Thursday, July 21, 2016

Single-Payer Lessons from Vermont

Recently, I outlined plans in Colorado for a "single payer" system. They are considering creating a mandatory, state-run, health insurance program. The costs are significant. After the post ran, a reader inquired "have these people heard of Vermont?" That pointed me to some additional discussion of single payer, which might be worthy of review. 

The simple fact is that when injury or illness occur, someone has to pay. This is not necessarily in the financial sense, but it can be. Staying out of the financial analysis for a moment, it is possible for the injured or sick person to receive no care, and there is some population of Americans that live in this paradigm. They receive care only in emergency rooms, and always at someone else's expense. This case is unlikely to be extensive and rehabilitative, more likely to be limited to stabilization. In the event of minimal or nor care the "cost" may not be financial. It can be a cost in the quality of life, and in the most severe instances, it could be life itself.

But, the focus of single payer is more on financial cost. In that accounting debate, the issue is driven by the socialistic nature of America's medical system. It is intriguing to hear people debate whether socialized medicine is the solution for America, when the fact is that socialized medicine is here. The legislators of this country decided long ago that the law would mandate care, of some degree, for everyone. 

Their decision, arguably not well thought out, and perhaps poorly implemented without consideration of unintended consequences, places a notable burden on American hospitals and urgent care. Many have criticized this effect. Some lament that American socialism has not done a better job with providing full and free access to primary care. Others criticize government for being involved at all, and think our current socialized system goes too far. 

It turns out that Vermont was the first state to try single payer. They were apparently sold on the idea by some of the same intellects that brought the rest of us Obamacare (remember, cheaper premiums, lower deductibles, you can keep your doctor, you can keep your plan . . .). But single payer failed in Vermont despite its purportedly liberal populace, strong legislative support, and the steadfast commitment of the state's governor. 

In December 2014, Forbes Magazine published Six Reasons Why Vermont's Single-Payer Health Plan Was Doomed From The Start. It documents the demise of Vermont's single-payer experiment. Apparently, by 2014 the planned program had been on life-support for some time and the governor elected to "pull the plug" and let it pass with dignity. 

No one can argue that Vermont was not warned. After the well-paid consultants and the contractors outlined and described the plan, critics of single-payer claimed that such a "mega-system will inevitably lead to:" (italics are direct quotes) 

coercive mandates, 
ballooning costs, 
increased taxes, 
bureaucratic outrages, 
shabby facilities, 
disgruntled providers, 
long waiting lines, 
lower quality care, 
special interest nest-feathering, and 
destructive wage and price controls. 

Some fairly critical comments. The consultant architects of the Vermont plan condescendingly disagreed ("was this (list) written by my adolescent children by any chance") with those concerns, yet offered no substantive response. They cavalierly ridiculed, but did not apparently provide proof to refute the criticisms. Instead, they promised significant cost savings and the Vermont legislature mandated that the state begin its journey to single payer; mandated that they figure out how to finance it. A poetic quote from the governor bears mentioning. He said that “if Vermont gets single-payer health care right, which I believe we will, other states will follow.” 

The ultimate outcome is clear. Setting out to build better care, the Vermonters and their consultants failed miserably. After investing years in single payer, they abandoned it. and Forbes says that six reasons explain their failure. 

First, the implementation of the Vermont plan would be expensive. Forbes says this was actually two flaws, the plan would "cost more by covering more people" and "it would cost more by forcing everyone to obtain more financially generous coverage than people currently have." So not only would everyone have to be covered, as Colorado is currently planning, but they would have to be covered with policies that are beyond what most consumers have chosen to buy. Imagine the government mandating that every American own a car, and while we are at it we will mandate that they are all Mercedes? 

Second, the state would have to find revenue to fund the program. Colorado's plan is a ten percent tax on all income in the state. Depending on how one calculates, that could be about a 33% tax increase on Coloradans. The impact in Colorado seems likely to benefit businesses and cost the insured individuals more. I have hypothesized, once ColoradoCare is in place, the costs may rise beyond the initial 10% estimates. The plan in Vermont "would have required a 160 percent tax increase." Some recent predictions are for American medical costs to increase at a 6% annual rate for at least the next 5 years. The government has lower estimates. The Vermonters similarly projected costs and calculated revenues. Then they accepted that their single payer system would require literally huge amounts of revenue. 

Third, despite the cost and coverage expansions, the Vermont plan would have ultimately delivered less services. Some contend that the government there would have soon been deciding "whether or not you should be allowed to have that knee replacement or that mammogram." The program also had significant patient participation costs (co-payments and deductibles). Though "everyone" would be insured and there would be coverage for all, high deductibles of up to 40% could have been a discouraging factor in actually obtaining care.

A visit to the doctor billed at $100 could cost the patient as much as $40. An outpatient surgery cost of $5,600, however, might cost the patient $2,240. How many people really have that kind of money sitting around? Having insurance is a benefit if one can afford to use it. But if you lack the money to pay your deductible, your share, you might just forego that surgery anyway. If the "co-pay" or "deductible" cost prohibits care, you are right back to the "somebody has to pay" discussion above, and the payment is potentially not in money but in suffering, lost productivity, etc. 

Fourth, it turns out that neither hospitals or insurance companies liked the single payer idea. Well, the insurance companies are pretty easy to understand. Just imagine the government stepping in and both offering the product your business sells, and mandating that everyone in the state buy from them instead of you; a literal "no brainer." But the hospitals did not like it because the plan would require them to be paid less for their services. Doctors would also be paid less.

The current system of medical care is an accountant's dream. It is so complex and intricate that only an accountant could figure it out. Hospitals today charge some patients more (because they can) and some insurers pay more, while other payers like Medicare and Medicaid pay less and still others like workers' compensation perhaps pay double. For the same service, no predictability or certainty about payment. But, with so many payers and with a great deal of flexibility, there is room for maneuvering. If there is only one payer (with a few scoflaw patients still presenting for care without even the single payer coverage) the maneuverability is perhaps gone, or greatly diminshed. Perhaps the hospital will be paid the same for each particular procedure it performs. Forbes predicted that reimbursement to hospitals would have decreased 16%.

Single payer, touted as a path to greater coverage, in Vermont turned out to be an expensive path to a destination where many would be worse off than before. Some are motivated to such socialism in hopes of raising the status of those without resources. The goal is more care, more benefit for the underpriviliged. What some seem incapable of understanding is that in any resource distribution system, more for someone means less for someone else. The single payer program in Vermont was designed so that a population would receive less, in benefit, in coverage, etc., so that another population could be provided more. A race to the lowest common denominator. 

Fifth, the consultants made some arguably significant math errors. They expected or anticipated millions in federal subsidies for their system. But when the math was finished, their financial predictions had missed the mark by hundreds of millions of dollars, according to Forbes. So, the tax implications discussed above, the 160% increase, turned out to be an understatement. Still more revenue would be required, to cover the absence of initially mis-predicted funding from Washington. 

Finally, Forbes points out that state plans of any kind are too dependent upon the federal government. The U.S. government is the largest payer of health claims through the socialistic Medicare and Medicade plans (not to mention military, veteran and other medical programs). The Federal government also provides tax incentives to individuals and business that encourage the purchase of health insurance. Forbes says these tax code incentives or subsidies are worth "$500 billion a year." The interdependence fostered by these federal programs is complex and pervasive. In the end, for Vermont, they were simply too daunting.

And, Forbes suggests, the state could not "prevent people from getting private health insurance in neighboring states like New Hampshire." There is perhaps less danger of that for Colorodans because they will be forced to buy ColoradoCare like group health. Their "purchase" will look more like the Federal Insurance Contribution Act (FICA) that funds Social Security, Medicare, and Medicade. But in either scenario, there will be some population that does not contribute and yet still required medical care. In a state the size of Vermont it would be feasible to move to a neighboring state to live without state mandated coverage. Who would move, the poor or the rich?

So, after significant investment of time and money, Vermont pulled the plug in 2014. Vermont Governor Shumlin commented that the single-payer concept presented untenable risks of: "economic disruption" regarding "small businesses, working families, and the state’s economy.” Having worked since 2011 to build single-payer for Vermont, and having invested untold volumes of state money, single payer was abandoned. The winners were apparently those who advocated the new system. Despite its ultimate demise, those consultants were paid handsomely by the state to develop it, before the plug was pulled. 

Forbes says Vermont's plan was a waste of time and resources. It says that single payer as designed and proposed there was "something that attempted to refute the laws of arithmetic." The Vermont plan attempted to force residents to pay higher taxes and buy "more generous coverage," while convincing hospitals to and doctors to "to accept pay cuts." In short, it offered detriment after detriment. In its defense, it was consistent in that it was apparently uniformly bad for everyone involved. So Vermont pulled the plug. And now some wonder if it was the Vermont plan itself, and not the criticism, that "was written by . . . adolescent children." 

Forbes concludes that single payer is not feasible. It says there are too many forces arrayed against it. The forces are entrenched, savvy, and powerful. There is too much money at stake in the systems. And yet, Colorado voters will have the opportunity to vote on wading into the pool into which Vermonters dipped a toe. This will be interesting to watch.

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