I chose this article because it points to many of the same issues that will be impediments to all single Payer healthcare systems. A while ago, Vermont Governor Peter Shumlin (D.) announced that he was pulling the plug on his four-year quest to impose single-payer, government-run health care on the residents of his state. “In my judgment,” said Shumlin at a press conference, “the potential economic disruption and risks would be too great for small businesses, working families, and the state’s economy.” The key reasons for Shumlin’s reversal are important to understand. They explain why the dream of single-payer health care in the U.S. is dead for the foreseeable future—but also why Obamacare will be difficult to repeal.
Shumlin’s predecessor in Montpelier was a Republican, Jim Douglas. In 2009, Douglas announced that he would not be seeking a fifth two-year term; five Democrats joined the contest to replace him. Progressive activists demanded that each candidate promise to enact single-payer health care if nominated; all five complied. Shumlin got the nod and assumed office in January 2011.
Shumlin a Republican and other leading left-wing economists got right to work on the Vermont plan. In February 2011, a trio of health economists, including Harvard’s William Hsiao and MIT’s Jonathan Gruber, sent Vermont a 203-page report describing the feasibility, and the alleged virtues, of single-payer in the state. Gruber signed a $400,000 contract to work with Vermont on the project.
Hsiao has spent a good chunk of his career helping governments install single-payer systems; for example, he helped the Taiwanese government install “Medicare for all” in 1995. He’s also responsible for Medicare’s Byzantine price-control scheme known as the Resource-Based Relative Value System, or RBRVS.
Gruber you know; at a hearing to discuss the Vermont report, the Obamacare architect was confronted by a letter from a former state senator, who argued that “any Hsiao-Gruber type health care mega-system will inevitably lead to coercive mandates, ballooning costs, increased taxes, bureaucratic outrages, shabby facilities, disgruntled providers, long waiting lines, lower quality care, special interest nest-feathering, and destructive wage and price controls.” In response, Gruber wisecracked: “Was this written by my adolescent children by any chance?”t is
Hsiao and Gruber promised that single-payer health care in Vermont could save $1.6 billion over ten years. With that endorsement in hand, Shumlin and the legislature passed Act 48, a law instructing the state to figure out how to finance a single-payer system. They dubbed it Green Mountain Care. “If Vermont gets single-payer health care right, which I believe we will, other states will follow,” pronounced Shumlin. “If we screw it up, it will set back this effort for a long time. So I know we have a tremendous amount of responsibility, not only to Vermonters.”
Spoiler alert: they screwed it up. But think of it like one of those murder mysteries where the victim gets shot in the first scene; the real story lies in what led to the poor slob’s demise.
- Vermont insisted on platinum-plated insurance coverage
The market-oriented way to bring prices down is to give consumers more control over their own health care dollars like they have in every other aspect of the economy. If you as an individual control the money, you’re going to shop around for the best combination of quality and price. If somebody else is paying for the care, you’re less likely to care about how much anything costs.
Unfortunately, that basic insight is anathema to the progressive left. Single-payer advocates believe, on principle, that health care is best when it is “free to the patient at the point of care.” On the back end, of course, you pay for it in taxes, and in between the government decides whether or not you should be allowed to have that knee replacement or that mammogram. This is what we call rationing.
Sure enough, the Vermont plan insisted on not merely gold-plated health insurance for all Vermonters, but platinum-plated health insurance. As a point of comparison, the Bronze-level plans on the Obamacare exchanges have an actuarial value of 60 percent: meaning, for every dollar in health costs that a policyholder incurs, the insurance company will plan to pay 60 percent, and the patient will pay 40 percent in the form of co-pays, deductibles, and the like. Silver plans, used as the benchmark for Obamacare’s subsidies, have an actuarial value of 70 percent; Gold plans, 80 percent; Platinum plans, 90 percent.
According to Hsiao and Gruber, the actuarial value of the average Vermont private plan was 87 percent in 2011. The Hsiao-Gruber calculation of single-payer savings assumed that Green Mountain’s actuarial values would also line up at 87 percent. But instead, the Vermont plan mandated an actuarial value of 94 percent—more generous than even the costliest Obamacare plans.
In a post-mortem presentation on December 17 by Michael Costa, Shumlin’s deputy director for health care reform, Costa said that Vermont, out of desperation, considered the idea of reducing the required actuarial value to 80 percent—the Obamacare “Gold” tier—but couldn’t stomach the idea of offering Vermonters such “poor” benefits. “It would be a step down in benefits for many Vermonters,” said Costa.
- ‘We can move full speed ahead…without knowing where the money’s coming from’
In other words, not only would Green Mountain Care cost more by covering more people than Obamacare, it would cost more by forcing everyone to obtain more financially generous coverage than people currently have. Is it any wonder that the costs of such a plan were prohibitive?
But Vermont’s single-payer religionists were not to be deterred. “We can move full speed ahead with what we need without knowing where the money’s coming from,” assured Anya Rader-Wallack, Shumlin’s special counsel for health care reform. Doesn’t this statement remind us of Nancy Pelosi’s statement-let’s pass this bill and read it later?
But not forever. Shumlin postponed issuing a report on the plan’s proposed costs until January 2013, a few months after the 2012 elections. “When the statutory January 2013 report date arrived, the governor refused to produce the mandated report,” chronicles John McClaughry in an excellent write-up of the episode. 2013 came and went. It got so bad that a Democratic state representative, Cynthia Browning, sued the governor to force the release of the report. (She lost.)
In 2014, Republican Scott Milne ran against Shumlin and his single-payer plan. “I said during our debates: the difference between Peter Shumlin and Scott Milne is that I will tell you before the election that single payer is dead.”
The long-awaited report has still not been published. Shumlin defeated Milne in deep-blue Vermont by 2,095 votes, a mere 1.1 percent of the electorate. Would Milne have won if Shumlin had been more transparent about Green Mountain’s costs?
- The Vermont plan would have required a 160 percent tax increase
The Shumlin administration, in its white-flag briefing last week, dropped a bombshell. In 2017, under pre-existing law, the state of Vermont expects to collect $1.7 billion in tax revenue. Green Mountain Care would have required an additional $2.6 billion in tax revenue: a 151 percent increase in state taxes. Fiscally, that’s a train wreck. Even a skeptical report from Avalere health had previously assumed that the plan would “only” cost $1.9 to $2.2 billion extra in 2017.
In 2019, Costa estimated that Green Mountain Care would have required $2.9 billion in tax revenue vs. $1.8 billion under the pre-existing law: a 160 percent increase in revenue.
And the Shumlin administration was already backtracking from raising that kind of levy. After small businesses pushed back against a proposed 11.5 percent payroll tax, Gov. Shumlin promised to offer a grace period to businesses with fewer than 100 workers. That would have reduced Green Mountain funding by another $500 million or more, according to Costa, funding that would have to be made up in taxes elsewhere.
A big part of the reason why the Vermont plan was so expensive is that it tried to replace federally-subsidized insurance with state-subsidized insurance.
Today, over 150 million Americans receive employer-sponsored health insurance that is heavily subsidized by the federal government, because workers don’t pay income or payroll taxes on the value of their health coverage. The Vermont plan would have forced local businesses to offer the single-payer plan, financed by the new payroll tax, and substantial premiums for workers.
Under Obamacare, if you qualify for insurance subsidies, your income has to be under 400 percent of the Federal Poverty Level, or $46,680 for a childless adult. For example, if you make $45,000 a year, Obamacare will subsidize your premiums once you’ve paid 9.5 percent of your income—$4,435—yourself.
The Vermont plan applies the same subsidy standard to all state residents. In other words, if you make $70,000 a year, you’d have to pay $6,650 in premiums before state subsidies would kick in. That is to say, you’d lose a large insurance subsidy and pay far more in taxes for the privilege. In what counts for mercy, no Vermonter would have to pay more than $27,500 a year in premiums before gaining coverage.
- Hospitals and insurance companies had every reason to fight the plan
So if you’re going to offer every Vermonter more generous insurance coverage than they currently have, and somehow make the math work, you have to do two things: (1) raise taxes, and (2) pay doctors and hospitals less. We covered #1 above, now let’s talk about #2.
The Green Mountain plan sought to require hospitals and doctors to accept Medicare-like reimbursement rates for their privately-insured populations. Because private insurers pay providers more than Medicare does, this would have amounted to a 16 percent cut in payments to doctors and hospitals, according to the analysis by Avalere Health. Needless to say, the doctor and hospital lobbies weren’t big fans of the Vermont plan and fought furiously to sink it.
This isn’t to say that Shumlin and colleagues were wrong to seek lower prices for health care services. Healthcare in America is far too expensive. But brute-force price controls are going to face understandable resistance from these powerful interests.
This is where single-payer crashes on the rocks, both at the state and national level. The nearly $1 trillion U.S. hospital industry is not going to sit around quietly and let single-payer advocates impose price controls. This is good if you oppose single payer. But a word of warning for conservatives: hospitals have lobbied as furiously in favor of Obamacare, because it spends more money on them, as they have against single payer.
And we haven’t even started talking about the local health insurance industry, which would have been practically abolished by the Vermont plan. Understandably, health insurers weren’t too fond of that idea.
The point here is that you might want to believe that Vermont’s single-payer plan failed because it was unpopular with the voters. But an equally big factor was how unpopular it was with the healthcare industry.
- Other cost savings weren’t going to materialize
Michael Costa’s briefing outlined several other rosy scenarios from earlier estimates that didn’t pan out. Vermont originally assumed that the state would receive $267 million from Washington in the form of an Obamacare waiver. The revised estimate was only $106 million.
They originally estimated $637 million in state Medicaid funding; that number had to be reduced by $150 million due to budget constraints. The ongoing recession reduced Vermont tax revenues by $75 million over the 2016-2017 time frame.
- The Vermont plan wouldn’t have achieved true single-payer
The basic problem with any kind of state-based health reform—right or left—is that the federal government is by far the primary player in U.S. health care. The federal government subsidizes employer-sponsored health insurance to the tune of $500 billion a year, through the tax code. It spends even more on Medicare for the elderly and finances the majority of Medicaid for the poor.
The Vermont plan aimed to replace employer-sponsored and individually-purchased private insurance with a single, state-run insurer. But the state couldn’t preempt Medicare, or military health care, or large companies that directly pay for their workers’ health care using a process called self-insurance. Indeed, the Hsiao-Gruber report makes clear that for the Vermont plan to work, the state would need to gain waivers from Medicare, Medicaid, and Obamacare.
In addition, the state couldn’t prevent people from getting private health insurance in neighboring states like New Hampshire.
Hence, one of the key purported advantages of single-payer health care—that doctors and hospitals would only have to work with one insurer, simplifying their paperwork—turned out to be impossible.
As it is, Vermont only has three major private insurers: Blue Cross Blue Shield of Vermont, Cigna, and MVP. Because Vermont doesn’t have many insurers, and because those insurers have worked hard to reduce administrative costs, Avalere estimated that the Green Mountain plan wouldn’t have reduced paperwork by much.
Vermont single payer: An unmitigated failure and for that matter, so was Massachusetts experience.
What’s remarkable, then, about Shumlin’s attempt at single-payer health care is not that it failed. What’s remarkable is that he wasted the state’s time and resources on something that attempted to refute the laws of arithmetic. That’s four years Shumlin wasn’t spending on making the Vermont economy better for the people who live there. Small wonder that his reelection margin was razor-thin.
If there’s one quote that sums up the whole episode, it’s the one from Anya Rader-Wallack, declaring that “we can move full speed ahead…without knowing where the money’s coming from.” Green Mountain Care attempted to offer Vermonters more generous coverage than they currently had, but couldn’t figure out how to convince doctors and hospitals to accept pay cuts, nor workers to accept tax hikes.
A few years back, I was in Ohio debating a prominent progressive think-tanker, someone closely tied to President Obama and Hillary Clinton, and a veteran of the health-reform wars. At one point she declared, “we will never see single-payer health care in the United States.” Other experienced Democrats have said the same thing to me over the years. What those Democrats have learned is that slashing payments to hospitals, doctors, and drug companies—the only way to finance single-payer coverage—is politically impossible.
The temptation among conservatives is to do a victory dance of the “I told you so” variety. But that would be a serious mistake.
Hospitals and other industry stakeholders love Obamacare because the law expands coverage without cutting costs. The law basically accepts what hospitals and doctors are paid now, and simply writes a check to cover those costs for people who are uninsured. For-profit hospital chains like Tenet, Community Health, and HCA are enjoying record profits under the new health law.
As my colleague Bruce Japsen notes, Tenet just announced that it will be the “presenting sponsor of the fourth annual Clinton Health Matters Activation Summit,” during which you can be assured that Tenet will not be complaining about Obamacare, but rather enthusiastically supporting it.
In other words, Republicans will array the same health-industry forces arrayed against single-payer in Vermont against a repeal of Obamacare.
So, no. Obamacare won’t hasten the arrival of single-payer health care in the U.S. But it will retard the arrival of truly affordable health care for most Americans.
Let’s Review the Failure of ‘Single Payer’ Health Care For the US Indian Health Service (Remember the VA system?). Paul Hsich, a contributor to Forbes wrote that it is a common scenario: A distraught mother brings her young child to the pediatrician, seeking antibiotics for her child’s cold. The doctor determines that the child has a viral infection, not bacterial. Most responsible physicians would explain that prescribing antibiotics could harm to the child (in the form of side effects without benefits) and would worsen the public health problem of drug-resistant bacteria. They understand that antibiotics would be a false “solution” to the problem, and instead help provide other supportive care appropriate to the child’s condition.
Unfortunately, politicians are too prone to advocating false “solutions” to problems which will be ineffective (at best) or downright harmful (at worst). In the realm of healthcare policy, one recurrent wrong solution is the continued advocacy by the political Left in a “single payer” government-run health system.
Newsweek recently profiled the many serious problems in the federal government’s Indian Health Service (IHS), which is responsible for the health care of 2 million Native Americans. Government health care is theoretically a “right” provided to these Native Americans, as part of federal legislation as well as federal treaties with the recognized Indian tribes.
The federal government funds the IHS +% and employs approximately 2,700 nurses, 900 physicians, 500 pharmacists, and 300 dentists in what is essentially a “single payer” system for these patients. Yet the quality of healthcare is considered abysmal:
There’s a cruel joke often told in Indian country: “Don’t get sick after June.” The sick truth beneath those words is that by summertime the Indian Health Service — tasked with providing basic health care to the nation’s 2 million Native Americans and Alaska Natives — has typically blown its meager fiscal year budget for its Catastrophic Health Emergency Fund.
Victoria Kitcheyan of the Winnebago Tribe of Nebraska described the horrifying conditions to the US Senate:
I am not talking about unpainted walls or equipment that is outdated. I am talking about a facility which employs emergency room nurses who do not know how to administer such basic drugs as dopamine; employees who did not know how to call a Code Blue; an emergency room where defibrillators could not be found or utilized when a human life was at stake; and a facility which has a track record of sending patients home with aspirin and other over-the-counter drugs, only to have them airlifted out from our Reservation in a life-threatening state.
I have already reviewed the Biggest Single-Payer Government run system- the VA and the travesties in this system that never gets any better no matter who heads up the system. Massachusetts’ health care system is still trying to fix the Romney fiasco and now we have another state that is attempting to go to a single-payer system-California. California is now “battling choices for healthcare reform. They are battling it out whether to have a system called “Care4All California” — a new advocacy group formed last month to push for a wide range of legislative action this year not only to protect and maintain the gains the state made under Obamacare, but to expand coverage to the state’s remaining 3 million uninsured, about half of whom are living here illegally versus a universal and single-payer system. At the same time, an Assembly select committee that’s been holding hearings over the past six months on achieving statewide universal coverage released a report on its goals and recently introduced 14 bills toward that end. The measures include such proposals as establishing a public option, increasing state-funded subsidies to help people pay for coverage and requiring insurers to spend more of their premiums on actual medical care. “Single-payer is just not going away as an issue for Democrats, no matter how many healthcare-related Assembly bills are introduced as a diversionary tactic,” said Garry South, a longtime California Democratic strategist.
Democrats “control California lock, stock, and barrel,” South said. “If our state health care system starts to implode because Obamacare itself collapses,” he added, “neither Democratic voters nor Californians at large will let the Legislature off the hook for having just tinkered around the edges.” More on California’s strategic decisions on health care reform.
So, the outcome here in California should be interesting to follow the sides and different policies vie for the “ultimate” decisions and remember the midterm elections are on the horizon. If the House changes the majority the next question based on these attempts at bolstering Obamacare or single payer systems will we see additional changes?
If you get a chance check out our new book on Process Improvement, a sourly missing component of decision making today: “The Search for Excellence. A Handbook on Clinical Process Improvement for Providers”. But don’t let the title confuse you; this is not just for healthcare providers. Easy read and interesting.