Analysis: On Its Third Birthday, Shumlin's Single Payer Deserves A Smallish Cake

May 16, 2014

VPR

By HAMILTON E. DAVIS

The Legislature’s adjournment last week marked a third birthday of sorts for Gov. Peter Shumlin’s single-payer health care reform plan. The campaign has done well in some areas, not so well in others. It probably deserves a smallish cake.

At the birth of the single-payer push in mid-winter of 2011, the Shumlin team had to accomplish four fundamental tasks, all of them difficult:

The first and most important was to get health care costs under control. Those costs increased from just over 6 percent of the country’s national output in the mid-1960s to around 18 percent in 2011. In Vermont that year, 20 percent of the state’s annual output went to health care. The health policy community is pretty much unanimous in arguing that no reform effort can survive those inflation rates.

The second task was to rebuild the infrastructure of the delivery system – the sum of the doctors and hospitals and other professionals who delivery medical care to Vermonters. In practice that means integrating the delivery units so that they cooperate rather than compete; it will also require changing how doctors and hospitals are paid.

The third requirement was to persuade the Legislature to shift something approaching $2 billion in health care costs now being paid through private sector insurance premiums to public financing. The effect would be to begin to separate health care coverage from where you work – your employment status – to where you live, residency in Vermont.

The fourth task was only partially state-driven. It was to build and manage an insurance exchange as a conduit for federal subsidies available to lower and middle income Vermonters through the federal Affordable Care Act.

So, at the three-year mark, where are we?

The good news first. The Green Mountain Care Board, which was set up both to regulate health care costs and oversee the design of a new infrastructure for the delivery of medical care, is clicking smoothly along on both fronts.

The board stumbled on its first round of hospital budgets in 2012, but recovered the next year and has the $2-plus-billion system on something approaching a sustainable inflation track over the next couple of years.

The Green Mountain Care Board stumbled on its first round of hospital budgets in 2012, but recovered the next year and has the $2-plus-billion system on something approaching a sustainable inflation track over the next couple of years.

The big test came last fall when Fletcher Allen Health Care came in with a budget that was over the board’s target. At the last moment, however, the Burlington facility withdrew its submission and recast it to meet the target. The importance of that step can’t be overstated. Fletcher Allen accounts for roughly half of the acute care delivered in Vermont. The system could still see budget problems, of course, but it seems safe to say that the GMC board has firmly established its credibility.

Still, straight-forward regulation, like establishing hospital budgets, has proven over the last 40 years to be inadequate to control costs in an industry as powerful and central to so many people’s lives as health care. Hence, the need for the next step: integrating the delivery system and changing its financing mechanism.

To achieve that goal, the board is sponsoring and overseeing the establishment of Accountable Care Organizations (ACO) in the state, a process that is advancing steadily. ACOs are collections of health care providers – doctors and hospitals – that aim to increase quality and control costs with far greater impact than what can be provided by regulation alone.

Regulation can control the increase in the costs for individual hospitals, but only ACOs can get at the efficacy of the way patients move between delivery units. Even more importantly, only ACOs have the potential to begin grinding out the waste and inefficiency that have been part of the system over the last 50 years. Research has shown that these factors account for as much as 30 percent of the cost of acute medical care.

There is still a huge amount of work to do. It is far from clear that the physician and hospital community can reshape the culture that has prevailed in the profession since the end of World War II. Still, the effort seems solidly on track, and, taken as a whole, the GMC board performance to date gets the Shumlin Administration its smallish cake.

Hiding The Money Ball

The performance of the Shumlin team on the financing issue and on the management of the exchange are a different proposition altogether. The two are closely related: The troubled performance of the exchange affected the political environment surrounding the financing for the Shumlin project.

Some background: The Shumlin health care reform team is not a monolith – it has three more or less separate divisions. The regulation and system design components are housed in the Green Mountain Care Board, a five-member body established under Act 48 to carry out those tasks.

The troubled performance of the exchange affected the political environment surrounding the financing for the Shumlin project.
The exchange has been the responsibility of the Agency of Human Services, operating through its Department of Vermont Health Access.

The third component of the team is based in the governor’s office and is responsible basically for designing the single-payer financing plan and for the management of the legislation necessary to make the whole system work.

The short version of the exchange story is that it has been mostly a mess. The exchange was supposed to go on line last Oct. 1 and the rollout was basically botched. It has enrolled significant numbers now, but it has never been fully operational and it is not clear when it will be.

The most malignant fallout from the exchange resulted not from the operational failures, which were real enough and common around the country, but from the Shumlin Administration’s management of it. Many legislators of both parties feel that the administration led them to believe the exchange was on track as late as early fall, when in fact the governor’s office had a consultant’s report in the spring flagging the likelihood that major problems were ahead.

The legislative situation grew more toxic when the governor declined for the second year to reveal a plan for raising the $2 billion necessary to shift away from private insurance premiums. Shumlin said that he would disclose his plan in 2015.

Abstract Argument To Policy

That is essentially where the reform issue sits today. Which raises the question: What happens next?

First, the questions have started to shift from political theory to operational policy. In the first couple of years, the issues were broad and abstract: do we need health care reform? How basically should we approach it? Will it save money? How will we pay for it?

It’s not that those questions are fully disposed of – the payment issue will be critical. But in recent months the players have begun to confront different and in many ways more difficult problems. Many of them can be subsumed under the proposition that we now have to figure out how to make the system operate with the decisions we have already made.

Can you treat primary care the same way you treat hospital and specialty care? If you build in computer connectivity between doctor and hospital units, will you get unintended consequences - such as a huge drain on physician time?

Exactly how, for example, do you shift the risk for the financial performance of the system to providers rather than payers? Is it full risk? Partial? How rapidly can it be phased in? Can you treat primary care the same way you treat hospital and specialty care? If you build in computer connectivity between doctor and hospital units, will you get unintended consequences – such as a huge drain on physician time?

The way is not yet clear. Even the most formidable experts in the field, when they look at the far horizon of the rebuilt system four, five, six, ten years out, find themselves peering into the mist.

Specific Challenges

There is nothing misty, however, about the very specific challenges that the Shumlinites will have to overcome over the next two to three years. In summary, they look like this:

The obvious and ultimate focal point for Shumlin’s plan is how to pay for it. The nub of the problem is how to shift just under $2 billion in medical costs that are now paid through private sector insurance premiums to a public system based on some sort of tax and fee structure. This would be the largest single money bill ever faced by a Vermont Legislature.

This money, regardless of what opponents say, is not new “money” – it is being paid now and has to continue to be paid, somehow. But the really gnarly question lying in the background is how the cost is distributed among the people now paying the private insurance premiums. In other words, there will be winners and losers. Some individuals and families would pay more, others would pay less.

The problem with sending a financing plan to the Legislature is that it’s not clear year who the winners and losers will be. The missing piece is an analysis of how Vermonters of different incomes and employment status now pay for the $2-billion or so premium cost. Only by setting that payment profile beside the proposed plan can you see whether the proposed distribution is fair and reasonable, or not.

The administration is now looking for a consultant to prepare just such a profile, with the results due late this year. But regardless of how that turns out, Shumlin will have to disclose his plan when the Legislature that is elected in November takes office in January of 2015. He will lose all credibility if he does not.

The problem with sending a financing plan to the Legislature is that it's not clear year who the winners and losers will be. ... But regardless of how that turns out, Shumlin will have to disclose his plan when the Legislature that is elected in November takes office in January of 2015. He will lose all credibility if he does not.
Beyond the atmosphere in the Legislature lies the problem of satisfying a requirement in Act 48 that the administration demonstrate that it can control costs through the ACOs, as well as ensuring that the delivery system will have enough resources to adequately care for the Vermont population. The data won’t exist to demonstrate that until 2016, and even then it will be thin.

Nevertheless, the administration needs to begin as soon as possible to get the Legislature up to speed on these issues.

Given the uncertainty surrounding a problem of this magnitude, it is worth asking whether a negative vote would kill health care reform. The answer is: not completely. You would still have the Green Mountain Care Board equipped with the regulatory powers conferred by the Legislature; and you could still build out the ACOs that will form the permanent basis for cost containment.

What you could not do is eliminate the unfairness inherent in the current health insurance system.

The Speaker Issue

The political problem of getting to a single payer is multi-faceted, but one of the most potentially serious questions, one that has arisen only recently, is whether House Speaker Shap Smith decides to retire. If he does decline to run for reelection, it will leave a huge hole in the reform team. Smith says he’ll decide after he returns from a family vacation in a few weeks.

Smith has a mastery of the health care issue. So if he leaves, then the House will be in the hands of a green speaker as it grapples with the most difficult issue ever.

The Shumlin Team

When Shumlin launched his single payer effort in early 2011, he anchored his team with two central players. The first was Anya Rader Wallack, a national class health policy analyst with considerable experience in Vermont, her home state. She took the job as chairperson of the Green Mountain Care Board.

The second was Steve Kimbell, a retired lobbyist, whom Shumlin persuaded to return to government as commissioner of the regulatory agency now called the Department of Financial Regulation. They formed the team nucleus as the single-payer effort got a solid start in its first two years of operation.

The third year, however, was marked by considerable upheaval in the Shumlin team. Kimbell re-retired. And Wallack resigned as chair of the GMC board for family reasons, but retained a position as a consultant to the program. She will continue to serve as the chief designer for the new system.

The most important step Shumlin took to recast his team was to first turn to Commerce Secretary Lawrence Miller to take over the exchange management problems from Agency Secretary Doug Racine and his principal commissioner Mark Larson.

That stanched the bleeding at the agency, but Shumlin decided a few weeks ago that he had to go further so he designated Miller as sort of health czar for the entire issue for the Shumlin Administration. In that position Miller will be the ultimate boss of health reform operations both in the Agency of Human Services and of the reform team working out of Shumlin’s office.

Meanwhile, the leadership of the GMC board was turned over to one of its members, Al Gobeille. The new chairman had no prior experience in health care, but turned out to be strikingly effective.

The governor also shored up his legislative operation by retaining Floyd Nease, a former Democratic legislative leader, to act as a liaison between the Shumlin health care team and the Legislature.

Shumlin will also get some indirect help from KSE Partners, a leading lobbying firm, that will advocate for single-payer health care both in the Legislature and with the public. KSE played a similar role in the long battle to win legislative approval for civil unions and gay marriage in Vermont.

The November Election

Of course, if Shumlin loses his seat it would fatally damage his single-payer plan. Act 48 would still be on the books, of course, so that the regulatory efforts of the Green Mountain Care Board and the development of ACOs could continue.

But Shumlin should win handily, although perhaps not by the margin he rolled up in 2012. He could use health care reform as a central element in his reelection campaign, and possibly thereby rebuild some of the political momentum for single payer that leaked away because of the problems with the exchange.

The legislative elections could also be somewhat of a factor in the fate of health reform when the new House and Senate take office next January. Republicans have virtually no chance of taking control of either chamber, but they can be counted on to target weak Democrats who are single-payer supporters. They could argue that any success in this effort shows lack of public support for Shumlin plan.

Shumlin Team Short Term Goals

They need to build the case for their planned tax/fee financing plan. There will be winners and losers if legislators shift the $2 billion in insurance premiums to a new payment scheme, but the team needs to build a rock-solid case that the new system will be significantly fairer than the current premium structure.

Much work needs to be done on the exchange. One huge area of uncertainty is whether small employers, who now provide health insurance to their employees, will be willing to let their workers go to the exchange as individuals. That could trigger the flow of tens of millions or even hundreds of millions of federal dollars into Vermont through the Obamacare subsidies. That will have to be a priority for new health czar Lawrence Miller.

Overall Status

The rebuilt Shumlin team appears to be strong enough to manage the rest of the year. The exchange continues to be soft, but Miller has a strong record as an administrator. The GMC board under the leadership of Al Gobeille is on track with both its regulatory and design responsibilities.

There should be enough progress by January to justify another small cake. No one can say, however, what the reform landscape will look like after 2015. The really big cake has yet to be baked.