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HomeMy WebLinkAboutMINUTES - 08052008 - C.46 TO: BOARD OF SUPERVISORS � `= '�`-°� ontra FROM: JOHN CULLEN, -:)fpgpZ Costa County Administrator r9-COUN'� DATE: August 5, 2008 County SUBJECT: WATCH POSITION on SB 840 (Kuehl): Single-Payer Health Care Coverage SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATION WATCH Senate Bill 840 (Kuehl), a bill that establishes the State Healthcare System and makes all state residents eligible for specified health care benefits under the system, which would, on a single- payer basis, negotiate for or set fees for health care services provided through the system and pay claims for those services, as recommended by the County Administrator. FISCAL IMPACT: According to its author, the current version of SB 840 "does not contain details concerning taxes, premiums, expenses or other financial matters, but rather constructs a Blue Ribbon Panel, made up of statewide officers, to research and propose the actual funding mechanism and put it out for a vote of the people, along with the entire health insurance plan." The impacts to Contra Costa County, therefore, are unknowable at this time. However, the bill analysis for the Assembly Appropriations Committee meeting of July 16, 2008 provides the following: 1) Annual California Single-Payer statewide costs would exceed $200 billion assuming full- year costs starting in 2011-12. This figure does not account for spending outside of the system, which would remain authorized under specified circumstances. The system costs are in lieu of current public, employer, worker, and individual costs. SB 840 generates these costs by ending the current system of health coverage and providing a broad set of health benefits to all state residents. In order to pay the costs of a single-payer system, financing includes a series of taxes, redirection of a variety of current health program funding, and securing state waivers to aggregate federal and local health care funds. CONTINUED ON ATTACHMENT: x YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COM IT E APPROVE OTHER SIGNATURES : - ACTION OF BCUD ONAPPROVED AS RECOMMENDED OT VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND ENTERED ON MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. UNANIMOUS(ABSENT ) AYES: NOES: ABSENT: ABSTAIN: Contact: L.DeLaney 5-1097 Cc: ATTESTED � L.DeLaney,CAO's Office J N CUL CLERK OF THE BOARD OFSUPERVISORS Supervisor Susan A.Bonilla Supervisor Mary N.Piepho Dr.William Walker,Health Services BY DEPUTY Dorothy Sansoe,CAO's Office SB 840 (Single Payer Health Care Coverage)—p. 2 August 5, 2008 2) Key Revenue Proposal Stalled. SB 1014 (Kuehl), containing key single-payer revenue provisions was held in the Senate Revenue & Taxation Committee in 2007. As proposed to be amended in the Senate, SB 1014 includes an 8.17% payroll tax on employers and a 3.78% payroll tax on employees. 3) Cost and Revenue Estimates. Two California-specific analyses of single-payer proposals have been completed in response to SB 840, SB 1014, and a prior version of the author's single-payer plan, SB 921 (Kuehl) in the 2004 session. (SB 921 was referred to, but never heard by, Assembly Appropriations committee.) a) The Lewin Group analysis of SB 921 , published in 2005, estimated total expenditures under the single-payer program would be $167 billion in 2006 and would increase to $262 billion in 2015. Revenues assumed in the Lewin analysis and later proposed in SB 1014, were payroll taxes of 8.17% (employers) and 3.78% (workers). Key factors that reduce the viability of the Lewin single-payer cost and revenue trajectories in the current environment are: a) Lewin estimates were largely built in 2004; b) actual wage expenditure and revenue information has become available; and c) health costs have escalated more sharply than assumed in the earlier period. b) The Legislative Analyst's Office (LAO) analysis of single-payer impacts, dated May 22, 2008, was published in June 2008. (See Attachment A.) The LAO reviewed and updated the Lewin analysis with respect to single-payer costs and revenues. The LAO estimated annual costs of $210 billion in 2011 growing to $252 billion in 2015. A key difference from the Lewin analysis is that the LAO assumed that Medicare would remain separate from California's single-payer system. In contrast, Lewin assumed Medicare would be folded into California's system. Federal California Medicare spending was $32 billion in 2004, the most recent year for which data is published. The LAO forecast of costs and revenues over the 2011-2015 period shows an estimated annual shortfall, with costs outpacing revenues, of $42 billion in 2011 and $46 billion in 2015. One-half of this shortfall is due to updated medical cost data over the 2006-2011 period. Another 40% of the shortfall is attributed to California-specific and actual wage data, resulting in lower revenues than the Lewin report. The Lewin report relied on national survey data rather than actual California data. The remaining 10% of the shortfall highlighted by the LAO is due to factors such as assuming a reserve, a difference in the availability of local funding, costs for administration, health care utilization changes, and costs of drug purchasing. According to the LAO, payroll taxes for employer and employees would need to be 16%, combined, for the single-payer costs and revenues to balance at the start of the forecast period. These taxes are higher than the 12%, combined, taxation rate proposed in SB 1014. 4) Potential General Fund Impacts. There are numerous GF impacts possible under a single-payer system. The most significant impact would be if major shortfalls, such as those outlined by the LAO, were to occur. Because a single-payer system, established by this bill, is a state-run system, the state GF would be obligated in both short- and long-term scenarios to bolster a system with GF augmentations or loans. Any cost overruns or unpredicted expenses would generate major GF pressures. Additional effects not accounted for in the LAO forecast of specific costs and revenues include the following GF impacts: reductions in tax revenue from insurance companies, economic and labor market disruptions, and one-time implementation costs. Additional revenues that were not included in the LAO forecast are increased tax revenues due to the elimination of many health-related tax deductions leveraged by business and families under current law. 5) Savings and Cost Avoidance. In addition to the cost and revenue estimates referenced above, research, including both the Lewin and LAO analysis, indicates major reductions in particular types of health spending are likely under a single-payer system. Savings include a major reduction in administrative overhead, which is a significant portion of expenditures in the current system. For example, Lewin estimated a $20 billion reduction in overhead related to insurers, hospitals, and physicians. In addition, a single-payer system, if implemented effectively with respect to cost control, may provide greater opportunity to stabilize medical inflation compared to our current rate of health care spending growth. SB 840 (Single Payer Health Care Coverage)—p. 3 August 5, 2008 BACKGROUND: At its November 28, 2007 meeting, the County's (then) Ad Hoc Legislation Committee was presented with a draft resolution from the League of Women Voters of Diablo Valley to support SB 840 (Kuehl), also known as the California Universal Healthcare Act, first introduced in February 2005. (See Attachment B for the resolution.) That bill was vetoed by Governor Schwarzenegger on November 22, 2006 with his message stating, in part: "SB 840 relies on the failed old paradigm of using one source - this time the government - to solve the complex problem of providing medical care for our people. It uses the same one-sided approach tried in SB 2, the employer-mandated coverage measure signed into law before I became governor. I opposed SB 2 because it placed nearly the entire burden on employers, and voters repealed it in 2004. 1 want to see a new paradigm that addresses affordability, shared responsibility and the promotion of healthy living. Single payer, government-run health care does none of this. Yet it would reduce a person's ability to choose his or her own physician, make people wait longer for treatment and raise the cost of that treatment." SB 840 was amended and re-introduced on February 23, 2007 and is currently pending in the Assembly Appropriations Committee. On April 20, 2007 the finance portion of SB 840, SB 1014, was introduced. SB 840 passed the Senate on June 6, 2007 and is now on the Suspense File in the Assembly Appropriations Committee. (See Attachment C for a summary of the proposal's features from Ca/HealthReform.org.) The Ad Hoc Legislation Committee requested that staff prepare an analysis of SB 840. The analysis of SB 840 is a compilation of information from the California Healthcare Foundation, which analyzed the bill as written on July 12, 2005, and Assembly Committee on Health analysis, which considered the bill as amended on June 27, 2007. The analysis does not contain Contra Costa County-specific data. However, Attachment D is the "Projected Single-Payer Health Care Cost Savings for Contra Costa County School Districts (Using 2004-05 data)." This analysis shows that the employer savings, if the employer only share is paid, would be $46,791,455. If the employer and employee shares are both paid by the employer, the savings is reduced to $18,205,271. At its April 7, 2008 meeting, Legislation Committee recommended that the Board of Supervisors consider the staff report on SB 840 and that additional information on the bill's fiscal effect be provided to the Board for its consideration. SB 840 (Kuehl) - As Amended: June 27, 2007 Existing federal and state law establishes several publicly-financed health insurance programs, including Medicare, Medi-Cal, and the Healthy Families program, that provide health coverage to eligible individuals and families, including children, the aged, blind, and disabled, and pregnant women. Existing law also provides for the regulation of private health care service plans by the Department of Managed Health Care (DMHC) and health insurance policies by the Department of Insurance (DOI). SB 840 would fundamentally alter the financing of health care in California by shifting the current employer based/multi-payer system to a single financing system. SB 840 contains the structure and policy for a universal single-payer system. The financing provisions are contained in a companion measure, SB 1014. SB 840 provides comprehensive medical benefits to every California resident, authorizes participation of all licensed medical providers, incorporates federal and other public programs into the universal system, prohibits the sale of private health insurance for services covered by the system and regulates health care costs. The program would be financed with current government health care funding for incorporated federal/county programs, a payroll tax to replace employer benefit plans and other taxes to replace insurance premiums. This system would be governed by an appointed commissioner charged with establishing the universal system's budget and setting rates, establishing expenditure limits, developing a capital management plan, seeking all necessary waivers and exemptions and establishing equitable distribution of services and financing. SB 840 (Single Payer Health Care Coverage)—p. 4 August 5, 2008 SB 840 requires the system to be operational no later than two years after it is determined there are sufficient resources to implement the program. The bill provides authority for a loan from the General Fund to finance transitional costs. FEATURES GENERAL APPROACH. Senate Bill 840 would establish a single-payer health insurance system for California. A new government-administered system would replace private health insurers and existing government insurance programs, including Medicare. A Health Insurance Commissioner would oversee all aspects of the new system, including contracts with health care providers, the allocation of health care workforce and capital equipment, and the introduction of new technologies. ELIGIBILITY AND BENEFITS. All residents of California—defined as those with a physical presence in the state with intent to reside—would automatically be covered under the system. This includes undocumented residents. Also eligible are Californians traveling out of state for up to 90 days and California retirees living out of state if they pay required taxes to the Health Care Fund. No waiting period for at least two years. Visitors will be charged prevailing rates. The benefit package would be comprehensive, including not only the usual range of inpatient and outpatient services, diagnostic and laboratory services, and prescription drugs, but also mental health services, dental and vision care, chiropractic services, adult day care, and 100 days of skilled nursing care following hospitalization. Long-term care would not be covered. Co-payments and deductibles could be established for other than preventive care. Patients could choose to receive services from any willing provider and providers would determine what services are medically necessary. Each person would have a primary care physician responsible for approving care to be received from specialists. People could choose to enroll with an integrated health care system, which would be responsible for all their care. ADMINISTRATION. The health insurance commissioner would be independent and have very broad powers, assisted by a Health Insurance Policy Board, which would help to set system goals and priorities and determine the scope of services provided. A number of other new agencies and offices would also be established, including a public advisory committee, an office of consumer advocacy, offices of health care planning and quality, a technology advisory committee, a chief medical officer, and an officer of the Inspector General with broad powers to protect against financial misconduct. The commissioner would have major responsibility for controlling total expenditures and allocating resources. He or she would annually set a total health system budget as well as regional budgets, taking into account growth in state gross domestic product, demographic factors, technological change, etc. The commissioner would use the State's purchasing power to negotiate for provider services and would implement cost controls to ensure that the system remains financially viable. The State would acquire drugs and medical devices on a bulk-purchasing basis. Cost control measures would include making decisions about which new technologies would be introduced, setting limits on health provider reimbursement rates, and requiring changes in the delivery system to improve efficiency and quality. The commissioner would negotiate payment rates with providers, but if agreements were not reached within a specified time, the commissioner would set binding rates. System administrative costs would be legally limited, initially to 10% and later to 5%. If the system experienced a revenue shortfall, benefits could be temporarily reduced. The commissioner would also be responsible for establishing evidence-based standards to guide the delivery of care, creating a formulary for prescription drug and medical equipment, and implementing advanced electronic technology for maintaining medical records, payment administration, etc. REGIONALIZATION. Although the commissioner would have overall responsibility for guiding the system, up to ten regional health insurance systems would be established to decentralize some activities. The regional entities would be responsible for assessing local health care conditions and needs and establishing plans and budgets to meet those needs. SB 840 (Single Payer Health Care Coverage)—p. 5 August 5, 2008 FINANCING. The bill does not identify a primary source of funding. However, the expectation is that all of the funds that support California public programs at the state, county, and federal level—including Medi-Cal, Healthy Families, and Medicare—could be redirected to the Health Insurance Fund. These sources are projected to supply about one-third of the needed funding. The remaining funding will come from state health taxes that will replace health insurance premiums now paid to insurance companies and co-pays and deductibles now paid to providers. Individuals would pay 3-4% of income (between $7,000 and $200,000). Individuals would pay an additional 1% on income over $200,000. Employers would pay an 8.17% increase in payroll tax of employee's income over $7,000 and under $200,000. In addition, an attempt would be made to recover a portion of the money that was transferred to California foundations when nonprofit health plans converted to for-profit status, specifically any portion that is spent to provide patient care services. ASSESSMENT COVERAGE. This approach ensures universal coverage for all people in California who intend to reside there, including undocumented immigrants. BENEFITS. The benefit package is very comprehensive, including dental, vision, chiropractic, and mental health services but excluding long-term care. Consumer cost sharing would be permitted. The benefits are intended to include: inpatient and outpatient services by health facilities, physicians or licensed health care professionals; diagnostic imaging; lab services; durable medical equipment (including prosthetics, eyeglasses, and hearing aids); rehabilitative care; emergency or necessary transportation; language interpretation; immunizations; preventive care; health education; hospice care; home health care; prescription drugs; dentistry; podiatry; acupuncture; religious healing that is protected under federal or state statutes, blood products; emergency care; adult day care; case management; substance abuse treatment; dialysis; and up to 100 days in a skilled nursing facility. QUALITY OF CARE. Because the state, in essence, would be the only buyer of medical services for the standard benefit package, the state would have access to extensive, uniform encounter data that would have the potential to be used to detect quality problems and develop solutions. The Commissioner would be charged with the responsibility to assess performance, to hold providers accountable, and to institute changes to improve quality. INTEGRATION AND COORDINATION OF CARE. Whether this approach would encourage integration of care would depend upon how many people choose to join multi-specialty, prepaid group practice plans rather than selecting a fee-for-service option. PORTABILITY OF COVERAGE AND CONTINUITY OF CARE. Problems related to portability virtually disappear under this approach since all residents would be covered under the same system all the time. Changes in marital status, job status, geographic location within the state, etc., would not require any change in coverage. Continuity of care should be great because people could choose any provider participating in the system and because virtually no providers could afford to stay outside the system. Changes in individual circumstances except for moving into a different geographic area should not require a change in providers. COST AND EFFICIENCY RESOURCE AND REAL COSTS. Newly insured people, as well as those who are now underinsured, would consume substantially more medical resources than they do now, which would add to real costs. But, of course, this is the logical result of the desired policy. Real costs could increase for other reasons. If many people now in pre-paid, integrated plans were to switch to the fee-for-service option, costs could rise. Integrated plans are generally thought to be more efficient; fee-for-service payment is generally thought to encourage providers to prescribe more services. The consumer cost-sharing provisions should partially offset this tendency, however. Another potential source of cost increases would be an influx from other states of people who need expensive medical care but lack good insurance coverage. To a degree, California is protected more than other states from in-migration of unhealthy people because it is not bordered by states with large population concentrations close to California's borders, which would make moving to California much easier. In addition, the cost of living is such that many people would not be able to easily relocate to SB 840 (Single Payer Health Care Coverage)—p. 6 August 5, 2008 the state. Nevertheless, there would be a temptation for people with chronic diseases or other needs for expensive medical services to move to the state to become eligible for coverage under the single- payer plan. While it might be possible to impose some residency restrictions to limit eligibility—as is done for people seeking in-state tuition rates at California's universities—the administrative and enforcement problems could be imposing. The proposed legislation requires the Commissioner to address this problem. Other aspects of the reform would reduce real resource costs. Many of the administrative economies that the single-payer system would produce, as described below, would be reflected in real resource cost reductions. This conclusion is based on the evidence that shows that administrative costs for the Medicare program are substantially lower than those for even large firms that offer health coverage and much lower than the administrative costs associated with providing coverage for small employers and individuals. In addition, the large amount of administrative duplication that is a result of having many different insurance companies would be eliminated, as would all the functions around medical underwriting, determining eligibility, collecting premiums, coordination of benefits, etc. Providers would also realize real resource savings by not having to deal with multiple payers. The sum of these savings should be quite large. The extensive cost containment elements of the plan, outlined below, should also produce significant savings over time. (The bill's sponsor asserts, based on a study by The Lewin Group, that implementation would be possible without any net increase in total health care spending.) COST CONTAINMENT. This bill contains many elements to control costs. A global budget places a constraint on total spending, and various sub-global budgets apply to geographic regions and other cost elements. The Commissioner, regional planning directors, and various entities within the system are responsible for ensuring that budgets, which cover a three-year period, are not exceeded. New capital expenditures would be controlled through the Commissioner and regional planning directors. The Commissioner would set or negotiate payment rates for providers and use the state's purchasing power to "achieve the lowest possible prices" for pharmaceuticals and durable medical equipment. Facility performance would be monitored, and the Commissioner could take actions to correct deficient practices. Administrative costs for the new system are limited by law, initially to 10% and later to 5%. Appropriate ratios of primary care physicians to specialists would be established, and incentives would be put in place to achieve those ratios. The Commissioner could also temporarily adjust benefits and lower provider reimbursement if a revenue shortfall is expected. BUDGETARY COST. This single-payer approach would cause a very large increase in the state's budget because nearly all the costs currently financed by private sources—except out-of-pocket cost sharing—would be shifted to state government. What were private household and employer premiums would now be financed through government. In addition, people currently covered through Medicare would be covered by the State, and the funding would go through the State budget. And, of course, many more people would be covered, which would also raise the total budgetary cost. EASE OF IMPLEMENTATION AND DEPARTURE FROM THE STATUS QUO. This approach represents a large departure from the status quo. Existing insurers (except for integrated plans with which the state would choose to contract), insurance agents and brokers, third-party intermediaries, and most of the businesses and the individuals associated with the sale and administration of insurance and employer-sponsored plans would have a greatly reduced role or no role at all in the new system. The State might contract with some of these business entities to administer parts of the new program, just as Medicare depends upon fiscal intermediaries for administration. Most if not all employers would choose to get entirely out of the business of providing health insurance. While this would relieve employers of burdens that many find onerous, it would affect the administrative and employment structures of these firms, which would be somewhat disruptive, especially for the individual workers whose jobs would be eliminated. Counties' responsibilities would be reduced, since they would no longer serve as administrative entities for Medi-Cal eligibility, nor would they provide as many services directly. Some jobs would be lost in the public sector: State employees working within the Medi-Cal and Healthy Families programs would have to find new jobs. New government jobs would be created under the Commissioner and the regional planning authorities. The State would have to establish extensive new machinery to administer the program. The Commissioner and the regional planning authorities would have to perform many entirely new, complex functions. Negotiating with the federal government to contribute to the plan in lieu of the SB 840 (Single Payer Health Care Coverage)—p. 7 August 5, 2008 federal matching amount for Medicare, Medi-Cal, and SCHIP would probably be a difficult process, and an outcome favorable to the State is not assured. ONGOING ADMINISTRATIVE COSTS. Once this program was underway, the ongoing administrative costs should be quite low, probably comparable to those experienced under Medicare. Administrative costs for providers should be reduced because they would be dealing with only one payer and one set of administrative requirements. Households would also be relieved of the considerable administrative burdens associated with dealing with multiple insurers, filing claims, changing carriers when they change jobs, etc. The system would be much less complex to navigate. LOCUS OF CONTROL AND ACCOUNTABILITY. The Commissioner has very broad powers and extensive responsibilities and is thus ultimately accountable for the system's performance and with the power to hold others accountable as well. The potential for holding providers accountable is great because the State would be collecting uniform data on virtually all provider encounters. Such a vast data source would make it possible to detect outlier practice behavior, both in terms of quality problems and inefficient use of resources. It is less clear how the State, as essentially the only buyer of provider services, would be held accountable to ensure that it was using its power in an appropriate way. Mechanisms to provide oversight for State activities would be desirable. Accountability for cost control rests directly with the Commissioner. If costs rise more rapidly than the rate at which the state economy grows, the Commissioner would have to take actions, which would be very visible and probably controversial. In some ways, this makes the problem of health care cost escalation highly visible to the public and makes it more likely that the alternatives for controlling costs would be seriously considered and debated and that the response would reflect some public consensus. The present mixed public and private financing arrangement makes it easier for people to overlook the critical need to find fair and rational ways to limit utilization of scarce resources. FAIRNESS AND EQUITY ACCESS TO COVERAGE AND SUBSIDIES. By generally accepted standards of fairness, this approach rates high. It achieves universal coverage on a uniform basis for everyone. Income is no barrier to receiving care. SHARING OF RISKS. This approach represents the broadest possible sharing of risk because everyone is in a single pool and because contribution to funding (from whatever source is eventually identified) does not relate in any way to risk. The risk is spread across all who pay to finance the program. In other words, this is social insurance. CHOICE AND AUTONOMY CONSUMER CHOICE. Because anyone can choose the fee-for-service option, choice of providers is unlimited. Consumers can instead opt to enroll in integrated health plans. Their choice of plans would be limited to those that the State chooses to contract with. Because of a need to limit costs, the State would impose controls on the acquisition of new equipment and facilities. Presumably efforts would focus on limiting acquisitions of expensive technologies and avoiding excess capacity of costly equipment and facilities. This could result in consumers' having less freedom to consume the medical resources they might otherwise choose, or they might have to wait a bit longer to get access to some technologies. PROVIDER AUTONOMY. All providers would be subject to negotiated or set fees for all of their patients, so they would have less control over payment rates than they do now. The Commission has responsibility to ensure that money is spent in a cost-effective way and to promote best quality practices. It seems likely, therefore, that the new system would put pressure on providers to adopt accepted practice guidelines and to practice in a cost-effective way, and the authorities would have the data to detect anomalous practices and take steps to correct deficiencies. COMPULSION AND GOVERNMENT REGULATION. By most people's standards, this approach embodies a high degree of compulsion. Although everyone is automatically covered—so that technically speaking there is no individual mandate to buy coverage—everyone has to pay for this coverage in one way or another through some kinds of taxes. People with relatively low health risks (and the employers that hire them) can no longer gain any financial advantage by paying lower premiums. Many insurers and associated businesses would be forced out of business. Government oversight and monitoring of SB 840 (Single Payer Health Care Coverage)—p. 8 August 5, 2008 health care financing and the quality of care would replace private oversight and monitoring. Providers would have substantially less autonomy than they do now. As the single buyer of health care, State government would have great market power. KEY TRADE-OFFS The single-payer approach achieves universal coverage; may reduce ongoing administrative burdens and costs; is equitable in terms of treating equals equally; and produces the broadest possible sharing of risk. The trade-offs are that it has a very high budgetary cost because it covers everybody; it substitutes public dollars for financing now financed privately; and it involves a major departure from the status quo—by eliminating most private insurers—and a large extension of government authority and control. From hospitals' standpoint, the approach eliminates problems related to uncompensated care and the complexity of dealing with many payers, but it limits their autonomy with respect to payments rates and capital investment and subjects them to additional regulation regarding data reporting. Opponents state that costs associated with this bill would create an expensive labyrinth of bureaucracy, and that competition among private companies leads to lower costs and better care. A state-run health care system would eliminate these companies, thereby forcing people to rely upon the State to take care of their health needs, and limiting medical advances because of decreased competition. Critics argue that this bill would extend taxpayer obligations too far, result in rampant fraud, waste and mismanage public services, and damage the State's competitiveness for jobs. A major portion of the health care system created by this bill would be paid for through increased taxes which would discourage business growth and hurt state investments. In addition, an unknown number of out-of-state individuals would move to California to take advantage of the new health care system, adding to the State's economic and fiscal burden. Opponents disagree with the premise that a single-payer system will generate substantial savings from lowered administrative costs and profits, as administrative costs will not be eliminated under a single-payer system. Many of these costs, such as claims payment, utilization review, disease management, development of drug formularies, and customer service, would be replicated under a single-payer system. Opponents further note that in an effort to control costs and increase access to care, the Medi-Cal and Healthy Families programs both rely on contracts with private health plans. They assert that competitive forces in the marketplace are vital in health care, and that while California's premiums have increased, they are still lower than other large markets. Opponents also cite cases in Canada where waiting times to see a general practitioner increased by 72 percent, and where some provinces sent patients to the U.S. to have heart surgery as a result of long wait times. Finally, there is a claim that single-payer systems in European nations and Canada have tended to discourage investment in biotechnology and advanced medical devices because they use price controls to restrain spending. The California Medical Association (CMA) states the bill may create unintended consequences that could hurt patient care and the practice of medicine. CMA states that the bill allows for a decrease in benefits to cover revenue and shortfalls, leaving open the possibility of reducing benefits from what a standard Medi-Cal or commercial plan now offers. The CMA also cites concerns that the premium commission created by this bill has a concentrated authority to decide benefit design, provider payments, and cost-sharing that may not benefit patients. Lastly, their arguments claim that a single- payer system may limit the ability of doctors to make autonomous decisions about courses of treatment. IMPACT OF SB 840 ON GASB 45 RETIREE HEALTH OBLIGATIONS What follows are two different perspectives on SB 840's impact on Other Post Employment Benefits (OPEB) obligations. SB 840 Would Spread Costs and Breach Contracts The following excerpt is from "No Easy Way to be Free (of our OPEB obligations)" by Mr. Lou Filliger, FSA, Demsey, Filliger & Associates, published on 3/5/2007. "In Spring of 2006, The California School Employees' Association sent a letter to district superintendents throughout California urging their support of the proposed single-payer health insurance bill for California, the recently vetoed SB 840. This in and of itself may not be so unusual, but the letter implied that SB 840's government-run health insurance would be a way to avoid SB 840 (Single Payer Health Care Coverage)—p. 9 August 5, 2008 compliance with GASB 45. In the first place, this conclusion may be erroneous - nobody knows how SB 840 would affect promises made to retirees before its effective date. But in a broader sense, the implications of this message are extremely worrisome. If individual districts have unmanageably large unfunded obligations, then what the CSEA is championing amounts to a pooling of these into one colossal unfunded obligation and handing the bill to ... the taxpayer, of course. Note that the obligation to provide healthcare benefits to retirees can only be avoided by breaking the promises made at the bargaining table. Those promises, for the most part, state that the district will provide some sort of health insurance to the retiree, but they are typically vague as to the specific plan of insurance. Presumably retirees in a private HMO or PPO would be moved over en masse to the SB 840 Single-Payer system (given that SB 840's preamble states that it would actually be illegal to provide healthcare in California other than through the single-payer system, this seems an inescapable conclusion.) Many of the retirees might initially be happy about the move, in fact. But the bill for healthcare services for these retirees isn't going away. It's just being spread differently. Initially, SB 840 would mean a combined employer-employee payroll tax of 11% of pay. This would fall on districts that have not historically granted retiree benefits, as well as those that have. So, 30 years of individual district negotiations will be erased with the stroke of a pen. School employees who have foregone past pay increases in order to retain richer retiree health benefits will now be thrown into the same pool with employees and retirees from districts that have given away the store year after year. Districts that have been carefully diligent about not promising benefits they can't afford, will be thrown into the same pool as districts with unfunded promises to pay full life-time medical, dental and vision benefits to retirees, spouses, dependent children, and survivors. Perhaps the CSEA letter should have gone out to only the districts with benefits richer than the State average; with a separate letter with slightly different wording sent to districts below the mean, as follows: "We urge you to support SB 840 because you will be able to help fund, through your payroll taxes, the GASB 45 liabilities of all the other districts in the state (since our records show that you don't have any of your own.)" The topic of universal and/or single-payer health care is just outside the scope of this analysis, but it certainly has at least one nexus with GASB 45: the idea that single-payer healthcare is a knight on a white horse coming to rescue the damsel government agencies from the evil GASB 45 dragon. The proponents of single-payer healthcare believe that cutting out insurance company profits and administrative waste will result in significant savings.... and it might, at first. But after the initial savings, how do you keep costs at 2007 levels in subsequent years? By freezing the quality of healthcare at 2007 levels and rationing expensive procedures. By letting the aged and infirm die (even if they can afford treatment) because it shall be illegal to provide services through any means other than the State. That may be what the American consumer wants - and if so, that's what the American consumer will probably end up with. But make no mistake: it's not what has been promised to government employees and retirees all these years. DF&A strongly believes that promises made to government employees and retirees should not be breached under any circumstances. And a change to a single- payer system could well constitute the biggest potential breach of all. Periodic labor negotiations allow for constant adjustments and tweaks in benefits. If an employer and its unions bargain for a set of benefits and it turns out that it's not what everybody wanted, they go back to the table and hammer out a better deal for next time. That luxury will go away under the single-payer system. It's possible that everyone will be happy with a State-run system. But what if they're not happy? What if they realize too late that they were given a promise that could not be delivered? There will be no tweaking, no negotiating. There will only be reluctant acceptance, because it shall then be illegal to provide benefits other than those prescribed by the State. Can the State of California (or the Federal Government, for that matter) be absolutely trusted to deliver 100% of what they promise? It's absolutely amazing to the author to hear people who already enjoy Cadillac benefits clamoring for a broken-down VW bus as a solution to their healthcare problems. Rather than fearing the disease, California's public employees and retirees should be fearing the proposed cure, and GASB 45, unfortunately, is being used as a scare tactic by the very groups who should be protecting those employees' interests. SB 840 (Single Payer Health Care Coverage)—p. 10 August 5, 2008 A free lunch is being promised that, if consumed, is guaranteed to cause financial and societal indigestion for many, many years to come." SB 840 Would Eliminate Obligations According to the proponents of SB 840, they have a study that shows that under a single-payer model, employers would actually be entirely relieved of their retiree health contributions. In testimony before the State of California Public Employee Post-Employment Benefits Commission on August 23, 2007, a consultant for Senator Kuehl's office, Sara Rogers states: "In fact, prefunding would no longer be required under a single-payer model. Under SB 840, employers are only asked to contribute a percentage of payroll on their active employees and would no longer be required to pay anything for their retiree health-care obligations. This would essentially relieve all employers, including private-sector employers and public-sector employers, for their retiree health obligations. And the reason that SB 840 can afford to do it is because it contain costs." POSITIONS ON SB 840 CSAC position on SB 840: Neutral. League of California Cities position: Watch. Attachment E is a list of city council and county board of supervisor endorsements of SB 840, along with a list of organizations that have provided letters in support of and opposition to the bill. SB 840 ALIGNMENT WITH CONTRA COSTA HEALTH CARE REFORM PRINCIPLES AND "PRINCIPLES FOR ACTION" Recognizing the importance of health care reform and the need for a consistent position among counties, on April 17, 2007 the Board adopted the California State Association of Counties (CSAC) health care reform principles as part of the County State Legislative platform, as follows. The alignment of SB 840 with these principles in indicated where appropriate. Counties support a concept of universal health coverage for all Californians. Toward that end, counties urge the state to enact a system of health coverage and care delivery that builds upon the strengths of the current systems in our state, including county-operated systems serving vulnerable populations. Currently, California has a complex array of existing coverage and delivery systems that serve many, but not all, Californians. Moving this array of systems into a universal coverage framework is a complex undertaking that requires sound analysis, thoughtful and deliberative planning, and a multi-year implementation process. As California moves forward with development of a universal coverage system, counties urge the state to prevent reform efforts from exacerbating problems with existing service and funding. The state must also consider the differences across California counties and the impacts of reform efforts on the network of safety-net providers, including county providers. The end result of health reform must provide a strengthened health care delivery system for all Californians, including those served by the safety net. Counties have a high stake in California's health reform efforts. Counties serve as employers, payers, and providers of care to vulnerable populations. Consequently, counties stand ready to actively participate in discussions of how to best structure a universal health care system for California. o SUPPORT state action to increase access and affordability. Access to care and affordability of care are critical components of any health reform plan. Expanding eligibility for existing programs will not provide access to care in significant areas of the state. Important improvements to our current programs, including Medi-Cal, must be made either prior to, or in concert with, a coverage expansion in order to ensure access. Coverage must be affordable for all Californians to access care. [SB 840 aligns with this principle.] o SUPPORT Medi-Cal reimbursement rate increases to incentivize providers to participate in the program. [Unknown impact on reimbursement rates.] o SUPPORT administrative streamlining of Medi-Cal, including elimination of the asset test and semi- annual reporting and changes to income verification. California should look to other states for ideas to reduce administrative costs, such as allowing all children born into Medi-Cal to remain on the program until age 21. [SB 840 would have an unknown effect on this, though administrative overhead savings is a benefit of a single-payer system claimed by the author.] o SUPPORT actions that address provider shortages (including physicians, particularly specialists, and nurses). Innovative programs, such as loan forgiveness programs, should be expanded. In an effort SB 840 (Single Payer Health Care Coverage)—p. 11 August 5, 2008 to recruit physicians from other states, the licensing and reciprocity requirements should be re- examined. Steps should be taken to reduce the amount of time it takes to obtain a Medi-Cal provider number(currently six to nine months). [SB 840 would have an unknown effect on this.] o SUPPORT efforts that implement comprehensive systems of care, including case management, for frequent users of emergency care and those with chronic diseases and/or dual diagnoses. Approaches could be modeled after current programs in place in safety net systems. [SB 840 seems to align.] o SUPPORT efforts that provide sufficient time for detailed data gathering of current safety funding in the system and the impact of any redirection of funds on remaining county responsibilities. The interconnectedness of county indigent health funding to public health, correctional health, mental health, alcohol and drug services and social services must be fully understood and accounted for in order to protect, and enhance as appropriate, funding for these related services. [SB 840 would have an unknown effect on this.] o OPPOSE safety net funding transfers until an analysis of who would remain uninsured (e.g. medically indigent adults, including citizens, who cannot document citizenship under current Medicaid eligibility rules) is completed in order to adequately fund services for these populations. [Everyone would be insured under a single-payer system, so no safety net funding transfers needed.] o SUPPORT efforts to clearly define and adequately fund remaining county responsibilities. [Counties largely removed of their obligation to fund indigent care. Remaining county responsibilities unclear.] o SUPPORT state action to provide an analysis of current health care infrastructure (facilities and providers), including current safety net facilities across the state, to ensure that there are adequate providers and health care facilities, and that they can remain viable after health reform. [SB 840 impact on infrastructure unclear.] o SUPPORT efforts to provide adequate financing for the reforms to succeed. o SUPPORT measures that maximize Federal reimbursement from Medicaid and S-CHIP. o SUPPORT state action to complete actuarial studies on the costs of transferring indigent populations, who currently receive mostly episodic care, to a coverage model to ensure that there is adequate funding in the model. o SUPPORT efforts that ensure that safety net health care facilities remain viable during the transition period and be supported afterwards based on analyses of the changing health market and of the remaining safety net population. With respect to SB 840's alignment with the County's "Principles for Action," because the principles were crafted largely in response to the development of AB 1X1, there are fewer points of alignment. The "Principles for Action" are as follows: 1. Diversion of County financial resources is NOT the first step to health care reform Shifting resources from counties should not be considered until AFTER the new system is in place. SB 840 does not propose a shift of financial resources from counties to fund the system. In fact, it purports to reduce costs and remove the obligation of counties to fund indigent care. 2. Medi-Cal Reimbursement Rate increases are fundamental to increasing health care coverage The impact of SB 840 on Medi-Cal reimbursement rate is unknown. It is possible that rates would increase because of cost savings achieved in other areas of the system. However, rates may be established by the Commissioner. 3. Hospital, Clinic and Provider Capacity must be addressed. The impact of SB 840 on capacity is unknown. 4. Cost Containment must be a fundamental part of Reform According to the author's office, this bill provides fiscally sound, affordable health care to all Californians, provide every Californian the right to choose his or her own physician, and control health cost inflation. The author's office also cites studies demonstrating that nearly half of all health care spending is misspent on administrative and clinical waste related to the fragmentation of the current SB 840 (Single Payer Health Care Coverage)—p. 12 August 5, 2008 system. Other studies highlighted by the author's office find that 30 percent of every health care dollar is wasted on administrative overhead, alone. 5. Contra Costa's public health system is unique and successful The impact of SB 840 on Contra Costa's public health system is unknown. However, Dr. Walker supports SB 840, saying: "I don't think we can do a Contra Costa -specific cost analysis of SB 840 with any degree of credibility. It is basically a political call as to what will fly. At this point, after over a year of negotiation for a failed health reform proposal, I'm willing to try anything and would welcome Single-Payer." ADDENDUM C.46 August 5,2008 SB 840 (Kuehl), Single-Paver Health Care Coverage By request of members of the public,this item was removed from the consent calendar for public discussion. The following people spoke in support of Senate Bill (SB) 840: Donna Gerber, California Nurses Association and former Supervisor District III; Marylin Langlois,representing Richmond Mayor, Gail McLaughlin, (handout provided); Janet Abelson, resident of El Cerrito; Reverend Sandra Decker, Contra Costa County Green Party; Pat Snyder, League of Women Voters of Diablo Valley; Betty Brown, resident of Kensington, Soren Tjemell, Director, Community Clinic Consortium; Bob Ham,resident of Richmond; Andres Soto, resident of Richmond; Janet Thomas,resident of Lafayette; Irene Rodriguez, California Nurses Association, Green Party, OneCareNow; Kathleen Nimr, resident of Martinez; Stanley Bransgrove, California School Employees Association; Joan Connelly, resident of Walnut Creek; Dr. Mark Will, California Physicians Alliance; Rollie Katz, Public Employees Union, Local One. Supervisor Gioia moved to support the bill, seconded by Supervisor Bonilla. Supervisor Gioia noted that approximately 10% of the County's population is uninsured. He said that the inability of urban hospitals to bargain with the same power as larger for-profit facilities, as illustrated by the same medical procedure being reimbursed at different negotiated rates, was a contributing factor in hospitals failing. He said he supports free market enterprise, but that all systems need checks and balances. He said as long as profit is the motive of health insurance companies it will be hard to achieve reform and therefore we must "Just Do It" to break through that type of institutional obstacle. He also said that he doesn't think any healthcare reform was going to be perfect and SB 840 has weaknesses in it, but that it is time to break through the obstacles and do something. Lara Delaney, County Administrator's Office, recapped the history of the bill and the reason for the "Watch" recommendation. (See report included in Board Order) She noted that SB 840 does not approve any action beyond the formation of a Blue Ribbon Panel for research and recommendation. Supervisor Piepho noted the County had made health care reform an important piece of our legislative platform the previous year. She said that though she shared the same social concerns as those being voiced today, she has some particular concerns that would keep her vote in the "Watch" category. She said that besides the state budget not being determined yet and a $15 billion fiscal shortfall projected, the state cannot afford it this year, and may be investing in a system that could very well be usurped by national healthcare reform. She said health care reform should take place at a national level and that we should not be in conflict with advocacy at the federal level. She also noted that there appeared to be a lack of out-of-state portability; that the bill encouraged migration to California due to lack of coverage to residents in other states, and added that the proposed health insurance commissioner will be a short-term political appointee in such a critical position. Page 2 ADDENDUM C.46 August 5,2008 SB 840(Kuehl),Single-Payer Health Care Coverage Supervisor Bonilla requested the Board's consideration to take a supporting position. She said efforts at compromise in Sacramento had thus far led to a dead end. She said it is time to demonstrate a real commitment to health care reform. She said that there will be further evaluation and refinement, which is the purpose of forming the Blue Ribbon panel. She reminded the Board that one of the guiding principles established during its consideration of Post Employee Retirement Benefits was to seek legislative action. Supervisor Uilkema said that this bill is a work in progress, and suggested it is irresponsible to move forward when the fiscal impacts to the County are at this time stated as "unknowable." She said the County may not be able to withstand any further pressures on the General Fund, especially in reference to the historical unreliability of state and federal funding. She said poll data kept by her district office indicates that there is not popular support for any system that would replace private health insurance and existing government insurance programs, including Medi-Care, even without consideration of financial concerns. She further noted a lack of confidence in general support for a payroll tax. She said she agrees that health care reform is a necessity, but said that her major concern is the possible fiscal threat to the county and concluded that she would support a "Watch"position. Chair Glover said he respects the mentioned fiscal concerns, but that it is time to send a very clear message that business as usual is not acceptable. He said supporting this bill is a demand for change. He said that we are not ready today for the changes proposed by SB 840 but that supporting it would send a strong message that we must have change now to provide citizens with the health care they need and deserve. Chair Glover called for a vote. The Board ADOPTED a SUPPORT position on Senate Bill 840 (Kuehl): Single-Payer Health Care Coverage by majority vote. (Ayes: I, IV, V;Noes: II, III: Absent: None; Abstain: None) LAAttachment A � ¢ 63 Y1:ARS OF SFRVICF 0111111111 May 22,2008 Hon. Dick Ackerman Senator,33`d District Room 3048,State Capitol Sacramento,California 95814 Dear Senator Ackerman: You requested that we do a fiscal analysis of SB 840 (Kuehl),which would establish in California a single-payer health care system (subsequently referred to as the "sys- tem"), and its companion financing mechanism. Where possible,we based our analysis on SB 840 as written. However,in some cases this was not possible. In instances where dates were clearly impractical or the parameters of the system are yet to be determined, we consulted with Senator Kuehl's staff in order to better understand the author's in- tent. In addition,our analysis is based on a financing mechanism that Senator Kuehl submitted to Legislative Counsel and provided to us on May 13,2008 (RN 0812484). We subsequently refer to SB 840 and the financing mechanism jointly as the single- payer proposal (SPP). The SPP would create the largest program in state government. State expenditures for the SPP would significantly exceed total General Fund spending for currently authorized programs in its first full year of implementation. We mainly focused our analysis on the major costs and revenues associated with the SPP in order to address your questions. EXECUTIVE SUMMARY OF FINDINGS 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 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 sig- nificant General Fund effect in the form of lower General Fund tax revenues and other General Fund cost increases. Hon. Dick Ackerman 2 May 22,2008 Overview of Significant Assumptions. Our findings are subject to a variety of sig- nificant assumptions,risks, and uncertainties. These primarily lie in the following areas: • Current Government Health Spending. We assume that the state would con- tinue to receive federal funding for Medi-Cal and the Healthy Families Pro- gram(HFP),subject to certain conditions,and that the federal Medicare pro- gram would generally continue to operate as a separate program. We also as- sume that significant health care funding currently spent by the state and lo- cal 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 ad- ministration costs. We also assume that the state would need to make signifi- cant contributions to an operating reserve in the first two years of the pro- gram. • Other Universal Coverage Issues.We assume that the state would realize sav- ings to a certain extent from bulk purchasing of prescription drugs and other medical equipment. We also assume that health care utilization would in- crease under the SPP but that it would be limited to a certain extent by physi- cian 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 sys- tem'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 bene- fits 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 physi- cian payment rates. BACKGROUND While the majority of Californians receive health coverage through insurance pro- vided by an employer, various federal, state, and local government programs also pro- t Hon. Dick Ackerman 3 May 22,2008 vide health care services to California residents. The federal government administers the Medicare program to provide health coverage for qualified persons 65 years of age or older and certain other persons,and oversees the Medicaid program for low-income families and adults. Military personnel also receive health care through federal pro- grams. The state administers Medi-Cal,California's version of Medicaid, and various other programs to provide health care services to children and persons in need of men- tal health care, developmental services, or substance abuse treatment. These programs receive support from state and federal funds, including revenues approved by Califor- nia voters for certain purposes through ballot measures such as Proposition 99 (passed in 1988) and Proposition 63 (passed in 2004). Local governments also administer certain health-related programs for indigent persons and those in need of mental health and other services. Local governments fund these programs from various sources,including "realignment" funds,which consist of sales tax and vehicle license fee proceeds that the state collects and passes on to local governments. OVERVIEW OFTHE SPP The SPP would establish a system of universal health care coverage in California that provides all residents with comprehensive health care benefits. A new state agency headed by a commissioner would have broad authority to administer this system, and would contract with hospitals,physicians, and other providers to deliver benefits. In order to pay the costs of the system, the SPP would: (1) establish a series of new taxes, (2) redirect current health program funding, and (3) direct the state to seek agreements to obtain federal and local health care funds. We describe significant components of the SPP in more detail below. Who Can Participate in the System? All California residents would be eligible to participate in the system regardless of citizenship status. Residency would be based upon physical presence in the state with the intent to establish permanent residency. The commissioner would establish stan- dards and a procedure for persons to demonstrate proof of residency. The commis- sioner would also establish a procedure to enroll eligible residents into the system and provide them with identification cards that would be used by health care providers to determine a person's eligibility for services. In the event of an influx of people into the state for the purposes of establishing residency in order to receive medical care, the commissioner would have the authority to establish an eligibility waiting period and other criteria needed to ensure the fiscal stability of the system. What Benefits Are Covered? The benefits covered by the system would include all medical care determined to be medically appropriate by an individual's health care provider subject to certain limita- Hon. Dick Ackerman 4 May 22,2008 tions. The major covered benefits include but are not limited to: (1) inpatient and outpa- tient health care facility and health care provider services, (2) diagnostic and laboratory services, (3) pharmaceuticals, (4) emergency transportation and emergency care ser- vices, (5) dental and vision care, (6) durable medical equipment including eyeglasses and hearing aids, (7) immunizations and preventive care, (8) mental and behavioral health care, (9) substance abuse treatment, (10) up to 100 days in a skilled nursing facil- ity following hospitalization, and (11) family planning services and supplies. Some types of services would be limited including nursing home care. Other types of services would not be provided such as certain elective procedures and private hospital rooms. What Happens to Private Insurance? The SPP would prohibit health care service plan contracts or health insurance poli- cies from being sold in California for services covered by the system. Therefore,the in- surance companies and other entities that currently sell health care service plan con- tracts or health insurance for services covered by the system would likely close down some or all of their operations in California. However, some of these insurance compa- nies might continue to sell health insurance for services not covered by the system. Also, some insurance companies might provide third-party administrator services to the sys- tem and thereby continue some of their operations in California. What Happens to Federal, State, and Local Health Care Programs? The SPP would require the commissioner to seek all necessary waivers, exemptions, agreements, or legislation to allow various existing federal, state, and local health care payments to be paid to the system,which would then assume responsibility for all benefits and services previously paid for with those funds. However,the extent to which the system assumes responsibility to provide the benefits currently provided by federal programs such as Medicare and local programs operated by counties and other local health jurisdictions would depend largely on the success of the commissioner's negotiations with these parties. If negotiations with the federal government to incorpo- rate existing health care programs into the system were unsuccessful,many of these programs would likely continue to operate apart from the system. For example,if the federal government declined to agree to allow the system to assume responsibility for providing health care services to Medicare beneficiaries,Medicare would continue as a federally operated program in California. Under SPP,the commissioner would appoint a transition advisory group that would be required to make recommendations to the Governor and Legislature on how to inte- grate into the system the health care delivery services of the following state departments and agencies: (1) Department of Health Care Services (DHCS), (2) Department of Man- aged Health Care (DMHC), (3) Department of Aging, (4) Department of Developmental Services (DDS), (5) Health and Welfare Data Center, (6)Department of Mental Health Hon. Dick Ackerman 5 May 22,2008 (DMH), (7) Department of Alcohol and Drug Programs (DADP), (8) Department of Reha- bilitation, (9)Emergency Medical Services Authority, (10)Managed Risk Medical Insur- ance Board, (11)Office of Statewide Health Planning and Development, (12) Department of Insurance,and (13)Department of Public Health(DPH). Revenue Sources Revenue sources proposed by the SPP would include certain new taxes as well as various government funds redirected from other current programs: • New Taxes. The SPP provides for taxes on payrolls,self-employed income, and nonwage income.The first$7,000 of payroll and self-employment income are exempted,as are amounts of all three types of income over$200,000. • State and Local Funding. All current state payments for health care services would be paid directly to the system,which would then assume responsibil- ity for providing all the benefits and services previously paid for by the state government. In addition, the commissioner would establish formulas for eq- uitable contributions to the system from all California counties and other lo- cal health jurisdictions. • Federal Monies. To the extent agreed to by the federal government,all current federal payments for health care services in California would be paid directly to the system,which would then assume responsibility for all benefits and services previously paid for by the federal government. Healthcare Fund. The SPP establishes in the State Treasury the Healthcare Fund (subsequently referred to as the "fund") for the purposes of financing the system. Reve- nues would be deposited into the fund to support the system. There are two accounts within the fund. One to provide for all annual state expenditures for health care and one to maintain a reserve sufficient to pay all losses and claims for which the system may be liable. The commissioner would work with the Department of Insurance and other experts to determine an appropriate level of reserves for the system. Under the SPP, the commissioner has the authority to self-insure the system against unforeseen expenditures or revenue shortfalls not covered by reserves and to borrow funds to cover temporary revenue shortfalls not covered by the reserve account or issue bonds for this purpose. Furthermore, the SPP allows for a General Fund loan to the fund in the event that the annual budget act is not enacted by June 30 and the commis- sioner finds that the funds in the reserve account would be insufficient. System Administration Establishes California Healthcare Agency. The SPP would establish the California Healthcare Agency (subsequently referred to as the "agency") under the control of the Hon. Dick Ackerman 6 May 22,2008 commissioner. The commissioner's powers would include but would not be limited to the following: (1) establishing the system's budget; (2) setting provider rates.- (3) ates;(3) managing the agency's personnel; (4) establishing the system's goals, standards, and priorities; (5) establishing and allocating resources to up to ten health planning regions; and (6) promulgating regulations to implement the SPP. The SPP would establish within the agency the following offices,boards,committees, and partnerships to carry out the activities described above: (1) Office of Patient Advo- cacy, (2) Office of Health Planning, (3) Office of Health Care Quality, (4) Healthcare Pol- icy Board, (5) Healthcare Payments Board, (6) Public Advisory Committee, and (7) Partnerships for Health. The administration of the agency would be supported with monies from the fund created by the SPP. The SPP would also establish the following offices and commissions outside the agency: • Office of Inspector General (OIG). The OIG would be established within the Attorney General's Office and would have powers to investigate, audit, and review the financial and business records of public and private entities that provide services or products to the system. • Healthcare Premium Commission. The Healthcare Premium Commission would do the following: (1) determine the aggregate cost to provide health care under the system and, (2) develop a tax schedule (referred to in the SPP as a "premium structure") that will generate adequate revenue for the fund and ensure stable, actuarially sound funding for the system. The SPP would require the Healthcare Premium Commission to recommend a tax schedule to the Governor and Legislature on a specified date. Provider Payments Physicians and Other Individual Providers. Under the SPP,physicians and other individual providers (such as dentists) generally would be compensated for their ser- vices by the single-payer system. These providers would enter into a contract with the system and may choose to be compensated as fee-for-service providers or as providers employed by, or under contract with,health care systems that provide comprehensive coordinated services,such as Kaiser Permanente or potentially other medical practice groups. (In a fee-for-service system,a health care provider receives an individual pay- ment for each medical service delivered to a beneficiary.) Fee-for-service health care providers would choose representatives of their specialties to negotiate reimbursement rates with the Healthcare Payments Board on their behalf. The Healthcare Payments Board would also negotiate reimbursement rates with health care systems that provide comprehensive,coordinated services. Hon. Dick Ackerman 7 May 22, 2008 Under the SPP,physicians also can elect not to be compensated by the system,but rather to receive reimbursement directly from the person to whom they provide ser- vices. The SPP requires the commissioner to monitor the level of such spending and to take steps to reduce it under specified circumstances. Hospitals and Other Groups Would Receive Annual Budgets. The SPP would estab- lish budgets for hospitals,certain clinics, and medical provider groups, such as practice associations or Kaiser Permanente. These budgets would include components for oper- ating expenses and capital expenditures. Additional Key System Features Establishes a Premium Structure. As described above, the Healthcare Premium Commission would determine the aggregate costs of providing health care coverage and develop a tax schedule that would generate sufficient revenue to ensure stable funding for the system. The SPP provides for four separate taxes to finance the system. The tax schedule developed by the commission would be required to satisfy several cri- teria including being means-based and ensuring that all income earners and employers contribute an amount that is affordable (although the SPP does not specify criteria for determining affordability). Requires Annual Budget. The SPP requires the commissioner to prepare an annual budget for the system that includes all expenditures,specifies a limit on total annual expenditures,and establishes allocations for each health care region. The commissioner is required to limit the growth of spending on a statewide as well as regional basis in order to ensure that expenditures do not exceed revenues under the system. Establishes Cost Control Measures. If the commissioner determined that statewide revenue trends indicated the need for statewide cost control measures, the SPP would require the commissioner to convene the Healthcare Policy Board to discuss the need for cost control measures and to report to the Legislature and the public regarding the possible need for such measures. Limits on Administrative Costs. The SPP requires the commissioner to establish a budget that covers all the costs of administering the system. Administrative costs on a systemwide basis would be limited to 10 percent of system costs within five years of completing the transition to the system and 5 percent of system costs within ten years of completing the transition to the system. Provides for Bulk Purchasing. The commissioner would have the authority to use the purchasing power of the system to negotiate the lowest possible prices for prescrip- tion drugs and durable and nondurable medical equipment. Transition job Training. During the transition to the system,the commissioner would determine an appropriate level and duration of spending to support the retrain- Hon. Dick Ackerman 8 May 22, 2008 ing and job placement of persons who are displaced from employment as a result of the transition to the system. The commissioner would establish guidelines for giving special consideration for employment to persons who have been displaced as a result of the transition to the system. Activation Depends Upon Anticipation of Funding Availability The SPP specifies that only its provisions relating to the Healthcare Premium Com- mission would become operative upon its passage. The remaining provisions would become operative on the date the Secretary of California Health and Human Services notifies the Legislature that sufficient funding exists to implement the system. Once this notification occurs, the SPP requires the system be operative within two years. SUMMARY OF POTENTIAL FISCAL EFFECTS We summarize our fiscal projections in Figure 1 and then discuss in greater detail our estimates for the major revenues and costs. Later in this report, we discuss the ma- jor assumptions we made in order to generate our estimates and how altering these as- sumptions could affect the results. Figure 1 Projected Fiscal Effects of the Single-Payer Proposala (In Billions) 2010-11 b 2011-12 2012-13 2013-14 2014-15 2015-16 Resources New tax revenue $53.4 $112.6 $118.6 $124.9 $131.6 $138.6 Redirected health program funding Federal funds 13.7 28.8 30.3 32.0 33.7 35.4 State funds 9.3 19.6 20.7 21.8 23.0 24.3 Redirected state retiree health contributions 1.0 2.2 2.3 2.4 2.6 2.7 Local government contributions 2.1 4.3 4.4 4.6 4.7 4.9 Total Resources $79.5 $167.4 $176.4 $185.7 $195.5 $205.9 Costs Health care benefits $96.5 $194.3 $205.7 $217.8 $230.7 $244.5 Administration 4.0 7.7 7.4 7.4 7.2 7.1 Contribution to operating reserve 8.0 7.7 0.4 0.4 0.4 0.5 Total Costs $108.6 $209.8 $213.5 $225.5 $238.4 $252.0 Net annual surplus(shortfall) -$29.1 -$42.4 -$37.1 -$39.8 -$42.9 -$46.2 a SB 840 as amended July 10,2007;financing mechanism dated May 13,2008. b Half-year effect following coverage implementation January 1,2011. Hon. Dick Ackerman 9 May 22,2008 LAO Bottom-Line Estimate Significant Shortfalls Projected. Figure 1 represents our estimate of the most likely fiscal effects under the SPP. Subject to the assumptions and uncertainties described fur- ther below,we estimate that the SPP would result in state costs of$109 billion for six months of coverage beginning January 1,2011, and$210 billion in 2011-12,the system's first full year of operations. The SPP would also result in revenues of$80 billion in 2010-11, also beginning January 1,2011,and $167 billion in 2011-12. Therefore,we pro- ject that expenditures would exceed revenues by$29 billion in 2010-11 and $42 billion in 2011-12. Alternate Scenarios. We also estimated the potential fiscal effects under the SPP based on two alternate sets of assumptions. Under one alternate set, a "better case sce- nario," we assumed significantly lower administrative costs,somewhat lower utiliza- tion of health services,and a slower health inflation growth rate. Under the second al- ternate set a "worse case scenario," we assumed higher administrative costs,utilization of services,and health cost growth. In both of these scenarios,we regard these assump- tions as possible but less likely than those used in developing the estimates shown in Figure 1. Under both scenarios, expenditures exceed revenues. In the better case sce- nario,the shortfall in 2011-12 was about$23 billion smaller than the estimate in Figure 1. Under the worse case scenario,the shortfall was about$23 billion larger in 2011-12. PROJECTED COSTS In this section, we first provide a general overview of our approach to estimating health care costs under the SPP. We then provide additional detail on the costs we pro- ject for the system. LAO Approach to Analyzing Health Care Costs for the SPP The Lewin Group, a health consultancy based in Washington, D.C.,published a re- port in 2005 entitled The Health Care For All Californians Act: Cost and Economic Impacts Analysis (subsequently referred to as the "Lewin report"). The report provides an esti- mate of the fiscal impact of a previous single-payer health care proposal from Senator Kuehl (SB 921, 2004),had that proposal been fully implemented in 2006. While there are some differences between SB 921 and the SPP, the key elements of the single-payer health care system proposed by both these measures are substantially similar. Basis of LAO Cost Estimates. The Lewin report employed a proprietary model to develop estimated costs of the health care benefits that the single-payer system would provide. While we did not have access to the model itself,we discussed the model's de- sign and output with the report's author. These discussions and our review indicated that the Lewin Group employed a reasonable approach to modeling the effects of the proposal. We relied upon that report's estimates of per-person health spending under a Hon. Dick Ackerman 10 May 22,2008 single-payer system in 2006 as a starting point to generate our own estimates. We de- rived a per-person health benefits cost for 2006 from the Lewin report estimates. We then adjusted this per person cost to account for the assumptions we made that differ from those made by Lewin, and projected the per-person cost forward in time. By mul- tiplying this per-person cost by the number of persons that would be eligible to receive services under the system in any given year,we arrive at the estimated total health care costs for that year. Health Care Benefits Benefit Costs Under the SPP. Costs to provide benefits under the SPP include pay- ments to providers for all services rendered to California residents. We estimate that health care benefit costs under the system would total$97 billion for 2010-11 (for ser- vices beginning January 1,2011) and$194 billion in 2011-12, the first full year of opera- tions. This full-year estimate includes costs of$4 billion for nursing home services that the state would provide only to Medi-Cal enrollees because such care would not be a benefit under the SPP. These benefit costs do not include federal expenditures for Medi- care or military-related health care costs which we assume would continue to be pro- vided and paid for by the federal government. However, these costs do include pay- ments for premiums and other out-of-pocket spending that Medicare enrollees would otherwise incur themselves. Operating Costs Administration Costs. Administration would include operating the single-payer system and ongoing Medi-Cal administration. Medi-Cal tasks would consist of process- ing eligibility for the entire Medi-Cal population and administering certain long-term care benefits for Medi-Cal eligibles that are not covered by the system. We estimate that these combined costs would total$8 billion in 2011-12,the first full year of operations. This includes costs of$1.5 billion to administer Medi-Cal eligibility. Contribution to Operating Reserve. The SPP would require the system to maintain an unspecified operating reserve. Based upon our analysis of a prudent reserve funding level (discussed below),we project that costs to build up the reserve would be$8 billion in both 2010-11 and 2011-12. The contributions to the reserve would be higher in the first 18 months to initially build up the reserve. In following years, the contributions would only need to adjust the reserve for the annual growth in benefit spending. We also assume that these contributions would be offset by several hundred million dollars annually due to interest earned on the reserve balance. PROJECTED RESOURCES The SPP proposes to fund the system with a combination of new tax revenues (de- posited in the Healthcare Fund) as well as the redirection of current funding for health Hon. Dick Ackerman 11 May 22,2008 care services from the federal, state, and local governments. We describe our estimates for each of these resources below. New Tax Revenues The SPP provides for four taxes to finance the system. Two of these taxes would be levied on wages and,presumably,be administered by the Employment Development Department (EDD). The other two would be levied on various other types of income, and would likely be administered by the Franchise Tax Board. We estimate that,the four taxes would collectively generate about$113 billion to finance the system in 2011-12. About one-half of this money would come from the employer payroll tax. Our projections for these revenues are shown in Figure 2 and discussed below. Figure 2 Estimated New Tax Revenues Resulting From the SPP (In Billions) 2010-11a 2011-12 2012-13 2013-14 2014-15 2015-16 Employer Wage Tax $28 $58 $61 $64 $67 $70 Employee Wage Tax 14 29 30 32 33 35 Self-Employed Income Tax 3 7 8 8 8 9 Nonwage Income Tax 9 19 20 21 23 24 Totals $53 $113 $119 $125 $132 $139 a Half-year beginning 1/1/11. Note:Detail may not total due to rounding. Employer Tax on Wages. The largest single revenue source in the SPP is a tax to be paid by employers on the portion of each employee's annual wages that is greater than $7,000 and less than$200,000. The proposal calls for a tax rate of 8 percent. This tax would raise about$58 billion in 2011-12, the first full year of implementation. Employee Tax on Wages. Another tax in the SPP would be paid by employees on the portion of their annual wages that is greater than$7,000 and less than$200,000. The proposal calls for a tax rate of 4 percent. This tax would raise approximately$29 billion in 2011-12. Tax on Self-Employed Income. The SPP also provides for a tax on the portion of self- employed income that is greater than$7,000 and less than$200,000. The proposal calls for a tax rate of 11.5 percent. This tax would raise about$7 billion in 2011-12. Tax on Nonwage Income. The SPP also calls for a tax on amounts of nonwage in- come (for example: interest, dividends, and capital gains) less than$200,000. The pro- Hon. Dick Ackerman 12 May 22, 2008 posal calls for a tax rate of 11.5 percent. This tax would generate about$19 billion in 2011-12. Tax Rate Level Required to Meet Projected Costs We note that the author has indicated a willingness to adjust the tax rates currently specified in the SPP if necessary in order to pay for the expenditures associated with this program. Taking into account resources from other sources detailed below,we es- timate that the revenues would cover estimated costs if the combined payroll tax rates were 16 percent and the other tax rates were each 15.5 percent. Redirection of Other Government Funds Our projections assume that the system would receive funds redirected from fed- eral,state,and local health programs,as well as from state government retiree health contributions. We estimate that redirected funds and local contributions would total $55 billion in 2011-12,including the sources we describe below. Federal Health Funds.We assume that California would be able to obtain an agree- ment with the federal government to maintain its funding for Medi-Cal and HFP. Federal funding redirected from the Medi-Cal Program and HFP would provide$28 billion of the redirected funds that we project in resources for the state in 2011-12.Of the federal Medi- Cal funding,over$2 billion would result from the federal share of costs for beneficiaries made eligible by the SPP's proposed expansion of Medi-Cal eligibility to 200 percent of the federal poverty level (FPL) (about$42,000 for a family of four in 2008). State Health Program Funds. We estimate that the system would receive$20 billion in state funds redirected from other current state programs in 2011-12. Of these funds, $17 billion would be redirected from Medi-Cal and HFP. Additional funds totaling $3 billion would be redirected from programs operated by DMH, DADP, DPH,and DDS. We also include$266 million in Proposition 99 funds in our estimate. Retired State Employee Health Contributions.We assume that the state could redi- rect amounts that it currently contributes toward the costs of health benefits for state government retirees, subject to the risks described later below. These funds amount to $2 billion in 2011-12. Local Government Contributions.We estimate that the system would receive $4 billion in funds redirected from local government agencies in 2011-12. Roughly one- half of this amount would consist of funds currently received by local agencies in sup- port of health realignment. Local government contributions also include$1 billion in mental health realignment funds that we estimate would be available to the system. We assume that realignment funds designated for public health uses would remain with local agencies with no changes under the SPP. Hon. Dick Ackerman 13 May 22, 2008 General Fund Effects In addition to the fiscal effects summarized in Figure 1,we find that the state would incur administrative costs prior to implementation of the SPP as well as additional costs for employee wages or health benefits contributions under the SPP. Furthermore,we find that the SPP would cause a number of changes in the structure of the California economy that could impact the General Fund. We summarize these potential effects in Figure 3 and discuss them further below. These effects are not included in our estimates of the revenues and costs for the SPP. Figure 3 Potential General Fund Effects of the SPP Annual Effect Revenue Reductions (Unless Otherwise Indicated) • Taxes on insurance companiesa Hundreds of millions of dollars • Economic dislocations Low hundreds of millions of dollars • Labor market adjustments Unknown, potentially hundreds of millions of dollars Revenue Increases • Reduced health care-related tax Hundreds of millions of dollars deductions and exclusions Additional Costs • One-time pre-implementation Up to low hundreds of millions of dollars administration costsb • Additional state employee health Low hundreds of millions of dollars benefit costs or wages a Includes Gross Premiums Taxes and Corporation Taxes. b Pre-implementation costs expected to occur during two years prior to implementation of the SPP. Administration Costs Prior to Single-Payer Implementation Some administrative costs would be incurred in the two years prior to the imple- mentation of the SPP. Planning tasks would include obtaining necessary agreements with federal and local officials, negotiating payments with providers, and establishing operating systems. In order to procure a payment system capable of handling all medi- cal claims under the SPP, it would likely be necessary for the state to contract with a third-party administrator. (Developing such a system in-house would likely require five years or more.) We estimate state costs of up to the low hundreds of millions of dollars to carry out these pre-implementation activities. Hon. Dick Ackerman 14 May 22,2008 State Employee Health Contributions and Wages The state currently pays the majority of the health care premiums for its employees. Our review indicates that the state's contributions for employee health care premiums may total less than the state's payroll taxes (including taxes to be paid by employees)un- der the SPP. We find it likely that state employees would seek to be held harmless from any net changes to compensation and health care benefit costs under the SPP. In addition, the state probably would need to provide offsetting compensation increases of some kind in order to remain competitive in the labor market. Thus,we estimate that the state would incur additional costs in the low hundreds of millions of dollars annually. Taxes on Insurance Companies Under current state law,insurance companies are subject to either a tax of 2.35 per- cent on their annual gross premiums or to the Corporation Tax. We estimate that the issuance of health insurance will generate about$400 million in General Fund revenues in 2007-08. If this proposal were to be adopted,health insurance issuing activities would be reduced significantly,resulting in an annual revenue loss in the hundreds of millions of dollars. Reduced Health Care-Related Tax Deductions and Exclusions Under current Personal Income Tax (PIT) law, a variety of health care expenditures may be either deducted or excluded from income. The SPP would provide funding that would substitute for many of these expenditures. In particular, the SPP should greatly reduce amounts qualifying for the itemized deduction for medical expenditures that are in excess of 7.5 percent of a taxpayer's adjusted gross income. The proposal would also reduce the use of"cafeteria plans" through which taxpayers pay some deductibles and copayments with pretax earnings. We estimate that these changes would increase PIT revenues by hundreds of millions of dollars annually. Currently, the self-employed may deduct health care contributions when computing their taxable income under the PIT. It is unclear to us whether the tax paid by the self- employed under the SPP would be deductible. If it is not, the loss of this deduction would result in a PIT General Fund increase of about$200 million annually. On the other hand, if the new tax is deductible, any increase in self-employed health care con- tributions would result in a loss of PIT General Fund revenues. Due to the uncertainty concerning this issue,we have not incorporated this estimate into Figure 3. Economic Dislocations As described above, the SPP would significantly change health care administration in California. These changes would create dislocations in the economy. The General Fund impact of these changes would depend on a number of factors,such as: layoffs of administrative employees,the speed with which dislocated employees are reabsorbed Hon. Dick Ackerman 15 May 22, 2008 elsewhere in the economy, and any changes in earnings for those dislocated employees that do find new employment. Administrative savings will also be reflected in reduced earnings—and,hence, reduced tax payments—for businesses that provide administra- tive services. Offsetting this will be increased profits for providers whose administrative costs are reduced. In total, reductions in tax revenues from economic dislocations result- ing from the SPP could be in the low hundreds of millions of dollars annually. These reductions could be mitigated (or even reversed) if the funds freed up through adminis- trative savings are redeployed in tax-generating activities elsewhere in the economy. Labor Market Adjustments Over time, the SPP would cause changes—both increases and decreases—in wages throughout the economy. The SPP would increase the cost to employers of some em- ployees while reducing the cost to employers of other employees. Specifically,the pro- posal would increase employer health care contributions for all employees for whom the employer is not providing health benefits as well as for high-wage workers for whom the employer's contribution is less than 8 percent of their wage. Similarly,the proposal would decrease employer costs for employees for whom the employer's health care contribution is greater than 8 percent of the employee's wage. For example, if an employer is making a $4,000 annual health care contribution for each single employee, the employer's cost would increase under the new proposal for all single employees making more than$57,000 per year,and decrease for all of its other single employees. Employers would respond to this by trying to reduce wages paid to employees whose cost has increased,and by being willing to offer higher wages to those whose cost has decreased. Over time, these labor market adjustments would likely result in decreased taxable wages for some employees and increased taxable wages for others relative to what they otherwise would have been. The net effect of all of these labor market adjustments is unknown,but could potentially result in an annual revenue loss in the hundreds of millions of dollars. MAJOR LAO ASSUMPTIONS, RISKS, AND UNCERTAINTIES The SPP would significantly alter the structure of California's entire health care de- livery system. Many of the changes that would occur if the SPP were implemented are unprecedented in the United States. Therefore,assessing the SPP's possible fiscal effects necessitated making a number of significant assumptions regarding revenues and costs. While our interviews with relevant experts and our review of existing literature helped to inform our assumptions, the magnitude and unprecedented nature of the SPP means that many of our assumptions are subject to uncertainty. Here we summarize the major factors contributing to the shortfalls we project. Next,we discuss major assumptions that we made in preparing our estimates as well as risks and uncertainties inherent in our projections. The various issues in this section are organized into (1) issues regarding Hon. Dick Ackerman 16 May 22,2008 federal,state,and local funding redirection; (2) administration issues; (3) universal cov- erage implications for bulk drug purchasing and service utilization;and (4) economic issues. Significant Factors Contributing to Shortfall A substantial portion of our analysis relies on modeling and estimates described in the Lewin report,which concluded that SB 921 (2004) would generate sufficient re- sources to pay the costs for universal coverage. Nonetheless, our estimates indicate the SPP would incur annual shortfalls over our projection period. The estimates for our first full year of implementation in 2011-12 differ from those estimated by Lewin for the first full year of implementation (2006) primarily for the three reasons discussed in more de- tail below. Interim Growth Rates. The Lewin report estimated costs and revenues assuming full implementation in 2006. Between that year and 2011-12,we estimate that health benefits costs would grow at a higher rate than the SPP proposed tax base and redi- rected health funds. This difference in growth rates accounts for over one-half of the shortfall we project in 2011-12. Data Sources.The Lewin report used data from a variety of sources, much of which originated between 1998 and 2003,including some data from national surveys. Our analysis uses more recent data that,where possible,is more specific to California and based on actual reported data rather than surveys. For example,we used wage data provided by EDD instead of survey data,resulting in a lower estimate of payroll taxes than projected in the Lewin report. In total, these various data differences contributed roughly 40 percent to the shortfall we project for 2011-12. Some Different Assumptions. While we generally agree with many of the assump- tions regarding savings and costs used in the Lewin report, our assumptions differed somewhat in a few areas. Our estimates assume somewhat lower costs from health care utilization as well as somewhat higher costs for administration and drug purchasing. Our estimates also include the costs of establishing an operating reserve,which the Lewin report did not include. Additionally, we estimated that greater amounts of state and local funding could be redirected to the SPP than did the Lewin report. We describe these differences in greater detail below. The net effect of these assumptions contribute to most of the remaining shortfall. Hon. Dick Ackerman 17 May 22,2008 Federal, State, and Local Funding Issues Federal Funds The SPP would require the commissioner to seek necessary waivers or other ap- provals from the federal government so that all current federal payments to the state for health care services could be paid directly to the system,which would assume respon- sibility for all benefits and services. Under the state's current system, federal funds are estimated to provide about$23 billion in 2007-08 for Medi-Cal and $1 billion more for various other state-administered health programs. The state would need to obtain such agreements from the federal Centers for Medicare and Medicaid Services (CMS),which administers those two programs as well as the State Children's Health Insurance Pro- gram (HFP in California). Medicaid Requirements Create Administrative Challenge. Based on discussions with DHCS,which administers Medi-Cal,federal law prohibits CMS from waiving cer- tain minimal eligibility requirements for Medicaid programs,including collection of a signed application from beneficiaries and verification of an applicant's immigration status and income. Federal funding is only available to pay for services provided to Medicaid enrollees. Therefore, absent a change in federal law,the state would have to maintain some form of a Medi-Cal administrative enrollment process in order to con- tinue to receive its federal Medi-Cal funds. The need for California to maintain its Medi-Cal administrative enrollment process creates an obstacle not addressed in the SPP. Under the proposed system,nearly all benefits currently provided by Medi-Cal would be available to all residents through the single-payer system,without any need for a resident to take the trouble to submit a Medi-Cal application. We find it likely that under such circumstances,most residents who are eligible for Medi-Cal would have little incentive to apply and therefore would not do so. In this event,the state would lose most of its Medi-Cal federal funding as the program's enrollment declines. However, we assume that the state would agree to es- tablish a procedure by which persons who may be eligible for Medi-Cal (perhaps identi- fied through wage data) would be required to apply for the program, thereby meeting federal requirements and maintaining federal funding. Such a process would require continued funding of some existing administrative costs related to Medi-Cal enroll- ment. We further assume that such a process would be able to enroll all of the Medi-Cal population (adjusted for growth trends),provided that an effective enforcement mechanism was put in place to ensure that Medi-Cal eligibles apply for enrollment. However,if the commissioner is unable to establish an effective process for requiring eligible persons to apply for Medi-Cal,the state potentially would lose a significant por- tion of the $25 billion in federal funds in 2011-12. Hon. Dick Ackerman 18 May 22,2008 Expansion of Medi-Cal Eligibility Would Generate Additional Federal Funds. Cur- rently,children and parents with incomes up to 100 percent of FPL are generally eligi- ble for Medi-Cal. Children five years of age or younger in families with incomes up to 133 percent of FPL are also eligible. The SPP states that residents in families with in- comes up to 200 percent of FPL (about$42,000 for a family of four in 2008) would be eligible for Medi-Cal. Expansion of eligibility for parents and children is permissible under federal Medicaid laws and procedures,but eligibility for able-bodied, childless adults is not permissible. An expansion for such adults would require approval of a "waiver" from CMS. We assume that the state could expand eligibility to 200 percent of FPL for children and parents,but not for childless adults. Because all residents who are apparently eligible to enroll in Medi-Cal would be mandated to do so, we estimate that the state would obtain additional federal funds of$2.1 billion in 2011-12 for services provided to the expansion population. Federal Share of HFP Would Continue. The federal government currently provides about two-thirds of the funds for HFP. Federal funding for this program is currently au- thorized only through March 2009. We assume that this funding will be reauthorized at a level sufficient to provide at least the same level of federal funding HFP currently re- ceives, adjusted for program growth trends. Additionally,we assume that the state would need to continue determining eligibility for HFP in order to maintain its federal funding, consistent with our assumption for continued eligibility determination for Medi-Cal. Medicare Would Remain a Distinct Program. Data from the federal Centers for Medicare and Medicaid administration indicate that federal spending for Medicare beneficiaries in the state totaled about$32 billion for personal health care expenditures in 2004 (the most recent available data). It is not clear whether the federal government would agree to shift Medicare beneficiaries in California over to the system. For pur- poses of this analysis,we assume that Medicare would continue to function as it does currently and that the system would not assume responsibility for services that Medi- care now provides to its enrollees. We assume that the system would pay the premiums and other cost-sharing obligations (including any copayments and deductibles) for which Medicare enrollees are responsible, and would also provide benefits that are not included in Medicare. State Health Program Funds The SPP would require the commissioner to obtain any necessary agreements so that current state payments for health care services would be paid directly to the system. We assume that such state funds would be available to pay for services provided by the sys- tem. These funds include proceeds of tobacco taxes authorized under Proposition 99 that are currently used for health care purposes and certain state General Fund re- sources currently used for programs administered by various state departments. Hon. Dick Ackerman 19 May 22,2008 Local Funds The SPP would require the state to make arrangements,including waivers,legisla- tion,or other agreements,to obtain "equitable contributions" from counties and other local government agencies. The Governor's 2008-09 January budget proposal estimated that county realignment funds designated for health and mental health services would exceed$3 billion in 2008-09, and counties would spend funds from additional sources for health purposes as well. Use of these revenues is governed by various state statutes and, in some cases,by the State Constitution. The exact means by which local govern- ment health care funds would be transferred to the system is not clear. We find it plausible that local governments would be willing to relinquish a signifi- cant portion of the funds they currently spend on health care in exchange for relief from the requirement established under state Welfare and Institutions Code 17000 that local governments provide health care services to indigents. We assume that health and men- tal health realignment funds would be transferred to the system,along with local health funds generated from tobacco settlement proceeds and other county sources. However, such agreements could be contentious and would require subsequent changes to vari- ous state statutes and potentially the Constitution. To the extent the state was unsuc- cessful in obtaining these agreements,funds totaling over$4 billion in 2011-12 could be unavailable. Health Care Contributions for Retired Public Employees In addition to the state and local health program funds discussed above,the state and some local government agencies currently make annual contributions to pay a por- tion of the health care coverage costs for their retired employees who qualify for health benefits. Our estimates assume that the state contributions would be available for redi- rection to the SPP,but we assume no redirection of any similar local government con- tributions. State Retiree Health Contributions. Our review indicates that the state contributions for retiree health benefits in 2007-08 total$1.5 billion. We consider it probable that the state would be able to redirect these funds for use in paying the costs of the SPP,and our projections include resources exceeding $2 billion in 2011-12 from this source. However, our review also indicates that certain legal ambiguities exist regarding the extent of the state's obligations to its retirees under the SPP. Under current law, many of these retirees currently pay a small percentage or possibly no share of their health care premiums. Under the SPP,these retirees would pay 11.5 percent of certain nonwage in- come as taxes,which may be viewed as an increase in health care costs borne by the re- tirees. We view it as possible that retirees would contest such changes to their overall health-related costs in court. If so,it is possible that the state would be legally obligated to hold retirees harmless under the SPP,including from any tax effects. Such an out- Hon. Dick Ackerman 20 May 22, 2008 come could mean the state would use its retiree health care contributions to offset retir- ees' tax obligations,resulting in the loss of some or all of these funds to the SPP. Local Retiree Health Contributions. Our review indicates that there is wide varia- tion among retiree health arrangements for local public agencies. There is also limited data regarding the amounts that local governments currently contribute toward retiree health care costs. Therefore,our projections do not include any such contributions as resources for the SPP. To the extent that such funds could be identified, the resources available to the SPP would increase. However, these funds would be subject to similar legal ambiguities as those described above for state retiree contributions. Administration Issues Implementation Assumed for 2011 The SPP requires the new health care coverage to begin within two years of the date that the Secretary of California Health and Human Services certifies that sufficient revenues would be available. Due to the time needed for the Secretary to verify that suf- ficient revenues are available and for the agency to prepare to launch the system,we assume that coverage under the system would begin January 1,2011. We assume that the new taxes proposed by the SPP would take effect at that same time. Administrative Savings Levels Administrative Savings Under Single Payer. Proponents of single-payer systems ar- gue that a reduction in health care administration costs resulting from a single,system- wide payer would be sufficient to offset all or most of the cost increases of providing universal health care coverage. Under the state's current system,the need for most hos- pitals and physicians to arrange for billing under multiple sets of benefit plans,cost- sharing requirements, and payment methods and systems clearly results in higher ad- ministrative costs than would be the case if there were only one set of benefits,cost- sharing requirements,and payment methods and systems. Additionally,competing health insurers in a multi-payer system likely incur marketing costs and some duplica- tive investments in administrative infrastructure, such as claims payment systems, that could be avoided under a single-payer arrangement. Provider Administrative Savings Estimates Differ. While it appears likely that ad- ministrative savings would result under the SPP, the extent of these savings is unclear. Based on a review of provider cost data,the Lewin report estimated that physicians and hospitals could achieve administrative savings of 30 percent and 22 percent, respec- tively. However,other researchers have suggested in a New England Journal of Medi- cine study that administrative savings could reach 40 percent for physicians and 47 percent for hospitals if provider administration matched levels estimated for Cana- Hon. Dick Ackerman 21 May 22, 2008 than providers. In all cases, these savings are presumed to be realized by the single- payer system through reduced payments to physicians and hospitals. Administrative Savings Estimates Differ. The Lewin report assumed that the single payer would be able to administer the system for 1.9 percent of its health benefit costs, a rate similar to that estimated for the Medicare Program. This contrasts to Lewin's esti- mate that private insurers in California spend 12.7 percent of benefit costs for admini- stration. A report published by the California Healthcare Foundation suggests that ad- ministration expenses for California health maintenance organizations (HMOs) total 8.7 percent of benefits costs. Specific Factors Likely to Limit Administrative Savings Under the SPP. In addition to the variety of estimates among experts regarding how much a California single-payer system could save for administration, our review indicates that factors specific to the SPP could result in administrative costs for physicians,hospitals, and the system. First, (as described previously) the system would need to continue an eligibility process for Medi-Cal to maintain federal funding for that program,indicating that the current eli- gibility processes for Medi-Cal would likely remain in place to some degree. The state would need to implement a new method for requiring persons who appear to be eligi- ble for Medi-Cal to apply for the program,which would also result in state administra- tive expenses. Also,we assume that Medicare would continue to operate as it currently does, meaning that providers would still need to administer payments and benefits for at least one additional payer. LAO Assumptions for Provider Administration Savings. Our review indicates that significant savings from reduced costs for physician and hospital administration would be achieved during the forecast period of the system's operation. The state would real- ize these savings through reduced payments to these providers. However, our estimates assume that savings from these sources would be lower than what could be achieved under some single-payer systems because Medicare and Medi-Cal enrollees would con- tinue to be tracked separately under our assumptions. The continued existence of these programs would increase administration activities somewhat as compared to what would occur if all beneficiaries were covered under one plan. We reduced the savings assumed in the Lewin report by 10 percent to account for this,which increases our cost estimate by$1.5 billion in 2011-12 relative to the Lewin level of savings. Additionally, providers may view the higher payroll taxes as an increase in their administrative costs, and thus be reluctant to accept lower reimbursements than otherwise might be the case. (We discuss the effect of the payroll taxes on employers and employees further below.) To the extent this occurs,lower savings for provider administration may result, and the system would incur higher costs. Hon. Dick Ackerman 22 May 22,2008 LAO Assumptions for State Administration.Overall,we assume slightly higher administrative costs for the state to operate the single-payer system than were assumed in the Lewin report. This is due in part to costs we believe the state would incur in order to process Medi-Cal eligibility in compliance with federal Medicaid law,which the Lewin report did not include. We assume that the state could achieve general program administrative costs equal to about 2 percent of benefits by the fifth full year of the pro- gram,which is comparable to the current Medi-Cal Program (excluding eligibility de- termination costs). To this cost,we add 50 percent of current projected Medi-Cal costs to determine eligibility in a streamlined manner. These costs would include a new process to identify which residents would be required to apply for Medi-Cal in order to main- tain the federal share of funding for Medi-Cal beneficiaries. We also assume that administration costs as a percent of benefits would start out higher the first few years of implementation and then decrease over time until about the fifth year,remaining roughly flat thereafter. (The SPP recognizes the likelihood of this sort of gradual reduction in administrative costs by requiring these costs to be less than 10 percent of benefit expenditures by the fifth year of program operations, and less than 5 percent by the tenth year.) We project that the total administrative expenses for the state to administer the SPP would amount to 3.9 percent of health benefit costs in 2011-12 and decline to 2.9 percent in 2015-16. Reserve Requirement Reserve Equal to One Month's Costs Assumed. The SPP would require the system to at all times hold in reserve an amount estimated in the aggregate to provide for the payment of all losses and claims for which the system may be liable." The SPP also pro- vides that the reserve would be used first to pay system expenses in the event of a late budget. Our review suggests that a prudent reserve should also be large enough to ac- commodate some fluctuation in annual tax receipts, which could be flat in some years (we discuss revenue volatility further below). Based on these considerations,we assume that the reserve would be established to cover one month's health care costs, or about 8 percent of annual health care costs. Different Reserve Goals May Be Considered. Other goals in establishing a reserve may also be considered. For example,requirements established by DMHC for health care service plans operating in the state set one possible threshold at 4 percent of fee- for-service expenses. Assuming that 50 percent of physician expenses would be paid as fee-for-service, this sort of target would indicate an overall operating reserve of about 2 percent of projected annual expenses,or$6 billion lower than we estimate. However, this reserve would provide only enough funds to cover less than two weeks'health care expenses. Hon. Dick Ackerman 23 May 22,2008 Other Universal Coverage Fiscal Issues Bulk Drug Purchasing Discounts at Risk Lewin Estimate Assumes Significant Savings in Purchasing Pharmaceuticals. The Lewin estimate assumes that the single-payer system would achieve savings of almost 25 percent of total current spending as a result of the state's new bulk drug purchasing power. This savings estimate assumes the state would obtain prices at the midpoint be- tween Medi-Cal prices and the lower prices paid by federal agencies,such as the De- partments of Defense and Veterans Affairs. Assumed Drug Prices May Not Be Available. The new agency may be unable to ob- tain drugs below Medi-Cal prices,primarily because of federal law governing how drug prices are calculated for purposes of determining federal Medicaid rebates nationwide. If the drug companies agreed to supply drugs to the system at a cost below Medicaid rates, under federal law they would have to simultaneously lower their Medicaid prices for these drugs nationwide. This is because federal law requires that Medicaid pro- grams receive the "best price." This would be a powerful disincentive for pharmaceuti- cal companies to negotiate drug prices below those paid by Medi-Cal. Higher Drug Costs Would Decrease Savings Amount. In the event that the new agency does not obtain prices at the level assumed in the Lewin report, costs could in- crease significantly. We assume that savings for drug purchases would be 20 percent lower than those assumed by Lewin,resulting in additional costs of$1 billion in 2011-12. Extent of Increase in Health Service Utilization Unclear Utilization Increases Likely Under Universal Coverage. The SPP would extend health coverage to millions of California residents who currently have no health cover- age or whose current coverage provides fewer benefits than they would receive under the proposed system. Additionally, the SPP prohibits any copayments or deductibles for the first two years of its operation with certain exceptions. The SPP would permit the system to establish such payments after two years,but would establish annual lim- its for all cost-sharing of$250 for an individual and$500 for a family. These limits are lower than those currently adopted by many private insurance plans, and the SPP does not index the limits for inflation. These two factors would likely lead to significant in- creases in use of health care services in California. Extent of Utilization Increase Uncertain. The Lewin report estimated that utiliza- tion increases based on these and certain other factors would add over$17 billion in costs in 2006. However, other experts have argued that provider supply limitations may hold down such increases in utilization. According to this argument, even though de- mand for health services would be higher, there may not be enough physicians or hos- Hon. Dick Ackerman 24 May 22, 2008 pital capacity to provide those services. In this event,residents would likely wait longer to receive services than insured persons do under California's current system. Recent press coverage from Massachusetts indicates that wait times to see primary care physi- cians increased substantially following that state's expansion of health care coverage. Other Plan Provisions Could Increase Utilization. Our review indicates that some of the SPP's provisions would likely encourage higher utilization of services. For exam- ple,the SPP would permit physicians to choose to receive payment on a fee-for-service basis rather than a fixed monthly capitation,which may encourage doctors to prescribe additional procedures. Secondly,the system would rely primarily on after-the-fact re- view of physician practices to control inappropriately high use of services. This practice is less likely to limit use of services than current practices utilized by health insurance companies,HMOs, and Medi-Cal,which require prior authorization for certain health services before they can be provided. For example, the Medi-Cal Program currently employs prior authorization for various hospital,pharmacy, and other services. Medi- Cal reports that 13 percent of pharmacy prior authorization requests are denied. Addi- tionally, the existence of the prior authorization requirement likely deters providers from recommending certain services and submitting requests that they know would not be approved. LAO Utilization Assumptions. Our review suggests that utilization increases are likely to be somewhat lower than assumed in the Lewin report due to a shortage of physicians to meet the expected increase in health care demand. (We discuss physician supply issues further below.) Specifically,we assume that the utilization increase under the system would be 20 percent lower than projected by the Lewin report, resulting in costs$5 billion lower in 2011-12 than would be the case under the Lewin assumptions. Costs under the system could be lower,however,if physician supply constraints prove more limiting than we assume. Alternatively, costs could be higher if other factors dis- cussed above increase utilization by more than we assume. Economic Issues Health Care Cost Growth Our estimates of health care costs and revenues are highly sensitive to the growth rates assumed both for (1) the period between the most recent available health spending data and the start of the new coverage system,and (2) the growth of health care costs and revenues once the new system begins. Health Inflation Prior to Single-Payer Coverage. Our analysis used estimates of per- person health costs by age group for 2006 based on the Lewin report. We inflated these costs to 2010,the year prior to single-payer coverage implementation,using national per capita health spending projections published by the CMS Office of the Actuary, re- Hon. Dick Ackerman 25 May 22,2008 sulting in average per capita health spending increases of 5.5 percent between 2006 and 2010. While we believe these estimates are reasonable,health care inflation can vary significantly from year to year, and variations in growth can have a significant effect on total health costs in future years. Health Inflation Following Implementation of the SPP. The SPP would require that the system limit the growth of statewide health spending by reference to a variety of factors,including state economic growth over multiple years,the adoption of new health technologies,and population factors. The SPP does not establish a specific growth limit,but instead leaves discretion to the system's commissioner. It appears likely that the state could limit the system's health spending through its ability to set payment levels for hospitals and other care providers. However,setting too low a growth rate would risk reducing the availability of services. We assume that health spending following implementation of universal coverage would be limited to roughly the rate of long-term state economic growth,which we estimate to be 5.5 percent. This rate would represent a significant reduction in health cost inflation over current trends and projections,but could be accomplished through more coordinated use of technol- ogy and more consistent preventive care. We also note that the extent to which the system could control health inflation is a significant factor in determining the long-term fiscal viability of single-payer coverage. If health spending increases could be held below the long-run growth of SPP resources, then the difference between health costs and available revenues would decrease over time. Revenue Uncertainty Tax Revenue Inflation. Our revenue estimates are based on payroll data from 2006 and other income tax data from 2005. The tax bases described above were then grown at rates based on an analysis of income tax data going back to 1997. The aggregate growth rate over this period for the SPP tax base is approximately 5.3 percent per year. The his- torical analysis of tax return data indicates variability depending on the specific time period selected. If payroll and other income items grow more slowly than assumed be- tween 2006 and 2011, the revenue estimates presented above will be too high. Con- versely, if payroll and other income items grow more quickly than assumed between 2006 and 2011, the revenue estimates presented above will be too low. Revenue Volatility. The revenue streams designated for funding health care in the SPP will be affected by economic cycles. Therefore,even if the SPP is calibrated so that, in the long run, total revenues equal total costs,there would be some years in which funds for health care would be insufficient to cover expenses. Similarly, there would be some years in which revenues would be greater than expenses. Hon. Dick Ackerman 26 May 22,2008 Other Revenue Inflation Assumptions. Our estimates uniformly assume that funds to be redirected from the federal government and other state and local programs would continue to grow according to historical trends for those programs. Those growth rates would likely be subject to negotiation as the state sought agreements to obtain funds from federal and local agencies. To the extent that funds from those sources were redi- rected with lower growth rates than suggested by recent trends, the revenue estimates presented above will be too high. General Equilibrium Effects As described above, the SPP imposes new taxes on businesses and individuals. A portion of these taxes would offset current direct expenditures by businesses and indi- viduals for health care. These reductions would not,however,offset all of the new taxes. Businesses that do not currently provide health benefits to their employees would incur the largest increase in health care costs under the SPP relative to what they are paying under the current system. The size of the tax increase may be large enough to discourage economic activity in California in general. On the other hand,in the long run, the SPP could result in improved efficiency in the health care sector of the economy which could,in turn, spur general economic growth. Potential Health Migration The proposed system would provide coverage to California residents at substan- tially lower direct cost than is likely to be available to some persons in other states. The system could thereby create significant financial incentives for uninsured or underin- sured persons from other states to seek to establish residency in California in order to obtain less expensive health care. The SPP would require the commissioner to establish guidelines to prevent an influx of persons to the state for health care purposes,but does not establish specific practices. The specific policies established by the SPP to determine residency and to deter health migration would significantly affect the costs associated with this risk. Potential for Cost Containment Your request also asked us to assess what measures could be used to contain costs and what their effectiveness might be. The SPP Provides for Possible Cost Control Measures.The SPP would require the commissioner to convene the Healthcare Policy Board should statewide cost control measures appear necessary. The SPP lists a variety of specific measures that the com- missioner and the Healthcare Policy Board could enact statewide. Among these are im- provements in "efficiency and quality," postponement of new benefits, imposition of certain copayments, and reductions in payments for health care providers,managers, drugs, or medical equipment. Additionally, the SPP would permit the system to seek Hon. Dick Ackerman 27 May 22,2008 statutory authority for a temporary decrease in benefits. Should these cost controls ap- pear insufficient, the SPP would require the Healthcare Policy Board to report to the Legislature and recommend measures to correct the shortfall,including an increase in the tax rates proposed by the SPP. Effectiveness of Some Cost Controls Unclear. Some cost control measures author- ized by the SPP would likely be ineffective in the short run. For example,efforts to in- crease efficiency may yield long-term savings but generally are unlikely to produce the immediate,short-term cost reductions necessary to address a significant revenue short- fall. The measures most likely to produce short-term savings would be the imposition of copayments and a reduction in payments for services or drugs. However,restrictions included in the SPP for copayments,such as hardship exemptions and relatively low out-of-pocket spending limits,would reduce the effectiveness of copayments. Reduc- tions in payments to providers would be effective in holding costs down in the short term. In the long term,however,such payment restrictions could have undesirable con- sequences such as reductions in the willingness of providers to work in California. Lastly, a reduction in benefits could effectively reduce costs,but the SPP would not permit this cost control measure without statutory changes. ADDITIONAL EFFECTS OF THE SINGLE-PAYER PROPOSAL Your letter also requested that we evaluate certain additional effects of the single- payer proposal in California. In this section,we address your questions regarding the system's potential effects on physician supply in the state and on employers and em- ployees. Potential Effects on Health Care Workforce Supply You requested that we assess California's current medical workforce needs and the effect the SPP might have on the present and future supply of physicians and nurses. Below,we provide some background information on health care worker supply and discuss some possible effects. Background. An adequate supply of physicians,both primary care and specialists,is a necessary component of an effective, quality health care system. The exact number of physicians necessary to support the health care system depends upon many factors, in- cluding general demographic trends,physician workforce characteristics,and the de- mand for health care services. Because physicians take a long time to train at great ex- pense,physician shortages can have a long-term impact upon the health care system that is not easily remedied. Hon. Dick Ackerman 28 May 22,2008 Future Physician Shortages May Exist Under Current System. Several current esti- mates of physician supply predict potential physician shortages both nationally and for California. A 2004 University of Albany study completed for the University of Califor- nia Office of Health Affairs forecasted a number of scenarios concerning the potential growth in demand for physicians compared to the supply of physicians available to treat demand. Under almost every scenario, the growth in demand for physician ser- vices outpaced the supply of physicians. In a baseline forecast,where insurance cover- age, demand for services, and physician supply were held constant, demand was pre- dicted to outpace supply by 1.8 percent. However, other scenarios forecasted demand outpacing supply by almost 18 percent. A number of factors influenced the outcome of the forecasts, including the aging of the California population and the current trend to- wards physicians working fewer hours. Effect of Single-Payer System Unknown.A switch to single-payer coverage will likely greatly affect both the demand and supply for physicians within California, though the extent to which a physician shortage might exist is largely uncertain. The provision of health benefits to the entire population would increase the demand for health care services,as discussed above. However, though demand would increase in the short run, effects on long-term demand are uncertain. Depending on how the com- missioner decided to institute cost-control measures or measures restricting the provi- sion of services deemed less medically necessary, the future demand for health care services could slow compared to current demand. The effect on supply would depend primarily upon physician rates. A large portion of California's physician workforce currently originates from outside of the state. The implementation of a single-payer system and the potential of lower physician salaries, when compared to other states,could deter future physicians from starting their prac- tices in California. The extent to which existing physicians in California saw their sala- ries significantly decline could also precipitate a movement out of state by these physi- cians. Potential Effects on Employers and Employees The SPP would change the basic approach to funding health care in California from the current approach that is based on purchasing insurance for each health care recipi- ent to a system of taxing earnings. This would result in significant changes in who pays for health care. Over the long run, these changes could affect employee and employer behavior in various ways. We discuss the major impacts below. Family Size. The proposal would shift costs from large families to individuals. Un- der the current system,family structure is an important determinant of health care costs. Figure 4 shows projected 2011 average employer and employee contributions (in- cluding both employee premium payments and out-of-pocket expenses) to health care Hon. Dick Ackerman 29 May 22,2008 costs for Californians with employer-provided health insurance. Under the current sys- tem,total health care costs for the average family are almost three times those for the average single adult. Under the SPP,the number of people in an employee's family would not affect contributions to the health care system. Instead, only earnings would matter. Thus, a single adult with annual wages of$50,000 would pay as much as a co- worker with the same wages and a family of five. Figure 4 Projected Average Health Care Costs In Californiaa (201 1) Single Adult Family Employee costs $1,825 $7,125 Employer costs 5,300 12,425 Totals $7,125 $19,550 a Includes health insurance premiums and out-of-pocket expenses for recipients of employer-provided heaBh insurance. Income. The SPP would shift costs from low-income taxpayers to higher-income taxpayers. Figure 5 shows the proposed payroll taxes for an employee at various in- come levels. Figure 5 Payroll Taxes at Different Wage Levels Under SPP Wage $50,000 $100,000 $150,000 $200,000 Employer tax 3,440 7,440 11,440 15,440 Employee tax 1,720 3,720 5,720 7,720 Total Taxes $5,160 $11,160 $17,160 $23,160 Comparing Figures 4 and 5,we see that the combined payroll taxes ($11,160) on an employee earning$100,000 would be greater than projected total costs for a single per- son ($7,125),but substantially less than projected total costs for a family ($19,550). An employee earning$200,000 would pay more in employee payroll taxes ($7,720) than the projected total employee costs for families ($7,125) under the current system. Hon. Dick Ackerman 30 May 22, 2008 Wages Versus Unearned Income. The SPP's$200,000 ceiling on taxable earnings is applied separately to wages and unearned income. Thus a taxpayer with$400,000 in wages will be taxed on only$193,000 ($200,000 less the$7,000 exemption),whereas a taxpayer with$200,000 in wages and$200,000 in unearned income will be taxed on $193,000 of wages and $200,000 of unearned income, or a total of$393,000. In this case, the second taxpayer would pay an additional$23,000 in total taxes even though the two taxpayers had identical total incomes. Impact of the$7,000 Exemption on Employment. The exemption from taxation on the first$7,000 of wages could tax some families with the same total earnings differently depending,on how many different sources of income they have. For example, a family with a single wage earner earning$80,000 would benefit from a$7,000 exemption and be taxed on$73,000. A family in which two different people earned $40,000 each would have the same $80,000 in wages. Each wage earner would,however,receive a$7,000 ex- emption, so they would only be taxed on$66,000 of wages. For the first family, there- fore,the employer would pay an additional tax of$560 and the employee an additional tax of$280. Health Care Portability.Under our current system,many employees are reluctant to leave their current employers because of the changes in their health care coverage that would result. Under the SPP,Californians would receive the same health care bene- fit regardless of employer, therefore,health care considerations will not prevent people from making otherwise desirable job switches. In the long run, this should enhance the efficiency of the California labor market. Wage Adjustments in the Economy. Employers would respond to changes in the cost of employees under the SPP in various ways. Some employers,for instance,would hire more lower-paid employees and fewer higher-paid employees as a way to reduce the amount of new taxes paid. Alternatively, employers may try to reduce wages paid to employees whose cost has increased, and be willing to offer higher wages to those whose cost has decreased. For employees whose wages are more than the$200,000 tax- able ceiling,employers also could shift the composition of compensation by replacing compensation that generates nonwage income with additional wage income in order to reduce the total tax burden. In the long run, these employment effects could have significant impacts on the Cali- fornia economy. The incentives for using low-wage workers, for example,could en- courage net migration out of California for high-wage employees and migration into California for low-wage employees. The net impact of the different incentives on the economy cannot be determined. Hon. Dick Ackerman 31 May 22,2008 CONCLUSION Any plan to reform the state's health care system,by the nature of its complexity, will involve financial risk over the long term. Many of the fiscal risks discussed in this letter would be shared by a variety of health reform plans. Our analysis indicates that the state would face significant shortfalls over a five-year period should the SPP be im- plemented in its current form. If you have any questions regarding our analysis,please contact me at 445-4656. Sincerely, Elizabeth G. Hill Legislative Analyst Attachment B DRAFT RESOLUTION RESOLUTION OF CONTRA COSTA COUNTY IN SUPPORT OF COMPREHENSIVE HEALTH CARE REFORM VvrI-IEREAS, 6.5 million Californians are without health insurance for some period every year, including an estimated 43%of low income residents in Contra Costa County; and Vv-BER-EAS,individuals who are unable to access the health care they need for themselves or their family members may, as a result, face challenges maintaining employment, contributing to the economy, learning in school, or living a full and dignified life; and WBEREAS,Contra Costa County, as a major provider of critical health care services and as an employer is deeply affected by the problems in our current system; and WHEREAS, because of the rising costs of maintaining the current health care system, both private and public employers are facing increasing burdens which undermine wages and pensions, increase the number of uninsured and underinsured, and place severe strains on public health and public fiscal resources; and W-HEREAS, the cost of health care coverage for employees and retirees of public agencies is an increasingly large and burdensome component of local government spending; and VVHEREAS,it is critically important that reform should not adversely affect existing funding and services provided by the Contra Costa Health Department, or other essential community programs serving indigent populations;and, WHEREAS, a comprehensive study by the Lewin Group, a nationally recognized health care finance consulting firm, has shown that considerable cost savings for individuals, goverrunent, and businesses can be achieved through a single payer plan such as SB 840, while at the same time providing universal, comprehensive care; and, WHEREAS, SB 840 includes effective strategies to control costs such as administrative efficiency, bulk purchasing of pharmaceuticals and medical devices, global budgeting, and quality improvements such as prevention, chronic disease management, and standards of care based on scientific evidence: NOW, THEREFORE, BE IT RESOLVED that the Board of Supervisors of Contra Costa County affirms support for SB 840, as amended on July 10, 2007, as it proceeds through the legislative process, and that this support will be communicated to the members of the legislature representing Contra Costa County, and to Senator Sheila Kuehl. PASSED AND ADOPTED by the Board of Supervisors of Contra Costa County this day of , 2007,by the following votes: AYES: NOES: ABSENT: Chair,Board of Supervisors ATTEST: COUNTY CLERK: Page 1 of 2 Attachment C Cal Health Reform .org Summary of the Proposal's Features SB 840 (Kuehl): "Single Payer Health Care Coverage" (Last updated 7/17/2007) Californians to Be All Californians covered through newly created single-payer Covered California Health Insurance System (CHIS). Companion legislation, SB 1014, would require individuals to Requirements Imposed on contribute a portion of income via taxes, in lieu of paying for Consumers/Individuals health care premiums, copays, and deductibles. First$7,000 of income would be exempt. Treatment of Self- All Californians have same access to same standard Employed benefits, regardless of type of employment. SB 1014 would require employers to contribute via a 8.17% Requirements Imposed on increase in payroll tax of employee's income over$7,000 Employers and under$200,000. Contribution would be made in lieu of paying premiums. Treatment of Small Not applicable. Employers Requirements Imposed on None stated. Providers • New CHIS commissioner would negotiate and set all Changes in Provider rates. of Funds for Providers Payments or Reallocation * Provides new right to providers to collectively negotiate rates and fees. • Aims to consolidate funding for existing public programs Public Program into newly created Universal Healthcare Fund, under Expansions and CHIS. Support for Low-Income 9 All Californians receive coverage under CHIS, regardless Individuals -. of income. Role of Counties Indigent receive care under CHIS; counties are largely removed of their obligation to care for indigent. • Legislation intends for CHIS to consolidate funding from all existing public programs into the Universal Healthcare Role of Federal Fund, potentially including Medicare. Government • People eligible for federal programs (Medicare and Medi- Cal)would remain enrolled in them and CHIS would pay their premiums and deductibles. Changes in State Tax SB 1014 would modify state tax code to increase individual Code and State Tax income tax and employers' payroll tax. Revenue Insurance Market Requirements/Reforms: CHIS becomes the primary policy for all Californians. Guaranteed Issue, Rating Insurers may sell supplemental policies. Reforms, and Other Requirements http://www.calhealthreform.org/index2.php?option=com_content&task=view&id=37&pop=1&page=0&I... 3/31/2008 Page 2 of 2 Imposed on Health Plans Insurance Market Requirements/Reforms: All Californians receive coverage under CHIS. Connector/Purchasing Pool Insurance Market Requirements/ Reforms: New administrative bodies are created to administer CHIS Participant Contribution to and develop a premium structure for Californians. Obtain Coverage Through Purchasing Pool • Creates the California Health Insurance Premium Commission to develop a premium structure to fund CHIS. • Legislation relies on an estimated $29 billion in administrative and other savings that are used to fund expanded coverage under CHIS. Financing Sources and • SB 1014 would increase payroll and state income tax for Cost Estimates financing. Legislation envisions: o Individuals would pay 3-4% of income (between $7,000 and $200,000). o Individuals would pay an additional 1% on income over $200,000. o Employers would pay 8%of payroll tax (on payroll above $7,000 for full time employees). Cost Containment: Preventive care covered by CHIS. Prevention and Wellness Cost Containment: Caps administrative spending to 5% of total system-wide spending and authorizes newly created CHIS Commissioner Additional Provisions to create other forms of cost control. Enforcement None specified. • January 2008— Premium Commission established. • On or before January 2010, Commission makes recommendations to the Governor and Legislature. Implementation Timeline • CHIS becomes fully implemented once the Secretary of Health and Human Services determines the Universal Healthcare Fund has sufficient revenue for the program to be operational. ©2007 California HealthCare Foundation. All Rights Reserved. http://www.calhealthreform.org/index2.php?option=com_content&task=view&id=3 7&pop=1&page=0&I... 3/31/2008 Attachment D Projected Single-Payer Health Care Cost Savings for Contra Costa County School Districts (Using 2004-05 data) (Source: California Department of Education SACS Reports) Note: The calculations are based on an employer contribution to health benefits of 8.17% of the total payroll and an employee contribution of 3.78% per SB 840. Also calculated is the cost savings if the employer were to contribute both its share and the employees' share. SUM o,f CONTRA COSTA SCHOOL DISTRICTS' Certificated Bargaining Unit Salaries: $518,848,599 Administration Salaries: $ 68,724,598 Classified Bargaining Unit Salaries $168,675,042 Health Benefits Only $108,576,936 TOTAL PAYROLL $756,248,246 (Contra Costa County School Districts 2004-05) --------------------------------------------------------------------------------------- EMPLOYER Contribution to Single Payer Plan @8.17% of Payroll $ 61,785481 EMPLOYEE Contribution to Single Payer Plan @3.78% of Payroll $ 28,586,184 EMPLOYER SAVINGS Employer only share paid $ 46,791455 EMPLOYER SAVINGS Employer plus employee share paid by employer $ 18,205,271 fV tD. O N ID b CI. N r O O tD N Ib 'N ID w r ! ID a, fD fD 10 O iD GO 10 !� N y [D M _b CI 10 Cf Qf 01 N N Q 1� a P1 O IO' PI m C? w a 'o0 0 of r di t- r ti o m d d N " �` ami N to O:Z W a- O YF IO r 'N N N N to r' N a Cl + d G w � w w w � 41.Lu V) Irl Q O w f0 0 U t0 CV CV C!1 r N r ld `Q Cf V) M m y, T Ot O IRS Lh Of O t: C.) 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O O O O - O O ..0 O O -..O O O F_ C) U [) - N 7 N (D a] O N - 9 Attachment E SB 840/0neCareNow Campaign: City Council Resolutions Contact for updates/revisions to this document: Dan Hodges— (w) 510.263.2339—daniel.hodges! fkilogistex.com Past & Current C41+Council Endorsements Received for SB 840 (2007-2008) Berkeley(also endorsed for 2005-2006) Capitola(also endorsed 2005-2006) Fort Bragg El Cerrito(also endorsed for 2005-2006) Oakland(also endorsed for 2005-2006) Richmond(also endorsed for 2005-2006) Santa Barbara(also endorsed for 2005-2006) Santa Cruz(also endorsed for 2005-2006) West Hollywood (also endorsed for 2005-2006) Received for SB 840 (2005-2006) Carson Hercules Los Angeles Morro Bay San Francisco Santa Monica Watsonville Past and Current Board of Supervisors Endorsements Received for SB 840 (2005-2006) Alameda Los Angeles Marin Mendocino Received from the office of Senator Sheila Kuehl October 22, 2007 SB 840 Suaport Letters 2007 total: 236 SUPPORT FROM ORGANIZATIONS 1. AARP 2. Access to Independence 3. Action Now 4. Alameda County Public Health Department 5. Alameda Health Consortium 6. Alameda-Contra Costa Transit District 7. Alliance for Democracy- San Fernando Valley Chapter 8. Alliance of Retired Americans- West Side Chapter Los Angeles 9. Alto Sanitary District 10. Altschuler Clinic-A Center for Weight Loss and Wellness 11. American Association of University Women 12. American Civil Liberties Union 13. American Federation of State, County and Municipal Employees 14. American Federation of State, County and Municipal Employees, Council 36 15. American Federation of State, County, and Municipal Employees Retirees, Chapter 36 16. American Federation of Teachers California.Federation of Teachers 17. American Federation of Television and Radio Artists 18. American Nurses Association California 19. Applied Research Center 20. Association of California Caregivers Resource Centers 21. Bellflower Democratic Club 22. Board of Directors of the Alto Sanitary District -Resolution 23. Breast Cancer Action 24. Butte County Health Care Coalition 25. CA Advocates for Nursing Home Reform 26. CA Alliance for Retired Americans 27. California Association of Public Authorities for In-Home Supportive Services 28. California Catholic Conferences 29. California Church IMPACT 30. California Council of Community Mental Health Agencies 31. California Faculty Association 32. California Federation of Teachers 33. California Foundation for Independent Living Centers 34. California Healthcare Institute 35. California Immigrant Policy Center 82. Democratic Central Committee of Santa Barbara County 83. Democratic Club of Santa Maria Valley 84. Democratic Westside Progressives 85. Democrats of the High Desert 86. Demos Democratic Club of Hayward 87. Dental Health Foundation 88. Effective Assets 89. El Cerrito Democratic Club 90. Equality California 91. East Bay Peace Action 92. Family Resource Network of Santa Cruz County 93. First Congregational Church of Long Beach 94. First 5 Children and families Commission, Marin 95. Friends Committee on Legislation of California 96. Grass Valley Friends Meeting of the Religious Society of Friends 97. Gray Panthers 98. Gray Panthers-Berkeley -East Bay 99. Greater Lodi Area Democrats-Resolution in Support of SB 840 100. Green Party of Alameda County 101. Green Party of Butte County 102. Green Party of California 103. Health Access California 104. Health Care for All California-Marin 105. Health Care for All California- Santa Barbara 106. Health Care for All California- San Gabriel Valley 107. Health Care for All California- Santa Cruz City 108. Health Care for All California- Sonoma County 109. Health Care for All California- South Bay/Long Beach 110. Health Care for All California- Tulare Kings 111. Health Improvement Partnership of Santa Cruz County 112. Health Officers Association of California 113. Howard L. Berman- Congress of the United States House of Representatives 114. Independent Employees of Merced County 115. Independent Living Center- San Gabriel Valley 116. Insure the Uninsured Project (ITUP) 117. Interfaith Council of Contra Costa County 118. JERICHO 119. Jewish Labor Committee 120. Konocti Unified School District 121. Kramer Translation 122. Lake County Board of Supervisors (NEED LETTER) 123. Lake County Democratic Club 124. Lambda Letters Project 125. Lamorinda Peace and Justice Group 126. Latino Coalition for a Healthy_ California 127. Latino Health Access 173. Planned Parenthood Affiliates of California 174. Planned Parenthood of Mar Monte 175. Planned Parenthood of San Diego and Riverside Counties 176. Planted Parenthood of Shasta-Diablo 177. Progressive Christians Uniting 178. Protection & Advocacy Inc. (Support if Amended) 179. Rainbow Coalition- West Contra Costa 180. Richmond Greens Steering Committee 181. Sacramento for Democracy 182. Sacramento Japanese United Methodist Church United Methodist Women 183. San Bernardino Public Employees 184. San Diego County Court Employees Association 185. San Diego County Water Authority 186. San Francisco for Democracy 187. San Francisco Labor Council 188. San Joaquin County Commission on Aging 189. San Jose-Evergreen Community College District 190. San Luis Obispo County Employees Association 191. San Mateo County Central Labor Council 192. San Pedro Neighbors for Peace and Justice 193. Santa Barbara Clergy & Laity United for Economic Justice 194. Santa Barbara Friends Meeting (Quakers) 195. Santa Clarita Valley $CV Clean Money for Better Government 196. Santa Rosa City Employees Association 197. Senior Advocacy Council 198. Service Employees International Union 199. Service Employees International Union, local 1877 200. Service Employees International Union, United Healthcare Workers 201. Sierra Friends Center 202. Sober Living Network 203. Sonora Valley Hospital 204. Sourcingmag.com 205. South Bay Center 206. South County Democratic Club 207. South Hayward Parish 208. South of Market Project Area Committee 209. South Pasadena Activists 210. Southern California Public Health Association 211. State of California Commission on the Status of Women 212. St. John's Presbyterian Church 213. St. Mary's Center 214. Stockton Unified School District Resolution No. 06-77 215. Strawberry Creek Lodge Tenant's Association 216. Sutter County Democratic Central Committee 217. The Cohn Agency Insurance 218. Torrance Democratic Club 20. Howard Jarvis Taxpayers Association 21. Insurance Brokers and Agents of the West (!BA West) 22. Kaiser Permanente 23. National Association of trisuranc-e and Financiai Advisors of California 24. National Federation of Independent Businesss (NFIB) 25. Modesto Chamber of Commerce 26. United Chambers of Commerce of the Ban Fernando Valley 1 a r _ Attachment E SB 840/OneCareNow Campaign: City Council Resolutions Contact for updates/reN-isions to this document: Dan Hodges— (w) 510.263.2359—daniel.hodges @ fkilogistex.com Past & Current City Council Endorsemenis Received for SB 840 (2007-2008) Berkeley (also endorsed for 2005-2006) Capitola(also endorsed 2005-2006) Fort Bragg El Cerrito(also endorsed for 2005-2006) Oakland (also endorsed for 2005-2006) Riclunond(also endorsed for 2005-2006) Santa Barbara(also endorsed for 2005-2006) Santa Cruz(also endorsed for 2005-2006) West Hollywood(also endorsed for 2005-2006) Received for SB 840 (2005-2006) Carson Hercules Los Angeles Morro Bay San Francisco Santa Monica Watsonville Past and Current Board of Supervisors Endorsements Received for SB 840 (2005-2006) Alameda Los Angeles Marin Mendocino 82. Democratic Central Committee of Santa Barbara County 83. Democratic Club of Santa Maria Valley 84. Democratic Westside Progressives 85. Democrats of the High Desert 86. Demos Democratic Club of Hayward 87. Dental Health Foundation 88. Effective Assets 89. El Cerrito Democratic Club 90. Equality California 91. East Bay Peace Action 92. Family Resource Network of Santa Cruz County 93. First Congregational Church of Long Beach 94. First 5 Children and families Commission, Marin 95. Friends Committee on Legislation of California 96. Grass Valley Friends Meeting of the Religious Society of Friends 97. Gray Panthers 98. Gray Panthers-Berkeley-East Bay 99. Greater Lodi Area Democrats-Resolution in Support of SB 840 100. Green Party of Alameda County 101. Green Party of Butte County 102. Green Party of California 103. Health Access California 104. Health Care for All California-Marin 105. Health Care for All California- Santa Barbara 106. Health Care for All California- San Gabriel Valley 107. Health Care for All California- Santa Cruz City 108. Health Care for All California- Sonoma County 109. Health Care for All California- South Bay/Long Beach 110. Health Care for All California- Tulare Kings 111. Health Improvement Partnership of Santa Cruz County 112, Health Officers Association of California 113. Howard L. Berman- Congress of the United States House of Representatives 114. Independent Employees of Merced County 115. Independent Living Center- San Gabriel Valley 116. Insure the Uninsured Project (ITUP) 117. Interfaith Council of Contra Costa County 118. JERICHO 1 l 9. Jewish Labor Committee 120. Konocti Unified School District 121. Kramer Translation 122. Lake County Board of Supervisors (NEED LETTER) 123. Lake County Democratic Club 124. Lambda Letters Project 125. Lamorinda Peace and Justice Group 126. Latino Coalition for a Healthy_ California 127. Latino Health Access 20. Howard Jarvis Taxpayers Association 21. Insurance Brokers and agents of the West (ISA West) 22. raiser Per,imanente 2-3. Natio-nal Associatian of Insurance and Financial kdviscrs of California 24. National Federation of Independent BusinE—ss ( FIS) 25. Modesto Chamber of C-ommer--c2 26. United Chambers of Commerce of the Ban Fernando Valley •1 KyCAo RESOLUTION NO. 109-07 A RESOLUTION OF THE RICHMOND CITY COUNCIL,RICHMOND CALIFORNIA, AFFIRMING SUPPORT OF SENATE BILL 840 (KUEHL), THE CALIFORNIA UNIVERSAL HEALTHCARE ACT OF 2007 WHEREAS, The California Universal Healthcare Act, also know as SB 840 (Kuehl), will provide comprehensive health insurance coverage to all Californians while protecting the right to choose one's own physician;and WHEREAS, Approval of SB 840 will provide reliable health care coverage in which eligibility is based on residency, instead of on employment or income, and all residents are covered;and, WHEREAS, No California resident will ever again lose his or her health insurance because of unaffordable insurance premiums, when they change or lose a job or graduate from college,or because they have a pre-existing medical condition;and, WHEREAS, Funding for SB 840 involves no new spending on health care and is by federal, state and county monies already being spent on health care and by affordable insurance premiums that replace all premiums,deductibles,out-of-pocket payments and co-pays now paid by employers and consumers;and WHEREAS,SB 840 is more efficient,eliminating waste by consolidating the functions of many insurance companies into one comprehensive insurance plan, saving the state and consumers billions of dollars each year;and WHEREAS, SB 840 is based on a model that has been estimated to save California about$20 billion through reduced administrative costs in the first year alone;and, WHEREAS, Under SB 840, California will use its huge purchasing power to buy prescription drugs and durable medical equipment in bulk, using full purchasing power to negotiate the deepest savings;and, WHEREAS, This model of system wide bulk purchasing could save California 5.2 billion in the first year;and, WHEREAS, SB 840 will make our health care system more reliable and secure by stabilizing the growth in health spending;and, WHEREAS, Linking spending increases to state Growth Domestic Product and population growth,employment rates and other relevant demographic indicators;and, WHEREAS, SB 840 will combine needed cost controls with medical standards that use the best available medical science, and place an emphasis on preventative and primary care to improve California's overall health in a way that also saves billion of dollars;and, WHEREAS,SB 840 consumers have total freedom to choose their personal primary care provider,and health care providers and facilitates will receive fair reimbursement for all covered services they provide;and, WHEREAS,SB 840 utilizes proven financial incentives that support the delivery of high quality care, including bonuses for providers working in rural or under served areas,and meets needed health care infrastructure such as electronic claims and reimbursement system and statewide medical;and, WHEREAS, Coverage includes all care prescribed by a patient's health care provider that meets accepted standards of care and practice, including hospital, medical, surgical, and mental heath,dental and vision care prescription drugs and medical equipment, such as hearing aids, emergency care, skilled nursing care after hospitalization, substance abuse recovery programs,health education and translation services,including services for those with hearing and vision impairments, transportation needed to access covered services, diagnostic testing, and hospice care;and, WHEREAS,SB 840 is on file with the Clerk of the City of Richmond which is hereby declared to be a part of this resolution as if set forth fully herein;and, WHEREAS, SB 840 offers California a broad and clear vision for a remodeled health system that will provide high quality,affordable and reliable health care for all residents; NOW, THEREFORE, BE IT RESOLVED, That the City of Richmond supports SB 840 and thanks the members of the state legislature who have sponsored this critical bill; AND BE IT FURTHER RESOLVED,That the City Council directs the City Clerk to send a copy of this resolution to our legislative delegation: Congressmen George Miller, State Senator Don Perata, State Senator Tom Torlakson, Assemblymember Loni Hancock, Assemblymember Mark DeSaulnier and including State Senator Sheila Kuehl. ------------------- I certify that the foregoing resolution was passed and adopted by the Council of the City of Richmond at a meeting thereof held on October 16,2007 by the following vote: AYES: Councilmembers Butt, Marquez, Rogers, Sandhu, Thurmond, and Mayor McLaughlin NOES: None ABSTENTIONS: None ABSENT: Councilmembers Bates,Lopez,and Viramontes DIANE HOLMES Clerk of the City of Richmond [SEAL] APPROVED: GAYLE McLAUGHLIN Mayor APPROVED AS TO FORM: LOUISE RENNE,Interim City Attorney State of California } County of Contra Costa:ss. City of Richmond } I certify that the foregoing is a true copy of Resolution No. 109-07,finally passed and adopted by the Council of the City of Richmond at a meeting held on October 16,2007 1