Uncommon Sense

June 23, 2017

Details of California’s New Single Payer Health Insurance Plan

Filed under: Economics,Politics — Steve Ruis @ 9:32 am
Tags: , ,

My original home state, California, is moving ahead with a plan to create a single-payer, state-run health insurance program for all Californians. If California pulls this off, with over a tenth of the entire population of the U.S.,  it will be a massive demonstration project to use as a model for the whole country. (If it does work, expect the Republicans to drop their line about the states being the laboratories of democracy.”)

The difficulty, so far, is to how pay for this service. According to the Los Angeles Times “How would California cover this $331-billion bill? For the most part, much the same way it covers healthcare spending right now. Roughly 70% of the state’s current spending is paid for through public programs, including Medicare and MediCal. This funding — totaling about $225 billion — would continue, as is required by law. It would simply flow through Healthy California rather than existing programs.
“The state would still need to raise about $106 billion a year to cover the cost of replacing private insurance. This could be done with two new taxes.
“First, California could impose a gross receipts tax of 2.3% on businesses, but with an exemption for the first $2 million of revenue. Through such an exemption, about 80% of all businesses in California — small firms — would pay nothing in gross receipts tax, and medium-sized businesses would pay an effective tax rate of less than 1%.
“Second, the state could institute a sales tax increase of 2.3%. The tax would not apply to housing, utilities, food purchased for the home or a range of services, and it could be offset for low-income families with a 2% income tax credit.

Something doesn’t add up here, but I do not have all of the details. What doesn’t add up for me is the money currently being paid for health care as a “fringe benefit” to workers. In my last job, my health insurance benefit constituted about 7% of my wages. Since employee costs for my company constituted 80% of the total cost of doing business, this means that those benefits cost about 5.5% of the entire enterprise’s budget. If the state supplies health care for a 2.3% tax, businesses are getting a windfall of about 3% of their total expenditures. What happens to that money? Does it go to employees (it is their benefit) or does it revert to employers (as a windfall)?

I know this is a simplistic approach, but my thinking was that employed people were already paying from $6000 to $17,000 per year for their insurance (either as a benefit or out-of-pocket). Note these are rough estimates based upon individual and “family of four” values I have read. Those monies are currently being spent and if those insurance policies became moot and a cheaper state-sponsored policy (cheaper because overhead would be lower, a la Medicare), there would be no need for additional taxes, etc. for those folks, who are still the largest segment of the market. In other words, instead of paying for a business-based fringe benefit or a separate policy, those monies go to the employees and then are paid in taxes to provide the state-run health insurance. There would be no need of a sales tax per se.

Of course, it all depends on the numbers, but I think the drafters of these plans need to provide some information regarding the disposition of the amounts of money currently being paid by employers for health insurance benefits.

Addendum
According to Zane Benefits “In 2015, the average company-provided health insurance policy totaled $6,251 a year for single coverage. On average, employers paid 83 percent of the premium, or $5,179 a year. Employees paid the remaining 17 percent, or $1,071 a year.

“For family coverage, the average policy totaled $17,545 a year with employers contributing, on average, 72 percent or $12,591. Employees paid the remaining 28 percent or $4,955 a year.

Note that when they say “Employers paid,” this actually constitutes part of an employee’s compensation as agreed or negotiated into the employment contract. The question is: what happens to these negotiated sums when another entity takes over the health insurance function? Should the employers keep the money previously paid for private insurance and pay a tax or should the employees get that money and then pay a tax for the service.

Does this make a difference? Hell, yes. If we get the money and then pay the tax, then we can see how much of our tax money is actually going out in taxes. If the businesses pay it, it is hidden from us, plus the businesses have lobbyists who would be chiseling against that tax continuously.

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