A 2025 survey of California voters suggested that a majority of respondents support a peaceful secession from the United States.  But, a lot of our health care system is interconnected with the federal government.  What happens if California breaks away on its own? There is a lot that has to be considered, but it could lead to a better and more equitable health system.

Health care is big business in California, totaling $405 billion in 2023 or about 12 1/2% of California’s total economic output. Not only is healthcare significant in the broader California economy, but there are significant amounts of money that pay for those services that come from United States federal government sources. The federal Medicare program which provides health care services for the retired, disabled, and persons with end stage renal disease amounts to $87 billion. Another $42 billion comes from Washington in support of California’s MediCal program, which is California’s version of the Medicaid program seen in other states.  Medicaid is a joint federal and state funded program that provides health care services to low-income persons and varies state-by-state. Anything that we do in California that changes the fiscal relationship with Washington has the potential for a significant impact on this state’s health care system. Medicare and Medicaid as we know it today would likely not exist after a California secession. What about other insurance plans?

Depending on how California might leave its current relationship with the United States, a large portion of the funding for health care services in our state could also be changed. Commercial insurance is usually a benefit of employment for many people and in 2033, funded another $125 billion in California healthcare services. were California to separate from the United States, the organization of this part of our healthcare system would need to be revised as well. Most commercial insurance plans do not cover services outside of the United States.  

Were California to secede, it would effectively be a foreign country for which commercial insurance plans in their current form may not pay for services. Medicare does not pay for care outside of the United States and only sends some Medicaid money to American territories. So, the way we pay for health care would change, since insurers as we know them today do very little to pay for care outside of the US. You could look at it as a chance for a “reboot” for the health care system in the state of California. Some might think that this is a good thing.

The money that is currently collected from Californians for health insurance could simply be routed away from the federal government and out-of-state commercial insurance companies and into a California health care payment fund. If you count the insurer overhead and profits sent out of state to commercial insurance companies, that adds $30 billion in money that could stay in California to pay for health care to Californians. 

There is one major problem that a reboot of the current health care system in California could fix – the number of people in the state with no health insurance. In 2023, 6.4% of the state’s population – 2.57 million persons – did not have access to health insurance through an employer, Medicare, MediCal, or the Covered California health insurance exchange. Only 20% of that amount represents the undocumented immigrants in the state that also have no insurance and no established access to health care services.  The current system in California leaves out a lot of people.  Perhaps that could be yet another reason why California’s secession could allow a redesign of our health care system that affords coverage to all Californians. 

Can California “do” its own health care system?

In 2017, a position paper from conservative writer Joel Fox said that a “go-it-alone California health plan won’t fly” because it is too “risky”. There are some fundamental flaws in that argument, born not only of ideology, but also of not being “in the weeds” of health care.  The argument that California cannot sustain its own health care system is just not accurate. There is plenty of money to pay for care for all Californians.  The question is how that money gets used. 

First and foremost, the total spend on health care in California is enough to provide care for the roughly 39 million residents of the state. Using 2023 statistics, we spent an average of $10,385 per person across the state for that year, or about $865 per month.  That is more than 46% higher than the average monthly health insurance premium paid in the state now.  Now yes, some persons of Medicare age will cost more per person, but there are also a lot more younger people who use far less health care and so cost less money to care for.  Even though these are averages, they add up to enough money per person to provide care to the state’s residents.

Don’t forget that the current health care spending in California includes a lot of overhead and profit taking that could be made more rational under a new state health care system.  Much of that profit leaves the state and could be retained in an independent California health care system. There is nothing wrong with “profit” in health care.  Health care is a business and businesses need profit to sustain through economic downturns and to invest in equipment (which is terribly expensive). Even health care providers in countries with universal health care (like Canada) are encouraged to seek reasonable profits. We should be no different.  

But, who gets the profit and what amount of profit is “enough” is an issue that could immediately address the “risk” argument raised by conservatives. Health insurers cleared nearly $9 billion in profits in 2023 and hospitals earned about the same amount that year. The $18 billion in those profits represents just over 4% of California’s 2023 health care spending. That is not a bad return when you consider the average return on other businesses runs between 2 and 20%.  Not only that, but the worst downturn in the California economy –  which impacts the availability of funds to pay for health care in the state – was only about 3% during the 2008-2009 recession and 2% during the COVID recession of 2020. There is plenty of money in the California economy to pay for health care without the risks that conservatives fear.  Some businesses have “up” and “down” years.  Health care is no different. There is “room” in the California economy to provide for care throughout the normal cycles of our economy. 

The problem with profit in health care is that much of the profit goes to large organizations that can leverage their “prestige” or their “leverage” in the market to demand higher fees relative to other health care companies.  With a health care system that sets the rules for all patients and all health care businesses (and it does not have to be the state, by the way), that profit taking by large “name brand” health care businesses can be moderated.

Also, how health care gets paid in the state creates this unequal payment problem. Overall, Medicare and Medicaid pay health care providers a fee that is less than the average cost of taking care of a patient.  So, those provider businesses must seek higher payments from commercial insurers to make up for those losses and generate a profit needed to sustain a business.  If the health care system sets fair rates for all patients, then there is enough money to provide care. 

One last point that opponents of changing our health system hide behind is also fundamentally incorrect. Opponents to changing our health care system say that taxes would increase remarkably and bankrupt the state. However, those opponents do not consider the fact that we already pay for health care in federal and state taxes along with monthly insurance premiums. Tax or premium – mathematically, it does not matter – it is still cash out of the consumer’s pocket. The concern could be what entity controls the health care dollars, and that could be a valid concern.  But if we are smart about it, it need not be the concern that opponents choose to make. 

What are California’s options?

There are a lot of different ways that California could organize health care to be more efficient – providing care to all, while still maintaining the essence of business that we need in a free market society like ours. Many such arguments get overwhelmed by the outcry about “government health care”.  It need not be that way!

Let’s look at a favorite health insurance program out there right now – Medicare.  Medicare is liked by nearly all of the people covered by it and it is operated by private contractors at a lower cost than that of the commercial Medicare Advantage plans we see advertised so widely.  Traditional Medicare operates with a 3.5% overhead cost – so 96.5% of the money paid out for Medicare goes to pay for care for the patient and not profit to an insurer.  Conversely, Medicare Advantage plans operate as profit-making enterprises for Wall Street investors and operate at about a 20% overhead cost.  Those firms also build in ways to limit the care that patients get with referrals and authorization processes that add overhead cost to providing patient care (in order to increase profits for investors).  Traditional Medicare is cheaper on average than Medicare Advantage.  Traditional Medicare also allows consumers to go to the physician or hospital of their choice – something that Medicare Advantage plans usually do not. 

That is the fundamental argument behind “Medicare for All” that Bernie Sanders has advocated for years. However, Bernie leaves one thing out of his calculus on the cost of health care.  As mentioned earlier in this article, Medicare pays fees to health care providers that on average are less than the costs of care. Rolling out a Medicare for All plan would be a disaster if a new California plan actually paid what Medicare pays because current Medicare payment rates are less than the full cost of caring for patients.  Most health care providers lose money on caring for Medicare patients.  At best, they break even.  But either way, that is a result that is not sustainable for any business.  That is even more so for an essential business like health care which requires some profit to acquire new technologies and give the best care.

Under our current payment system, health care providers charge anywhere from 25-35% more to commercial insurance plans in order to subsidize losses on caring for Medicare and MediCal patients.   The fee paid for health care services should be equal for older and younger patients alike, so that we can avoid the “shell game” of overcharging some to make up for undercharging others. The system of Medicare for All, run by a central authority – like the state or a public commission – but set up to pay fair prices for all patients could work and again provide enough money to care for everyone in California – without increasing the out of pocket cost to consumers. Again – tax or premium – it is still cash out of the consumer’s pocket. 

Canada’s health care system (also called “Medicare”) works similarly to the plan outlined above. Canada has some problems with its health care system but those problems really arise from two fundamental tenets.  First, hospitals are paid a fixed amount to operate and so have no incentive to make more services or appointments available than absolutely necessary.  Their payments are based on a fixed, expected level of service and so they make only that amount of service available, regardless of variations in need for care. Here in the US, hospitals are paid on a piece rate basis – called “fee for service” – and so have the incentive to make more care available since the more they do, the more they get paid.

Secondly, having the government organize health care services puts the funding for care at the whim of legislators, which means that money once spent on health care can be cannibalized for other politically attractive programs.  The sort of budgeting we would see in a government system could easily cut payments to hospitals and physicians to fund other legislative goals and score political “points”.  Those budget cuts reduced payments to health care providers and so limits their incentive to make more care available to consumers. Keeping California’s health care dollars separate from the rest of the budget is an absolute “must” to prevent the sort of thing that Canadians suffer with now – long waits for non-emergency care. But the overall idea of a “Medicare for All” system could be feasible with some tweaks that protect it from political gamesmanship and promotes more of a competitive landscape among health care organizations. 

Taking that concern about the “government rule” of health care a step further, there is some benefit to having a single decision maker in health care. The current health care system in California is a disjointed mess, with different insurers having different requirements for payment or authorization for services, different guidelines under which health care insurance will even pay for a service, and different prices paid for the care provided. One set of rules and one standard payment rate for all patients would make a new California health care system not only financially feasible, but fairer and more efficient as well. The amount of overhead cost built into administering all the different rules and pay rates could be used to pay for care to consumers.  Again, that extra money freed up to pay for care addresses the “risk” worry from opponents to a California health care system reform. 

Some say that health insurance companies help the health care system by promoting competition. There would be some merit to that argument, if there were one set of rules that all insurers operated under and one set of payment rates, so that hospitals and physicians knew what the expectations were for all patients. But the “networks” that traditional insurance companies set up add unnecessary overhead costs to health care that could be used to pay for care. Participants in our health care system have to keep track of different rules on what services an insurer will pay for, at what price (some insurers pay different prices based on the kind of patient), and what steps have to be followed so that the insurer will pay.  This sorting out of multiple rules and rates creates great inefficiency in our system and takes resources away from caring for patients. 

Germany has an interesting model that could address some of the weaknesses around proposals like Medicare for All.  There, the government sets the rules and the payment amounts for all services at an average cost for all patients. All hospitals and physicians can adapt to one set of prices and one set of rules, and so operate much more efficiently.  They know what the insurance plan will cover, what they will get paid, and have one set of rules for getting that payment. However Germany does one thing that “free market” supporters may like – they use private insurance plans to do the payment administration and “customer service” functions. The only difference between a German health insurance plan (called a “sickness fund”) and a US health insurance plan is that the German insurer cannot make a profit off of denying payment for a treatment or service. Payment denials are one way that insurers generate profits in the US.  Instead, German insurers compete for consumers based on the price they charge for their administrative services and the quality of their customer service and they get paid based on the number of customers they serve.  Hmmm . . . insurers competing on customer service . . . an interesting idea, isn’t it? 

The German system collects taxes and insurance premiums from consumers and employers and that money is protected from legislative pilferage by law.  Health care taxes and premiums can only be used for health care.  The private insurance plans review the claims for payment from hospitals and physicians on behalf of the consumers they serve and authorize the sickness fund to pay for the service.  But the insurer has no financial interest in limiting the care or denying payment for care.  Their interest is in customer service, not reducing services.  The central health care authority in Germany monitors the billing for services by hospitals and physicians and can take action against those that might be taking advantage of their system with fraudulent billing.  Insurers can also be rewarded under that system for their recognition of potential fraudulent billing. But the key difference between the US and Germany is that the insurer has no financial incentive to limit payments to health care providers, so patients are not “caught in the middle” between the insurer and the provider – a very common occurrence in our current health care system. 

Really the German system is very similar to our traditional Medicare system – where private contractors actually handle the customer service and payment administration functions for the federal government. Those contractors do not make or lose money based on the health of the patient. The only difference is what is the central authority that handles the money on behalf of a patient.  A copy of the German system could be a viable model in an independent California.  

Another Idea for an Independent California Health Care System

Colorado made an attempt at single payer health care with a ballot initiative in 2016. While it did not pass with voters, it had some good ideas that an independent California could borrow from.  First and foremost, the state government would only be involved in organizing the health care system and setting up a separate, quasi-governmental authority that would administer the state’s health care system. Once the authority was up and running it would be left to operate separately from the government – including separate handling of funds for health care services.  The state would still collect taxes for health care (because they already have the infrastructure to do it), but would then remit health care tax collections to the state authority. The authority would operate as a non-profit entity but be overseen by a board elected from citizens of the state that were not affiliated with the health care system. The operation of the authority would be subject to public record disclosures so that all payment totals and data from hospitals and physicians would be transparent to consumers (subject to privacy laws that protect the identity of consumer health care consumers). 

In Colorado, some people liked their ability to be a member of a health care organization like Kaiser that operates as both insurer and health care service provider. Colorado’s proposed health system offered Kaiser members the option to remain in Kaiser and for Kaiser premiums to be paid from the state health care authority.  A health care system in an independent California could have the same option working with Kaiser and the Permanente Medical Group. Other large medical groups and health systems around the state could elect the same option.

So, were California to become an independent nation, health care would be able to survive and could even be improved when freed from the influence of Washington and corporate health care interests.  This article poses just a couple of ideas that have been mentioned as options to be used as models for the health care system in an independent California.  There may be others out there. But the key point is that an independent California would have the resources and the critical mass necessary to operate a sustainable, fair, and efficient health care system that meets the needs of all its citizens. Paying for health care would be no more burdensome than it is now while potentially giving so much more back to Californians in value and economic security, knowing that health care needs can be met. 

Jeff Helton, PhD, CMA, CFE, FHFMA is an expert in healthcare financial operations management, healthcare process analysis and benchmarking, health information technology, and healthcare fraud detection, with many industry publications. He is the Academic Director of Health Administration Programs at University of Colorado Denver Business School at University of Colorado Denver.