Taking LAO and health reform in context…

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

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 process. (For example, one Senator had said 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.

So even though the LAO has no formal decision-making power, it does have influence, and its decisions do have political consequences.

But the issue for me is the methodology use by the LAO, and the context of how that report is used by legislators. Health Access put out a full analysis of the LAO analysis that is still worth reading. Basically, the LAO gave a report on AB x1 1 that:

* indicated that the plan could pencil out for about five years;

* indicated and quantified all the costs and potential risks, but did little to put those risks in context, to indicate how real those risks really 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 be fair, the LAO had very little time for its analysis, and many analysts are far more oriented to warning you about potential risks. But that’s when its important for the Legislature to place such a report in context. Legislators routinely pick-and-choose what the LAO says about the budget and other policy proposals, and this was no exception. The Legislature should have placed this LAO analysis alongside the other data that we know about health reform.

Why does this matter? This matters for the future of health reform. Under the methodology used by the LAO, given the standards that some legislators seemed to be seeking, then no health reform could ever pass in California.

There is no health reform where there is no potential risk to deal with fluctuating budget over time, or which could be sustainable over the long haul if not a single cent of savings is calculated.

If the LAO’s same methodology was used toward single-payer, for example, it would be a problem. We and several other single-payer 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, etc. But if the LAO never quantified any of these savings—if they assumed that it would cost a similar amount per person per month as the current private system—then single-payer would seem prohibitively expensive.

There are some that might dispute some of these savings—but to quantify *no* savings would not seem to be credible. Yet no one questioned very issue, and this very methodology, for the AB x1 1 analysis. AB x1 1 was careful to finance itself without taking into account 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.

In a similar vein, the LAO suggested that in spite of decades of experience of the state running public programs and using its negotiation power to bring 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.

To take another example, any health reform is going to have an interaction with the federal government, such as with ERISA, Medicaid rules and Medi-Cal matching funds. There may be some risk that the federal government does not approve a portion of the plan; but that doesn’t mean California shouldn’t try. 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 it was a risk, it really wasn’t.

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 rise again, and even more severely. But it doesn’t need to the single-payer: this analysis would undo all health reform… unless the Legislature places any analysis in proper context, along with the reams of additional analysis about what the potential impacts are.

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