On October 7, 2023, California Governor Gavin Newsom signed SB 770 into law, providing for the further development of a framework to establish a unified health care financing system in California.
Specifically, SB 770 authorizes the Secretary (the “Secretary”) of the California Health and Human Services Agency (CA HHS) to move forward with developing a waiver with the federal government that is needed to obtain federal funding for California’s implementation of a unified health care financing system. Such a financing system will provide universal access by all Californians to a comprehensive package of medical, behavioral health, pharmaceutical, dental, and vision benefits without any cost sharing to be paid by patients for essential services and treatments.
Below is a brief history of what led to the adoption of SB 770, a description of the provisions of SB 770, including the legislative timeline for the next steps, an explanation of certain opposition to SB 770, and remaining challenges that need to be addressed in order to implement a unified health care financing system in California.
Background to the Enactment of SB 770
SB 770 builds on prior law (SB 104 (2019)) that established the Healthy California for All Commission to identify options for advancing toward a health care delivery system to provide universal coverage and access to health care through a unified financing system, including the potential use of a single-payer financing system. The Healthy California for All Commission’s final report, issued in April 2022 (“Commission Report”), endorses a unified financing system that includes the following characteristics:
- All Californians will be entitled to receive a standard package of health care services.
- Entitlement will not vary by age, employment status, disability status, income, immigration status, or other characteristics.
- Distinctions among Medicare, Medi-Cal, employer-sponsored insurance, and individual market coverage will be eliminated within the system of unified financing.
The Commission Report concluded that the implementation of a unified financing system would result in lower total health care expenditures than the costs that would be incurred pursuant to the preservation of the current system. In reaching this conclusion, the Commission analyzed various unified financing models that provide a universal benefit package and access, including:
- Canada’s decentralized system that provides for payment by the provinces to private hospitals and physicians for medically necessary services without cost-sharing at the point of service,
- the United Kingdom’s payment for services provided by the National Health Service’s government-owned hospitals and government-employed physicians,
- Germany’s payment for services by highly regulated nongovernmental funds administered pursuant to statutorily defined health insurance products, and
- the Netherlands’ payments through nonprofit health insurers under a risk-based capitation formula.
The Commission Report emphasizes that the transition to a unified financing system depends on a complete overhaul of existing health care financing and coverage arrangements. However, the Commission Report did not set forth a fully developed framework for a proposed unified financing system. Instead, it set out that, at a future time, it would be necessary to develop and implement design choices, including those relating to eligibility and enrollment, covered benefits and services, patient cost-sharing (if any), provider payment, purchasing arrangements (and the role of intermediaries), care coordination, and greater efficiency and cost containment.
SB 770 builds on the preliminary findings and recommendations set forth in the Commission Report and requires the CA HHS Secretary to further research, develop, and pursue a waiver with the federal government regarding the establishment of a unified financing system. Such a waiver is necessary to allow California to disregard certain federal program rules for purposes of implementing experimental or demonstration projects, which are generally required to cost no more than what the federal government would spend on the program without the waiver.
Summary of the Provisions in SB 770
Under SB 770, the Secretary is required to develop a framework in consultation with the federal government with the objective of creating a unified financing health care system that incorporates a specified list of features and objectives identified in the Commission Report, including those relating to the following:
- A universal, comprehensive package of medical, behavioral health, pharmaceutical, dental, and vision benefits that (i) includes primary, preventive, and wellness care services and (ii) is universal and will not vary by age, employment status, disability, income, immigration status, or other characteristics
- A package of long-term care supports and services
- The elimination, to the greatest extent possible, of (i) disparities among Medicare, Medi-Cal, employer-sponsored insurance, and individual market coverage, or (ii) any adverse impact that may result from coverages or benefit plan design
- The absence of cost sharing for essential services and treatments covered under the program, including primary, preventive, and wellness care services
- The establishment of (i) sufficient reserves to guarantee solvency during public health emergencies and times of economic disruption, (ii) processes to ensure a just transition for members of the health industry workforce whose jobs may be disrupted, (iii) a reimbursement framework that assures that no individual will pay more than a specified percentage of their income on a progressive sliding scale for the cost of financing the health system, and (iv) a unified financing model that
- delivers health care more effectively, efficiently, and equitably;
- achieves cost-effectiveness by systemwide pooled purchasing to negotiate rates with providers;
- provides freedom for patients to choose providers and for primary care providers to choose practice models;
- prohibits certain kinds of risk-bearing contractual arrangements that could incentivize providers to withhold needed care while allowing for payment models that guarantee access, promote quality, ensure equity, and enable multidisciplinary teams;
- provides for care coordination; and
- incorporates payment, delivery, and oversight models that will continue to allow California the ability to receive the full benefit of federal expenditures and tax credits that currently underwrite the full scope of health services
- Greater investments in public health, primary care, and health equity efforts to address the social determinants of health through an improved mix of health care and human services
- Improvements in cost, quality, and health care system oversight and integration, which may include reducing overall administrative burdens on providers and improving connectivity and affordability of health care
- A rate-setting process that could use Medicare rates as the starting point for the development of final rates to avoid disruptions in the health care system and expand the availability of high-quality vital services by sustaining a stable, experienced, and equitably compensated workforce, including consideration of historic inequities in primary care physician reimbursements (as compared to other specialty practices), and support for providers that serve a disproportionate percentage of low-income Californians and other disadvantaged communities
- Promotion of a workforce that addresses geographies and specialties with the greatest shortages and is diverse and able to provide culturally and linguistically competent care to all Californians regardless of race, nationality, ethnicity, sexual identity, and socioeconomic status
Significantly, SB 770 requires the Secretary to engage with stakeholders (e.g., consumers, patients, health care professionals, providers, community organizations, labor unions, employers, nonprofits, and government agencies) relating to the development of waiver framework and key system design issues identified in the Commission Report. Such system design issues identified in the Commission Report for further development include those relating to:
- health care delivery,
- finance and operations,
- public administration,
- the specifics of the transition to a unified health care financing system from the current system,
- adapting existing consumer protections to the new system,
- applying reforms to move toward systems that reward and prioritize improvements in health outcomes,
- health care quality, and
- health care equity and how to reduce costs and improve the experience of health care consumers.
SB 770 establishes a very specific timeline for implementing a unified health care financing system:
- By January 1, 2025, the Secretary is required to (i) provide an interim report that details policy priorities and preliminary analysis of issues related to the federal discussions, as well as a summary of the input received to date through the stakeholder engagement process, and (ii) propose statutory language authorizing the development and submission of applications to the federal government for waivers necessary to implement the unified health care financing system.
- By June 1, 2025, the Secretary is required to finish drafting the waiver framework, make the draft available to the public on the CA HHS’s website, and hold a 45-day public comment period thereafter.
- By November 1, 2025, the Secretary is required to provide the legislature and the governor with a report that communicates the finalized waiver framework, informed by public comment received, and sets forth the specific elements to be included in a formal waiver application to establish a unified financing system consistent with the outcomes of the agency’s discussions with the federal government.
Opposition to SM 770
Consistent with the long-standing challenges to California’s efforts to implement a unified health care financing system, however, the law continues to be opposed by a broad range of business and health care stakeholders, including the California Chamber of Commerce, the California Association of Health Plans, and America’s Physician Groups. Among other items, opponents continue to express concern that the law will:
- eliminate existing coverages under employer-based, Medicare and Affordable Care Act plans;
- force coverage under a new, untested, and undefined government-run system with no opportunity to opt out;
- require a significant tax increase, estimated at $300 billion per year; and
- be subject to a waiver process that is not permanent and could be eliminated by Congress.
In addition to traditional opponents, the law is also criticized by certain proponents of a unified financing system. For example, the California Nurses Association / National Nurses United (CNA) and other organizations have expressed concern that SB 770 will delay the implementation of a single-payer system in California by rehashing the time, work, and resources previously expended by CA HHS and the Healthy California for All Commission. In addition, some organizations are of the opinion that SB 770 will delay the implementation of a single-payer health care system in California.
In sum, the enactment of SB 770 represents an important reinforcement of California’s commitment to a unified health care financing system. However, the implementation of such a system in California will continue to be subject to lengthy future debate and further legislative and administrative action based on continuing strong opposition and the need to further identify and reach a consensus on the specific elements of the plan.
This Insight was authored by John W. Eriksen, John T. Gilbertson, and Kevin J. Malone. For additional information about the issues discussed in this Insight, or if you have any other questions or concerns regarding the draft guidance or decentralized clinical trials, please contact one of the authors or the Epstein Becker Green Health Care and Life Sciences attorney who regularly handles your legal matters.
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