Report: Health care reform could save millions

April 23, 2011

Vtdigger

A new draft report [2] shows that the state of Vermont could save hundreds of millions of dollars if it adopts the recommendations outlined by H.202, the health care reform bill as passed by the Vermont House of Representatives. (The bill was altered somewhat by the Senate Health and Welfare Committee last week and the legislation, and a number of amendments, will be taken up by the full Senate at 2 p.m. on Monday.)

If a single-payer style health care system is implemented, the state would save about $55 million in 2015, according to data from Steve Kappel, a consultant who helped to prepare the report. In 2016, the state could save $201 million. (The aforementioned figures do not include dental and vision care.) These net savings are based on a calculation that includes an extension of essential benefit plans for uninsured residents and improved plans for underinsured Vermonters. The state currently has 47,000 uninsured and more than 100,000 underinsured residents.

Overall savings would be 5 percent to 6 percent of spending under the health care reform plan, according to the report. The authors of the report found that “the savings from a reformed system continue to exceed the cost of expanded coverage and other investments.”

The calculations are conservative — they do not include the full administrative savings estimated by Harvard economist William Hsiao in his report to the Legislature. Hsiao said the state could capture $180 million in the first year (net) of health care reform, based on administrative savings for providers of 5.3 percent.

Long-term savings are even more dramatic, according to the study. The new estimates indicate that Vermont health care spending will be about $6.71 billion in 2015. The state currently spends about $5 billion a year. The report shows that baseline state spending on medical care will be about $8 billion in 2018. If the state implements a single-payer style system in 2014, it could save about $1 billion in health care spending in 2018, according to the report. (See the chart on page 13.)

These figures assume 2.65 percent in savings in administrative costs for providers.

Rep. Mark Larson, chair of the House Health Care Committee, said the House requested the report in response to concerns that projected savings under a unified health care system were too optimistic.

“People wanted confirmation that savings could be achieved,” Larson said. Opponents of the bill asserted that the savings were overstated, Larson said, and “this answers that critique.”

“Even under more conservative assumptions, we can cover all Vermonters and save money compared with the current system,” Larson said.

Larson said if the state also pursued medical malpractice savings there would be even more significant savings.

“We always knew there would be a substantial cushion,” Larson said. “This report confirms that’s still the case.”

The report was prepared by Kappel, of Policy Integrity, the Vermont Legislative Joint Fiscal Office and the Vermont Department of Banking Insurance, Securities and Health Care Administration. The Vermont House requested the study, which was based on estimates from Hsiao’s report.

Hsiao predicted that the state could save 25.3 percent in health care spending if it reduced administrative inefficiencies (3 percent for payers; 5.3 percent for providers), embarked on payment reforms (9 percent), continued with Blueprint for Health efforts (1 percent), curbed fraud and abuse (5 percent) and reformed malpractice policies (2 percent).

The authors of the new report used more “pessimistic assumptions” than those Hsiao relied on in his reports to the Legislature. The legislative study includes models that reduce the amount of anticipated administrative savings to be achieved through a uniform payment system by 50 percent. Even in this scenario, the study shows significant savings.

In addition, the figures used in the new report are adjusted for inflation and are based on the latest health care finance data from BISHCA. Hsiao’s report was based on 2010 dollars. The actuarial value used in the report is identical to Hsiao’s: 87 percent, the current average value of insurance coverage for Vermonters.

BISHCA released a new “expenditure analysis” in March that updates spending estimates and forecasts for 2008 through 2013.

The report does not include medical malpractice reforms because “medmal,” as it’s called, is not included in H.202, though it is an issue lawmakers want to address when more specifics for the reform plan have been hammered out.

The report provides data for six different scenarios, including malpractice savings.