Schwarzenegger Rejects Plan for Single Payer

Published November 1, 2006

California Gov. Arnold Schwarzenegger (R) vetoed a bill in September that would have replaced the state’s current health care model with a single-payer, universal insurance mandate.

The California Health Insurance Reliability Act, which critics said would have been ineffective and too costly, would have phased out private insurance coverage over the course of five years in favor of a state-run insurance program.

In a September 5 San Diego Union-Tribune opinion piece, Schwarzenegger cited increased taxes and administrative costs as two of the chief reasons for his veto.

“This bill would require an extraordinary redirection of public and private funding by creating a vast new bureaucracy to take over health insurance and medical care for Californians–a serious and expensive mistake,” Schwarzenegger wrote.

The bill’s lead sponsor, state Sen. Sheila Kuehl (D-Los Angeles), said the program would have provided insurance for every state resident while lowering overall health spending by $20 billion through improved administrative efficiency.

Costs Disputed

Deborah Burger, president of the California Nurses Association (CNA), a 65,000-member professional association, said the group supported the bill because of its potential to improve care and reduce costs for uninsured and underinsured patients.

“There are a large number of uninsured or underinsured patients in California that would have benefited from this bill,” Burger said. “The other reality is that we’re already in essence paying for the uninsured here in California because people that don’t have health insurance tend to delay getting care so they end up using the health care system at the most expensive point of care, which is usually an emergency room, instead of having access to preventive care before they become gravely ill.”

Burger added the bill would reduce costs by eliminating insurer profits, rather than limiting physician payments.

But John R. Graham, director of health care studies at the Pacific Research Institute, a California-based libertarian think tank, said the government doesn’t have as much incentive to improve preventive care as private insurers do, because the latter want to reduce long-term costs to maintain company profits.

Limiting Access

Graham said a state-run health program would indeed lower physician payments, driving doctors out of state and limiting patient access to care.

“We now have about 94,000 physicians,” Graham explained. “That [single-payer] system would make it drop by 23,000 to end up with only 71,000 in the state, because physicians would move to other states [when] the state negotiate[d] their payments down.”

Grace-Marie Turner, president of the Galen Institute, a Washington, DC-based free-market research organization, compared Kuehl’s bill to Canada’s health care model, which limits patient access. She suggested limiting payments would ultimately make it difficult for patients to see specialists in a timely manner.

“In Canada, you are not allowed to see a specialist unless you have a referral,” Turner said. “Forty percent of the population does not have a general practitioner because there are so few doctors. Even though they have a theoretical entitlement, they can’t get it.”

Burger disagreed, noting Canada’s system provides immediate care in emergency situations. She said for uninsured patients, increased waits are better than no care.

“In Canada, you may have to wait a month to get [non-emergency] hip surgery,” Burger said. “Here, if you don’t have insurance, you can’t even get in line.”

Tax Increases

In his San Diego Union-Tribune article, Schwarzenegger noted, “Such a program would cost the state billions and lead to significant new taxes on individuals and businesses, without solving the critical issue of affordability. I won’t jeopardize the economy of our state for such a purpose.”

Sara Rogers, a consultant to Kuehl, said that while the measure would have required a tax increase, it would lower total costs of payroll and health care for businesses.

“Businesses that offer health care will save 16 percent on average,” Rogers said. “We’ve talked to a business owner who currently spends about 10 percent or more on payroll to cover half of his employees. We’ve projected that our bill could be funded with an 8 percent payroll premium on employers, so it would save this employer a lot of money while covering everyone.”

In a June 2006 position paper, Graham noted small businesses that cannot afford to provide health care for employees would be hit disproportionately hard by the new tax, hampering job growth in industries such as biotechnology.

Efficiency Impacts

Experts also disagreed about the potential efficiency of a state-sponsored system. Turner said that while the bill promised efficiency, it would ultimately be less efficient than private insurer-based systems.

“Government programs don’t calculate all of the costs. They don’t talk about how many bookkeepers the docs need to hire to keep up to comply,” Turner said. “The costs are enormous because you have to document every single thing you do, and fit within every single category. It can’t help but be less efficient.”

Rogers argued physicians and other providers incur far more administrative expenses now than they would under a single-payer program, because of the complications of having to meet the differing rules and regulations of myriad private insurance programs.

“We know that about 30 percent of every health care dollar is wasted on administering thousands of different health care schemes. You consolidate all of the reimbursement paperwork and benefits paperwork under one program, and you can reduce the paperwork to 5 percent,” Rogers said. “The bill, by statute, limits spending to 5 percent.”


Opponents of the bill, however, argued the program could achieve those administrative savings only by proposing to move federally insured patients onto state insurance rolls.

“There was a certain element of utopian ridiculousness to it,” Graham said. “Every single Californian would be in this plan and would not have the freedom to opt out.”

Bradley Kreit ([email protected]) is a freelance writer in San Diego.

For more information …

“I cannot support socialized medicine,” by Arnold Schwarznegger, San Diego Union-Tribune, September 5, 2006,

“Deadly solution: SB-840 and the government takeover of California health care,” by John R. Graham, published in June 2006 by the Pacific Research Institute, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to and search for document #19771.