Disrupt CA’s State-Operated Enterprises!

California has two state-operated enterprises (SOE’s), each with annual revenues of ~$100 billion: K-12 education, which serves six million students, and Medi-Cal, a single-payer health insurer covering 13.5 million low-income Californians. K-12 services are largely provided by public employees while Medi-Cal pays for services largely provided by private sector employees.

Neither SOE is performing well for customers. Despite spending of >$16,000 per student, K-12 performance has barely budged and schools are laying off teachers. Medi-Cal spending has doubled since 2010 yet emergency room visits are up and more than one legislator reports the healthfulness of constituents enrolled in Medi-Cal has not improved.

If any other California enterprise performed so poorly it would be out of business. But, like China’s SOE’s, California SOE’s stay in business regardless of performance. They’re also governed by state legislators and governors who aren’t forced to be customers. That’s why it’s often easy for them to give in to cronies at the expense of customers. Eg, they impose constraints that make it difficult for some Medi-Cal patients to get care and don’t reward providers for making patients healthier or penalize those who don’t. Likewise they prevent school boards from cutting pension spending, changing tenure rules or granting principals and teachers the freedom to help students succeed.

If computers were a California SOE, we’d still be using PC’s running DOS.

For a state that prides itself on innovation, California is awfully complacent about its SOE’s. Eg, only 10 percent of the state’s six million students are allowed to be taught by teachers who aren’t union members while scope-of-practice laws limit patients to certain providers.

Apple’s CEO uses Apple products. While there’s no law in California requiring legislators and governors to be SOE customers, they should find out what nearly 20 million SOE customers — half their constituents! — are experiencing. If they did they would learn how Medi-Cal enrollees and taxpayers could benefit from liberation of scope-of-practice laws, the establishment of incentives and penalties to encourage hospitals to improve healthiness and treat customers at lower-cost locations, utilization of social services programs to prevent healthcare problems from getting out of control and reduce misery and unnecessary and expensive ER visits, making fire stations and other public locations available to Medi-Cal enrollees, and more. Likewise they would learn what it’s like to have a child in a school district in which tenure and other rules keep poorly performing teachers in classrooms even if a principal wants them removed and a declining fraction of revenues is available for teacher salaries because of soaring retirement costs.

Disruption is happening everywhere in California except at its SOE’s. Even corporate health care is about to get a dose of disruption. It’s time for legislators to disrupt California’s SOE’s.


Originally appeared on Medium, 7/17/18.