By: California Legislative Analyst's Office
Authors: Elizabeth G. Hill
Published: May 22, 2008
Financed by: California Legislative Analyst's Office
Legislation analyzed: SB 840

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Author's Summary

Fiscal Projection Overview. We estimated the revenues and costs of the SPP for 5.5 years, assuming an implementation date of January 1, 2011. Our estimate indicates that the SPP would result in a net shortfall of $42 billion in 2011-12 (the first full year of operations) and $46 billion in 2015-16. These shortfalls result largely from a faster rate of growth for health benefits costs relative to the SPP revenues. In addition to the funding shortfall within the program, we estimate that the SPP would have a significant General Fund effect in the form of lower General Fund tax revenues and other General Fund cost increases.

Overview of Significant Assumptions. Our findings are subject to a variety of significant assumptions, risks, and uncertainties. These primarily lie in the following areas:

• Current Government Health Spending. We assume that the state would continue to receive federal funding for Medi-Cal and the Healthy Families Program (HFP), subject to certain conditions, and that the federal Medicare program would generally continue to operate as a separate program. We also assume that significant health care funding currently spent by the state and local governments would be available to the SPP.
• Health Care Administration. We assume that the SPP would realize savings associated with reduced levels of physician and hospital administration costs, and that the state could operate the single-payer system at relatively low administration costs. We also assume that the state would need to make significant contributions to an operating reserve in the first two years of the program.
• Other Universal Coverage Issues. We assume that the state would realize savings to a certain extent from bulk purchasing of prescription drugs and other medical equipment. We also assume that health care utilization would increase under the SPP but that it would be limited to a certain extent by physician supply constraints.
• Economic Issues. We assume that health care costs would continue to grow according to recent trends prior to implementation of the system. Following implementation, we assume the state would achieve somewhat reduced rates of health cost growth.

Overview of Additional Questions. We also address questions regarding the system’s implications for employers, employees, and physicians.

• Employers and Employees. We find that smaller family units, higher-income individuals, and employers that are not currently providing health care benefits to their employees would generally pay more for health care under the SPP.
• Physician Supply in the State. Some evidence suggests that the state already faces a shortage of physicians. The effects of the SPP on physician supply in the state is unclear in the long run, but would depend primarily upon physician payment rates.