Money gap, fears of business backlash led to single payer demise

January 11, 2015

 Valley News

“Missed it by that much.”
With that exclamation, secret agent Maxwell Smart, the hero of the 1970s television comedy Get Smart, would shrug and seek to placate his skeptical boss in the wake of a comical misassessment of the facts and situation at hand.
Substitute Vermont Gov. Peter Shumlin for Smart, and Vermont’s voters for the skeptical boss, and you have a workable description of the administration’s labored explanations of the decision in December to abandon, for the foreseeable future, the quest to implement Green Mountain Care, a publicly financed universal health insurance system.
That decision, announced six weeks after Shumlin eked out a narrow plurality in his re-election bid, prompted critics across the political spectrum to cast both the timing and the content of his decision as mainly political.
Shumlin appeared to be “reacting to a poor election result,” John Nichols, the Washington correspondent for The Nation, a widely read leftist magazine, said in an interview.
Shumlin finally confronted “a political reality he had ignored,” said John Goodrich, an executive of Weidmann Electrical Technologies Inc. in St. Johnsbury, Vt.
The centerpiece of the administration’s efforts to show it had been responding to economic reality, not politics, was a report released last week identifying the financial hurdles that faced Shumlin — the presumptive but not yet officially re-elected governor for the next two years — prior to his decision to drop, or recast, a key item on his political agenda.
The report deserves scrutiny. It itemized more than $1 billion in savings and revenue shortfalls that, according to the administration, were discovered at the eleventh hour, prompting the recent course correction. That action was necessary, officials said, to avoid the economic pain that would come with the imposition of an 11.5 percent payroll tax on businesses and a sliding-scale public premium topping out at 9.5 percent to be added to individuals’ income tax liabilities.
Taken at face value, the size of the revenue disparities revealed in the report suggests that the Shumlin administration set sail for the distant shore of single-payer without a compass, only to discover, to its shock, that the oceans of anticipated revenue and cost savings would be too shallow to support the venture.
Specifically, the federal dollars redirected from existing subsidies created by the Affordable Care Act would be $106 million, not the $267 million previously estimated. The state taxes, including those collected from hospitals and other providers, which could be redirected from Medicaid to Green Mountain Care, would be $344 million, not $637 million. Oh, and the $580 million in “administrative savings” projected by a 2011 report for the first year of the program? Fuggedaboudit. Instead, the report estimated the savings at $378 million over five years, or about $75 million a year.
Numbers have not been a strong suit in the Shumlin administration’s push for single-payer. Shumlin missed a January 2013 deadline to unveil a financing plan. He and his staff continued to hold their financial cards close to their vests up until Shumlin’s December announcement. The billion-dollar discrepancy came because, compared to earlier reports, the new report had a “level of analysis (that) was much more operational and specific,” said Robin Lunge, Shumlin’s director of health care reform.
But the billion-dollar shortfall wasn’t the deal breaker, according to administration insiders. Instead, they said, the critical missing factor for the single-payer launch was the $500 million that would be needed to cushion businesses with payrolls under $1 million from the day-one impact of the 11.5 percent payroll tax. Many of those small employers currently spend little or nothing to provide their employees with health insurance. The money to soften the blow just wasn’t available in a state already experiencing budget woes, Shumlin said .
That created a serious political bind for Democratic legislators whose votes would be needed for the new taxes and fees to support single-payer. Advocates had pitched single-payer as a boon to business that would decouple health insurance from employment and remove an onerous financial and administrative burden from employers’ shoulders.
But the report found that at the outset, Green Mountain Care would increase Vermont employers’ annual health care spending by $109 million, from $1.6 billion to $1.7 billion. “On average, nearly all private firms would pay more under this design of” Green Mountain Care, the report said.
That was bad news, said Rep. Sarah Copeland Hanzas, a Bradford Democrat and the house majority leader: “You can’t turn around and ask businesses to pay more than they are now.”
According to one national leader of the single-payer movement, the failure to deliver promised savings showed a basic flaw in the plan vetted and then rejected by Shumlin. Vermont’s experience was not “a failure of single-payer; it’s an example of why we need single-payer,” said Robert Zarr, a Washington pediatrician and president-elect of Physicians for a National Health Program.
Zarr’s group favors an approach that would cut health care costs by eliminating the profits of private insurers, consolidating federal programs and simplifying and streamlining billing and reimbursement for medical services. That would require much more extensive rewrites of federal laws and rules than Vermont ever sought, Zarr said.
The term single-payer is used “very loosely” by advocates and commentators, and didn’t really apply to the Vermont plan, Zarr said. Shumlin’s decision mainly signaled the need for advocates to continue educating and organizing to build support for “a comprehensive, lifetime, cost-efficient form of health care,” Zarr added.
Some disappointed single-payer advocates had another bone to pick with Shumlin’s approach: the $2.6 billion price tag he attached to his single-payer program. That price tag assumed a plan with coverage substantially more generous than that called for by Act 48, the 2011 law that committed Vermont to universal, publicly financed health insurance, said David Sterrett, a Montpelier consultant and single-payer advocate. In addition, the plan on the table offered coverage to employees who commuted from out of state to jobs at Vermont firms, he said.
Shumlin “took the most expensive options,” Sterrett said. “There was a $1.6 billion way to do this.”
The richer plan was needed to avoid reducing the current coverage of Vermonters who work for the state, as teachers, or for big employers, Lunge said.
But Shumlin’s political clout was diminished by a recent string of troubles at the state-operated Vermont Health Connect website set up to implement the federal ACA and his poor showing in the November elections.
“The politics of the moment shaped the decision much more than the economics,” Sterrett said.
That may have been a smart tactic, said Peter Sterling, the director of Vermont Leads, a nonprofit that advocates for single-payer. He said that Shumlin was “leaving the door open to do a publicly funded universal health care system in the future.”
The report had other numbers with ominous political implications for legislators who would have had to cast votes to pass a plan to pay for single-payer.
By pushing ahead, Shumlin and his fellow Democrats would have sailed off into the sunset with a permanent political leak in their vessel: projected future deficits that after three years would require new taxes or increases in existing ones. The report suggested that the financing plan should include an “annual tax rate adjustment at no less than 0 percent and no more than 5 percent.” Those hikes should take effect after a need was certified by the appointed Green Mountain Care Board “without further direct legislative action,” the report suggested.
The need for that mechanism showed that the administration had fallen short of the mandate in Act 48 to develop a financing plan that would be sustainable and not hurt the Vermont economy.
In addition, a mechanism to automatically increase payroll taxes could not have been a welcome addition to the political to-do list of a governor and a party already feeling the heat to rein in education costs and deliver property tax relief.
Shumlin and his team have pledged to continue to push for other elements of health care reform, including changes in how health care providers get paid, measures to strengthen the statewide network that integrates primary and other care, technology upgrades and tougher regulatory powers for the state board that approves hospital rates and insurance premiums.
But the new report, which was written to chart a course toward single-payer, offers a stark historical lesson highlighting the difficulties Shumlin is likely to face in his continued pursuit of health care reform: “Efforts to expand coverage, control costs, simplify health insurance and improve the health of Vermonters have fallen short in a system where coverage is arbitrarily linked to either employment or low-income status.”
Still, that’s the system that remains in place. And progress toward an overarching goal shared by single-payer supporters and critics — reining in the growth in health care costs — is likely to entail painful confrontations with powerful interests who pocket a portion of the $5 billion that Vermonters spend annually on health care: insurance companies, hospitals, doctors, nurses and pharmaceutical companies, to name a few.
Shumlin’s decision left some single-payer advocates scratching their heads. “I’m a little bit lost as to where we go from here,” Sterrett said.
Conservatives had their own prescription for reducing health care costs. “Without competition, there is no price or quality control,” Goodrich said.
But Nichols predicted that when the dust settles, Shumlin and Vermont will still occupy special places in the hearts of progressives. “Shumlin, for all the hits he has taken, deserves credit for trying,” Nichols said. “Vermont remains the state, even now, most likely to lead on single-payer.”
If so, Vermonters still have work to do to figure out where they’re leading.


Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.