A Fiscal and Economic Analysis of the New York Health Act

TThhee PPrriiccee ooff SSiinnggllee PPaayyeerr A Fiscal and Economic Analysis of the New York Health Act Avik S. A. Roy The Foundation for Research on Equal Opportunity O= ABOUT THE FOUNDATION FOR RESEARCH ON EQUAL OPPORTUNITY HE FOUNDATION FOR RESEARCH ON EQUAL Opportunity (FREOPP) conducts original re - Tsearch on expanding economic opportunity to those who least have it. FREOPP is committed to de - ploying the nation’s leading scholars and the tools of individual liberty, free enterprise, and technological innovation to serve this mission. All research conducted by FREOPP considers the im - pact of public policies and proposed reforms on those with incomes or wealth below the U.S. median. FREOPP is an independent, non-profit, non-partisan organization financed by contributions from individu - als, foundations, and corporations. The Price of Single Payer was supported in part by the New York State As - sociation of Health Underwriters. The views and analyses herein are solely those of the author. The Price of Single Payer A Fiscal and Economic Analysis of the New York Health Act Avik S. A. Roy The Foundation for Research on Equal Opportunity O Introduction HE HIGH COST OF HEALTH CARE AND HEALTH would require $87 billion in additional annual health coverage remains one of the most significant spending by the state, but draw in $9 billion less in tax Tbarriers to economic opportunity for Ameri - revenues. The Friedman proposal contemplates $91 cans with incomes and wealth below the U.S. median. billion per year in state tax increases, but because the Many on the left believe that the existence of private plan’s aspirations for cost savings would not material - health insurance is a primary barrier to covering the ize, tax increases of $226 billion in 2019 would be nec - uninsured. essary to avoid deficit spending. In that vein, several states—most recently, New In 2015, the state collected $71 billion in tax revenues, York—have contemplated abolishing private insurance largely in the form of personal income taxes ($44 bil - and moving to system in which the government has a lion), consumption and use taxes ($15 billion) and monopoly on providing health coverage, also known business taxes ($9 billion). New York Governor An - as “single payer health care.” drew Cuomo estimates that in fiscal year 2019, the state will collect $82 billion. 4 Hence, a $226 billion tax On June 1, 2016, the New York State Assembly passed increase would nearly quadruple the state’s tax bur - the “New York Health Act,” a bill sponsored by As - den, with severe economic impact to the state. sembly member Richard Gottfried, intended to dis - mantle the state’s health insurance system and replace Without such a tax increase, the resultant budget it with a single-payer program managed by the state shortfall would put many of the state’s safety-net pro - government in Albany. 1 grams and other fiscal priorities at risk. The Act could lead, at minimum, to the loss of 175,000 jobs as high- A report on the bill by a long-time single-payer advo - wage, high-value industries move to neighboring cate, Gerald Friedman, argues that the Act would states. These losses would filter throughout the econ - achieve universal health coverage, reduce state health omy through lower consumer spending, reducing eco - spending by over $44 billion per year, and “create over nomic opportunity for those who most need it. 200,000 new jobs.” 2-3 The Friedman report, however, contains critical fac - KEY PROVISIONS OF tual and analytical flaws: THE NEW YORK HEALTH ACT • It disregards ways in which the Act vi - HE NEW YORK HEALTH ACT PURPORTS TO BE olates federal law, rendering key pro - a simple idea: to dismantle the complex web visions of the Act unworkable. Tof private and public health insurance pro - grams in New York State with a single, government- • It makes exceptionally optimistic, run insurer, under which “there would be no network empirically unsupportable projections restrictions, deductibles, or co-pays.” The plan would of potential cost savings from a single- provide taxpayer-funded health care to all New York payer system, and fails to account for residents, including undocumented immigrants, necessary spending increases. “without regard to the individual’s immigration sta - tus.” • It does not contemplate the erosion in health care quality that may accom - New York would ask for “federal waivers that would pany single-payer health care, espe - allow New York to completely fold [all federal] pro - cially from the elimination of grams into New York Health,” a trust fund that would Medicare Advantage plans. pool federal funding from Medicare, Medicaid, Fam - ily Health, and Child Health Plus. Local Medicaid • And it ignores the impact of the Act’s funding would be folded into the trust fund. historically high tax increases, espe - cially on the financial services sector, Private insurance would be abolished. “Private insur - and thereby on state jobs and tax rev - ance that duplicates benefits offered under New York enues. Health could not be offered to New York residents,” though “existing retiree coverage could be phased out A more rigorous analysis of the Act indicates that it and replaced with New York Health.” Fee-for-service 4 The Foundation for Research on Equal Opportunity • FREOPP.org Key Provisions of the New York Health Act Medicare would be dismantled and replaced. Medi - 138 and 200 percent of the Federal Poverty Level. caid would be dismantled and replaced. Non-exchange individual coverage : In 2014, 1.1 mil - Medicare : There are 3.3 million total enrollees in lion individuals were enrolled in private, non-ACA- New York State in 2015, of which 37 percent (1.2 mil - based, individual insurance coverage (i.e., insurance lion) are enrolled in private plans through Medicare that an individual purchased on his own, and not Advantage. 5 These Medicare Advantage plans would through an employer or public program). 6 These poli - be abolished by the Act and replaced with a govern - cies would be abolished, and replaced by the new ment-run insurer. state-run program. Fee-for-service Medicare (Parts A and B) would also Veterans : The New York Health Act does not appear be dismantled and replaced with the new state pro - to directly affect coverage provided by the Veterans’ gram. All premiums would be paid by the state. Sup - Health Administration. However, the Friedman report plemental “Medigap” plans, for co-pays and does assume that VA spending in New York State is deductibles, would have to be replaced by state- taken over by the new trust fund. funded coverage. Employer-sponsored insurance : The New York Health Medicaid/CHIP : There are 6.4 million total enrollees Act seeks to abolish the sponsorship of private-sector in New York State as of June 2016. The Medicaid employer-sponsored health insurance. Workers would managed care contract would be withdrawn, and re - enroll instead in the new state-run program. A new placed by a state-run insurer. progressive payroll tax and a new tax on capital gains, dividends, and interest income would be assessed on ACA Exchanges : 271,964 adults and 215,380 children New York employers, and passed on to their workers are enrolled in private qualified health plans on the and customers in the form of fewer jobs, lower wages, New York State of Health exchange. These private and higher prices. plans would be abolished by the Act and replaced with a government-run insurer. All premiums, co-pays, and If New York state was permitted to capture these fed - deductibles would be paid by the state. 379,559 indi - eral funds and redirect them into a state-run pool, as viduals are enrolled in the Essential Plan, which cov - the Act contemplates, the vast majority of the state’s ers exchange-eligible enrollees with incomes between residents with health insurance would be forced to Figure 1. Tax Revenues Needed to Fund the New York Health Act in FY 2019 (Billions $) The Price of Single Payer: A Fiscal and Economic Analysis of the New York Health Act 5 Core Elements of the New York Health Act Violate Federal Law Table 1. Estimated Savings Due to Reduced Administrative Costs & Market Power, FY 2019 ($ Millions) Reductions in administrative costs and market power of health care industry are low. The Friedman analysis projects $36 bil - lion in savings in 2019 due to the purported simplicity of administering a single-payer program ($21 billion) and the ability of the state government to reduce drug and medical device prices in such a system ($16 billion). However, because ERISA self-insured plans are exempt from state interference, savings from reduced administrative waste will be lower than expected. In addition, be - cause 90 percent of prescription drug volume is for generic drugs, the opportunity to reduce prescription drug spending is lower than estimated. (Source: G. Friedman, FREOPP analysis) give up the insurance they have, and enroll in the new sured plans, according to the U.S. Agency for Health - program. care Research and Quality. All in all, in 2015, 53.5 percent of New York state res - idents with employer-sponsored health insurance were CORE ELEMENTS OF THE NEW YORK HEALTH enrolled in self-insured plans protected from state in - ACT VIOLATE FEDERAL LAW terference by the Employee Retirement Income Se - curity Act (ERISA). 7 With 10.2 million New Yorkers covered by employer-sponsored plans—52 percent of HE NEW YORK HEALTH ACT ENVISIONS ABOL - the population—self-insured plans cover 5.1 million ishing private health insurance and replacing New Yorkers, or 26 percent of the state population. 8 Tit with a single, state-run insurance program.

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