial solvency; negotiating and setting rates, fees, and  
            prices; implementing eligibility standards; establishing an  
            enrollment system; and, reporting to the Legislature and  
            Governor annually.

          8)Establishes in the Office of the Attorney General an Office of  
            the Inspector General for CHS with broad powers to  
            investigate, audit, and review the financial and business  
            records of individuals and entities that provide services or  
            products to the system and are reimbursed by the system. 

          9)Requires the operative date of this bill, except for  
            provisions related to the California Healthcare Premium  
            Commission (CHPC), to be the date that the Secretary of Health  
            and Human Services notifies the Legislature that he/she has  
            determined that the Healthcare Fund will have sufficient  
            revenues to fund the costs of implementing this bill.   
            Requires CHS to be operative within two years of the operative  
            date of this bill.  Prohibits any state entity from incurring  
            any transition or planning costs prior to the operative date  
            of this bill.  

          10)   States that the activities of CHPC are not subject to #9)  
            above, and those provisions in this bill related to CHPC  
            become operative on January 1, 2009.

          11)   Requires the Commissioner to:

             a)   Assess health plans and insurers for care provided by  
               CHS if private coverage extends into CHS' operational time;

             b)   Implement a means to assist persons displaced from  
               employment as a result of CHS;  

             c)   Appoint a transition advisory group whose duties include  
               recommending how to integrate health care delivery services  
               and responsibilities of several state departments into CHS;
             d)   Establish up to ten CHS regions composed of contiguous  
               counties grouped according to utilization patterns, health  
               care resources, health needs, geography, and population;  
               and, 

             e)   Appoint a regional planning director for each region to  








                                                                  SB 840
                                                                  Page  4


               administer health insurance regions with duties as  
               specified.

          12)   Requires regional medical officers to administer all  
            aspects of the regional office of health care quality with  
            duties as specified.

          13)   Requires each region to have a regional health planning  
            board consisting of 13 members appointed by the regional  
            planning director in order to advise and make recommendations  
            to the regional planning director on all aspects of regional  
            health policy.

           Funding  :  

           14)   Requires the Commissioner to maintain a reserve fund to  
            cover unforeseen costs, and requires the system to hold an  
            actuarially sound reserve at all times that is consistent with  
            appropriate risk-based capital standards to assure financial  
            solvency of the system.

          15)   Requires that moneys currently held in reserve by state  
            health programs, city and county contributions as determined  
            by the commissioner, and federal moneys for health care held  
            in reserve in federal trust accounts be transferred to the  
            state health care reserve account (reserve account) when the  
            state assumes financial responsibility for health care under  
            this bill that is currently provided by those programs.

          16)   Authorizes the Commissioner to adjust payments to  
            providers and managers that fail to meet contractual  
            performance standards.

          17)   Requires the Commissioner, if he/she determines that  
            statewide revenue trends indicate the need for statewide cost  
            control measures, to convene the Board to discuss the need for  
            cost control measures and immediately report to the public.

          18)   Provides that cost control measures may include:  changes  
            in the health insurance system or health facility  
            administration that improve efficiency; changes in the  
            delivery of health care services that improve efficiency and  
            care quality; postponement of introduction of new benefits or  
            benefit improvements; postponement of introduction of new  








                                                                  SB 840
                                                                  Page  5


            benefits or benefit improvements; adjustment of health care  
            providers budgets to correct for inappropriate utilization,  
            deficiencies in care quality or fraud; limitations on the  
            reimbursement of system managers and upper level managers;  
            limitations on health provider reimbursement; limitations on  
            aggregate reimbursements to manufacturers of pharmaceutical  
            and durable and nondurable medical equipment; deferred funding  
            of the reserve account within the Fund; imposition of  
            copayments or deductible payments according to certain  
            guidelines, including that no copayments be established for  
            preventive care; and, imposition of an eligibility waiting  
            period if the Commissioner determines that people are  
            immigrating to the state for the purpose of obtaining health  
            care through the system.

          19)   Authorizes the Commissioner, if cost control measures are  
            not sufficient to meet revenue shortfalls, to recommend other  
            measures including increased premium payments. 

          20)   Permits the imposition of copayments and deductibles  
            beginning in the third year of the system's operation.  Limits  
            the deductible and copayment to $250 per person and $500 per  
            family each year.  Prohibits any deductible or copayment for  
            Medi-Cal eligible persons.  Excludes from these limits  
            copayments for treatments by a specialist without a referral  
            from a primary care provider.  Permits the Commissioner to  
            establish copayment amounts for treatments by a specialist  
            without a referral.

          21)   Permits the postponement of new benefits or benefit  
            improvements, deferred funding of the reserve account, waiting  
            periods, or premium increases to only occur on a statewide  
            basis and only with the concurrence of the Commissioner and  
            Board.

          22)   Requires, when the state budget has not been enacted by  
            June 30th of any year, that moneys in the reserve account be  
            used to implement this bill.  Requires the State Controller,  
            if those reserve funds are exhausted, to make one or more  
            General Fund (GF) loans not to exceed an undetermined amount  
            to the Healthcare Fund.

          23)   Directs the Commissioner to annually prepare a system  
            budget that specifies a limit on total annual expenditures and  








                                                                  SB 840
                                                                  Page  6


            establishes an allocation for each health care region that  
            covers a three-year period.

          24)   Requires the Commissioner to limit the growth of spending  
            on a statewide and regional basis by reference to average  
            growth in state domestic product across multiple years,  
            population growth, and other factors.

          25)   Directs the Commissioner to annually set the total funds  
            to compensate managers and providers.

          26)   Allows providers who choose to be compensated by CHS to  
            choose whether to be reimbursed as fee-for-service (FFS)  
            providers or as providers employed by or under contract in  
            health care systems.  Prohibits health care providers who  
            accept any payment from the system from billing a patient for  
            any covered service, except as authorized by the Commissioner.

          27)   Allows integrated health care systems to choose to be  
            reimbursed on the basis of a capitated budget, as specified.

          28)   Requires FFS providers to choose representatives to  
            negotiate rates with the CHS; requires that providers employed  
            by, or under contract with, health care systems be represented  
            by their employers or contractors for rate negotiation with  
            CHS.  Requires FFS providers to be paid within 30 business  
            days of filing claims.

          29)   Requires CHS to set binding rates for providers, if an  
            agreement on provider reimbursement is not reached according  
            to a timetable, as specified.

          30)   Requires regional planning directors to negotiate  
            operating budgets with regional health care entities.

          31)   Requires unions representing employees in health care  
            systems to represent the employees in negotiations with the  
            regional planning directors.

          32)   Requires that compensation for health system employees,  
            which was determined through employer-union negotiations  
            before implementation of this bill, be determined by CHS-union  
            negotiations on implementation.









                                                                  SB 840
                                                                  Page  7


          33)   Allows margins generated by health facilities operating  
            under a CHS operating budget, except those margins gained  
            through inappropriate limits on access to care or compromises  
            in the quality of care, to be retained and used to meet the  
            healthcare needs of the population.

          34)   Directs the Commissioner to establish budgets for  
            prescription drugs and medical equipment, to support research  
            and innovation, and to support training and education of  
            providers.

          35)   Limits administrative costs on a system-wide basis to 10%  
            of system costs within five years of completing the transition  
            to CHS and to 5% of system costs within 10 years.

          36)   Requires the Commissioner to adjust CHS budget so that  
            aggregate spending in the state on health care does not exceed  
            spending under this bill by more than 5%.  

          37)   Prohibits a health care provider who accepts any payment  
            under CHS from billing a patient for any covered service.

          38)   Requires, until the time that the role of all other payers  
            for health care have been terminated, that health care costs  
            be collected from collateral sources when services are  
            provided under a private insurance policy or other collateral  
            source.

          39)   Defines "collateral sources" to include insurance  
            policies, health plans, employers, employee benefit contracts,  
            government benefit programs, judgments for damages, and any  
            liable third party, and to exclude a federally preempted  
            contract or any service prohibited from subrogation by federal  
            law. 

           CALIFORNIA HEALTHCARE PREMIUM COMMISSION  :

          40)   Establishes CHPC, composed of 21 members, including 11  
            elected and appointed state officials, three health  
            economists, and seven representatives of business, labor, and  
            non-profit universal health care and taxation policy  
            organizations.

          41)   Requires the CHPC to develop an equitable and affordable  








                                                                  SB 840
                                                                  Page  8


            premium structure that will generate adequate revenue for the  
            Healthcare Fund and ensure stable and actuarially sound  
            funding for the health insurance system that satisfies the  
            following criteria:

             a)   Be means-based and generate adequate revenue to  
               implement this bill;

             b)   To the greatest extent possible, ensure that all income  
               earners and all employers contribute a premium amount that  
               is affordable and that is consistent with existing funding  
               sources for health care in California;

             c)   Maintain the current ratio for aggregate health care  
               contributions among the traditional health care funding  
               sources, including employers, individuals, government, and  
               other sources;

             d)   Provide a fair distribution of monetary savings achieved  
               from the establishment of a universal health care system;

             e)   Coordinate with existing, ongoing funding sources from  
               federal and state programs;

             f)   Be consistent with state and federal requirements  
               governing financial contributions for persons eligible for  
               existing public programs;

             g)   Comply with federal requirements; and,

             h)   Include an exemption for employers and employees who are  
               subject to a collective bargaining agreement and  
               participate in a Taft-Hartley Trust Fund that pays the  
               employer and employee share of the premium to the  
               Healthcare Fund.

          42)   Requires CHPC, on or before January 1, 2011, to submit a  
            detailed recommendation for a premium structure to the  
            Governor and the Legislature, and, at least 90 days prior to  
            that submission, to make a draft recommendation available for  
            public comment, and requires CHPC to be funded upon an  
            appropriation by the Legislature in the Budget Act of 2009.

           GOVERNMENT PAYMENTS  :  








                                                                 SB 840
                                                                  Page  9



           43)   Requires the Commissioner to seek necessary approval so  
            that all current federal payments for health care are paid to  
            CHS, which would then assume responsibility for all benefits  
            and services paid by the federal government with those funds.

          44)   Requires the Commissioner to seek all necessary waivers or  
            agreements so that all current state payments for health care  
            are paid directly to CHS.

          45)   Requires the Commissioner to establish formulas for  
            equitable contributions to CHS from counties and other local  
            government agencies.

          46)   Provides that CHS be secondarily responsible for providing  
            care to the extent that the federal, state, or county programs  
            are not transferred to CHS.

          47)   Requires CHS to incorporate Medi-Cal and Medicare  
            payments, including premiums, copays, and deductibles, to the  
            extent that the Commissioner obtains authorization to do so.

          48)   Requires the Commissioner to seek all reasonable means to  
            secure a repeal or waiver of any provision of federal law that  
            preempts any part of this bill and, in the event that  
            preemption is not waived, requires the Commissioner to  
            promulgate conforming regulations.

          49)   Requires employees, to the extent permitted by federal  
            law, entitled to health or related benefits under a contract  
            or plan that, under federal law, preempts provisions of this  
            bill to first seek benefits under that contract or plan before  
            receiving benefits from CHS.

           Eligibility  :  

           50)   Deems all California residents eligible for CHS, and bases  
            residency on physical presence in the state with the intent to  
            reside.

          51)   States that it is the intent of the Legislature for CHS to  
            provide health care coverage to state residents who are  
            temporarily out of the state.









                                                                  SB 840
                                                                  Page  10


          52)   Provides that visitors to the state who receive care under  
            CHS will be billed for all services rendered.

          53)   Deems individuals who are eligible for health benefits  
            from California employers but working in another jurisdiction  
            to be eligible for benefits under CHS if they make certain  
            payments.

          54)   Requires that individuals who arrive at a health facility  
            unable to document eligibility because of physical or mental  
            conditions be deemed eligible for services under CHS.

          55)   Requires the Commissioner to establish an eligibility  
            waiting period and other criteria needed to ensure the fiscal  
            stability of CHS if there is an influx of people into the  
            state for the purposes of receiving medical care.

           Benefits  :  

           56)   Allows any eligible individual to receive services under  
            CHS from any willing professional health care provider.

          57)   Provides that covered benefits include all care determined  
            to be medically appropriate by the consumer's health care  
            provider.

          58)   Provides that covered benefits include, but are not  
            limited to, all of the following:

             a)   Inpatient and outpatient health facility services;

             b)   Inpatient and outpatient professional health care  
               provider services by licensed health care professionals;

             c)   Diagnostic imaging, laboratory services, and other  
               diagnostic and evaluative services;

             d)   Durable medical equipment including prosthetics,  
               eyeglasses, and hearing aids and their repair;

             e)   Rehabilitative care;

             f)   Emergency transportation and necessary transportation  
               for health care services for disabled and indigent persons;








                                                                  SB 840
                                                                 Page  11



             g)   Language interpretation and translation for health care  
               services; 

             h)   Child and adult immunizations and preventive care;

             i)   Health education;

             j)   Hospice care;

             aa)   Home health care;

             bb)   Prescription drugs listed on the formulary;

             cc)   Mental and behavioral health care;

             dd)   Dental care;

             ee)   Podiatric care;

             ff)   Chiropractic care;

             gg)   Acupuncture;

             hh)   Blood and blood products;

             ii)   Emergency care products;

             jj)   Vision care;

             aaa)         Adult day care;

             bbb)         Case management and coordination to ensure  
               services necessary to enable a person to remain in the  
               least restrictive setting;

             ccc)         Substance abuse treatment;

             ddd)         Care of up to 100 days in a skilled nursing  
               facility following hospitalization;

             eee)         Dialysis;

             fff)         Benefits offered by a bona fide church, sect,  








                                                                  SB 840
                                                                  Page  12


               denomination, or organization whose principles include  
               healing entirely by prayer or spiritual means;

             ggg)         Chronic disease management;

             hhh)         Family planning services and supplies; and,

             iii)         Early and periodic screening, diagnosis, and  
               treatment, as specified, for persons less than 21 years of  
               age.

          59)   Permits the Commissioner to expand benefits beyond the  
            minimum outlined above when expansion meets the intent of this  
            bill and can be sufficiently funded;

          60)   Excludes the following services from coverage by CHS:

             a)   Health care services determined by the Commissioner and  
                                           chief medical officer to have no medical indication;

             b)   Services primarily for cosmetic purposes, as specified;

             c)   Private rooms in inpatient health facilities; and,

             d)   Services of a provider or facility that is not licensed  
               by the state.

          61)   Prohibits copayments and deductibles for preventive care  
            or when prohibited by federal law. 

          62)   Makes state residents in a family whose income does not  
            exceed 200% of the federal poverty level (FPL) eligible for  
            no-cost Medi-Cal and entitles them to not less than the full  
            scope of benefits available under the Medi-Cal program, as  
            provided on January 1, 2009.

           Delivery of care  :  

           63)   Allows all licensed and accredited health care providers  
            in the state to participate in CHS. Prohibits a provider from  
            refusing to care for a patient solely on the basis of  
            discrimination that is prohibited by the Fair Employment and  
            Housing Act.









                                                                  SB 840
                                                                  Page  13


          64)   Allows individuals to select a primary care provider, and  
            allows women to select an obstetrician-gynecologist in  
            addition to a primary care provider.

          65)   Requires individuals enrolling in integrated health care  
            systems to retain membership for at least one year after an  
            initial three month evaluation period during which they can  
            withdraw at any time.

          66)   Requires patients to have a referral from a primary care  
            or emergency care provider, or obstetrician-gynecologist, to  
            see a specialist, but not to see a dentist, or an optometrist  
            or ophthalmologist for a routine vision exam.  Permits a  
            patient to see a specialist without a referral if the patient  
            agrees to pay the cost of care, or a copayment, if implemented  
            by the Commissioner.  Allows a patient to appeal the denial of  
            a referral through the dispute resolution mechanism  
            established by the Commissioner.

          67)   Allows a specialist provider to serve as a patient's  
            primary care provider if patient and the specialist provider  
            agree, and the specialist provider agrees to coordinate the  
            patient's care. 

          68)   Permits the Commissioner to establish financial  
            arrangements with medical providers in other states and  
            foreign countries in order to facilitate coverage for  
            California residents who are temporarily out of the state.

          69)   Permits a patient, during the first six months of CHS  
            operation, to see a specialist provider without referral or  
            copayment, if the patient had been receiving care from that  
            specialist prior to CHS.

          70)   Assigns the Director of the Office of Health Planning  
            various duties, including establishing performance criteria  
            for health care goals, assisting health care regions in  
            developing operating and capital budgets, and estimating the  
            health care workforce and facilities required to meet the  
            needs of the population.

          71)   Requires the Office of Health Care Quality to be headed by  
            the chief medical officer and to establish processes for  
            measuring the quality of care delivered in the health  








                                                                  SB 840
                                                                  Page  14


            insurance system.

          72)   Assigns various duties to the chief medical officer,  
            including establishing evidence-based standards of care for  
            CHS and implementing systems to measure quality of care and  
            correct quality of care problems.

          73)   Requires the patient advocate, in consultation with the  
            chief medical officer, to do all of the following:

             a)   Establish a grievance system;

             b)   Establish an independent medical review system to act as  
               an independent, external process to provide timely  
               examinations of disputed health care services and coverage  
               decisions, as specified;

             c)   Publicize information concerning the rights of  
               enrollees, including the right to request an independent  
               medical review; and,

             d)   Expeditiously review requests for independent medical  
               reviews and to immediately notify enrollees whether the  
               request has been approved.
              
           EXISTING LAW  does not provide a system of universal health care  
          coverage for California residents.  Provides for the creation of  
          various programs to provide health care services to persons who  
          have limited incomes and meet various eligibility requirements.   
          These programs include the Healthy Families Program administered  
          by the Managed Risk Medical Insurance Board, and the Medi-Cal  
          program administered by the Department of Health Care Services.   
          Existing law provides for the regulation of health care service  
          plans by the Department of Managed Health Care and health  
          insurers by the Department of Insurance.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee analysis:  

          1)Annual California single payer statewide costs would exceed  
            $200 billion, assuming full-year costs starting in fiscal year  
            2011-12.  This figure does not account for spending outside of  
            the system, which would remain authorized under specified  
            circumstances.  The system costs are in lieu of current  








                                                                  SB 840
                                                                  Page  15


            public, employer, worker, and individual costs. 

          This bill generates these costs by ending the current system of  
            health coverage and providing a broad set of health benefits  
            to all state residents.  In order to pay the costs of a single  
            payer system, financing includes a series of taxes,  
            redirection of a variety of current health program funding,  
            and securing state waivers to aggregate federal and local  
            health care funds.

          2)Key revenue proposal stalled:  SB 1014 (Kuehl), containing key  
            single payer revenue provisions was held in the Senate Revenue  
            & Taxation Committee in 2007.  As proposed to be amended in  
            the Senate, SB 1014 includes an 8.17% payroll tax on employers  
            and a 3.78% payroll tax on employees. 

          3)Cost and revenue estimates:  Two California-specific analyses  
            of single payer proposals have been completed in response to  
            SB 840, SB 1014, and a prior version of the author's single  
            payer plan, SB 921 (Kuehl) in the 2004 session.  (SB 921 was  
            referred to, but never heard by, this committee.)  

             a)   The Lewin Group analysis of SB 921, published in 2005,  
               estimated total expenditures under the single payer program  
               would be $167 billion in 2006 and would increase to $262  
               billion in 2015.  Revenues assumed in the Lewin analysis  
               and later proposed in SB 1014, were payroll taxes of 8.17%  
               (employers) and 3.78% (workers). 

             Key factors that reduce the viability of the Lewin single  
               payer cost and revenue trajectories in the current  
               environment: i) Lewin estimates were largely built in 2004;  
                   ii) actual wage expenditure and revenue information has  
               become available; and, iii) health costs have escalated  
               more sharply than assumed in the earlier period.  

             b)   The Legislative Analyst's Office (LAO) analysis of  
               single payer impacts was published in June 2008.  The LAO  
               reviewed and updated the Lewin analysis with respect to  
               single payer costs and revenues.  The LAO estimated annual  
               costs of $210 billion in 2011 growing to $252 billion in  
               2015.  A key difference from the Lewin analysis is that the  
               LAO assumed that Medicare would remain separate from  
               California's single payer system.  In contrast, Lewin  








                                                                  SB 840
                                                                  Page  16


               assumed Medicare would be folded into California's system.  
               Federal California Medicare spending was $32 billion in  
               2004, the most recent year for which data is published.

             The LAO forecast of costs and revenues over the 2011-2015  
               period shows an estimated annual shortfall, with costs  
               outpacing revenues, of $42 billion in 2011 and $46 billion  
               in 2015.  One-half of this shortfall is due to updated  
               medical cost data over the 2006-2011 period.  Another 40%  
               of the shortfall is attributed to California-specific and  
               actual wage data, resulting in lower revenues than the  
               Lewin report.  The Lewin report relied on national survey  
               data rather than actual California data.  The remaining 10%  
               of the shortfall highlighted by the LAO is due to factors  
               such as assuming a reserve, a difference in the  
               availability of local funding, costs for administration,  
               health care utilization changes, and costs of drug  
               purchasing. 

             According to the LAO, payroll taxes for employer and  
               employees would need to be 16%, combined, for the single  
               payer costs and revenues to balance at the start of the  
               forecast period.  These taxes are higher than the 12%,  
               combined, taxation rate proposed in         SB 1014. 

          4)Potential General Fund impacts:  There are numerous GF impacts  
            possible under a single payer system.  The most significant  
            impact would be if major shortfalls, such as those outlined by  
            the LAO, were to occur.  Because a single payer system,  
            established by this bill, is a state-run system, the state GF  
            would be obligated in both short- and long-term scenarios to  
            bolster a system with GF augmentations or loans.  Any cost  
            overruns or unpredicted expenses would generate major GF  
            pressures. 

          Additional effects not accounted for in the LAO forecast of  
            specific costs and revenues include the following GF impacts:   
            reductions in tax revenue from insurance companies, economic  
            and labor market disruptions, and one-time implementation  
            costs.  Additional revenues that were not included in the LAO  
            forecast are increased tax revenues due to the elimination of  
            many health-related tax deductions leveraged by business and  
            families under current law. 









                                                                  SB 840
                                                                  Page  17


          5)Savings and cost avoidance:  In addition to the cost and  
            revenue estimates referenced above, research, including both  
            the Lewin and LAO analysis, indicates major reductions in  
            particular types of health spending are likely under a single  
            payer system.  Savings include a major reduction in  
            administrative overhead, which is a significant portion of  
            expenditures in the current system.  For example, Lewin  
            estimated a $20 billion reduction in overhead related to  
            insurers, hospitals, and physicians.  In addition, a single  
            payer system, if implemented effectively with respect to cost  
            control, may provide greater opportunity to stabilize medical  
            inflation compared to our current rate of health care spending  
            growth.

           COMMENTS :   According to the author, this bill is needed because  
          existing law has led to a highly fragmented health insurance and  
          delivery system that is administratively complex and that  
          annually diverts billions of dollars in health care spending  
          from direct health care services to administrative costs and  
          that provides care based on income and insurance status rather  
          than medical need.  According to the author, intricate and  
          complicated interactions with public and private health  
          insurance programs, providers, and regulatory agencies are  
          confusing and time-consuming for consumers and providers alike. 

          The author believes that existing law provides no mechanism for  
          stabilizing the growth in health care spending that is quickly  
          outpacing growth in gross domestic product.  Absent budgeting  
          capabilities, growth in health care spending is rapidly  
          surpassing our ability to afford current levels of benefits or  
          to add new benefits related to technological improvements.  The  
          author notes that health care providers spend increasing amounts  
          of time navigating the porous network of public and private  
          health insurance programs.  For example, the University of  
          California - San Francisco Children's Hospital works with nearly  
          80 different health insurance policies and public programs each  
          with its own benefits package, formulary schedule, and rate of  
          co-payments and deductibles.

          The author states that 20 to 30% of the health care dollar is  
          spent on administration (excluding profit).  Businesses, unions,  
          and other institutions that provide health insurance are  
          particularly harmed under the fragmented system.  While health  
          insurance premiums are rising unpredictably, often by as much as  








                                                                  SB 840
                                                                  Page  18


          20% in one year, employers, large and small, unions, and even  
          powerful purchasers such as the California Public Employee  
          Retirement System, are no longer able to stabilize health care  
          costs or benefits through negotiations. 

          According to the author, our current system fragments and  
          dilutes the purchasing power of Californians with regard to  
          pharmaceuticals and medical equipment.  The author argues we are  
          paying about 50% more than Europeans, Australians, Japanese, and  
          Canadians for the same drugs produced by the same companies.   
          This could be changed if California implemented bulk purchasing  
          of pharmaceuticals and medical equipment under this bill.  The  
          author reports that the United States leads the world in health  
          care spending at about $5,000 per person per year on average,  
          more than twice the average in other industrialized countries.   
          Despite our high level of spending, the U.S. ranks 37th in  
          population-based health outcome measurements according to the  
          World Health Organization, well below the rankings of all other  
          industrialized nations.  This is true because a large portion of  
          the $5,000 is not going to health services and because nearly  
          20% of the population has no health insurance.  The author  
          believes this bill corrects both of these problems.

          According to the California HealthCare Foundation, an average of  
          6.6 million Californians were uninsured over the three year  
          period of 2004-2006.  California has the largest number of  
          uninsured residents in the United States and the eighth largest  
          proportion of uninsured in the nation (20.5% of the population).  
           Of the uninsured, 18% were under age 18.  Fifty-five percent of  
          Californians have employment based coverage, 16% get coverage  
          through Medicaid, and 9.2% purchase coverage through the  
          individual insurance market.   

          The Foundation also reports that employer-based coverage in  
          California from 1987-2005 declined from 64.6% to 54.7%, with  
          government sponsored coverage increasing from 15.7% to 18.7%,  
          individually purchased coverage increasing from 6.8% to 9.2% and  
          the percentage of uninsured increasing from 17.6% to 21.4%.  The  
          California Healthcare Foundation reports the median employer  
          premium contribution in California firms offering coverage in  
          2005 as a percentage of payroll was 7.7%.

          Thirty-six percent of the uninsured in California have incomes  
          below $25,000 annually, and 53% of the uninsured have annual  








                                                                  SB 840
                                                                  Page  19


          incomes below 200% FPL.  Fifty-nine percent of the uninsured are  
          Latino and Latinos are much more likely to be uninsured than any  
          other ethnic group.  

          Supporters of this bill argue that despite incremental reforms  
          enacted over the last decade, it has become clear that our heath  
          care system cannot be fixed using partial measures that do not  
          address its structural problems.  Supporters note that six  
          million Californians are uninsured today, most of whom are in  
          working families, and that millions more are underinsured.  They  
          cite statistics that half of all bankruptcies in the U.S. are  
          related to medical costs and that three-fourths of those  
          bankrupt families had health insurance coverage at the time they  
          became ill or injured.  Supporters believe this bill corrects  
          the underlying problems of inefficiency, waste and partial  
          coverage.  According to supporters, all Californians lose when  
          emergency rooms are overcrowded with uninsured patients, when  
          billions of dollars are wasted on administrative costs, and when  
          insurance premiums become unaffordable and benefits are reduced.  
           Supporters argue that we need a health care system that works  
          for everyone, that treats everyone equally, and that provides  
          the security of knowing that no Californian will ever lose their  
          access to health care because they have lost their job, have a  
          pre-existing condition or simply cannot afford it.  Supporters  
          contend that long waiting times in Canada reflect differences in  
          per capita spending, not a problem inherent in a single payer  
          system; they report that Canada spends roughly $2,000 per  
          person, while CHS will be funded at approximately $6,000 per  
          person.  

          According to supporters, the single payer system proposed in  
          this bill increases personal choice, because in the current  
          system, patients are limited to lists of providers selected by  
          an insurance company, while CHS allows Californians to choose  
          any licensed primary care provider and dentist.  Furthermore,  
          CHS is a not-for-profit system, so "profits" remain within the  
          health system, improving services, research and provider  
          reimbursement.  Supporters argue that impartial studies show  
          that California can fully insure all its residents for $8  
          billion less than what is spent on health care today in the  
          state.
          Opponents argue that single-payer systems promise but do not  
          guarantee access to those who need it most.  They claim  
          statistics from countries that have implemented single-payer  








                                                                  SB 840
                                                                  Page  20


          systems underscore the point that when the government funds  
          health care, access is limited by budget constraints and care is  
          therefore rationed.  According to statistics cited by opponents:  
          more than 1.3 million Canadians (out of a total population of 26  
          million) are waiting for medical services, including 212,990 who  
          are waiting for surgical procedures; 45% of Canadians who are  
          waiting for services describe themselves as being in pain;  
          Canadian patients wait an average of six weeks after referral  
          from a primary care physician to see a specialist, and then wait  
          another 7.3 weeks on average before they receive treatment; and,  
          63% of Canada's x-ray equipment is out of date.  Opponents also  
          argue that a danger of single-payer systems is that they tend to  
          delay covering the latest medical technology, often at the  
          expense of patients.  According to opponents, when compared with  
          Canada, on a per capita basis, the U.S. has ten times as many  
          MRI units, eleven times as many cardiac catheterization units,  
          and three times as many open-heart surgery units.  Opponents  
          report that a recent Canadian Medical Association survey found  
          that 49% of the respondents said they would welcome an approach  
          that would mix private health care into their public health care  
          system.

          According to opponents, this bill will result in a  
          multi-billion-dollar-tax increase on Californians due to the  
          costs of transitioning to a new system and the ongoing costs,  
          which opponents do not believe will be less than our current  
          system.  Opponents believe the bulk of the administrative costs,  
          which proponents of the bill hope to save, will not be  
          eliminated under a single-payer system.  These include the costs  
          of claims payment, utilization review, disease and care  
          management programs, the development of drug formularies, and  
          customer service functions, which make up the majority of what  
          is commonly called "administration." Opponents state that none  
          of these functions are wasteful or inefficient and none can be  
          ignored under a single-payer system. 


           Analysis Prepared by  :    John Gilman/Scott Bain / HEALTH / (916)  
          319-2097 


                                                                FN: 0006740