By Peter Hirschfeld
Times Argus (Barre-Montpelier, Vt.), Feb. 19, 2011

MONTPELIER — Three weeks after unveiling a draft version of his single-payer health care proposal, Harvard economist William Hsiao returned to the Legislature Friday to submit a final copy that reaches exactly the same conclusion.

Hsiao’s draft report drew comments and criticisms from nearly 200 people. Their input did little to change the final recommendations, in which Hsiao says Vermont should use a payroll tax to fund a single-payer system that provides basic health care benefits to every resident of the state.

“Vermonters as well as people outside Vermont have sent us more than 170 comments. It kept us busy and sleepless for a couple weeks but we really benefited from these comments,” Hsiao told the House Committee on Health Care Friday afternoon. “Let me come to the bottom line: Our conclusions and recommendations did not change.”

Hsiao, commissioned by the Legislature to produce the $300,000 report, said many of the comments voiced skepticism over the financial savings he projects in the single-payer framework. Hsiao says the state would save $580 million in the first year of implementation, largely as a result of administrative efficiencies that result from the elimination of multiple insurance plans. He proposes plowing $400 million of those savings into improvements in health care infrastructure.

Hsiao assured lawmakers that the savings forecast in his nearly 200-page report are conservative.

“Our approach was to underestimate savings but also to overstate costs. Our basic premise is we do not want to mislead the Vermont Legislature and governor to do something that’s highly risky,” Hsiao said. “So if things did not work out so perfectly, you still have a margin there, and you would not face a fiscal crisis.”

For proponents of a single-payer system, Hsiao’s findings cement their commitment to pursuing a reform path that leads to publicly financed, universal care.

“Even after asking people to criticize the report in every way possible, his final recommendation doesn’t have a change in direction,” said Rep. Mike Fisher, a Lincoln Democrat.

But the path toward single-payer remains fraught with political land mines. Large businesses, including IBM, have already voiced their distaste to any health-care system that imposes a mandatory payroll tax on employers. Opposition has been particularly strong from self-insured companies, whose health plans are protected by federal law from influence by state regulations.

Hsiao proposes overcoming federal restrictions on self-insured companies by assessing a payroll tax on those employers regardless of whether their employees enroll in the state-offered benefits.

“So it’s up to employers and workers, who may not want to have double insurance,” Hsiao said.

Critics say the strategy uses the state’s broad taxing authority to strong-arm companies into submission.

Hsiao proposed the payroll tax. But the Legislature and Gov. Peter Shumlin, who began work last week on a health care bill that lays the foundation for a single-payer system in three to six years, have opted to disregard the issue of funding altogether. For now at least, lawmakers and Shumlin say the state needs to focus on cost-containment and health-care design, leaving issues of how to pay for it for later down the road.

Rep. George Till, a Jericho Democrat and practicing obstetrician, said Friday that it will be difficult to move the debate forward without broaching the issue of funding early on. Till said his concerns were confirmed by Hsiao, who on Friday said that health care delivery and health care financing need to go hand in hand.

“I don’t see how the business community buys in without knowing the financing mechanism and the financing amounts,” Till said. “And I don’t understand how the provider community buys in without knowing what they’re going to get paid.”

Rep. Mark Larson said financing the system will be an important conversation, but one that must wait until the state has a better handle on precisely how the new health care system will operate.

Larson said the biggest obstacle to health care reform is people’s fear of change, a sentiment echoed Friday by Hsiao.

“I think there’s a level of distrust and fear out there that this won’t work,” Larson said.

Larson though said the status quo — health-care expenditures are expected to rise by more than $1.2 billion over the next three years — will be far more devastating to businesses and health care providers than anything proposed in the Hsiao report.

By Anne Galloway
Vtdigger.com, Feb. 19, 2011

Harvard economist William Hsiao told lawmakers a month ago that if they adopted a single payer style health care plan, Vermonters could save $500 million in the first year of implementation (2015).

Since then, questions have been raised about that target figure. Fletcher Allen Health Care, in comments to Hsiao, said the professor overestimated the savings that could materialize from a single-payer system.

In a 15-page rebuttal to the Hsiao plan, hospital administrators took issue with Hsiao’s assertions that Vermont residents could save that much money through a system that would be designed to curtail administrative costs, waste, duplicative services, fraud and abuse. Officials pointed to statewide statistics regarding Vermont’s hospitalization and diagnostic testing rates, which they said are lower than those of neighboring states.

“Getting these numbers right is not about resting on our laurels or pretending that we cannot further reduce unnecessary services,” officials wrote. “It does speak directly, though, to what kind of savings can be further squeezed out of an already high-performing system.”

Hsiao’s report estimates that Vermont medical providers could reduce administrative costs by 6.5 percent under a streamlined billing system. Under that scenario, Fletcher Allen would be expected to save $29 million — a figure officials say is out of the question. They said it would be possible to save $5.3 million in estimated administrative costs. The hospital spends $35 million on billing and insurance related expenses per year, according to the written comments. (Fletcher Allen’s total revenues in 2009 were $875 million.)

Hsiao didn’t waver, however, in his assessment of the potential savings a single payer system could generate. The Harvard professor’s team ran the numbers again for his final report, which was submitted to the Legislature on Friday, and the projected 2015 savings came in at $580 million.

Hsiao said he received as many comments about an overestimation of the savings as he did complaints about underestimating the totals. In all, 170 Vermonters commented on the draft report, which was submitted to the Legislature in January.

“We didn’t do such a bad job,” Hsiao said. “We came out in the middle.”

If anything, Hsiao said, the totals his team calculated are conservative.

“We don’t want to mislead the Legislature and the governor to do something highly risky,” Hsiao said. “We erred on the side of conservatism. We overstated the cost so if things don’t work out you have a margin (of error). The worst thing we can do is be too optimistic so you’re left in a deficit position. It’s not my intention to put you in that position.”

Dr. Jonathon Gruber, a health care economist from MIT, supported Hsiao’s conclusions in a presentation to the House Health Care Committee Friday afternoon.

“Bill’s been conservative, but appropriately so,” Gruber said. “It’s better to get it right than overreach and see it collapse.”

Hsiao said his team included in its estimate labor savings based on an all-claims payment system in which doctors and nurses would no longer need to satisfy billing requirements for insurers.

In the final report, Hsiao said he fleshed out a few details, but his broadest conclusion didn’t change: In order for the state to save money and provide better health care outcomes for all Vermonters, it needs to adopt a universal health care system with a uniform payment mechanism.

“The system is broken,” Hsiao said. “It’s broken in a systemic way. Different parts don’t come together in a synchronization. It will only get worse, not better.”

Hsiao recommends investing $350 million of the $580 million in estimated savings into programs to support primary care doctors and an extension of “essential” medical benefits to uninsured or underinsured Vermonters.

In 2016, the single payer system is projected to save $770 million. By 2019, Hsiao estimates it will reduce health care spending by $1.1 billion.

The Department of Banking, Insurance, Securities and Health Care Administration says the state will spend $5.9 billion on health care in fiscal year 2012. By 2015, that number is expected to climb an additional $1.6 billion.

Employers would reap substantial savings, according to the Hsiao report, if the essential benefit package is offered by the state. (A comprehensive package, which would include nursing home care, would result in substantial increases in overall medical expenditures.)

Per employee spending on health care would drop by $200 in 2015 and $550 in 2019, according to the report. The total estimated savings for 2015 would be $80 million for businesses; in 2019, companies would save about $220 million on health care costs, according to Hsiao’s report.

Instead of paying premiums for workers, employers would contribute to the cost of health care through a payroll tax, under the Hsiao plan. The tax would be 12.5 percent in 2015 and 11.6 percent in 2019, including a 3 percent contribution from employees. If the system doesn’t change, employers and workers will pay out the equivalent of a 13.4 percent payroll tax in 2015 and 13.7 percent in 2019 via premiums.

The estimates, Hsiao said, depend on how effectively and quickly the system changes. “We cannot predict the future,” Hsiao said. “There is always some uncertainty.”

One of those uncertainties is whether the courts will overturn, or the Congress will repeal the Affordable Care Act which was enacted last year. The report says that when the law is fully implemented, Vermont will be eligible to receive $400 million. Both Gruber and Hsiao said this federal funding would pay for coverage of half of the state’s 47,500 uninsured residents. If the federal money doesn’t come through, it will be harder for the state to implement single payer because the payroll tax would have to be several percentage points higher, Gruber said.

Hsiao and Gruber both cautioned that the independent board that manages the payment system for providers must consist solely of members from the two sets of stakeholders that are naturally at “loggerheads” – businesses and providers.

“The United States has relied on politicians to make these decisions and they have not been able to control costs because powerful interests can influence politicians,” Hsiao said.

Other countries, he said, have established direct negotiating processes between the parties that pay and the parties that are compensated. “That brings about a better balance,” Hsiao said. “And it allows the system to maintain stability. That’s our motive and reasoning for recommending an independent board.”

If the single payer system is financed through a payroll tax, Hsiao said the Legislature should control the rate.

Rep. Mark Larson, chair of the House Health Care Committee, asked Hsiao if the health care delivery system can be reformed without addressing the payment system for providers.

Hsiao let the word “no” hang in the air before he elaborated. “That’s pie in the sky thinking,” Hsiao said.

“I would ask the people who propose this, what leverage will you use to change the health care delivery system?” Hsiao said. “You have to assume the current health care delivery system is in some kind of equilibrium. How will you be able to disturb it other than just arbitrarily say I’m going to pass a law, I’m going to force you to do it. You won’t be able to do that. Not in the United States, not even in China, an autocratic country which is trying to do that and failing miserably by now.

“The question is what leverage do you use?” Hsiao said. “The leverage you use is the payment syst
em. You change the incentive structure, then the delivery system will move. The payment system is like a magnet. The delivery system is like many iron particles when you change that magnet to a different position the iron particles will move. But to do that — to change the payment system — you have to change the financing. To be effective in changing delivery system you have to remove the current situation where providers can play games with the insurance such as cost shifting.”

http://vtdigger.org/2011/02/19/hsiao-single-payer-savings-are-conservative/

By Nancy Remsen
The Burlington Free Press, Feb. 19, 2011
 
MONTPELIER, Vt. – The consultants who urged Vermont to move to a single-payer health-care system received 170 comments — complimenting, questioning and criticizing their draft report — but nothing persuaded the researchers to revise their basic recommendation, they told lawmakers Friday.
 
“It kept us busy and sleepless for a couple of weeks, but we really benefited from these comments,” William Hsiao, a Harvard University professor of economics and lead author of the report analyzing three health reform designs, told the House Health Care Committee. His team had double-checked its calculations and models, Hsiao said. “Our conclusion and recommendation didn’t change.”
 
Hsiao and three other principal authors came to the Statehouse to deliver their final report and field questions from two panels of lawmakers charged with writing a bill that would move the state toward ensuring all Vermonters had medical coverage, simplify the current claims chaos and curb mushrooming medical costs.
 
Gov. Peter Shumlin presented the Legislature with his plan to achieve a single-payer health system last week. It was based on the preliminary recommendations from Hsiao and his team.
 
The consultants haven’t been the only ones peppered with questions and comments in the month since Hsiao outlined the single-payer plan. Lawmakers have received plenty of feedback, and they had dozens of questions for the panel.
 
One of the top issues: How reliable is the estimate of $580 million savings from making the switch to a single-payer claims system? About $400 million of the savings would cover the cost of extending standard medical coverage to all Vermonters plus pay for investments in primary care and update some community hospitals.
 
Hsiao joked his team felt they were being “punched on both cheeks” on the question of the accuracy of the savings. Some people complained the researchers underestimated the savings, while others said they overestimated.
 
He cited, for example, Fletcher Allen Health Care, which submitted its own analysis of the savings it might experience as a result of processing fewer medical claims. Fletcher Allen argued Hsiao overestimated the medical center’s savings.
 
Hsiao countered, “They used a much narrower analysis of how a single-payer system would affect them.” He said the state’s largest medical center underestimated its savings by assuming Medicare and Medicaid claims wouldn’t be processed through a new, single claims pipeline — but they would. And Fletcher Allen calculated only clerical savings, he said, not savings for doctors and nurses who would spend less time on insurance paperwork.
 
Jonathan Gruber, economic professor at Massachusetts Institute of Technology and a co-author of the report, suggested Hsiao was almost too conservative in his assumptions about savings.
 
Hsiao explained, “Our approach was to try to underestimate the savings and overestimate the cost. We didn’t want to mislead the Legislature and governor into doing something risky.”
 
Deb Richter, a Vermont primary-care physician and long-time advocate for a single-payer system, is one of those who believe the state would save more. Still, she said after the presentation that she agreed with Hsiao: “It is better to underestimate than overestimate.”
 
Sen. Kevin Mullin, R-Rutland, asked the researchers whether creating a single-payer system that guaranteed coverage to all residents would make Vermont a magnet. “We keep hearing it isn’t an issue, but not to my satisfaction,” he said.
 
Gruber noted that under the federal Affordable Care Act, other states would have universal coverage, too. He added that studies of the impact of generous welfare benefits on migration have shown “it doesn’t seem to matter.”
 
Nicolas Rockler, an economist with Vermont-based Kavet, Rockler and Associates and another researcher, added, “The unemployed aren’t very mobile.”
 
Mullin also asked about the impact of the reform on medical professionals. He said some doctors told him if the state moved to a single-payer system, they would leave. He noted the state already has shortages among some medical professionals, especially in rural areas.
 
Hsiao said he received a telephone call from someone identifying herself as a doctor who said she knew a dozen physicians who would move to Vermont if it made the switch. He added that the plan called for using about $50 million of the $580 million in savings to recruit and retain primary-care physicians.
 
Rep. George Till, D-Jericho, asked Hsiao to address the concerns of employers who self-insure.
 
The House Health Care Committee had received a letter recently from John O’Kane, government programs manager at IBM Corp., arguing it should be allowed to continue to offer its own insurance plan.
 
Hsiao told lawmakers that self-insured plans could continue to operate but noted, “It would be up to employers and workers whether they wanted double insurance.” Vermont’s IBM employees and their families all would be eligible for the state’s standard coverage and would be paying for it, Hsiao said.
 
O’Kane, in a telephone interview, said IBM would object to paying for coverage the company didn’t want.
 
Speaking after his presentation, Hsiao said he was surprised at IBM’s opposition, given that the company faces similar circumstances for its employees in many countries. “They can still offer a uniform package,” he said, by providing supplementary coverage to Vermont’s standard plan.
 
“I understand rising health-care costs have been straining IBM,” Hsiao said, noting he met with their representatives in Vermont. “I’m surprised IBM wouldn’t consider this, because this would lower their costs for workers and their families.”
 
Armed with more information in the 200-page final report from the Hsiao team and with the Shumlin administration’s 80-page bill, House Health Care Committee Chairman Mark Larson, D-Burlington, said his committee would proceed with its review of the state’s next steps.
 
“The first question,” Larson said, “is whether there is enough evidence to believe a reformed system would be better.” He posed that question to the panel.
 
Gruber responded, “We aren’t in such a great place now. With no change, we know where we are headed — which is not sustainable.”
 
http://www.burlingtonfreepress.com/article/20110219/NEWS03/110218018/Health-care-consultant-sticks-with-single-payer