Cassidy-Graham’s Single-Payer Trap

On the morning of September 13, Senate Republicans released their latest attempt to repeal the Affordable Care Act (ACA). The plan, known as Cassidy-Graham, would eliminate the ACA’s Medicaid expansion and subsidies for private insurance plan, replacing some of that spending with block grants given directly to states. Advocates for the legislation argue that this approach would give states “flexibility” to experiment with different approaches to providing health insurance. Opponents, however, point out that block grant funding would provide $239 billion less between 2020 and 2026 than projected spending under the Affordable Care Act, and criticize the lack of any provision in the bill to require the money be spent on providing assistance to lower-income individuals.

Though opposition has overwhelmingly come from the left, that “flexibility” has also been the subject of an interesting objection from some conservatives. Senator John Kennedy (R-LA) announced that he was undecided on the legislation, and has submitted an amendment to prevent states like California and New York from using the money to establish a single-payer healthcare system.

Kennedy’s fear that “if you give a big chunk of money to California they're going to go set up a single-payer system run by the state” is well-founded. Efforts to create a state-level single-payer system are currently underway in several states, and the passage of Cassidy-Graham (which would cause premiums to go up and would cause millions to lose coverage) would only add fuel to the movement for single-payer. In California, the Healthy California Act passed the State Senate before being abruptly tabled by Assembly Speaker Anthony Rendon in June, while in New York the New York Health Act passed the State Assembly before stalling in the Republican-controlled Senate.

Cassidy-Graham would also serve to weaken a major barrier to state-level single-payer. Under current law, states have to apply for a state innovation waiver under Section 1332 of the ACA if they want to use ACA money for a state single-payer system. Most plans would also require a Medicaid demonstration waiver under Section 1115 of the Social Security Act. It is difficult to imagine Secretary of Health and Human Services Tom Price or Administrator of the Centers for Medicare and Medicaid Services Seema Verma approving such a waiver. By block-granting a substantial chunk of money to the states for healthcare purposes, Cassidy-Graham may allow states to bypass some (though not all) of the waiver requirements.

However, this is more of a concern for single-payer advocates than for opponents like Kennedy. A state-level single-payer system will almost certainly fail, hurting the prospects of a nationwide single-payer system in the process. While Cassidy-Graham would be a disaster, it may open up the tantalizing possibility of renewing the push for a single-payer system at a state level. Progressives must not take the bait.

Obstacles in the State Budgetary Process

The primary obstacle to single-payer at the state level is structural: states are simply not designed to address a problem like providing a system of universal healthcare. Much has been made of the cost of California’s single-payer proposal, which would require around $200 billion in annual spending, more than doubling the state budget. The real problem with California’s plan, however, has less to do with the numbers and more to do with the structural constraints state law places on California’s budget.

Though the exact funding mix varies from state to state, state revenues typically come from personal income taxes, sales taxes, and property taxes. During a recession, revenue from all three sources drops. Healthcare spending, however, does not drop during an economic downturn—unlike TVs or new cars or new clothes, it is a necessity, not something you can simply buy less often depending on the economy. As a result, states would face the challenge of attempting to maintain the same level of healthcare spending despite a decline in revenue, forcing them to either gut the rest of the state budget or abandon the single-payer experiment. Excluding Medicaid spending, the largest spending item for most states is typically K-12 education, typically followed by transportation and higher education, so cuts elsewhere in the state budget are likely to hobble other essential programs. California faces particular obstacles in this area, as The Intercept’s David Dayen explains. California’s system of citizen initiatives has created a byzantine web of laws governing the state’s ability to tax and spend, presenting an additional obstacle to fitting single-payer into a state budget. While no other state has embraced California’s brand of direct democracy, other states will also face state-specific obstacles to implementation that will only add to those barriers outlined in this article.

States are forced into this uncomfortable choice because the vast majority of states lack the authority to run deficits during recessions. Forty-nine  states have some kind of balanced budget requirement that would obligate these states to raise taxes or, more likely, cut spending in times of economic hardship. (The one state that lacks the requirement is Vermont, which tried and failed to create a single-payer system in 2014.) The federal government, by contrast, has the ability (and, arguably, the obligation) to run deficits during recessions, as well as the power to print money and the power to issue debt, all of which are effectively denied to the states. The federal government also spends a significant amount of money—around $700 billion as of the 2018 National Defense Authorization Act—on defense spending. If cuts become necessary, reducing procurement of F-35 strike fighters or littoral combat ships is a far more tolerable alternative than slashing the budgets of public schools or colleges. The federal government is uniquely capable of creating and maintaining a single-payer healthcare system in a way that state governments, as a result of their budgetary restrictions, are structurally incapable of doing.

Incidentally, these balanced budget requirements are a key distinction between US and Canadian law. Many state single-payer advocates point to the example of Canada, where the progressive expansion of public healthcare coverage in the province of Saskatchewan sparked the expansion of public systems across the country, culminating in the development of a national single-payer system. What this parallel ignores, however, is that no Canadian province introduced any sort of balanced budget requirement until the 1990s. Saskatchewan could run deficits while it worked out its healthcare system, and frequently did . That option isn’t available for U.S. states, making the Canadian example a poor pattern for single-payer advocates to follow in the United States.

The Problem of Federal Payers

In addition to these budgetary restrictions, states simply lack the size to effectively implement single-payer. Americans pay higher prices than people in other countries because U.S. insurers do not have the leverage necessary to negotiate lower prices for essential services. In the United Kingdom, for instance, around 80 percent of healthcare spending is public. As a result, the government has a lot of bargaining power when it comes time to negotiate with healthcare providers and is able to effectively dictate extremely favorable terms. This effect can be seen to a lesser extent in the United States as well, where large insurers negotiate prices that are significantly lower than the prices charged to small insurers for the same services.

While a state-level single-payer would likely be able to achieve some level of cost reduction through negotiations, it would lack the negotiating power of a European-style single-payer. Around fifty-six million people are covered through Medicare, a number that is projected to rise to sixty-seven million by 2030. Subtracting those on Medicare, California’s single-payer system could represent thirty-four million people—significant, but nowhere near as large as Medicare. (Thirty-four million is likely an overestimate, as federal Medicaid money cannot be spent in a risk pool that includes non-Medicaid patients.) Given California’s population and the size of its economy, it would likely be able to achieve more substantial cost reductions that a Vermont or a Delaware, but so long as massive federal payers exist, the state payer simply won’t have the same leverage to demand cost reductions as a national single-payer.

Though there are a few potential workarounds to this problem, they come with their own issues. The most immediately apparent solution would be for several states to come together and agree to collectively bargain with insurers, effectively “creating” a new insurer larger than Medicare. This solution, however, runs into legal issues. The Compact Clause (U.S. Const. Art. I, § 10) forbids certain interstate compacts without congressional approval, which is unlikely to be forthcoming in the current Congress—and if Congress is willing to approve an interstate compact to make single-payer possible, it may as well just pass federal single-payer.

Another is attempting to bolster the state single-payer’s negotiating power by granting the state its share of federal Medicare dollars as a lump sum grant. A study by the University of Massachusetts-Amherst’s Political Economy Research Institute included spending on Medicare patients in California in the funding sources for the Healthy California Act, producing some optimistic projections about the bill’s financial impact. Using Medicare dollars, however, is not a simple process. The bill would require a Medicare demonstration waiver under Sections 402/222 of the Social Security Amendments, which is unlikely to be granted by the current administration. Additionally, providers can only be required to participate in a Medicare demonstration through an act of Congress, presenting a further hurdle to the use of Medicare dollars.

The Political Cost of Failure

The problems of state-level single-payer may not be immediately fatal, but any state-based system would depend on a complex web of federal waivers, new taxes and new layers of bureaucracy. This sort of patchwork health insurance system would be unstable, vulnerable at every moment to one part of the system failing and bringing down the rest of it with it. Even the best-designed state system will carry with it a substantial risk of failure. Such a risk is unaffordable for the single-payer movement. Any sort of public debacle surrounding a single-payer system would effectively destroy the future of the movement, with the failure of single-payer in California or New York used as an excuse to avoid pursuing the policy at the federal level.

It’s important to draw a distinction between a state-level single-payer system and the organizing surrounding it. To the extent that the push for state legislation helps start discussions and build a movement, it is an unequivocally good thing. The problem is that these campaigns are playing with fire. Getting people organized is a positive, but if they succeed in passing the legislation they push for, they may jeopardize the broader goal of a national single-payer system.

The successful path to single-payer runs not through the states, but through the 2018 and 2020 elections. Single-payer advocates should focus on pressuring their representatives to sign on to the “Medicare for All” bills introduced by Rep. John Conyers and Sen. Bernie Sanders, and more broadly on making the 2018 and 2020 elections referenda on the question of single-payer healthcare. The education and mobilization work contributed by state single-payer campaigns is an important component of the grassroots organizing necessary to creating federal reforms, but the vision of single-payer advocates cannot be limited to state politics in Democratic-leaning states. The only way to create a federal single-payer system is to make every Senate and House election, from Arizona to West Virginia, revolve around the issue, culminating in the election of a president and congressional majorities capable of enacting the legislation in 2020.

If Cassidy-Graham passes, single-payer advocates must not fall into the trap of seeing the bill as an opportunity to push single-payer healthcare at the state level. Rather, they should see it for what it is—monstrous legislation that will make healthcare more expensive and less accessible—and channel that outrage to redouble their push for the ultimate goal: Medicare not just for every Californian or every New Yorker, but for all.

Samuel Joyce is a writer for The Gate. He is also the UC Dems Political Director and the Chicago Regional Director of College Democrats of Illinois. Opinions expressed in this article do not necessarily reflect the views of The Gate. The image featured in this article is licensed under Creative Commons. The original image can be found here.