Universal health care plan could save $1.834 billion

BISHCA Commissioner Steve Kimbell. VTD/Josh Larkin

BISHCA Commissioner Steve Kimbell. VTD/Josh Larkin

The Shumlin administration’s signature “single-payer” style health care plan could save as much as $1.834 billion by 2020, according to a report released on Tuesday.

That’s the best-case scenario. Under more conservative estimates, the report from the Joint Fiscal Office and Department of Banking, Insurance, Securities and Health Care Administration, puts savings at $553 million by 2020. The report, produced with assistance from consultant Steve Kappel with Policy Integrity, LLC, builds on a study produced in February by Harvard Professor of Economics Dr. William Hsiao.

The wide spread in the amount of savings derived from a universal health care plan is a reflection of the inherent complexities of medical system reform, and political and economic uncertainties, according to BISHCA Commissioner Steve Kimbell.

“We’re trying to predict the future here, so trying to nail down specific numbers is not wise,” he said.

Act 48, the health care bill passed by the Vermont Legislature last session, mandated this savings report more than a year before the secretary of the Agency of Administration is required to submit a financing plan to the General Assembly in early 2013.

Projected savings derived from the universal health care system, which is currently in the planning phase, would be between $553 million to $1.834 billion a year in 2020, according to the JFO/BISCHA study. Hsiao predicted that a single-payer system would reduce medical spending by $1.1 billion a year in 2019. The state study shows a savings range of $451 million to $1.48 million that year.

Like the Hsiao report, which Kappel was also involved in shaping, the state predicts that a portion of the savings – about $140 million in 2019 – will come from a reduction in administrative costs. The universal health care plan would create a “single pipe” system in which all claims would be processed by one entity instead of a handful of private and public insurers.

Wendy Wilton

Rutland City Treasurer Wendy Wilton. Courtesy photo.

Steve Klein, director of the Joint Fiscal Office, said  one of the primary goals of the report was to “put a stake in the ground for baseline growth.”

Health care spending in Vermont will rise by more than 7 percent a year without reform, and total medical expenditures will more than double from $4.7 billion in 2009 to $10 billion in 2019, according to BISHCA. The Vermont rate of health care spending is 1.4 percent higher than the national average, and the model incorporates that assumption.

The savings, however, come at a price. The state would have to spend between $50 million and $150 million to initiate reform. Part of this investment, Klein said, would be for information technology to track health care claims and to determine eligibility levels for individuals and small businesses that participate in the federally mandated insurance “exchange,” which provides tax credits and subsidies for those who qualify.

Under the federal Affordable Care Act, Medicaid spending will increase as cover is offered to more Americans in 2014. Vermont has already expanded Medicaid eligibility for residents at a level beyond the ACA requirements. The BISHCA/JFO report projects a smaller increase in Medicaid spending for Vermont than the national average.

Wendy Wilton, Rutland city treasurer, who has been a persistent and outspoken critic of the state health care reform, says the additional Medicaid money might not be available. She cites a study by the Kaiser Commission on Medicaid and the Underinsured that reports some states are worried about the looming federal deficit reduction efforts. The Medicaid program, which provides health coverage to poor or disabled individuals, is funded jointly by the federal and state governments. Each state administers separate Medicaid programs within broad federal guidelines. The Hsiao report and the recent state report count on Medicaid Global Commitment revenue in their savings calculations, but Wilton is skeptical additional funding will arrive.

Wilton has calculated her own projections for the financial outcomes of a single-payer system. She predicts a $2.1 billion deficit by 2018.

Wilton says her assumptions are different from those made by the authors of the JFO/BISHCA report. Her projections are based on two-thirds of health care spending in Vermont (she excludes Medicare recipients and ERISA and military employees), while the state’s estimates are based on total health care expenditures. Wilton also significantly lowers the cost savings under a universal plan. She doesn’t think the medical fraud and medical malpractice estimates in the Hsiao report are accurate.

Dr. William Hsiao

Wilton used the MVP benefit plan for the state-subsidized Catamount Health program for uninsured Vermonters to derive estimates for the Green Mountain Care “essential” benefit. (She says the less expensive Blue Cross Blue Shield plan for Catamount beneficiaries is underpriced, since she says it covers younger, healthier people.) Wilton added $5 million in administrative costs each year starting in 2014. Her calculation includes more than $100 million in cost increases for an in-migration of uninsured people and undocumented workers who she says will move to Vermont to take advantage of a universal health care program. Wilton anticipates that government employees will bargain for supplemental coverage to ensure the “essential benefit” plans are on par with the insurance coverage they have now. She also includes in her analysis a financing mechanism based on a payroll tax, which was recommended in the Hsiao report in part because it would enable employer contributions to remain tax-exempt. If the program was financed through an income tax, workers would lose this benefit, and contributions could be taxed as income at the federal level.

Kappel said he had not picked apart Wilton’s analysis, but he was skeptical of her assumptions. The Legislature, he said, did not charge BISHCA and the state Joint Fiscal Office with conducting an analysis of financing models for a universal coverage plan.

At this point, it’s too early to narrow the state’s broad estimates, Kappel said.

“It would be nice to squeeze the ranges (in savings) down,” Kappel said. “I don’t think it would be wise, though.”

Kimbell emphasized that the cost savings estimates were slightly more conservative than the Hsiao report.

“We’re trying to be realistic,” he said.

The report, Kimbell said, establishes an approach for future analyses and gives the Green Mountain Care Board a framework for reform. It also sets a baseline in place that the secretary of the Agency of Administration can use to develop a financing plan for Green Mountain Care. Under statute, the financing plan must be presented to the Legislature in 2013.

Editor’s note: A write-thru of this report was posted at 10 a.m. Nov. 2, 2011.

Alan Panebaker

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20 Comments on "Universal health care plan could save $1.834 billion"

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Stan Hopson
4 years 7 months ago

Thank you Ms. Wilton for your continued work in shining a bright light on the ill effects Act 48 brings to Vermonters. You have successfully done something the Shumlin administration and the legislature has failed to do – present an fact based fiscal projection for GMC. In the aftermath of Irene, this boondoggle is even more scary for VT tax Payer’s and employers.

Does anybody think the current GOP House if Representitives in Washington will approipriate additional Medicare funds for VT to experiment with socialized medicine?

Wendy Wilton
4 years 7 months ago
Stan, thanks for your note. There is one very important difference between my projection model and what the JFO was asked to do: I compare revenues to expenses for a complete analysis–JFO was only asked to look at the expense side of the forecast (with proposed savings). So my projection is a more complete picture from a risk standpoint to the state coffers (and VT taxpayers). The revenues are crucial to examine, here’s why: The proposed funding is mostly federal Medicaid dollars–first through the Medicaid Global Commitment (which we currently have) and the additional Medicaid funding hoped for through Obamacare.… Read more »
Bob Zeliff
4 years 7 months ago
I have tried to understand Ms Wilton “model”. While I must say I am not an expert in Health Care cost analysis, my CV is no further afield than Ms Wilton”s. Nether of us , though I have been involved with statistical and stochastic modeling of engineering problems, are well qualified in Health Care or financial modeling. This becomes very apparent when one looks at her “model” in that she cherry picks her assumptions, seem to put data out of thin air and some time double counts. Her methods and therefore conclusions are questionable at best. Prudent people should not… Read more »
4 years 7 months ago
If people are concerned about “Cherry Picking” data, they should complain about the headline to this story. The BISHCA/JFO report is full of caveats, sidesteps and cautions about the spending and savings predictions, as they should be. I thank BISHCA and JFO for being realistic in describing not only the near impossibility of predicting expenditures and savings, but the incredible difficulty of achieving the savings. But rather than writing a headline describing the actual tenor of the entire report, the headline “cherry picks” the most hopeful, most generous and least realistic assumption possible: that maximum savings and maximum cost containment… Read more »
Craig Powers
4 years 7 months ago
Mr. Zeliff’s response is amazing. Ms. Wilton has presented two sides of the equation while the state report only looks at expenses. Prudent VT businesses and taxpayers should be highly suspect of the intentions of the current ruling party in Montpelier. To even go down this healthcare path, without clearly stating how it will be paid for, is irresponsible and elitist. The proponents have made this an emotional issue instead of a factual one. Can you say unsustainable? $2 BILLION deficit in five years! Prove that wrong by providing REAL numbers on how this will be paid for NOW! Bet… Read more »
Doug Hoffer
4 years 7 months ago
Mr. Powers Here are the questions I posed to Ms. Wilton months ago. Except for #5, she has not addressed these issues. Ms. Wilton’s analysis appears to be fatally flawed on both sides of the ledger. For example: 1. The cost is not expected to be anywhere near the $3.2 billion projected by Ms. Wilton. The actual cost (premium payments minus Worker’s Comp) is more like $1.7 billion. 2. Ms. Wilton added the cost of supplemental coverage, which will not be part of a single payer system. 3. Ms. Wilton appears to have double counted administrative costs, which are included… Read more »
Craig Powers
4 years 7 months ago
Dear Mr. Hoffer: Your points might be valid but the question I simply asked is still “who will pay for this new government mandated program”? I have asked this on several VT Digger chat boards and have not received one single answer from the folks who want to put this system in place. Where is the money going to come from every year that the medical costs still rise. (Sorry…they never go down). Will we have a new tax that only 30 percent of the VT population will pay while the others are income sensitized? (Property tax system NOW!). We… Read more »
Doug Hoffer
4 years 7 months ago
Mr. Powers. A few quick thoughts. 1. We already pay for health care. We don’t need new money; we just need to make the financing system fair, which it certainly isn’t now. 2. I share your concern about controlling costs. It is critical that we do so. But I’m curious how you think costs will be controlled if we don’t change the system. 3. You said, “Will we have a new tax that only 30 percent of the VT population will pay while the others are income sensitized”? As I’m sure you know, income sensitized Vermonters pay lots of education… Read more »
Bruce Post
4 years 7 months ago
To this day, I think the single best presentation on health care financing and policy I have ever heard was delivered by former Colorado Gov. Dick Lamm at a conference in Burlington in the early 1990’s. He shattered a number of assumptions. For instance, he claimed that most of the advances in life expectancy came from reducing childhood mortality, putting screens on windows and improving the water supply. Controversially, he said that eliminating smoking might actually drive up costs because smokers tend to die earlier and quicker before they get chronic diseases, which drive up costs. In other words, he… Read more »
Dan McCauliffe
4 years 7 months ago
Whether you are for, against or undecided about the proposed single payer Green Mountain Care system, you should be demanding that we get the financing information as soon as possible. For political reasons, this information won’t be made available until after the 2012 elections. I encourage everyone to sign the petition that requests this information be made available 4 months earlier, in September 2012 instead of January 2013. You can sign the petition here: http://vthealthcarefreedom.org/petition-splash.php The prolonged period of uncertainty is unnecessary and is creating angst for businesses. This may lead to business decisions that have negative consequences for our… Read more »
Bob Zeliff
4 years 7 months ago
How will we pay for Green Mountain Care? Most likely just as we are paying for it now. People buying it directly, deductions from pay checks, better employers picking up the tab for some of it. Medicare and Medicade will not change or go away. People who have insurance via ERISA ( big self insured companies…military etc) will not change. It makes no sense to change how we are paying for health insurance. This issue is mostly shouted about by people who want to confuse the issue. Keep in mind…Green Mountain Care is Vermont doing what IBM, GE, etc does…self… Read more »
John McClaughry
4 years 7 months ago

The Hsiao report, now apparently abandoned after it was used to dazzle the Democrats in the legislature into passing GMC, declared that its Option 3 would save $580 Million in the first year of single payer. Now we are being told that the total six year savings will be $553 million by 2020. The Hsiao report(signed by Kappel)said $1,600 million by 2019. My, those “savings” keep getting smaller and smaller!

Wendy Wilton
4 years 7 months ago
Ok, Doug, since you have shrunk from the debate three times here are your answers to the John Franco questions that he probably gave you in May (from my previous version): 1. The cost is not expected to be anywhere near the $3.2 billion projected by Ms. Wilton. The actual cost (premium payments minus Worker’s Comp) is more like $1.7 billion. A: My projection includes healthcare for 424,000 Vermonters. If it costs $5 billion today to provide health care for 621,000 Vermonters then you can’t cover 2/3 of the state for $1.7 billion. 2. Ms. Wilton added the cost of… Read more »
Doug Hoffer
4 years 7 months ago
ADMINISTRATIVE COSTS: Your current table shows admin. costs of $5 million to $5.6 million over the term. Your original table showed admin. costs of $260 million to $290 million. This is a radical change that you did not acknowledge. Did you make this change after we pointed out the double counting? It appears you simply shifted those costs to premiums, which started as $2.581 billion for 2014 but are now estimated to be $2.852 billion. How did the cost of premiums go up $271 million in six months? SELF-EMPLOYED INCOME: Your original table shows self-employed income as $911,786,000 for every… Read more »
Craig Powers
4 years 7 months ago
“We already pay for health care. We don’t need new money; we just need to make the financing system fair, which it certainly isn’t now” This is a typical Progressive answer. Boil it down to a fairness issue and inject an emotional component to justify taking money from a certain group of people/businesses and giving it to others. Look at the large picture and open your eyes to the unsustainable debt that the entire world now faces because of tax and spend policies from every level of government. Greece is a great example. Free wheeling spending and less then 50%… Read more »
Dave Bellini
4 years 7 months ago
The report doesn’t mention pricing transparency. Healthcare consumers don’t have easy access to cost until they get their bill and maybe an EOB. We don’t buy a car or hire a contractor or book a flight unless we know how much it costs first. We compare prices and want the details of what we are buying before we spend money. If people have health insurance, how many ask about the price of healthcare services first? How many shop around, even a little? I’m lucky enough to have health insurance. Last year I needed an MRI so I decided to compare… Read more »
walter carpenter
4 years 7 months ago
“But it is essential that you acknowledge that the money is already in the system. Right on, Doug. Vermonters already pays some $5 billion to insure some 680,000 residents. Despite this massive payload, some 40,000 residents are still unable to get health insurance, with tens of thousands more so underinsured with those high deductibles that they cannot use the insurance unless it is a catastrophe, which by then they will be probably be bankrupt or close to it. By 2012 we will probably spend some $6 billion and more uninsured. This is not only about economics, but about people. “Getting… Read more »
Bob Zeliff
4 years 7 months ago
Mr McClaughry I know that you don’t like Green Mountain Care…and don’t believe the benefits in broader health care for all, cost or local control.. You seem to favor out of state, corporate control of our health care. I have to wonder what you and the “esteemed’ Ethan Allan Institute propose as an alternative? You could have Wendy Wilton do the cost projects, who would be covered and savings models for you. I really would like to see your better alternative…of course with real numbers to back it up…and where and who the people are who determine if coverage/denial of… Read more »
Wendy Wilton
4 years 7 months ago

@Doug Hoffer,
Tim Philbin, of On the Air With Tim Philbin has offered to host our debate on the numbers. I can refute you easily as I demonstrated in a previous post. BTW did you see the RH/TA article of today where Rep. Oliver Olsen pints our that the state’s new report on costs did not take into account Blueprint for Health savings in the baseline data–thereby inflating the relative “savings’ in Green Mountain Care? Talk about fatally flawed!
I stand by my numbers. And my offer to debate you proves it.

Doug Hoffer
4 years 7 months ago

Which numbers do you stand by?

As I pointed out, your numbers have changed significantly and you didn’t even bother to inform people or offer explanations. That doesn’t inspire confidence in your numbers.

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