Vermont law initiates single-payer plan

July 1, 2011

The Vermont legislature and governor recently approved initial steps for establishing a single-payer system for the state

WASHINGTON-The Vermont legislature and governor recently approved initial steps for establishing a single-payer system for the state as part of an ambitious program to provide health coverage for all residents. It will take several years of analysis and further legislative action for the plan to become reality.

Meanwhile, insurers are watching closely to see what role they may play in the envisioned system, while large employers anticipate added costs and controls for self-insured plans.

Vermont is considered a prime candidate to attempt such an initiative. Its generous Medicaid program has resulted in only 10% of residents being uninsured. The state gets high health ratings, but it spends about 15% more per person than the national average.

With the state the sole funder of healthcare, individuals and employers would pay a tax to cover program costs, instead of paying premiums to insurers. The board also will establish an initial benefits package and, most problematic, set reimbursement rates for healthcare professionals.

Provider payment reform is a key objective of the state plan. The aim is to shift reimbursement to support best practices and outcomes instead of volume of care. Advocates for the Vermont initiative predict that such changes will cut outlays and that health professionals will accept lower rates if accompanied by clear reductions in administrative burden.

The legislation authorizes the state to establish an exchange, as required for all states by the federal Patient Protection and Affordable Care Act (PPACA). The exchange will contract with qualified health insurers. The state also wants to fold Medicaid and the state's children's health program into Green Mountain Care, a move that requires permission from the U.S. Department of Health and Human Services (HHS).

State officials hope to start enrolling individuals and small employers (under 100 workers) in the exchange in November 2013 so they can obtain coverage through the new system for 2014.

COSTS WILL RISE AGAIN

Large employers led by IBM are worried that the single-payer system will raise their costs. Some 100,000 of Vermont's 625,000 residents are covered through self-funded plans, which may continue operations, according to Vermont health officials. Employer plans will retain the protections afforded by the federal Employee Retirement Income Security Act, yet will have to offer benefits that align with essential benefits offered through the exchange. Moreover, Vermont policymakers expect employers that remain outside the state plan will still pay an additional tax or fee.

The new law also provides for the Green Mountain Care board to review and approve premiums and rate increases, a prospect that worries insurers providing coverage in Vermont. Market leader Blue Cross and Blue Shield has remained neutral in the political debate, while other insurers have raised objections. Issues to be resolved include whether private insurance can be sold outside the exchange, what kind of financial reserve is needed for the single-payer system, whether to align state worker's compensation with Green Mountain Care, and future availability of supplemental insurance.

The premise of the plan is that the state will curb healthcare outlays by reducing administrative expenditures and waste. Harvard economist William Hsiao estimates that the state could capture $180 million in savings in the first year. Other analyses project $55 million in savings in 2015, and $201 million the following year, an amount that would exceed the cost of expanded coverage. And more affordable healthcare, says Shumlin, will attract businesses to the state and boost employment.

A sign that Vermont may be on the right track is that the new program has drawn sharp criticism from all sides. Physicians advocating for a single-payer system complain that the plan does not go far enough because it still will permit insurers to operate in the state, which means continued administrative costs and limited savings.

Employers and many individuals oppose added taxes to finance what they consider government interference in their access to health care. And many physicians and providers fear cuts in reimbursement will squeeze revenues and force them out of business.

FEDERAL SUPPORT NEEDED

The shape and timing of Vermont's single payer system depends on its ability to secure federal waivers from certain PPACA requirements. The reform law permits states to propose changes in requirements for establishing insurance exchanges and other policies beginning in 2017, so long as the state demonstrates that it will cover at least as many residents with comprehensive coverage as under the federal plan.

Vermont would like to obtain such a waiver by 2014 so that it can establish an exchange that fits the Green Mountain Care program, a move supported by pending legislation. Vermont ultimately hopes to administer Medicaid and Medicare benefits and other federal health programs through Green Mountain Care.