Shumlin scraps single payer plans

December 18, 2014

Rutland Herald: MONTPELIER — Gov. Peter Shumlin swiftly and abruptly abandoned his longtime pledge to deliver a single-payer health care system to Vermonters on Wednesday, citing the “enormous” 11.5 percent payroll tax it would levy on Vermont’s small businesses and a financing system that would run deficits just a few years into the program.

Shumlin delivered his surprise announcement to his Business Advisory Council and Consumer Advisory Council as well as the media and other health care advocates at the State House on Wednesday afternoon. Members of the councils said they were gathering in Montpelier for a regularly scheduled meeting and had no advance notice of the pending announcement.

Shumlin said his health care team, after years of working on the policy, delivered final economic modeling to him Tuesday after finishing their work Friday. He then determined that now is the wrong time to forge ahead with the signature policy goal of his governorship because of its cost and a negative financial impact it would have on Vermont and its residents.

“Pushing for single-payer financing when the time isn’t right and it would likely hurt our economy is not good for Vermont and it would not be good for health care reform,” the governor said. “It could set back for years and years all the hard work toward the important goals of universal, publicly financed health care for all.”

Shumlin added, “I’m not going to undermine the hope of achieving critically important health care reforms for this state by pushing prematurely for single payer when it’s not the right time for Vermont. In my judgment, now is not the right time to ask our Legislature to take the step of passing a financial plan for Green Mountain Care.”

Wednesday’s announcement is “a difficult and disappointing conclusion,” he said. “This is the greatest disappointment of my political life, so far.”

The governor and his team embarked on their effort to deliver a universal, publicly financed system with several goals in mind. Any proposal needed to include a more equitable way to pay for health care and sought to get businesses out of the business of offering health care.

Shumlin said he also wanted a system that would ensure that all Vermonters paid less into a system than the cost of plans available on Vermont Health Connect, the online insurance marketplace created to meet the requirements of the federal Affordable Care Act.

Any proposal also needed to ensure that Vermonters on Medicare would continue in that federal program and not pay anything for GMC coverage they were not using.

But in the end, Shumlin said the numbers simply didn’t add up.

The administration built its policy proposal on health care benefits that amounted to a 94 percent actuarial coverage. That means that 94 percent of costs would be covered by the system and 6 percent would come from Vermonters in the form of out-of-pocket expenses.

The administration also considered a plan that provided an 80 percent actuarial value. But Shumlin said most Vermonters currently enjoy health care plans with more than an 80 percent actuarial value and that level would not be acceptable to them. It also hurt many Vermonters because of the increased out-of-pocket costs.

To finance a system that provides a 94 percent actuarial value level, an 11.5 percent payroll tax would need to be implemented on all Vermont businesses, according to Shumlin, with no exceptions. Additionally, Vermonters would have to pay a variable income tax on a sliding scale ranging from 0 percent to 9.5 percent. Anyone making more than 400 percent of the federal poverty level — $102,000 for a family of four in 2017 — would pay the full 9.5 percent, but the tax would be capped at a maximum of $27,500 per year.

“These are simply not tax rates that I can responsibly support or urge the Legislature to pass,” Shumlin said. “In my judgment, the potential economic disruption and risks would be too great to small businesses, working families and the state’s economy.”

“It was clear to me that the taxes required to replace health care premiums with a publicly financed plan that would best serve Vermont are, in a word, enormous,” Shumlin added.

Those funding mechanisms did not include needed costs to transition many small businesses that currently pay nothing for health care for their employees. Transition costs would add about $500 million to the cost of the overall system. The transitional costs would add an additional 4 percentage points to the 11.5 percent payroll tax, or require a 50 percent increase on the individual income tax component.

Michael Costa, Shumlin’s deputy director of health care reform and the tax expert who spearheaded the administration’s effort to develop a financing proposal, said the administration faced several “headwinds” as they tested potential financing models.

Costa said four main issues added unanticipated costs to Green Mountain Care in recent years:

— The state would receive about $160 million less than anticipated from the federal government in the needed waiver from the Affordable Care Act.

— The state did not meet requirements for increases in Medicaid provider payments, adding more than $150 million to the amount that would need to be raised through public financing.

— Covering cross-border commuters who work in Vermont but live out of state, a policy needed to prevent complexity and additional costs for businesses, added up to $200 million to the amount needed to be raised through public financing.

—The economy is growing more slowly than originally projected after the Great Recession, which has already resulted in $75 million less in general fund revenue than anticipated over the next two fiscal years.

“Things change,” Costa said. “It wasn’t one thing. It was those things cumulatively that make this an extraordinarily difficult task for Vermont and Vermont’s economy.”

Additionally, administrative savings once estimated to be hundreds of millions of dollars under Green Mountain Care did not materialize, Costa said.

“After thinking about how to implement Green Mountain Care, we think this is neither practical nor realistic,” he said.

Costa said the system would cost a total of $4.3 billion in 2017, with $2.6 billion raised in the proposed payroll and income taxes. By 2020, the total cost would increase to $5 billion, with more than $3 billion raised in taxes.

But the GMC fund would already be running a deficit of $86 million by that year, he said, because federal ACA waivers and Medicaid funding from the federal government would not keep pace with growth.

“In year one, the system works with a surplus of $168 million,” Costa said. “However, you see by year four, since health care expenditures exceed revenue growth, the system finds itself in deficit.”

Shumlin said he asked his health care reform team to go back and look at additional policy choices that might make the system work.

“All the alternatives that came to me either failed to meet the key criteria that we set out to fulfill or were equally unaffordable,” the governor said. “The bottom line is, as we completed the financing modeling in the last several days, it became clear that the risk of economic shock is too high at this time, all for a plan that I can responsibly support for passage in the Legislature.”

Wednesday’s announcement is a major setback for single-payer advocates who hoped that Shumlin would finally deliver on his promise. It’s also a major political setback for Shumlin, whose full-throated support for pursuing a single-payer health care system in the 2010 election helped propel him past a crowded Democratic primary field and into the governor’s office.

Despite abandoning the push for a single payer system, Shumlin said he would work with the Legislature this year to achieve some elements of his health reform goals. Among them are:

— Enhancing the Green Mountain Care Board’s role as a central regulator of health care with the goal of lowering health care spending increases to between 3 and 4 percent.

— Continuing to pursue an “all-payer waiver” from the federal government so Vermont can be the first state to move from the current quantity-based, fee-for-service payment system to one that reimburses providers for quality and health outcomes.

— Strengthening the Blueprint for Health and building on preliminary results that have shown a bend in the cost curve.

Shumlin declined to comment Wednesday on what the announcement meant for his political future.

“Vermonters elected me to try and solve problems that are holding them back. This is one of them. Vermonters’ incomes are being consumed by health care costs and health care challenges, lack of access, choices we make — it’s one of the biggest problems that we face,” he said. “They also expect me to do it in a responsible fashion that will help and not hurt Vermont, and we’ve done our work, we’ve gotten the facts, we’ve taken on a tough issue that, frankly, most governors haven’t, and they expected us to give them an honest assessment of what we found. That’s what we’ve done. I obviously wish that the numbers were different. It’s a huge disappointment to me.”