Saying good bye to the single payer dream

Any public health financing program has a couple of major moving parts that must be resolved in order for the program to work.

a) Who gets covered and how is eligibility determined?

b) Who provides the services and how/how much are they paid.

c)  How does the money for A and B get raised?

The Veterans Administration determines that vets with service related injuries are covered for all relevant medical services by providers employed by the VA at VA owned facilities and the funds are raised by general taxation.

CHIP covers kids whose families make under certain thresholds to receive subsidies, or any kid at full price.  Services are provided by the private sector and they are paid at near commercial rates.  Funds are raised through cigarette taxes and general taxation.

Medicare covers people over 65 or the long term disabled. Services are rendered by private providers on a fee for service basis (usually) at rates that are based on roughly the average cost of services.  There are three funding streams.  The first is FICA taxation.  The second is Part A and B premiums paid by recipients of Medicare, and the third is a series of deductibles and co-pays for services.

PPACA Exchanges have services rendered by privately employed providers on a variety of fee structures ranging from roughly Medicare to roughly commercial.  People are eligible for subsidies if they make more than 100% but less than 400% of FPL, and anyone can buy an off-exchange policy.  The services are paid for by a reduction in Medicare Advantage payments, increased income taxes, user premiums, and c0st-sharing.

So how does the  Vermont single payer program answer these questions?

Single payer in Vermont has answered the first question. Everyone in Vermont would be covered by virtue of residence in the state.  The second question was being worked on.  It looked like the plan would be similar to most of Europe where the providers are privately owned/employed.  Payment details had not been worked out to a publishable degree yet, but some type of capitation or accountable care organization model with gain sharing was highly probable.

Vermont had not come up with a viable answer as to how to raise the money and this is leading to the cancellation of the single payer dream in Vermont at this time.

The Washington Post Gov Beat blog has some details:

Vermont Gov. Peter Shumlin (D) has abandoned a years-long push for a universal health-care system in the state after budget analysts said the program would require what he called “enormous” new taxes….

Michael Costa, Shumlin’s deputy director of health care reform, concluded the plan would have required an 11.5 percent payroll tax on all Vermont businesses and an income tax hike of up to 9.5 percent. Those taxes wouldn’t have covered transition costs to the new system…

The single payer advocate response to the argument that massive tax increases would be needed for single payer would be something along the lines of

“No duhhh… it is the removal of hidden and embedded healthcare costs from the books of the employers in the state to the state’s books.  Of course it is a lot of money.  HOWEVER, since there will now be a single purchaser of medical services in the state, bargaining power for cost and quality will lie on the buying side instead of the selling side so NET costs will be lower… It is still a good deal.”

And from most policy analytic perspectives with a broad enough scope of analysis and outcome, they are right.  The net costs are either break even or significantly lower with a much stronger buyer.  However, single payer and the associated taxes needed to finance it are a massive disruption to the current economic matrix.  It will create wide spread pain with only a few winners who don’t have a ton of political power at the moment.  Someone working for Medium Size Evil Corporation in Burlington will have lost their Platinum level employer sponsored insurance, seen a bit of a raise that is immediately eaten up by the new income taxes.  It is a hard sell, and it is why single payer is an elegant policy that was never on the table of any leading Democratic coalition in 2007-2009 because the transition is an absolute bitch.






43 replies
  1. 1
    Betty Cracker says:

    Good analysis. So how do you think we get to single payer, eventually? Or do we? It seems stupid that we’d limp along with a hideously efficient system forever because people are too obtuse to grasp the cost-shifting mechanisms necessary to improve the current system. But then of course many policies exist solely because people are too obtuse to imagine a better alternative, so maybe this is as good as it gets. Which is sad.

  2. 2
    Richard Mayhew says:

    I’m not sure…. and honestly, while if I was designing a system of universal or near universal (98% or better coverage) from behind a veil of ignorance and without any path dependency, single payer would be one of my top design choices, we have numerous examples of other countries providing universal or near universal coverage for all of their residents with multiple payers. The big thing would be changing incentive structures so that stupid is not profitable.

  3. 3
    C.V. Danes says:

    @Betty Cracker: I always thought opening up Medicare to a wider group of people to be a good place to start.

  4. 4
    Lee says:

    @Betty Cracker:

    So how do you think we get to single payer, eventually?

    My personal opinion is we will get it because of Republican stupidity & a magic unicorn. Republicans will do something that will remove a large number of people from Obamacare. The magic unicorn will be that those removed will be angry enough to actually push the Republicans to replace it and the only answer they can come up with on short notice will be an expansion of Medicare.

  5. 5
    C.V. Danes says:

    @Richard Mayhew:

    The big thing would be changing incentive structures so that stupid is not profitable.

    Yes. One thing would be to stop treating health care as a business.

  6. 6
    WereBear says:

    @Richard Mayhew: The big thing would be changing incentive structures so that stupid is not profitable.

    Talk about the impossible dream!

  7. 7
    Sherparick says:

    The political problem of single payer, in a huge, continental size, racially and ethnically divided country like the United States is right there in the Vermont story. The immediate and massive tax increases will be felt by people and the indirect benefits (employer portion of health insurance premiums being converted into wage increases) uncertain. Even the modest tax increases in the Affordable Care Act are one of the sources of the ferocious opposition.

  8. 8
    Keith G says:

    @Lee: Along your reasoning, I figure the next time the GOP controls both ends of Pennsylvania Ave, they will engage in a objectivist Bacchanalia which quite literally will burn the place down.

    As we pick our way out of the rumble, we will be able to build new societal systems, like single payer, from the ground up.

  9. 9
    rikyrah says:

    thanks for the explanation

  10. 10
    mtiffany says:

    No duhhh… it is the removal of hidden and embedded healthcare costs from the books of the employers in the state to the state’s books.

    That’s the argument I wish single-payer advocates would make when it comes to the national (non)debate about health care in the US: private corporations based in countries with publicly-funded single-payer systems have a competitive advantage over US companies, namely, they receive what amounts to a subsidy for each worker employed whereas here companies have to choose between a competitive disadvantage by not offering heathcare for their employees (the best talents chooses to work for employers offering the best compensation — money and benefits) or a competitive disadvatage of the added cost by providing healthcare coverage (and all the upfront and potential costs that come with it).

  11. 11
    MazeDancer says:

    Maybe hard numbers, promoted as cogently as this post, over time, will help some.

    11% more taxes is still way cheaper than premiums for a lot of people. Self-employed people who manage a good living – an ever growing pool in the information age – paying 4-800 a month in premiums, for example.

    The 12K out of pocket people will owe instantly if, heaven forbid, they get sick or an accident occurs, is also a lot more than 11% tax hike.

    And there is no crazy involved. No having to deal with the mountains of paper work and inexplicable charges, and the docs who send bills over the network because they feel like it, and bills from doctors you never actually saw but looked at your chart in the hall apparently. The system causes harm.

    Recognizing that it will take a lot of time, and the insurance companies will spend lots of money to push back and the media will help them. But maybe real numbers can enter the conversation.

    People who have been sick and been to the hospital know the costs, and the insanity of our system. People who have yet to experience that aren’t as aware. Maybe as aging Baby Boomers really age – say 20 years from now – causing many more families to experience both the logic of Medicare and the insanity of the current system, real numbers will seem more real.

  12. 12
  13. 13
    rikyrah says:

    shoot. I wanted to see it happen in Vermont

  14. 14
    gene108 says:

    @C.V. Danes:

    I always thought opening up Medicare to a wider group of people to be a good place to start.

    How do you pay for the expansion? Raising payroll taxes is politically impossible.

    @Lee:

    My personal opinion is we will get it because of Republican stupidity & a magic unicorn. Republicans will do something that will remove a large number of people from Obamacare. The magic unicorn will be that those removed will be angry enough to actually push the Republicans to replace it and the only answer they can come up with on short notice will be an expansion of Medicare.

    Republicans can start broadcasting live ritual sacrifices of babies on national T.V., because they will declare the Job Creators demand it and will not create jobs without such scarifies, and 45% of the country will still vote for them.

    In 2010, Republicans “overreached” like mad, did nothing about their campaign promise of “jobs, jobs, and more jobs”, while focusing their attention on restricting abortion rights, union busting where applicable, slashing education and other state funding and the subsequent loss of a million public sector jobs that hindered the recovery in 2011, and outside of Tom Corbett in PA, every single one of those Republicans was re-elected to governorships and in North Carolina, the architect of the “overreach” in the legislature, Tom Tillis, has been promoted to the U.S. Senate.

    George Walker Bush lied about getting us into a war with Iraq, oversaw the collapse of the economy, and his kid brother is being encouraged to run for President.

    There is nothing Republicans can do anymore that will lead to voter backlash.

  15. 15
    gene108 says:

    @mtiffany:

    You need to convince the small and medium sized businesses of their disadvantage. Big businesses are aware of this, which is one reason GM shutters plants in the U.S. and moves production to Canada, but in the current environment they can openly push the costs onto employees via premium deduction on their paychecks and indirectly by stating your total compensation includes medical benefits, so you will not see that amount in wages.

    As the cost of medical care has skyrocketed more and more would be wage increases have been consumed by the health care sector.

  16. 16
    Tim says:

    @Richard Mayhew:

    If success depends on eliminating stupid, than I must sadly point to the immortal words of H.L. Mencken,

    “No one ever went broke underestimating the intelligence of the American public.”

  17. 17
    Davis X. Machina says:

    @gene108:

    There is nothing Republicans can do anymore that will lead to voter backlash.

    There are third, fourth generation, maybe fifth by now, Cubs fans.
    Once you sign on to follow a team, you follow the team.

  18. 18
    Tom S says:

    How about raising taxes incrementally over a period of years to fund the transition?

  19. 19
    PlanetPundit (used to be Sir Laffs-a-Lot) says:

    Richard: Could you (if you have, could you link) do a post sometime summarizing the impact of moving all 18-64 year old adults over to a Medicare “Bronze” Plan and letting everyone who cared to carry, themselves or their employer paying for, Platinum-Gold-Silver Plan? Your post are great (except for no pix of Max. Perhaps you could co-aurthor with Tim F. to rectify that).

  20. 20
    Richard Mayhew says:

    @Tom S: Doesn’t work. Year 1 in Vermont needs a new $2.5 billion dollars to pay claims. Year 2 needs $2.5 additional billion etc.

    The transition costs could be fudged over a lifetime amortization schedule, but those costs weren’t the killer.

  21. 21
    NCSteve says:

    Here’s the real political problem.

    In my old job, health insurance was a fringe benefit. It was a kind of “income” that my employer could deduct as a business expense but paid no FICA on. Income to me that I paid no payroll or income tax on but nonetheless failed to perceive as income, money in pocket.

    In my new job, I buy my own coverage on the Exchange. I am very glad I can do that, but I get no subsidy and, unless something happens to me that pushes me close to my out of pocket limit, no deduction. Thus, having to buy my own insurance is effectively a big-ass pay cut on top of the “real” pay cut I took as a result of being downsized. And worse, it’s one that’s treated as non-deductible consumption as if it was money I was blowing on booze or broads or, you know, food.

    In my new world, I’d gleefully trade my monthly check to BCBSNC for a comparable state income tax increase because a) it would likely be less or alternately benefits would be better than my Silver plan and b) it would be deductible from my Federal taxes.

    In my old job, however, if we went to single payer, no way does my old employer give me a raise equivalent to what they were paying for my health insurance to make up for my new state income tax increase. Give me a big raise they do have to pay FICA on? Fuck no, that dough is going right into their pockets. So the tax increase to pay for my new single payer policy is real net money out of my pocket to pay for something I used to get for “free,” and all I get in return is a larger state income tax deduction on my federal return? Fuck, no!

    Throw in the fact that the majority of voters are in my old position, not my new one, and that’s the kind of shitstorm wave elections are made of. Especially when you also throw in all those BCBSNC employees in the big glass box in Chapel Hill who are now unemployed with nothing but the possibility of getting a government job.

    I was wondering how Vermont thought it was going to deal with this problem. And the answer turned out to be that it couldn’t.

  22. 22
    Richard Mayhew says:

    @PlanetPundit (used to be Sir Laffs-a-Lot): Oh, a default public option with the option to buy-up…. that would be like way too French man, are you a Socialist who likes good mustard and fine wine …

    Realistically, in a rational political universe, that would be one hell of an idea that could get some conservative buy-in (P-Care the Hatch “proposal” had a default buy-in to catastrophic coverage priced at the limit of a subsidy for a given demographic, so once the principle is accepted, we’re haggling over details)

  23. 23
    Richard Mayhew says:

    @NCSteve: yep, that is the essential problem, the transition is a bitch.

  24. 24
    Mnemosyne says:

    @gene108:

    Raising payroll taxes is politically impossible.

    Raising the percentage is impossible, but I still wonder if raising the current cap might be possible. More and more people are getting hit by the Alternative Minimum Tax (AMT) that was never meant for their income level, and they might prefer to have that money withheld than to have to write a check at the end of the year.

  25. 25
    Jim Levinson says:

    So, even given the above qualifications, and even given the uniqueness of Vermont in terms of lower population and less big tax-paying business, does this mean the insurance companies can really do it less expensively than the government? If yes, quite an indictment, yes?

  26. 26
    gene108 says:

    @Mnemosyne:

    I still wonder if raising the current cap might be possible.

    There is no cap on Medicare payroll payments. You have to increase the percentage or find other sources of funding, like say from investment income.

  27. 27
    Kent says:

    Regarding the issue of cost-shifting and multi-pricing of health care in this country is an issue that I don’t quite completely understand. By way of background my wife is a physician with a public clinic and we have through various employer plans through both her and my employer and are currently doing a high-deductible plan to take advantage of HSA account since we are all healthy.

    Right now it seems like there is basically a 3-tier pricing system at most hospitals. Correct me if I have this wrong but here is what I see.

    The lowest tier is the government-mandated pricing for medicare and medicaid where it seems that hospitals have no negotiating power and basically take the volume to increase revenue at the margin. Since most hospitals also have higher-paying private insurance patients they can take this volume to keep their rooms full and staff employed. Kind of like how airplanes make what they can on first and business class and expensive refundable tickets first and then fill up the rest of the plane on discount because unsold airline seats just like unsold hospital beds can’t be stored up, they are perishable.

    The middle tier is all the forms of private insurance where hospitals and insurers negotiate rates that may or may not be transparent and where insurers and hospitals have increasingly sophisticated schemes to extract greater revenue through all the in and out of network nonsense and opaque pricing. I’m guessing that this tier is where the bulk of revenue comes from for most hospitals and providers because it is where the pockets are the deepest.

    The top (or bottom) tier is the ridiculous retail pricing that most hospitals charge for uninsured private individuals that no one except the unlucky actually ever seem to pay. I’m coming to conclude that this is the real scandal, not because people are being charged usurious rates for medical care but because the entire pricing structure is a way to evade taxes. Here in Texas one constantly hears stories about how hospitals do millions of dollars of indigent care for undocumented people and others without insurance. And I’m starting to wonder if the hospital pricing structure is actually a deliberate scheme to greatly inflate the “value” of indigent care that hospitals claim they are providing for tax benefits or other purposes. For example, if my local hospital provided say 1000 nights of indigent care in a given year that they “write off” they could claim it cost them X-dollars at the lowest medicaid reimbursement rate or Y-dollars at the typical private insurance in network rate, or Z-dollars at the extremely inflated uninsured rate. A year’s worth of indigent care that might have earned say $500,000 at the medicaid rate or $1 million at the private insurance rate gets claimed as $5 or $10 million worth of care at the extremely inflated pricing for uninsured patients.

    Now I don’t really know much about the health care business but I’m pretty familiar with how other businesses work and it seems to me that this sort of scheme is really just a license to print money in the form of tax deductions for any for-profit hospital. Essentially the combination of unlimited pricing for the uninsured and the practice of providing indigent care seems to allow for-profit hospitals with unlimited opportunities to inflate operating costs and consequently reduce their taxes. I’m not exactly sure how the same system benefits non-for-profit hospitals but I’m willing to bet there are subsidies or other benefits involved for them as well that make it more profitable to inflate their losses through this pricing scheme. It probably lets them be more aggressive in everything from labor contract negotiation to insurance negotiations if artificially inflated losses make it look like they are in worse shape than they actually are.

    I’d be curious to hear what Richard and others who know more about this industry have to say. But I have always been suspicious that there is a LOT more going on with hospital pricing than the occasional attempt by hospitals to extort hundreds of thousands of inflated costs from those patients who have the least ability to pay.

  28. 28
    JGabriel says:

    @Betty Cracker:

    Good analysis. So how do you think we get to single payer, eventually? Or do we?

    The most obvious answer – to me anyway, but I am not a health policy expert – would appear to be a public option that could become single-payer by default as more and more people began using it.

    So, Richard, is a public option a viable route for transitioning to single-payer? Or are the transition costs via that route also prohibitive?

  29. 29
    JGabriel says:

    @WereBear:

    @Richard Mayhew:

    The big thing would be changing incentive structures so that stupid is not profitable.

    Talk about the impossible dream!

    You know that quote from Jesus that the poor will always be with us which conservatives like to use? Most people don’t realize that it was actually a mistranslation: what Jesus actually said was that the stupid will always be with us.

    (Yes, I made that up. But, as Colbert would say, it feels truthy in my gut.)

  30. 30
    Barbara says:

    In order to avoid disruption, the only real way to do adopt single payer is gradually, capitalizing on Medicare. For that, it would have to be national. So, what you would do is slowly lower the age of Medicare eligibility to the point that it would be the overwhelming payer anyway. You wouldn’t really need to take people’s alternative benefits away, but in order to promote single payer you would have to start, at the same time, ratcheting back the tax exclusion of employer provided benefits. Medicare would become the natural choice for more and more people.

    You would also have to rationalize Medicare reimbursement. At any rate, the point here is that policy at the federal level has a profound impact on states, even large states, so that it is almost impossible to move to single payer without serious disruptions. A small state like Vermont can’t even hope to work around those obstacles. My contacts in Vermont have been telling me for several years that every review of the dollars and the disruption made the governor’s plan so unworkable that he never even really proposed on.

  31. 31
    hilzoy says:

    One crucial problem for Vermont is that it is a state. States are normally required to balance their budgets every year. This means that if we go into a downturn, they cannot just borrow money and pay it back. Ideally, a state should have a rainy day fund, but people are always clamoring for excess money to be rebated to them.

    Funding at the state level is therefore extremely vulnerable. Vermont’s plan is not the first interesting health care experiment to go under; Oregon’s plan to cover fewer things for more people died as well.

    This sort of thing has to happen nationally.

  32. 32
    Barbara says:

    hilzoy, even apart from the debt issue, federal tax policy would have an adverse impact on a state that swaps employer provided insurance for a single payer scheme, even if the state’s scheme is cheaper. If I make $40,000 annually, and my employer pays an additional $4000 per annum for benefits, that $4000 is exempt from both FICA and income tax. When the need for insurance goes away, let’s say my employer raises my salary to $44,000, even without a change in Vermont’s tax, both me and my employer are already paying more in federal tax than previously, because the additional $4000 is not exempt from FICA or income tax. Indeed, if the employer is to break even, it will not grant me the full $4000 increase, but only enough to equalize the outlay to compensate for the FICA payment in the neighborhood of 8%.

    Moreover, unlike state taxes, which can offset federal wage tax for people who itemize, the increase in federal taxes will just be an increase, and it will not go to fund Vermont’s (my) benefits.

    This is why, union anxiety notwithstanding, the Cadillac tax on employer provided benefits was important. There has to be a change in tax policy such that employers and employees both stop preferring at the margins for wages to take the form of health benefits, which is one very big reason for health care inflation.

    I can see a “Medicare for all” solution with an option for private insurance that is not tax advantaged.

    P.S., while Vermont will have increased bargaining power for inherently local services, it actually might not have much power for services that are marketed nationally, like drugs and devices. It would take work.

  33. 33
    Richard Mayhew says:

    @hilzoy: Vermont is actually the only state without a balance budget constraint

    http://www.ncsl.org/research/f.....s-and.aspx

  34. 34
    Trixie Belden says:

    @PlanetPundit (used to be Sir Laffs-a-Lot): Geez, I’m far from being an expert on the topic, but that sounds to me like brilliant solution! Let’s keep talking about this.

  35. 35
    Trixie Belden says:

    @Richard Mayhew: I like PlanetPundit’s suggestion. Perhaps we could keep on talking about it?

  36. 36
    Brett says:

    Medicaid-as-public-option seems like the best way to eventually get to a single-payer system. You’d want to get Medicaid as the default secondary insurance if you’re not insured, coupled with some rescission(?) laws so that private insurers couldn’t just kick people off their plans to it when they get sick. Have a sliding scale of income co-pays, maybe as a percentage of annual income.

  37. 37

    @Kent: Basically yep, I looked at this a while ago http://www.balloon-juice.com/2.....eferences/ and there are five divisions from the provider POV:

    High reimbursement, fast pay, no denials (Cadillac coverage/Sen. Turd Cruz’s Goldmand Sach’s coverage, celebrity rehab centers)

    High reimbursement, some hassle with low deductibles/low co-insurance (“Good private insurance)

    Medium reimbursement with fast claims pay and low cost-share (Medicare, narrow network Exchange Gold/Platinum plans, CHIP)

    High deductible health plans with medium or high reimbursment ($5000 deductible Exchange plans etc)

    Medicaid

  38. 38
    docg says:

    This lurker has no expertise, but that never stops anyone. Less and less people are being covered by employment health insurance. The cost per insured inflates rapidly, causing less employment based health insurance being provided. The amount of deductables and co-pays also rises, causing more people to opt out of what employer insurance is provided. Eventually, employers with do what they did with retirement programs. Here is a few bucks for your retirement, good luck with your 401 K, because we are not providing your retirement anymore.

    Here is a couple bucks for your health insurance, honey, now you go buy a good one. I won’t live to see it, but a form of government coverage for everyone is damn near inevitable after the 1% squeeze out all the goodie from health insurance, and that, too will be tossed aside like everything else the vampires latch onto. It’s the American way.

  39. 39
    Linnaeus says:

    So, we’re fucked. Lovely.

  40. 40

    […] Yesterday’s post on the decline and fall of the Vermont single payer experiment will be leading to a couple of long responses from me as there was a great discussion on building universal coverage and default enrollment schemes in the comments.  I think single payer in this country will be extraordinarily hard to do because it is such a massive disruption of middle class and upper middle class lives.  And those are the people who vote in disproportionally large numbers, so pissing them off is a great way to lose political power. […]

  41. 41
    RosiesDad says:

    I agree with Hilzoy; because of the scope and size of the program, if single payer is going to happen in the US, it is going to have to be a federal program. It’s unlikely that any state would be able to pull it off on its own.

  42. 42
    Bob Hertz says:

    Lot of good comments here, let me add another one.

    A universal payroll tax is fair in the long run, but very disruptive in the short run. Picture a high powered law firm with ten employees and average salaries of $100,000, versus a Midas Muffler shop with salaries of $25,000.
    A 12% payroll tax hits the law firm with a bill of $120,000. And they cannot escape it by plan design or not covering spouses.

    The income tax in the last Shumlin design was brutal too. Picture a well paid state employee making $120,000 who today gets familly coverage for next to free. In the Shumlin plan, he or she would pay about $12,000 a year just to join the new single payer plan.

    Although I support many of the goals of single payer, there has been a tendency for its advocates to make rather bland statements that “You will only be paying in taxes what you have been paying to insurance companies, or even less.”

    The problem is that large numbers in this country pay little or nothing to insurance companies.This includes the elderly, well paid employees with free coverage, and the uninsured. The taxes need for a single payer plan would make them worse off.

  43. 43

    […] Planet Pundit asked a good question about the effect of creating a baseline Bronze for everyone to get into with the option to buy-up: […]

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  2. […] Yesterday’s post on the decline and fall of the Vermont single payer experiment will be leading to a couple of long responses from me as there was a great discussion on building universal coverage and default enrollment schemes in the comments.  I think single payer in this country will be extraordinarily hard to do because it is such a massive disruption of middle class and upper middle class lives.  And those are the people who vote in disproportionally large numbers, so pissing them off is a great way to lose political power. […]

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