Taking the LAO in context, in health reform…

One more thing about the LAO, and their role in health reform, in the recent debate, and in the future.

THE LAO’S INFLUENCE: While some have seen the LAO report as a factor in the stalling of AB x1 1 and health reform this year, I think the evidence shows that it was the easy excuse–rather than the actual reason–for the Senate to stop the bill. (For example, one Senator said that the LAO report was determinative in decidng how to vote, even though that Senator had announced opposition to the proposal months earlier.)

In other words, the LAO report, along with other factors, helped create an environment where a “no” vote was acceptable and even easy. The LAO has no formal decision-making power, but it does have influence, and its decisions do have political consequences.

PLACING REFORM AT A DISADVANTAGE: But the issue as we look forward is the approach used by the LAO, and the context of how that report is used by legislators. Health Access put out a full analysis of the LAO’s take on AB x1 1. Basically, the LAO gave a report on AB x1 1 that indicated that the plan could pencil out for about five years, but that also:
* indicated and quantified all the costs and potential risks, but did little to put those risks in context, to indicate how real those risks were (which ended up overstating several risks);
* did not quantify a single cent of savings or upside potential;
* did not evaluate the risks of the status quo, or propose alternatives to the proposal.

To be fair, the LAO had very little time for its analysis, and many analysts are more oriented to warning you about potential risks than potential benefits.

But that’s when it is important for the Legislature to place such a report in context. Legislators routinely pick-and-choose what they like and do not like about the LAO says about the budget and other policy proposals, and this should have been no exception. The Legislature should have placed this LAO analysis alongside the voluminous analyses done by various independent experts throughout the year.

WHY DOES THIS MATTER? This matters for the future of health reform. Under the approach used by the LAO, given the certainty that some legislators seemed to seek, then no health reform would ever pass in California.

Budgets fluctuate over time: if legislators seek certainty that health care will be adequately funded in perpetuity, then health reform is not possible. This is not a standard that is met in Canada or Great Britain, or indeed in Medicare or Medicaid. The LAO failed to book a single cent of savings, even though we have ample evidence that the power of group purchasing is effective, both in public and private health care purchasing.

THE MIS-ANALYSIS OF SINGLE-PAYER: If the LAO applies the same approach to single-payer, for example, this will be a problem. We and other SB840 supporters believe that single-payer would result in significant savings, from administrative simplicity, global budgeting, cutting out the insurance middleman, a reorienting of the system toward prevention, and more. But if the LAO never quantified any of these savings—if they assumed that health care under a single payer system would cost a similar amount per person per month as the current private system—then their analysis would be that single-payer would be prohibitively expensive. But single payer achieves universal coverage by eliminating of the current private insurance system. That’s the point.

Some might dispute the specifics or the level of the savings—but to quantify *no* savings is not credible. Yet no one questioned very issue, and this very approach, in the AB x1 1 analysis. AB x1 1 was careful to finance itself without taking into account any short-term savings. But if the LAO is going to look out five years, then it seems appropriate to start to measure at least put forward what savings could be generated.

OTHER ISSUES: In a similar vein, the LAO suggested that in spite of decades of experience of the state running public programs and using its significant negotiation power to bargain down the cost of coverage, that the statewide purchasing pool in AB x1 1 was going to have a more expensive cost structure akin to the private marketplace.

FEDERAL APPROVALS: To take another example, any state-level health reform proposal interacts with the federal law and federal programs, such as with ERISA, Medicaid rules and Medi-Cal matching funds. There may be some risk that the federal government may not approve a portion of a proposal; but that doesn’t mean California shouldn’t try to pursue reform. This is an area where the Legislature should consider these risks in both historical and political context.

In AB x1 1, the LAO admitted that 75% of the federal funds would be practically automatic. What they didn’t say that the other 25%, while not totally guaranteed, was a very high probability: that no other states had been denied for that federal money under similar circumstances. In other words, while some made a big deal that the Medi-Cal portions of the proposal were a risk, those federal funds really weren’t in danger.

AN ONGOING ISSUE: Speaker Nunez said that he expected SB840 to be evaluted by the LAO if and when it goes to the Governor this year. If so, these same issues with the LAO’s method will arise again, and even more severely.

But this isn’t only an issue with single-payer, or AB x1 1: the LAO’s approach would be a barrier to all health reform… unless the Legislature does its job, and places any analysis in proper context.

With the rewards of reform, of course there are risks. The key part is that many health experts are convinced that without any reform, the risks of the status quo are much greater, for not just the state budget, but for Californians themselves.

Health Access California promotes quality, affordable health care for all Californians.

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