In Vermont, single-payer health care in a single state

By Josh Goodman
Stateline.org, Tuesday, December 14, 2010

Congress never really considered a single-payer health plan run by the government. Vermont is planning for one. This isn’t some liberal fantasy. Vermont lawmakers are serious. To understand how serious, you only have to look at the resumes of William Hsiao and Jonathan Gruber.

Hsiao, a Harvard economist, is credited with designing Taiwan’s single-payer system. Gruber, an M.I.T. economist, helped design Massachusetts’ near-universal health care system and the federal health care reform law itself. They’re on the team that the Vermont legislature contracted with this year to explain how single-payer would work there. In other words, the nation’s 49th most populous state is deploying some of the world’s leading experts to redesign its health care system. Their report is due early next year, after which Vermont will decide whether to become America’s first single-payer state.

If Vermont decides on that course of action, the experiment will serve as a test of whether more aggressive government intervention can improve health care and reduce costs. Long before the results of that experiment would be known, Vermont’s project could serve as a test of something that even the state’s conservative counterparts elsewhere are interested in finding out: just how much power states have over their own health care systems.

Containing costs

Vermont is perhaps an unlikely place to try something dramatically new in health care. That’s because by most standards, Vermont’s health care system already is one of the nation’s best. The United Health Foundation has ranked Vermont the healthiest state in the country four years in a row. Fewer than 10 percent of Vermonters lack health insurance, one of the lowest rates in the country.

If the state’s only concern were getting insurance to the comparatively few people who lack it, Vermont could sit back and wait for the new federal law, with its promise of near-universal coverage, to kick in. But expanded access is only part of what the state wants — and it isn’t the part that officials tend to mention first.

“For Vermont, it’s all about containing costs,” Peter Shumlin, the governor-elect, told Stateline. He points out that the annual cost of health care in Vermont — for individuals, businesses and government — has doubled to roughly $5 billion a year over the past 8 years. “It’s killing small businesses,” Shumlin says, “kicking the middle class in the teeth.”

Vermont’s problems paying for health care aren’t much different than the problems other states face. What makes Vermont different is that many of its top officials believe the solution is to have only one entity providing health insurance. In their boldest schemes, they’re hoping to drive private health insurance providers out of existence and to free employers from the responsibility of providing health insurance to their employees.

That includes Shumlin, who led the state Senate when it approved the legislation approving the study that Hsiao is leading. The five-way Democratic primary for governor had other single-payer supporters, but none was more forceful than Shumlin. He won the primary by 203 votes, then won the general election by 2 percent.

Providing health insurance to everyone is, of course, a very costly endeavor. But Shumlin and many of the Democrats who run the legislature think single-payer can save money in a couple of ways. For one, they note that hospitals and doctors’ offices spend a lot of money filling out paperwork and coding claims for insurers. These administrative costs aren’t especially high in Vermont compared to many other states, but supporters of the single-payer plan believe that if health care providers could deal with one insurer, they’d be able to focus more on providing care and less on processing claims.

Supporters also see single-payer as an antidote to the fragmentation of Vermont’s health care system. For example, state Representative Mark Larson, who’s expected to chair the House Health Committee next year, laments that his local hospital, Fletcher Allen Health Care in Burlington, is planning to sell off its outpatient dialysis units.

Fletcher Allen made the move because it was losing money on dialysis. The reimbursements it was receiving from all of Vermont’s various public and private health insurance providers weren’t enough to pay for the costs. In the current system, even if it were clear that the cheapest and best way to care for dialysis patients was for Fletcher Allen to own the units, the state’s power to do anything is limited. The structure of health care is subject to the vagaries of Medicare and private insurers, not coherent planning.

Under single-payer, that would change. “It’s very hard to direct a strategy for accomplishing long-term savings in health care — to manage care better, to minimize unnecessary procedures, to invest in strategies that have demonstrated savings in quality and cost — without some system of financing and payments to direct those efforts,” Larson says.

One-state experiment

There remains one huge question: Can wholesale reform work in a single small state? State Representative George Till, a member of the legislature’s Health Care Reform Commission, is skeptical of single-payer.

Till points out all the different entities that provide health insurance to Vermont patients. There are the state’s private insurers. There’s the state itself, through Medicaid and through its coverage of state employees. There’s the federal government, separately through Medicare and the Veterans Health Administration. There are some larger companies, such as IBM, that self-insure. And there are many people whose health insurance isn’t even based in Vermont. “At the hospital that I work for, we deal with 14 different insurers from New York,” says Till, who is a doctor.

Due to those complications, what Vermont is trying to do is, at its heart, a test of the power of state government. Can a state wrest total control of health insurance from the federal government and private companies?

The simple answer is that it can’t without federal permission. Companies that insure their own employees at their own expense are exempted from state health care regulation under the federal Employee Retirement Income Security Act, known as ERISA. Medicare and the VA, of course, fall under federal purview. The new federal health care law forbids states from receiving waivers from its provisions until 2017, although some senators are working to change that date to 2014, when the law’s most consequential provisions kick in.

If those efforts succeed, states would gain a lot more freedom to do what they please. For now, though, the definition of single-payer is in doubt, even among the people who are designing Vermont’s programs. “The last thing we want to do is create the perfect policy that can’t be implemented,” says Steven Kappel, a Vermont-based health care researcher who is part of the Hsiao-Gruber team.

The question is whether single-payer without Medicare patients or without VA patients or any other piece of the pie would really be single-payer at all — and whether leaving a piece out would undermine the advantages of the change that Vermont expects. The researchers are charged with developing other plans beyond single-payer: One is a government plan open to all Vermonters with conventional private insurance as an alternative. Despite Shumlin’s commitment to single-payer, it’s possible another option might look more appealing in the end.

Chance to lead

For now, though, those obstacles haven’t compromised the incoming governor’s commitment to the single-payer concept. In fact, he doesn’t think he h
as much of a choice.

Shumlin’s view is that health care interests are powerful enough in Washington that aggressive cost containment isn’t really possible there. “I believe that the states will have to lead true, meaningful health care reform,” he says. “We have a real opportunity to lead the country in health care if we have the courage.” But Shumlin and others also argue that, despite some of the difficulties, Vermont is the perfect place to try.

The biggest advantage Vermont has is the political environment in the state. Blue Cross Blue Shield Vermont, the state’s largest private insurer, has stayed neutral on single-payer. “We don’t think it’s our role,” says Kevin Goddard, the company’s vice president of external affairs. Even the state chamber of commerce, while somewhat dubious of the concept in its purest form, isn’t actively opposed yet.

What everyone agrees upon is that some very smart people are thinking about the best way to structure Vermont’s health insurance system. The initial report is due next month. Even critic Till says, “I think people will listen very carefully to what Dr. Hsiao comes back with.”

Contact Josh Goodman at jgoodman@pewtrusts.org

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