What to include in legislative economic feasibility studies

Date and time:
Saturday, August 23, 8:45AM-10:00AM, California Nurses Association HQ, Room B and
Saturday, August 23, 10:15AM-11:30AM, California Nurses Association HQ, Room B

Presenter: Prof. Gerald Friedman, University of Massachusetts at Amherst

Workshop Description: Studies of the economic impact of state single payer systems: what they are, what they might contain, what they have found, and how you can use them.

Notes by Presenter and Conference Participants:
Economic impact study (EIS) with Dr. Gerald Friedman
The value of the economic study is to answer your critics:  Can we afford SP?

Identify allies:  Who will benefit, and by how much?  

Clarify the program:
EIS needs decisions on coverage, actuarial rate, and the tax program.  What benefits does it include, e.g., does it include LTC?
EIS identifies the links among decisions that have to be considered

Identify enemies and strategies to answer them.
Politics:  Think about transition programs from now to SP.
You are not preaching to the choir, you are motivating the committed.

Coverage affects savings on BIR and utilization affects funding needs and how much to raise taxes, remove premiums and its impact on employment and income.

America has a uniquely inefficient health care finance system.  Either the US residents live 6 years short of the life expectancy that we are spending for or $6500 is overspent for the life expectancy that we get compared to other OECD countries.  Health care has nothing to do with life expectancy in the US.

Where is the waste?  37% of spending is waste?  11% is over treatment, failure of care delivery, failure of care coordination, monopolistic pricing (5.1%), excess administration (9.2%), fraud (3.4%)

A review of state level EIS studies.  
Every study found savings, but some did not count drug prices (Lewin).   The savings are large numbers.

Provider billing: spend 8 times as much to get paid by insurers
Sponsors:  Medical Loss Ratio, Reduced monopolistic profits
Drugs and medical devices? Hospitals?  Insurance hospital and physician rates lowered to median level using Mass data
Elite physician practices?
Simplified fraud reduction:  guess (1% of spending in Mass example)
Changes in medical practice?
Incentives for good practice
Improved records and epi data.  The data under SP is more robust.  Practice style variations
Patient centered medical homes?  ACOs?

SP gives immediate savings and projected into the future, savings grows in time.  

Transition costs getting from now to SP: Things to think consider
Unemployment of current workers
For profit facilities
Start up costs
Spikes in utilization, esp. LTC?
How long before savings are realized?
Bargaining leverage with drug companies, hospitals, physicians
Will we be able to realize Canadian efficiencies?

What is the impact on the rest of the non-health state budget?

Advantages of SP
Access for all uninsured
Standardize physician and hospital rates
Easier access for everyone by raising the actuarial rate of Medicaid leads to higher utilization
(3% increase in Canada in 1971)
It would be even higher utilization in the US
There is a temptation to lower it to “save” costs
Decrease utilization undermines idea of universal coverage and insurance
Risks undermining savings by encouraging private insurance to fill gaps

Medicaid eligibility has admin expense of 5.7% compared to 1.8% for Medicare because it means tests low income.

ACA helps on costs
Lowers uninsured, less cost to extend coverage
Raises MA fee rate for primary care
But rising copays and deductibles mean more admin costs

Funding single payer choices:
Payroll tax
But regressive because exempts non wage income
Unearned income:  capital gains, dividends, profits, rents
Consumption tax? It is hard to track consumption. 
Sales tax is better to track.

SP doubles the tax revenue either 7% flat income tax, payroll tax of 10%

Current system is highly “regressive”  
Lump sum premiums and copays puts heavier burden on poor
Any financing will be redistributive.  A flat tax is better than current system
Progressive tax is desirable but hard to pass

Shift helps businesses providing health insurance to workers
SP savings passed on to businesses
Spreading costs to free riding businesses
Spreading costs to other forms of income
Money spent locally rather than out of state insurance
Major savings to businesses and governments with retiree health care costs

Impact on broad economy
Savings (on BIR and reduced monopoly profits) come from some people’s income
Question of job loss overstated
Lost monopoly profits
Savings mean more for others depending in part on type of financing system
More consumption
Business and government savings
Lower costs for business means more investment, jobs, hiring
Improved health care means healthier population

Winners and losers
All gain from employment boom
Poor and middle classes win
Privileged monopolists, owners of hospital empires and insurance companies lose
Employers who had provided health insurance gain
Employers (many small) who had not provided insurance lose

Employment and other effect
Employment increases
Some employment loss is out of state (claims adjusters_ (except CT, insurance capital)
Employers gain on out of state competitors
Shift towards labor intensive technologies

Estimates of employment
Increased competitive position for states’s business.  e.g., Illinois 107K jobs

Productivity gains
Ending job lock
Encouraging entrepreneurship
Healthier population

Local governments save big

Hospitals are being paid fee for service and not global budgets. Creates budget to underserve global budgets.
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Slideshows, Photos, and Video:

Video of the workshop (by Joan Simon):

Professor Gerald Friedman, University of Massachusetts at Amherst (photo by Healthcare-NOW!):

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