Notes on the Financial Study of the Healthy California Act (SB-562)

Submitted by a Member of Physicians for Progress

There were 4 basic components to the financial study on SB562 (economist Robert Pollin of UMass Amherst — a key adviser to Gov Brown in the past!):

I. Estimate the cost of bringing healthcare to everyone in CA under our current system

A. Current annual CA healthcare expenditures ~$370 billion (this is what we’re already spending — compare this to recent estimate of $400 billion for this plan without any improvements in efficiency!)…under the current system, 2.7 million are still uninsured and 36%, or 12 million, are underinsured  (meaning that deductibles/copays are so high that they’re discouraged from using the system)…

B. Starting place for analysis was to figure out what would it take to bring un/underinsured up to full insurance under the current system, without any of the improvements below — they figure this would add 9.6% to total costs, bringing total costs a bit above $400 billion

II. Determine what would the cost savings of doing so would be under the SB562/healthy california plan 


1. STRUCTURAL CHANGES — would bring costs down by 13% by…
–Reducing administrative costs
–Lowering pharmaceutical prices — VA and Canadian models being looked at, could bring down costs by as much as 30%
–All service provision would be reimbursed at Medicare rates — which falls between Medi-cal and private rates.

2. EFFICIENCIES IN SERVICE PROVISION — unnecessary services, inefficiently-delivered services, missed prevention opportunities, and fraud — we are currently wasting 19% of all expenditures on these categories of inefficiency. Conservatively, we could get 5% cost savings out of this.

B. Together, these measures would result in 18% savings —> brings down annual cost estimate to $330 billion

III. How would we finance SB562?

A. Public sources of funding: currently cover 70% of total costs (medicare, medical, other — assume these would still cover = $225 billion)

B. So where would we get $106 billion extra?

1. Two new taxes:
—2.3% gross receipts business tax: proposal is that first 2 million of all gross receipts are exempt (so no new burden on small businesses) —> $92.6 billion in new revenue
—Sales tax increase 2.3% on non-essential items only—food/housing/utilities will be exempt from sales tax, and Medical-eligible families will receive a 2.3% tax credit, negating the impact completely —> $14.3 billion in new  revenue

IV. What would the impact of SB562 be on individual/business finances

  • low-income families on medical — HC costs will go down by 5%
  • lower-middle class tier — 1.2% HC cost decrease
  • middle-income — anywhere from 2.6% to 9% (depending on whether they get insurance through work — the former — or not — the latter)
  • top 20% — will pay more, but not much! (right now, top 20% is getting a net
  • subsidy — 1% of their income gets paid by HC system due to write-offs! UnderSB562, it would only be an increase in 0.6% of their net income that they have to pay!

Businesses — “this measure is really good for business!”

  • small businesses that don’t currently provide insurance are exempt from the gross receipts tax, so no downside for them
  • small businesses that currently provide insurance will see their costs go down by 22% relative to payroll (!)
  • middle-size businesses: net benefit of 13% relative to payroll
  • large businesses: net benefit of 5.7% of payroll
  • very large: net benefit of 0.6% of payroll