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Study: New Taxes Could Fund Universal California Health Care

A mother and daughter wait to meet with an enrollment counselor to sign up fo...

Credit: Associated Press

Above: A mother and daughter wait to meet with an enrollment counselor to sign up for health insurance at a Covered California event in Sacramento, Feb. 12, 2015.

A longshot California proposal to replace insurance companies with government-funded health care for all of the state's residents could be paid for with a sales tax hike and a new tax on business revenue, according to a report released Wednesday.

The report said those taxes would generate $106 billion annually. It was made public by the influential California Nurses Association as the state Senate faces a Friday deadline to vote on the bill, which outlines how a single-payer health care system would function but does not say how it would be funded.

In a study commissioned by the nursing union, researchers at the University of Massachusetts-Amherst suggested a 2.3 percent sales tax and a 2.3 percent gross receipts tax, which would apply to all corporate revenue. Poor residents would get a tax credit to offset the higher sales tax.

Union leaders have said they were waiting on the report to suggest a funding source for the single-payer bill they are aggressively promoting.

Assembly Speaker Anthony Rendon and Gov. Jerry Brown, both Democrats, have expressed skepticism about the proposal. If it were to clear the Legislature and be signed into law by Brown, it would need cooperation from President Donald Trump's administration to waive rules about federal Medicare and Medicaid dollars.

But California's single-payer proposal has energized liberals at a time when Trump and Republicans in Congress are looking to roll back parts of former President Barack Obama's health care law.

RELATED: Sen. Atkins Discusses Single-Payer Health Care For California

Critics of the plan said the report is unrealistic in part because it relies on the Trump administration's approval.

"They seem to have massaged the numbers in a way that it would sound appealing and seem to be the silver bullet solution," said Bruce Benton, vice president of the California Association of Health Underwriters, which represents insurers who would lose their companies and jobs under the plan. "Yet there are many assertions made that there's not real clarity on and some of them are misguided in a lot of ways."

Because California's proposed health care plan would eliminate out-of-pocket health care costs for consumers, like copays and deductibles, the study said overall health care spending would decrease for the middle class while rising for people with higher incomes.

"This bill will be the model for the nation," said RoseAnn DeMoro, executive director of the California Nurses Association, which represents about 100,000 nurses. She called the measure a "moral imperative."

The report found that providing health coverage for all of California's 39 million residents would cost about $406 billion a year, in line with a forecast by the Senate Appropriations Committee.

But the study said improving efficiency and negotiating lower prices for pharmaceutical drugs could reduce the overall cost $75 billion. Existing state and federal health care funding could provide $225 billion, according to the study.

That would leave $106 billion in required funding that California would have to raise with the new taxes.

Benton said it is unrealistic to promise that consumers would have no out-of-pocket costs and said he feared the proposal would encourage fraudulent billing that would drive up health care expenses.

"Common sense says it doesn't add up," he said. "The state of California really has no idea what it's getting into with creating the enormous infrastructure.... Costs will explode."

Two-thirds of the Assembly and Senate would have to approve the tax increases required to fund universal health care, though a vote on the taxes would come later, after the initial simple-majority bill is considered this week.

"We are on a collision course for health care costs," said Sen. Ricardo Lara, D-Bell Gardens, in promoting his bill. "Having one public-run system will reduce inefficiencies and missed prevention opportunities the way we do with Medicare now. Californians will get more and will definitely pay less."

Employers, business groups and health plans have warned that the tax increases would crush businesses and make it harder for them to expand their workforces in California.

The study's authors argued that businesses would actually save money under the plan because they would no longer have to cover health insurance for employees.

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