Government-Run Health Care Passes First Committee

The Senate Health Committee this week passed a California Chamber of Commerce-opposed job killer bill that seeks to establish a government-run, single-payer health care system in California.

SB 562 (Lara; D-Bell Gardens/Atkins; D-San Diego)

has been identified as a job killer because it creates a new single-payer government-run multibillion-dollar health care system financed by an unspecified and undeveloped “revenue plan” which will penalize responsible employers and individuals and result in significant new taxes on all Californians and California businesses.

Although the financing mechanism for SB 562 has not yet been specified, past legislative attempts at government-run health care have proposed major increases in payroll and income tax on businesses and individuals. California just passed a $52 billion tax over 10 years of which the business community pays a significant share. Adding another tax burden under SB 562 will cost employers and taxpayers billions of dollars and result in significant loss of jobs in the state.

In testimony to the committee, CalChamber Policy Advocate Karen Sarkissian and other employer representatives underscored fundamental flaws with SB 562.

Costs Unsustainable

In 2008, the California Legislative Analyst’s Office (LAO) estimated that sustaining a single-payer system in California would require more than $210 billion in the first year, an amount increasing up to $250 billion in subsequent years.

Even with the 12% tax on employers and employees under the 2008 measure, the LAO report predicted a net shortfall of $42 billion in the system’s first full year of implementation and even higher thereafter.

Just to cover the shortfall, the LAO estimated a tax of 16% on employers and employees would be needed, resulting in a multibillion-dollar tax increase on Californians.

Funding Shortfall

Sarkissian pointed out that the funding shortfall for the SB 562 program, described by its proponents as “Medicare for all,” would be far higher than the 2008 calculations.

The committee analysis shows total health care expenditures in California, including what employers currently spend on health care, if averaged amongst all Californians, totals approximately $9,300 per person today. This includes federal funds where the future is uncertain. Medicare expenditures in California come to approximately $13,300 per person. The $4,000 difference amounts to a $155 billion shortfall statewide.

CalChamber Policy Advocate Karen Sarkissian details for the Senate Health Committee the huge financial burden SB 562 will place on employers for an “inherently flawed system lacking competition and important cost containment mechanisms which will result in lower quality and higher cost health care for all Californians.”

New Tax Burden

A payroll tax increase, such as the one needed to finance this bill, not only has a detrimental impact on businesses already in California; it also discourages companies from locating and establishing a business here.

A large payroll tax would penalize responsible California employers and be a deterrent and disincentive to new employers. Additionally, payroll tax increases would likely lead to job layoffs as existing businesses and employers would be forced to cut costs to sustain the added new tax burden.

Significant Job Losses

The measure itself recognizes the significant job losses it will cause to those in the health insurance industry whose “jobs may be or have been ended as a result of the implementation of the program.” Even if those individuals are transitioned to other jobs within the program, it’s unlikely they will be compensated in the manner they had been in the private sector.

Health insurance industry positions will not be the only ones affected by this measure. The construction industry will suffer as well, since provider rates will include payments for provider capital improvements only if the provider is a nonprofit or governmental agency and only with prior approval. This provision will lead to a massive reduction of capital improvement by for-profit hospitals, medical groups and others, leading to construction job losses.

Twice Rejected by Voters

California voters have twice rejected a government-run health care system—in 1994 and 2004. Past focus groups and numerous opinion polls on health care reform have reinforced that California residents do not want a single-payer government-run system.

Less Efficient and Effective

Although the legislation’s goal of providing health coverage for all Californians is a laudable one, establishing a single-payer statewide bureaucracy is the wrong approach.

The CalChamber and coalition opposing SB 562 fundamentally disagree with the bill’s two major premises that government systems are more efficient than private business, and a single-payer system would be less costly than the current private system.

Significant budget shortfalls that will likely occur year after year would ultimately require drastic cuts in services. SB 562 will reduce the level and quality of health care and benefits currently enjoyed by millions of Californians. The bill will lead to increasingly long wait times to see a physician and will likely take away choice—not just choice in physicians, but choice in coverage.

Under current law, those who wish to buy more, less or different coverage than others often can make those choices, just as those who have other priorities can exercise them in the market. Under SB 562, one size fits all, no matter what an individual’s preference might be.

Key Vote

SB 562 passed Senate Health on April 26, 5-2:

Ayes: Atkins (D-San Diego), Hernandez (D-West Covina), Leyva (D-Chino), Mitchell (D-Los Angeles), Monning (D-Carmel).

Noes: Nguyen (R-Garden Grove), Nielsen (R-Gerber).

Not voting: Newman (D-Fullerton), Roth (D-Riverside).

Action Needed

California has made significant progress in providing coverage to its residents. While the CalChamber shares the concerns about further increasing access to and affordability of health care, the CalChamber does not believe that a government-run single-payer health care system will achieve these goals.

SB 562 will be considered next by the Senate Appropriations Committee.

The CalChamber is urging businesses to contact their senators and members of the Senate Appropriations Committee and urge them to oppose SB 562 as a job killer.

An easy-to-edit sample letter is available at

Staff Contact: Karen Sarkissian