Story + video: Bill puts Vermont on single payer path

Editor’s note: The video clips are at the end of this post.

If there was any doubt that Gov. Peter Shumlin was serious about making Vermont the first state in the nation to adopt a single-payer health care system, the bill his administration presented to lawmakers this week should to put to rest any questions about his determination to plow ahead into uncharted territory.

At a Statehouse hearing Tuesday, Anya Rader Wallack, Shumlin’s point person for his ambitious reform initiative, laid out the administration’s plan for building a single-payer system from scratch in just three years. The proposal came in the form of a bill that was written by administration officials and “introduced” by Rep. Mark Larson, the chair of the House Health Care Committee.

Health care costs too much, Wallack said, and the state has to find a way to contain spending, which has been growing at a rate of 6.5 percent a year, by finding efficiencies in the system.

“This is complex work and makes providers nervous, but we believe we must begin to put Vermont on a health care budget now,” Wallack said.

In a statement, Shumlin said the bill “proposes a clear, achievable path for controlling the skyrocketing costs of health care, easing the burden of coverage on small businesses by 2014, and expanding coverage to all Vermonters.”

Shumlin said the ambitious reform initiatives, which complement Harvard health care economist Professor William Hsiao’s recommendations to the Legislature, would lower medical expenditures by about $500 million in the first year it is in effect. Total annual health care spending in Vermont is roughly $5 billion.

“The health care bill introduced today puts Vermont on the right path to controlling the high cost of health care, which is the biggest obstacle to creating jobs in our state,” Shumlin said.

The governor has dubbed the new single-payer system, “Green Mountain Care,” which is the name of the existing suite of Medicaid-subsidized health care programs administered by the state.

Wallack described the legislation as a “roadmap” that will help the state transition from the current fee-for-service system in which doctors and hospitals are remunerated on an a la carte basis for patient treatments, to a model that gives medical providers a flat, per capita payment to providers for each Vermont resident. The administration’s proposal, officials say, is also designed to give doctors incentives to provide preventive care.

How the state would pay for the single-payer system is an open question. Shumlin has said he wants to contain costs first and find a funding mechanism later and that approach is borne out in his plan — financing isn’t addressed in the bill for several years — until the reforms are well under way. Once the system is operational in 2014, premiums would no longer be collected, and instead the state could implement a new tax. Harvard health care economist Professor William Hsiao suggested in his recommendations to the Legislature last month that a 14.5 percent payroll tax paid by employers and employees in lieu of premiums would be one way to fund the system.

The biggest if, however, is permission from the federal government to pursue a single payer option. The state needs eight different waivers to proceed with the plan. Vermont’s congressional delegation is bucking for legislation that would enable the state to obtain waivers in 2014, but under the Affordable Care Act waivers aren’t available until 2017.

Critics of the legislation, including several Democratic lawmakers, say the bill does not include enough specifics. Several legislators wondered aloud at the hearing what oversight the Legislature would have over the reform initiative as it morphs from a “framework” into a full-blown implementation plan.

Betsy Bishop, the executive director of the Vermont Chamber of Commerce and a former Douglas administration official, said that until the administration identifies a payment mechanism for the proposal it would be difficult for the businesses she represents to support the bill. Her constituents are worried about sticker shock, she said.

“Not thinking about the financing is leaving out a major portion of the debate,” Bishop said. “It’s important that we make sure the savings are achievable. If not, the financing is even more important. Those two conversations need to happen together. Any time you purchase a product, small or large, you consider how to pay for it.”

Another group, Vermont Businesses for Social Responsibility, praised the bill.

Dan Barlow, the government relations officer for VBSR, said: “Vermont businesses are struggling with increasing health care costs and often have to make difficult choices such as cutting benefits or asking their workers to pay more. This system is not sustainable and it is not serving employers or workers. VBSR supports these efforts to reform the state’s health care system and look forward to the day several years from now when insurance is de-coupled from employment and all Vermonters can receive the care they need.”

Health care spending now represents 18.5 percent of the gross state product; in 2000, medical expenditures were 12.9 percent of the state’s economy, according to administration figures.

Despite the state’s last effort to provide universal coverage for residents – Catamount Health – 47,000 Vermonters were uninsured in 2009; 28,000 were uninsured at some point that year; and about 90,000 residents were underinsured. Those three groups represent a quarter of the state’s population, or about 165,000 Vermonters.

The framework for reform

The bill, which runs to 80 pages, dovetails with Hsiao’s recommendations. The Harvard economist’s suggested changes are a radical departure from the existing system, which he said is marred by redundancies, waste, billing complexities and rapidly escalating costs that well exceed the rate of inflation.

The governor’s aggressive timeline is divided into three phases. The administration’s reform initiatives are on a fast track. According to Wallack, a single-payer “exchange,” would be operational by 2014, and all Vermonters would be covered under the universal program by 2016.

Shumlin’s initiatives start with the formation of a Health Care Reform Board by next summer, which would be charged with devising comprehensive cost containment and payment systems. The board would be made up of five staff members (a full-time executive director and four part-time employees), handpicked by the governor and approved by the state Senate.

The new entity would function much like the Public Service Board, according to Wallack, and it would have the authority to set rates for doctors, hospitals and other medical providers.

The administration’s second major objective, in the near term, is to satisfy federal requirements for setting up an “exchange,” or a marketplace for patients who need to seek insurance over the next few years while the single payer system is under development.

The state now has five major “payers,” or entities that reimburse doctors and hospitals for patient medical care: three private insurance companies (BlueCross BlueShield, MVP and Cigna) and two “public” payers (Medicaid and Medicare). In the existing system, public and private insurers pay for patient care based on fees for each service performed by providers. Under the single-payer system, there would be one “payer” — a single private or public organization would handle all the claims. The state of Vermont would collect money (presumably from taxes or fees, possibly a payroll tax) to pay for the cost of health care.

Vermont’s population would be divided into two basic groups, the first of which would be comprised of residents who qualify for Medicaid or Medicare programs, teachers and state and municipal employees, and employers of businesses with fewer than 100 workers. This subset of Vermont residents would be required to join the exchange in 2014 under the proposed law; self-insured employers would become part of the mandatory system in 2016.

Wallack said the proposal may “scare people in the system.”

“We’re putting together a framework,” Wallack said. “That doesn’t mean we’ve nailed down all the details.”

She compared the transition with the construction of a building next door to the one people are living in right now. “We’re building a building next door,” Wallack said. “Once we build it, eventually we’ll ask if you want to move in.”

Rep. Chris Pearson, P-Burlington, said he’s excited about the single-payer system but he said the state has a credibility problem. He preferred a different metaphor. “The state has been a used car salesman,” Pearson said. “And (when) the public drives off in the latest model that breaks down there is a trust question I’m worried about.”

“While we’re setting up this new structure, what is in the proposal that the public might experience daily to help build trust?” Pearson asked.

Wallack replied that if the state can “put the system on a budget,” that will have an impact on rates. She said there will also be much greater transparency in health care financing because the state will know “what we are spending money on” and how costs are distributed. In a press conference, Wallack explained that the “budget” scenarios for providers will revolve around “system integration,” in which health care providers work together more closely to provide more efficient patient treatment. These approaches could include accountable care organizations or alternative quality contracts.

Bea Grause, executive director of the Vermont Association of Hospitals and Health Systems, said the hospitals have misgivings about the governor’s budget and his reforms. The state’s last reform effort, in the shape of Catamount Health, which was held up as a panacea for the state’s uninsured in 2006, has collapsed. Shumlin folded Catamount into the Vermont Health Access Plan as part of his budget proposal. That means hospitals will have to take more Medicaid patients and the state reimbursement rate is about 40 cents on the dollar. In addition, Shumlin has asked the state’s 14 hospitals to pay more in provider taxes, and ultimately contribute $26 million in direct “assessments” to the state. All of this adds up to a likely cost shift, in the form of higher premiums, onto Vermonters who buy private insurance, Grause said.

“If the bill is a roadmap, the budget is a U-turn,” Grause said.

Rep. Paul Poirier, I-Barre, said a lot of authority is given to the Board to develop the plan, and lawmakers, once they approve the bill wouldn’t be able to shape it. The next time they would have a chance to review it would be three years after its passage, Poirier said.

“It’s an eye-opener how much we are being asked to accept in blind faith,” Poirier said. “That bothers me. A small group of people will rewrite the health care system with very little input from the public.”

The House Health Care Committee takes up discussion on the bill this week.