As Senate dithers on health-care bill, here's how states are edging closer to single-payer

• Uncertainty over Obamacare is pushing states to seek a larger role in health-care reform.
• From New York to California, states are putting the pieces in place for single-payer systems.
• It may be tough to enact legislation enabling single-payer, but momentum is building.

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A demonstrator protesting cuts to Medicaid is carried away from the office of Senate Majority Leader Mitch McConnell by U.S. Capitol police officers at the Russell Senate Office building in Washington, D.C., U.S., on Thursday, June 22, 2

With the uncertainty that surrounds federal efforts to repeal and replace Obamacare, an opportunity is arising for states to take a larger role in health-care reform. Single-payer plans could be the answer to statewide coverage and lower health-care costs.

Supporters argue that a single-payer 'Medicare-for-all' solution could provide universal coverage at a fraction of current costs while improving health outcomes. They propose that the average person would save more money on premiums than they would lose in tax increases. In addition, people would not lose coverage when they lose their job or when their income takes a dive.

Skeptics argue that large losses incurred by healthcare providers, insurance companies, and those with generous policies makes single-payer healthcare politically unfeasible in the current climate. Many believe that that virtually free healthcare would result in unlimited demand that could only be curtailed by limiting services and care, also known as rationing.

Immediate implementation will be challenging in the current political environment, but some states, including New York, California, Nevada, and Washington, are starting to put the pieces in place to maximize the longer term realization of new health-care models and their sustainability. Others, such as Delaware, Maryland, Illinois, Montana, New Mexico, Ohio and Hawaii have been active in trying to push through single-payer bills but the legislation appears to be stalled and unlikely to be taken seriously at this point.

Look at California. The golden state introduced a bill in February 2017 that would make it the first state to adopt single-payer. Residents would pay into a state agency that functions as an insurance company, and the agency would in turn pay doctors and hospitals when people sought treatment. Previous proposals in California suggested financing the agency by pooling the state's current funding for Medicaid, Medicare and other health programs and then taxing employees 4 percent of their income and employers 7 percent of payroll. California has a veto-proof democratically controlled state legislature and could achieve some traction with this ambition.

The cost could be fully offset through the elimination of premiums, copays, deductibles and other healthcare expenses, as well as the ability for the state to negotiate lower rates with healthcare providers and by managing the steep rise in healthcare costs more aggressively and with more precision. At 15 percent of state GDP, single-payer healthcare spending in California would be 3 percent lower than the amount the U.S. as a whole is currently sinking into healthcare.

A focus on improving the health outcome of individuals will be critical. The Senate passed the bill on June 1 by a vote of 23-14; it now heads to the State Assembly.

Restrictions in the ACA prevented states from passing single-payer and other new innovative models of healthcare without special permission before 2017. Now that the restriction has expired, states can, in theory, create their own ACA alternatives using a Sec. 1332 Waiver for state innovation. Some states, including Washington, have already filed waivers and submitted initiatives.

In Washington, several House representatives have sponsored a bill this year that would establish a single-payer healthcare system using the ACAs Innovation Waiver. The plan opts to combine Medicaid and Marketplace plans into one single-payer solution, with no deductibles or premiums, but in trade presents rather high payroll and income tax hikes.

And in New York, an ACA repeal could leave up to 2.7 million without coverage. In response, an Assembly member (who first proposed and passed a bill in 1992, and then again in 2015 and 2016) reintroduced a bill this year that would finance a universal Medicare expansion through progressive taxes on the wealthiest New Yorkers. General savings on the program would come from the state's ability to buy pharmaceuticals in bulk, while the legislation would be written so that everything currently covered by Medicaid and Medicare, like eye care and dental, will also be covered under the expansion. The bill has passed through the State Assembly and is currently headed to the Senate where it may get blocked. For now.

Measures can be voted on by state legislators in voting cycles, including off-year and mid-term elections, and programs can be enacted as early as this year. In order to create a state-based coverage alternative, coverage quality and the number covered must be comparable to the current ACA standards, and the program can't add to the federal deficit. It can also only replace private coverage and not public programs like Medicaid. Technically, states are now in a position to create an ACA replacement using, at least in part, federal funding already provided.

States that are looking to implement the single-payer model must address a number of challenges.

First, the financing of a single-payer system typically requires replacing private insurance premiums with broad-based individual and corporate tax increases. Small businesses that don't currently insure their workers could be worse off because their taxes will increase without a reduction in premiums, and higher income, well-insured people, as well as many businesses (who pay more tax in general) will end up shouldering the majority of the funds needed to support such a model. They may see a reduction in the level of benefit currently being enjoyed. This will prove difficult to digest in many states and the messaging would have to be finely tuned to garner broad support. For example, in Colorado, voters overwhelmingly rejected ColoradoCare in November 2016, viewing the initiative as a tax-hike rather than the elimination of insurance premiums.

Next, special interest groups would have to be expertly navigated and stakeholders aggressively engaged. There are clear losers from the introduction of single-payer plans. The most heavily impacted group, and potentially the most vocal and powerful, are health insurance companies. While some insurers would still do well by administering the system to pay provider claims, many would become irrelevant within states that implement a single-payer model. Local payers that have traditionally focused on the low-margin, but have a lean business of administering Medicaid (such as Managed Care Organizations), would have an advantage over the larger, commercially focused national firms.

Additionally, a large single-payer network has substantial negotiating leverage to set and control healthcare reimbursement rates. This poses a significant threat to the profitability of large hospital systems, pharmaceutical companies, physicians, and other healthcare entities. In the short term, this may result in staff cutbacks and job losses. Therefore, supporters would need to stress the potential long-term benefits of moving to single-payer, which include a shift from provision to prevention, as well as the new job creation that this will enable.

Finally, large employers with self-funded healthcare are unlikely to drop coverage for their existing employees in only one state. Therefore, they are unlikely to be supportive of an increase in corporate tax (essentially paying twice for healthcare). States have no regulatory authority over self-funded health plans; they can only be regulated at the federal level under a law known as ERISA. States will be powerless from intervening to restructure how these companies manage employee benefits. A shift over time to private exchanges and employee stipends to purchase their own coverage would lessen this complication.

While states should renew their drive to reform health care on a local basis, the extent of the challenges means it is unlikely that any state (except possibly California) will move to a single-payer or a similar model in the short-term, even though these models could certainly result in a more equitable and fair provision of health care for Americans.

That doesn't mean that those states with momentum won't be able to establish the necessary building blocks to succeed in the long term. New models could be tested using federal innovation grants and states can start putting in place the population health management prerequisites that will enable single-payer to thrive in the future.

Commentary by Proteus Duxbury, managing consultant for PA Consulting Group, a global consultancy working in the U.S. health-care industry. He has also served as CTO of Connect for Health Colorado and director of technology strategy for Catholic Health Initiatives.

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