Vermont Single-Payer Plan Full of Holes

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The Blue Cross Blue Shield Foundation of Massachusetts held a forum in Boston recently on Vermont’s efforts to move towards single payer.

VT map upside down

A few takeaways.

1) Using the data and criteria cited at the forum,  every state should be moving towards a single payer system. Of course some on the left nod their head in agreement, to the rest of us, the logic seems flawed at best. For example, how does 7% uninsured in Vermont justify single payer? The national average is close to 17%.

In addition, the architect of the plan Dr. Hsiao wrote recently in the New England Journal of Medicine.

… Vermonters are also largely unwilling to reduce their level of benefits. Our analysis found that, on average, Vermonters have rich insurance benefits approaching the ACA’s “platinum” standard. Similarly, physicians and hospitals are unwilling to accept reductions in their net incomes.

Why does this necessitate single payer?

2) Vermont is picking Blue Cross Blue Shield of VT as the sole insurer in the state and kicking out the rest. The Legislature decided not to run a pure single-payer system and keep this non-profit insurer in business. In a more competitive state for insurers, this would not have happened. Time will tell if BCBSVT comes to regret this decision and is driven out of business as well if the government changes direction, and brings everything “in-house”.

3) VT is setting up an IPAB mechanism in the state to help form a more “rational” system and help to control costs. This will lead to market distortion, rationing, or increasing taxes.

4) There are many, many, many, many, many challenges ahead for VT before successful implementation.

First, Vermont needs the Obama Administration to approve their plan. Without federal waivers, the plan is dead. The waivers required range from Medicaid to the tax credits that were targeted for those buying insurance in an exchange. However, if the Administration approves these waivers, they should be approving any Medicaid waiver coming in from other states as well. This could become a national political issue quickly.

Second, if large employers regulated under federal ERISA law do not buy in, Vermont will be in trouble. Either because the companies move out of state and take jobs with them, or there will be parallel health care systems operating in the state. A parallel system would leave the state paying a huge portion of health care spending. Watching large employer behavior, such as IBM (with roughly 5,000 employees in VT), will give an indication how employers of the 105,000 ERISA covered lives will act.

Third, there is no funding mechanism in place yet. The Governor and Legislature kicked the can down the road on this. Dr. Hsiao proposed a payroll tax, but it is unclear how much drag that will place on the economy if passed. If not done well, the negative consequences will come about more quickly than  double digit health care premium increases.

Fourth, Vermont’s hospital system is regional. If one hospital struggles to survive under the new system, the state has no choice but to bail them out. The state currently subsidizes many of the hospitals, but how far will they have to go to save health care access in a portion of the state if a hospital goes under?

Fifth, Vermont has many borders. It is a big question how Vermont will handle residents that are receiving care out of state, or those from out of state receiving care in Vermont. What if Dartmouth-Hitchcock in Lebanon, NH, who receives 40% of its patients from Vermont, decides the reimbursement rates that the single payer system offers is too low? Will Vermonters be left to pay the difference?

Finally, I have been disappointed in the press coverage on this issue. They have failed repeatedly to cover the many hurdles ahead, with the exemption of the funding piece.

These are foundational issues that should not be lost in the excitement that seems to come whenever a state tries something big. It is similar to writing about the shiny outside of a new car without looking under the hood first, where you would discover there is no motor.

Many of the issues that a single payer system is attempting to address can be dealt with by greater consumer engagement, a federal tax policy change to delink insurance from employment status, and greater transparency in the health system. The press coverage fails to mention any other alternative. For our part, Pioneer recently released a paper on the efforts by local private sector companies to crack this health care crunch here in Massachusetts.