New York and California are both advancing single payer plans through their legislatures. I have a lot of questions. They both assume incredible waiver authority will be given to them. These hypothetical waivers would direct federal program funding** to a state operated pass through entity to pay for healthcare. But each of these proposals will rely on some state level general taxation.
How do these programs work in a recession?
Depending on how one does the counting, between forty six and forty nine states have a balanced budget constraint. California and New York have balanced budget constraints. There is wiggle room for a bad year or two on the margins but it is incremental.
State tax revenue tends to be cyclical. Consumption and income taxes tend to go up when the economy is growing and down when the economy is in a recession. California heavily relies on capital gains taxation. New York relies on taxing Wall Street bonuses. Both of those are cyclical revenue sources.
Healthcare demand is responsive to recessions as well. Bad times lead to fewer elective surgeries and for more things to be deferred until they really are needed. The primary channel for that is through the increase in cost-sharing. The California and New York proposals don’t have the cost sharing that could shift demand in time.
So my question is what happens to a state with a reasonably strong balanced budget constraint and state run single payer when there is a significant recession? Demand and costs will stay roughly constant. Revenue crashes. This dynamic opens a big financing gap. That gap must be closed. The methods to close that gap are massive provider payment cuts, increased taxes (which is probably a bad choice on a cyclical basis), increased cost-sharing, eliminating some covered services or borrowing for operational reasons. States have some wiggle room to borrow for operational costs but they don’t have the ability to borrow 20% of their operational budget in a year for several years straight. Is it reasonable to assume that the states can access federal fiscal capacity to borrow as they have already accessed all federal healthcare money in a hypothetical waiver?
How does this work in a recession?
Help me out here, please!
** By the way, does that federal waiver money come with Hyde restrictions?
*** Any state single payer proposal post should always end in a Cato-esque “ERISA delenda est”
Baud
I don’t know what this means.
rikyrah
This is a good question Mayhew. Food for thought.
?BillinGlendaleCA
@Baud: Have the federal government barrow for them?
Baud
@?BillinGlendaleCA: There’s no such think. The federal government can borrow and the give states the money, but why would the feds do that? The GOP wouldn’t and the Dems would probably rather enact health reforms at the federal level.
Yastreblyansky
This is a special case of the basic problem with true single-payer as opposed to insurance systems, which is that they don’t have capital cushions. There’s no need for profit-making insurers–there can be a trust fund setup like Medicare or semi-private nonprofit insurance companies like Germany–but there needs to be some kind of autonomous entity (with borrowing ability like the ACA co-ops if Republicans hadn’t sabotaged them) between the legislature and the delivery system. Also to protect them against conservative cuts of the kind that Tory governments keep attacking the NHS with in Britain.
Baud
@Baud: think = thing.
Another Scott
It seems like the way to do this is to have the “single-payer” not be the state directly, but a new non-profit entity set up by the state that would be the exclusive clearing house for medical payments for the care of state residents. And that entity would have a mandate to issue bonds, increase a variety of taxes (broad and narrowly focused) and have a 5-10 year budget window rather than an annual one.
How? Beats me.
In a sensible world, people would have more necessary but elective surgeries when they’re unemployed because they would have the time to recover without the stress and problems of trying to recover while also trying to commute to work, do a good job while not 100%, etc., etc. It would actually help the economy to structure things that way.
You’re right there is a fundamental conflict between short-term budget requirements and expensive broad-based budget requirements when states cannot control their cyclical revenue.
No time to look, but it would be interesting to see how the provinces of Canada handled this as they implemented their system (before it became national). Maybe it wasn’t as much of an issue then because healthcare was less expensive (and people were generally healthier?). Or maybe the provinces had more budget flexibility?
Thanks as always.
Cheers,
Scott.
MomSense
I honestly don’t see how single payer works if we don’t first reform and heavily subsidize medical education as well as expand the roles of physicians assistants and licensed nurse practitioners.
One of the things that drives costs is how expensive and exclusive medical schools are.
But her emails!!!
The states could remove their balanced budget constraints. Alternately, they could specifically carve out exceptions that allow borrowing to support their single payer system during poor economic conditions.
daveNYC
@Yastreblyansky: If you look at what happens when hurricanes make landfall, I’m not sure that you can confidently say that insurance systems have a capital cushion. Though I’m not sure what would be a hurricane equivalent event for the health insurance industry.
An interstate compact could maybe get around the borrowing limit, though there is a difference between something like the Port Authority borrowing for capital projects vs. a insurance program borrowing to cover ongoing expenses. One interesting rules lawyering might be to try and bring Vermont into the compact and use them to issue the debt, but have all members of the compact agree to be on the hook.
Of course the problem with nearly every state program is that the states have a real hard time running deficits, which is a double-whammy for countercyclical items like unemployment benefits. Given how eager the Republicans seem to be to apply maximum fuckery via the AHCA, and the fact that there’s a non-zero chance the ACA might implode due to executive branch meddling even if the AHCA doesn’t pass, pushing out single-payer now and figuring out how to fund it during a recession later is not the worst idea. It’s not great, but we’ve still got 3.5 years left of a Republican executive, so I wouldn’t be making large bets about how much will be left of the federal social programs by the time 2020 rolls around.
msdc
And how does it work when the federal government is completely controlled by a party that wants poor people to go without health care?
All good questions, David. (Including the Hyde amendment question.) This is why I’ve grown increasingly wary of demands for single-payer as a litmus test for progressive politicians.
AkaDad
How does almost every other country in the world manage to fund their heath care system during a recession?
Fair Economist
Hyde would definitely apply money the feds give to a state single-payer plan, but under current law it could be kept separate from the money used to pay for abortions. That’s how Planned Parenthood works.
Even without the cyclical problem you point out, I don’t think the super gold plated proposals in CA and NY are viable. How many private plans are no deductible, no copay, and 100% coverage? I don’t think I’ve ever known somebody in that kind of plan in the US. To make it workable you’d have to break the monopoly power of many health providers – drug companies, hospitals in many markets, and the AMA’s doctor limits. OTOH, they’re probably very viable with cost sharing similar to a good private plan, or even an ACA Gold plan. Giving *everybody* something superior to a Platinum plan is a incredibly heavy lift.
Fair Economist
@AkaDad:
They run deficits. CA and NY are not allowed to do that, and since they don’t have their own currencies, there are good reasons for that.
Major Major Major Major
@AkaDad: The same way America does – by not being a state. Countries can borrow massive amounts of money, American states for the most part cannot.
@MomSense: And the doctors like it that way.
DHD
There’s no way this can work in individual American states. Not only can Canadian provinces borrow money (lots and lots of it, enough to, for example, nationalize entire industries like hydroelectric power…) and run deficits, but on top of it they get direct transfer payments from the federal government, both specifically earmarked for health and social services, and in the form of “equalization” payments from richer to poorer provinces.
I feel bad for you guys, you are well and truly screwed.
DHD
@Fair Economist: As I kind of mentioned above, the Canadian dollar is an exception to this because of equalization, which for some reason survives despite its persistent unpopularity, probably because at some level people know the country can’t actually exist without it (i.e. there is no good reason why Alberta and Québec should share the same currency given that their economic interests are basically opposite to each other, and they don’t even really buy each others’ stuff)
Fair Economist
@DHD: I need to look into that. That’s an interesting approach to the problems of a joint currency.
PJ
@daveNYC: Property insurers have reinsurers. There’s usually a bigger pot of money somewhere else that someone can buy into. (There are exceptions/exclusions – war, nuclear accidents – because these kinds of losses can be too enormous and too unpredictable.)
Health insurance is not insurance in that it protects against a foreseen occurrence, getting sick, which is going to happen to all of us, and covers events which are not accidents but are designed to prevent illness (checkups, tests, etc.) But health insurers, up until the ACA, tended to use the same body of law that regular insurers do (thus no coverage for pre-existing conditions, which, by definition, are not unforeseen occurrences.) It would be better if we ditched the notion of health “insurance” entirely to focus on providing health care, which is what people really want, but obviously politics forbids that at the moment.
MomSense
@AkaDad:
One of the contributing factors in the Brexit vote was the massive cuts to the NHS. That’s why a lot of people wanted to believe the bogus claims that not paying dues to the EU would free money up to support the NHS.
daveNYC
@DHD: I don’t see why there is no way this could work in California or NY. They’d obviously need to figure out a way to run deficits, but that’s just something that would happen at the state level, there’s no federal level block that prevents that. It might be more difficult for NY, but amending the California Constitution isn’t really that hard. Two thirds of each legislative house and then a simple majority on the ballot. I’m not sure how the transfer payment issue enters into things. NY and CA are both wealthy states, so it’s not like they’d be benefiting from that cash flow if they were somehow Canadian provinces looking to setup a health care system. California has 10% more people than Canada but their GDP is 57% greater than Canada’s, they’re as well situated as anyone to try and pull this off. NYS isn’t bad off either, their GDP is about 10% less than Canada’s, but their population is around 40% less. That said, their constitutional amendment process is more of a pain, and the state legislature is full of shitheels, so any finagling of deficit spending would require rules lawyering.
Stan
@Another Scott:
New York already has entities like this for other purposes – e.g. the Port Authority or the Domitory Authority. They have the characteristics you describe.
I wonder if all the blue states got together on a shared single-payer option……
David Anderson
@daveNYC: @Stan:
There are work-arounds and solutions. These are the types of questions plausible plans need to be able to answer.
daveNYC
@David Anderson: I’ll add a minor point here. While it’s true that the states will have to figure out how to fund these programs during an economic downturn, I don’t necessarily think they need to figure that out right now.
We’re looking at a situation where the ACA will be under attack from all angles, and the interconnected nature of the bill means that even if the AHCA doesn’t pass, the ACA might not survive. Pushing out a replacement and figuring out things like funding later might not be a bad idea.
Somewhat relevant to the funding question, did MassCare have any additional provisions for funding during economic downturns?
Your Friendly Neighborhood Economist
@daveNYC: I don’t know the details of MassCare, but I do know that many states have “rainy-day funds”, soo they can set aside some money for when recessions hit. I seem to recall a lot of the tobacco settlement money being used for that in MA back when I was still living there. NY needs to really consider revenue smoothing (in other words, planning for future shortfalls by dedicating more revenue than we need during an expansion and saving it up for later), especially since we are not far away from a recession now. Anyone that remembers the Great Recession remembers what happened to the NYS education budget then (and since a lot of that wasn’t reinstated, is still happening).