CALIFORNIA ELECTIONS / PROPOSITION 186 : Single-Payer System Would Balloon State Budget, Study Says

Proposition 186, the sweeping proposal to overhaul the health insurance system on the Nov. 8 ballot, would add a huge burden to the state budget--$72 billion more than now being projected--over its first five years, according to a study released Wednesday.

As a result, the study said, the mammoth tax bite called for by the single-payer initiative could grow even larger than its supporters have calculated, amounts already in the tens of billions of dollars.

The analysis by a national accounting firm said legislators would be hard-pressed to find money to finance the proposed state-run health system, which promises cradle-to-grave health coverage for all legal California residents.

Even so, the study concludes that those big taxes could mean big health care savings. It says that California businesses and individuals would spend significantly less under the new plan than they do now in health insurance premiums and out-of-pocket medical expenses, and would get more health benefits.

On average, family spending on health, even including the 2.5% levy on taxable personal income called for by the initiative, would decline by about 60%, said the study--assuming taxes are not raised further to cover added expenses.

The size of the projected savings over a five-year period is perhaps more breathtaking than the deficits--$112 billion.

Talk of the higher taxes, lower out-of-pocket expenses and staggeringly large deficits were part of an extraordinarily intense debate that developed in a downtown hotel over what is possibly the most complex initiative ever offered to California voters.

The study was done by the accounting firm KMPG Peat Marwick on a grant from the Kaiser Family Foundation, one of the nation’s largest private foundations devoted exclusively to health care.

The foundation was established by industrialist Henry J. Kaiser but is not associated with Kaiser hospitals or health plans that the businessman also was instrumental in starting.

Drew Altman, president of the Menlo Park foundation, said the study was undertaken because if the initiative passes, “we will have an unprecedented situation.”

The Proposition 186 health system is called “single payer” because if the measure passes, the state would become the single payer of all health bills, expected to easily exceed $100 billion annually by 1996. Backed by a broad-based coalition that includes physicians, consumer activists, nurses, labor unions and senior citizens groups, the initiative would accomplish universal coverage in part by eliminating private health insurance companies from the health care system.

Physicians, hospitals and health maintenance organizations that provide care would directly bill the state, and patients would hold insurance cards issued by the state. In addition to an increase in personal income taxes, businesses would face steep payroll taxes and an additional $1 tax would be levied on each pack of cigarettes.

The cost analysis by Peat Marwick overshadowed a second study released by the foundation that looked at issues involved in getting a massive statewide health insurance system up and running. That study, by National Academy of Social Insurance, a Washington-based health reform think tank, said that setting up the single-payer system was technically possible but would require a major assist from the Legislature.

Partial results of still another foundation-backed study, undertaken by the Annenberg School for Communication at the University of Pennsylvania, were released. They showed that the media advertising involving Proposition 186 was overwhelmingly negative on both sides, creating even more confusion about the complex initiative.

That study said opponents of the measure had raised $5.8 million as of Sept. 30, at least $3.8 million of it coming from the insurance industry, most of it from out of state. By contrast, sponsors of the measure had raised just under $1.9 million.

Supporters and opponents of the initiative, which is trailing in public opinion surveys, were on hand for release of the reports.

Sponsors of the initiative immediately challenged the size of the projected deficits, contending that Proposition 186 has built-in mechanisms to check soaring costs of health services.

“The Peat Marwick people are saying this is the kind of scenario if there was no cost containment at all,” said Dr. Kevin Grumbach, a San Francisco physician who helped draft the measure. Grumbach disputed growth projections by the accounting firm, saying they were higher than the yardsticks used by some other economists. “If you implement effective cost controls and bring the rate of growth down into an 8%, 7% range, then you will be fine.”

Richard Wiebe, a spokesman for opponents, said the studies will fuel voters’ concerns about creating a monumental government bureaucracy and “massive budget deficits if this is enacted.”

“The financing mechanism just doesn’t make sense,” said Wiebe. He said the media advertising campaign against the initiative was focused on getting voters “to ask themselves whether or not they really do hate the insurance industry that much to give up their private insurance and turn their health care over to the state government.”

While individuals would see dramatic out-of-pocket reductions in health expenses if Proposition 186 passed, according to the study, businesses would fare worse.

Employers would save from $3 billion to $7 billion annually over the first five years, but most of the savings would be concentrated among companies that now have the highest health care costs. Those are companies that now pay a higher percentage toward employee health care than the top 8.9% of their payrolls called for in the initiative.

“About 70% of businesses, mostly smaller businesses, would pay more,” said Kenneth Cahill, a Peat Marwick researcher. “You are looking at households and businesses doing better, but that is because someone else is picking up the tab.”