Sorting through the shards of Vermont's discarded single-payer health insurance scheme reveals the plan was undone by its generosity toward patients, hospitals and physicians, not its core assumptions.
It's worth a closer look at the particular circumstances that led to its demise, since single-payer advocacy, despite its setback in Vermont, could return this year as a political force if the U.S. Supreme Court undermines Obamacare's reliance on private insurance markets to provide universal coverage.
Like single-payer schemes in Canada and much of the rest of the advanced industrial world, the Vermont plan was not “socialized medicine.” It left the provision of care to private physicians, not-for-profit hospitals and for-profit companies. Like Medicare, it created a single insurance pool for state residents.
The plan's architects, who included MIT healthcare economist Jonathan Gruber, then devised a health plan for Vermont's 625,000 residents (exempting those on Medicare or the military's Tricare), which covered fully 94% of actuarial costs. Vermonters covered by the plan would pay only 6% of their medical expenses out-of-pocket.
Compare that to Obamacare's silver-tier plan, which covers 70% of costs and has much higher copays and deductibles for patients. An unsubsidized Blue Cross and Blue Shield silver plan being sold this month on Vermont Health Connect costs $15,696 a year. That places the actuarial value of the Green Mountain Care's single-payer family plan at nearly $21,077. That would qualify for the Cadillac tax under Obamacare.
The plan was generous toward providers, too. A single payer paid a single rate—no more cost-shifting. Medicaid rates would be lifted to more than 105% of Medicare rates under the discarded plan.
Prior to passage of the Patient Protection and Affordable Care Act, Vermont already offered Medicaid to people earning up to 300% of the poverty level. Though the state's median household income of about $55,000 a year is above the national average, Medicaid and the Children's Health Insurance Program cover nearly 185,000 Vermonters, or close to 30% of the population.
Paying 105% of Medicare rates would have represented a hefty pay increase for many physicians and hospitals, although it would reduce payments from patients who previously were privately insured. Combined with the increase in utilization sure to accompany a plan with such generous benefits, the increased payments to providers wiped out all of the reduced administrative costs associated with moving to a single payer.
Even so, many if not most Vermont employers providing a typical BCBS policy to their employees would have benefited from the plan as long as they were willing to drop their own coverage—something large national firms such as IBM, the state's single biggest employer, are unlikely to do. The “outrageous” 11.5% employer payroll tax for a family earning a combined $55,000 a year comes to $6,325. Compare that to the actuarial value of Green Mountain Care.
The rest of the money had to come from somewhere, however. The plan's architects chose a graduated income tax on wage earners, which rapidly rose to 9.5% of income for any families earning more than $102,220 a year. Most middle-class residents of working age who are already insured would have experienced a sharp increase in taxes without gaining much if anything in benefits.
In political terms, the Green Mountain plan benefited the bottom half of the income distribution and business at the expense of the middle- and upper-middle classes. No wonder Vermont Gov. Peter Shumlin dropped his own proposal like a hot potato once he was safely past re-election.
The healthcare reform battle is far from over in Vermont. An alternative is waiting in the wings: a plan, devised with a $45 million federal innovation grant, to make Vermont the second state in the nation after Maryland that binds all public and private insurers to offer the same payment rates; establishes a global budget for healthcare (physicians as well as hospitals and other services); and creates a series of statewide accountable care organizations to compete on offering more affordable, higher-quality care.
Hopefully, the designers of the next iteration of reform in Vermont will have learned some lessons from the strategic missteps that went into conceiving Green Mountain Care.
