UCLA studies the Economics of a Single Payer Healthcare Insurer

Introduction

In April, UCLA published a study “Pathways to a Unified Healthcare Financing System in California.”

https://healthpolicy.ucla.edu/sites/default/files/2026-04/pathways-to-UF-research-report.pdf

Within this essay, I will focus on the economic benefits of implementing a California state sponsored Single Payer healthcare insurer as conveyed by the UCLA study. I will also disclose the challenges in attempting to implement such a system as conveyed by the UCLA study.

When focusing on the economics alone, the UCLA 180-page study boils down to one single exhibit (Exhibit 9 shown below).

The above exhibit is quite dense. So, I will take it apart slowly to explain step-by-step all the information included in it. Also, my Excel replication will facilitate my correcting a couple of typos within the mentioned exhibit.

To start with based on 2020 data, California spent about half a trillion on heathcare:

• The providers (hospitals, doctors, etc.) spent $416.7 million
• The health plans (insurers) spent $454.1 million. They spent $416.7 million reimbursing the providers and $37.4 million on administrative costs.
• The Government spent an additional $49.86 million on various items including expenditures for state and local government public health programs that do not flow through traditional health insurance plans. Investment: This represents spending on medical research and the construction or maintenance of healthcare structures and equipment. Government Administration: This refers to the administrative costs incurred by government entities to manage health programs (such as the costs of running the CMS or state agencies), which are distinct from the “health plan administrative costs” already included in the Total Health Plan Expenditures.

The table below summarizes the mentioned data.

Next, lets review each spending category in detail starting with Provider Spending.

Provider Spending

The table below outlines how much a Single Payer would save in administrative cost vs the existing insurer framework.

Let’s work through the mechanics of the first row for Hospital.

• % Administrative cost is 8.4%
• Single Pay would reduce such Admin cost by 50%
• Single Pay Administrative cost: 8.4%(1–50%) = 4.2%
• Single Pay savings in %: 8.4% — 4.2% = 4.2%
• Single Pay savings in $ million: 151,093 (4.2%) = $6,346 million

The whole table indicates that a Single Payer would save providers $17.65 billion in administrative costs which represents 4.2% of their total cost of $416.75 billion.

17.65/416.75 = 4.2%

Health Plan Spending

Let’s work through the mechanics of the first row for Hospital.

• % Administrative cost is 13.0%
• Single Pay would reduce such Admin cost by 66%
• Single Pay Administrative cost: 13.0%(1–66%) = 4.4%
• Single Pay savings in %: 13.0% — 4.4% = 8.6%
• Single Pay savings in $ million: 139,604 (8.6%) = $11,978 million

The whole table indicates that a Single Payer would save health plans $24.5 billion in administrative costs which represents 5.4% of their total cost of $454.1 billion.

24.5/454.1 = 5.4%

Going back to the table the “Other” category includes the following items:

• Public and Local Programs: This category includes funding for the Veterans Health Administration (VHA), TRICARE (for military personnel and their families), the Indian Health Service (IHS), and various other local government health programs.
• Supplemental and Limited Benefit Plans: It encompasses Medicare Part D, Medigap (supplemental insurance for Traditional Medicare), and limited-benefit policies that cover specific conditions (like cancer) or services (like long-term care).
• Out-of-Pocket and Miscellaneous Payers: Based on the study’s use of CMS Health Expenditure Account data, “Other” typically acts as a catch-all for patient out-of-pocket spending and other third-party payers such as Workers’ Compensation.

Other Government Spending

Other Government spending amounts to $49.9 billion.

Total healthcare expenditure including all three sectors amount to $503.95 billion. Total Single Payer savings amount to $42.165 billion. The latter is equal to 8.4% of the mentioned total cost.

42.165/503.95 = 8.4%

Total Spending Summary

The table below discloses the California sponsored Single Payer savings in $ and % for each spending category and in aggregate.

I also ran a second scenario that may be realistic. In this second scenario I assume that the Health Plan(s) have to reimburse the Provider(s) only their lower costs associated with the Single Payer of $399.1 billion instead of their former higher cost of $416.75 billion. When you make this realistic adjustments, the cost savings are even greater at $59.8 billion per year or 11.9% of healthcare spending.

Going forward for consistency I will stick with the UCLA study replicated figures. But, this is just to keep in mind that the Single Payer savings may be even greater than as estimated.

A Single Payer plan is most challenging to implement

A Single Payer plan is challenging to implement because of:

• Legal considerations
• Fiscal challenge

Legal considerations

1. The ERISA Barrier

The UCLA Study identifies the Employee Retirement Income Security Act (ERISA) as the “most significant barrier” to integrating private employer-sponsored insurance into a Single Payer system.

• ERISA Jurisdiction: This federal law generally prohibits states from mandating employer health benefits or regulating self-insured plans, which cover a large portion of the workforce.
• Legal Workaround: One primary strategy discussed to avoid ERISA preemption is to fund the system through direct taxes rather than state-mandated employer benefits. If the system is tax-funded and provides universal coverage regardless of employment, it may fall outside of ERISA’s jurisdiction over “employer-benefit plans”. However, direct tax funding represents a formidable challenge that we will review later.

2. Federal Waivers as a Legal Framework

To “carve out” the business currently handled by private insurers (especially for Medicare and Medicaid), the state must secure a series of federal waivers to redirect those funding streams into a state-managed pool.

• Waiver Types: These include Section 1332 (for individual/small group markets), Section 1115 (for Medi-Cal), and specific Medicare demonstrations through the CMS Innovation Center.
• Risk of Revocation: The sources note that the entire system could be undermined if these waivers are ended early or not renewed for political reasons, requiring a plan to “disentangle” the system if the legal framework fails.

Fiscal challenge

Implementing a Single Payer framework would require a massive increase in California state taxes to replace the existing private funding structure. Private and other existing funding needed to be replaced by additional California state taxes include:

• $139.6 billion currently funded by private insurers who in turn recover their costs through premiums charged mainly to employers. This item alone represents 65.7% of the California General Fund revenues in 2024–2025.
• Some of the “Other spending” of $120.3 billion would have to be partly financed by additional California state taxes too.

Below see several scenarios of how much California state taxes would have to increase to cover the cost of a California sponsored Single Payer. I am exploring scenarios whereby the % of “Other spending” needed to be funded by California state taxes ranges from 0% to 100%. Given that California would need to increase its tax revenues from 66% to 122%!

Keep in mind that my scenarios are understated. The actual percentages in estimated California state tax increases are probably much higher than as depicted. This is because I compare healthcare spending using 2020 data (that’s what the UCLA study used) with more recent California state tax revenues (fiscal 2024–2025). Healthcare spending is now most probably much higher than it was back in 2020.

From a fiscal standpoint the California sponsored Single Payer project is most challenging. Remember States all compete to attract employers and employees. Imagine the following pitch to employers:

“Come to our State where will not have to incur the cost of healthcare anymore. On the other hand, taxes on your business and employees may more than double. And, we already have one of the highest tax burden in the US.

Welcome to California”

The above may exacerbate the chronic commercial office space crisis in California. Vacancy rates in the main downtown business districts may rise above current levels.

San Francisco, the leading office market in California, has still a staggeringly high office vacancy rate. Its vacancy rate bottomed at 4.7% in 2019. And, it has steadily remained over 30% since 2023. To the best of my knowledge (I analyzed the office space crisis a couple of years ago), San Francisco’s vacancy rate is the highest in the Nation. Keep in mind, that these really high office vacancy rates are during a time when business leaders and the Governor have aggressively pushed a return-to-the-office for several years. This policy may not be sustainable forever. At some point, work-from-home may become broadly accepted because of its tremendous cost & time savings. And, at such time the office vacancy rates in San Francisco and elsewhere may spike upward to new record levels.

Source: San Francisco City Government

The UCLA study pushes back against my pessimistic view on the prospect of a Single Payer. The study advances that a Single Payer framework would save a ton of money on overall healthcare spending (as reviewed $42.165 billion per year (2020 $dollars) and rising). They also indicate that a few large corporations that are self-insured would most welcome the Single Payer concept. I would not be surprised that this is an isolated case. And that the majority of businesses would prefer the status quo and forego a doubling in their California state taxes. Additionally, labor unions who typically have pretty generous health insurance benefits may not want to give those plans up for a more cost-efficient Single Payer plan.

The UCLA study assumes that the cost shifting from employers & employees onto taxpayers is easy. On such a large scale this cost-shifting would be most challenging.

Based on 2023 figures, the full cost of an employer sponsored healthcare insurance policy was $8,951 for an individual and $25,572 for a family. This cost is funded by a private insurer that in turn charges a premium that is shared between the employer and employee (vast majority paid by employer).

In a Single Payer system the $8,951 and $25,572 would not be funded by a private insurer and employer. Instead, the whole thing would be paid through a new set of state taxes. Even if doing so would ultimately save everyone a ton of money on healthcare cost, the magnitude of the cost-funding-shifting is arresting (potentially resulting in more than a doubling of the California state tax burden). Given California’s existing chronic fiscal challenges, and that California is already associated with one of the highest overall tax burden within the US, a path towards a Single Payer appear rather unlikely.

THE END