Reasons For Single-Payer Failure In Vermont

Single-payer healthcare failed in Vermont. Governor Peter Shumlin admitted defeat in a recent press conference, calling it “the greatest disappointment of my political life so far.” But what were the reasons for this failure?

Six Reasons For Failure

Avik Roy, healthcare analyst for Forbes, recently provided six reasons for the failure of single-payer healthcare in Vermont:

  1. Vermont insisted on platinum-plated insurance coverage

Everyone knows that given a free-market economy, individuals will choose to purchase the insurance plan that gives them the best value for their money. But when someone else is paying the bill, you’re less likely to care about the cost.

Roy explains that such 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.” Of course, the taxpayer must pick up the tab for this government largesse.

The Vermont plan insisted on providing not merely gold quality insurance, but the most-expensive platinum-plated plan. The ObamaCare system gives choices of Bronze (60% actuarial value), Silver (70% actuarial value), Gold (80% actuarial value) and Platinum (90% actuarial value). Although the current actuarial value of the average Vermont private plan was 87 percent in 2011, the Vermont single-payer plan mandated an actuarial value of 94 percent – even more generous than the most expensive ObamaCare plan.

  1. “We can move full speed ahead . . . without knowing where the money’s coming from.”

It’s hard to imagine, but this was the reassurance given by Anya Rader-Wallack, Governor Shumlin’s special counsel for healthcare reform. But of course, someday they would have to reveal where they were going to get the money. Shumlin postponed issuing a report on the plan’s proposed costs until January 2013, a few months after the 2012 elections.

But then January 2013 came and went but still the governor refused to produce the mandated report. He waited until after the 2014 elections; a move that helped insure his re-election in a close race against Republican challenger Scott Milne who predicted the demise of the single-payer system.

  1. The Vermont plan would have required a 160 percent tax increase.

Finally, in December Shumlin revealed the dreaded news. In 2017, under pre-existing law, the state of Vermont budget called for collecting $1.7 Billion in tax revenue. The new single-payer system, called Green Mountain Care, would have required an additional $2.6 Billion in tax revenue; a 151 percent increase in state taxes. In 2019 the cost would have required $2.9 Billion in additional tax revenue vs. $1.8 billion under pre-existing law; a 160 percent increase in taxes. The balance sheet for Green Mountain Care is seen in Figure 1.

Furthermore, Roy points out, the Vermont plan was so expensive because it tried to replace federally-subsidized insurance with state-subsidized insurance. Today, over 150 million Americans receive employer-sponsored health insurance that is free of income tax, therefore heavily subsidized by the federal government. 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.

Green Mountain Care

Figure 1 – Green Mountain Care balance sheet. (Note the yellow line that shows the increasing Billions needed to cover the cost of the single-payer healthcare in years 2017 through 2021.)

  1. Hospitals and insurance companies had every reason to fight the plan.

In simple terms, in order to offer single-payer healthcare to all residents of the state of Vermont, the state would have to (1) Raise taxes, and (2) Pay doctors and hospitals less.

Doctors are not very good at lobbying but hospitals are. Hospitals rose up in alarm when they realized they would be forced to accept Medicare-like reimbursement rates for the privately-insured population under Green Mountain Care. This amounted to a 16 percent cut in payments to doctors and hospitals, according to the analysis by Avalere Health. Hospitals and insurance companies fought hard to defeat the plan.

  1. Other cost savings weren’t going to materialize.

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. Also, the ongoing recession caused Vermont tax revenues to fall by $75 million over the 2016-2017 time frame.

  1. The Vermont plan wouldn’t have achieved true single-payer.

The Vermont plan aimed to replace employer-sponsored and individually-purchased private insurance with a single-payer, state-run insurance. But the state couldn’t pre-empt Medicare, military healthcare, or large companies that directly pay for their workers’ healthcare through self-insurance. Waivers would have been required for Medicare, Medicaid, and ObamaCare. Furthermore, they couldn’t prevent people from purchasing health insurance across state lines in neighboring New Hampshire and Massachusetts.

Single-payer healthcare has failed in Vermont. Perhaps the federal government will learn from this experience – but don’t count on it. Moreover, this does not mean ObamaCare will be easily replaced. The same groups that fought hard to defeat Green Mountain Care, hospitals and insurance companies, will also fight hard to preserve ObamaCare – from which they benefit.

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