Vermont Chooses Single-Payer: Who Else Has an Appetite for Experimentation?

This past Monday, the Vermont Senate passed a Single-Payer bill. The House had already passed a similar bill and the governor is friendly to the legislation, so all that stands between Vermont and a single-payer law are a few formalities. At the moment, though, Vermont is alone in taking advantage of the Affordable Care Act to achieve universal coverage without private insurers. In fact, it isn’t clear that any other states are taking serious steps even toward a public option.

Massachusetts isn’t going there: it is doubling-down on its eponymous model that relies on private health plans, and seems hell bent on showing the nation that this model can work. The state just boasted that capitation rates will actually go down in 2012, allowing the program to grow enrollment without additional funding. It’s not difficult to imagine the feeling of responsibility weighing on administrators and Democratic officials there as they work to pull the levers of payment reform to reign in Partners HealthCare and other misbehavers.

Connecticut has made some recent noises in favor of public insurance, but has just taken a step back. Democrats there just compromised away core provisions of its health reform bill that would have created a public payer to compete with private insurers. Supporters say the fight isn’t over yet, and it isn’t, but if a version of the public payer survives, it will likely have to sneak in through side channels over several years rather than make a grand entrance. Other progressive states in the Northeast and elsewhere seem even less inclined to rock the boat. That means we may not get a single state by 2014 to test the hypothesis that a public payer can increase competition and move the entire insurance market to control costs better than private plans alone.

Though I’ve long been skeptical of the public payer theory, that would be a shame. It doesn’t do much good to allow states to be crucibles of experimentation if they refuse to experiment in meaningful ways, and instead simply use their freedom to create 50 different bureaucracies that accomplish similar objectives in similar ways, without the administrative efficiencies of a national system.  The question we need to answer is not whether a single-payer, a mixed public-private, or an entirely private-payer system can work. We know from observing other nations that they can, and do. What we need to know now is, in the American context, what tactics within each of these types of systems are most effective at overcoming institutional and political barriers to bend the cost curve sharply without breaking the health care sector. Creating 50 versions of Massachusetts (or one Vermont, 24 versions of Massachusetts and 25 versions of an orthodox conservative alternative) is much less likely to achieve that.

Jonathan Halvorson, PhD, has worked for the past six years in managed care for a regional non-profit insurer. His views are entirely his own and do not represent those of his employer or other known individuals, living or dead.

28 replies »

  1. Well put!!! Money out of politics #1, single payer health care #2. Many other states will soon follow Vermont’s lead.

  2. Hospitals and other entities delivering healthcare services should be required to post costs for services and the costs should be the same for all patients using the service, regardless of their insurer. This would encourage and allow patients (customers) to seek the most affordable services. Also patients should be provided with a bill for services at the completion of their appointment and the bill should include a list of the services provided and the cost of each of those services. this would provide the transparency that we continue to hear hospital administrators and legislators discuss while continuing to deny this transparency for patients. How many of us have called our primary care with a medical need (sinus infection, ear infection, elevated blood pressure, fever, etc) and been told to go to the emergency room? We could significantly reduce our healthcare costs if providers were provided services to their patients on these busy days, weekends or evenings, rather than directing the patients to seek care in an emergency setting for something that is not an emergency. Just ask any ER physician how many patients who seek care in emergency rooms have emergency medical issues. The cost of an emergency room visit can be 10 to 20 times that of an office visit with a provider. This practice MUST stop if we are to control our healthcare costs. This still doesn’t solve the problem of how to manage the care of patients who may have no insurance, no primary care, or provider. These patients often have no alternative to seeking care in an emergency room because they cannot pay for the service. The emergency room is required to provide care for these patients, but a provider is not.
    Some reasonably simple solutions to our growing healthcare costs
    • Requiring hospitals, providers and healthcare entities to post costs for services (like our grocery store
    • Require providers to provide care for their patients outside normal business hours rather than sending them to the emergency room.
    • Find an alternative to emergency rooms for patients who have no insurance

  3. “I have said in my newsletters for years that all large medical/hospital claims should be published in the newspaper”

    When we first started talking to our clients about getting confratational with the hospitals no one wants to be the first, they are all scared, rightly so, of the hospitals. Once one stood up though and others could clearly see the problem and solution now more are willing to take up the fight.

    High cost is why the number of uninsured continues to increase in spite of 20 years of government reform, until they lower the cost we wont lower the rate of uninsured.

  4. To Barry Carol — you are correct about the flaw involved in passing a program betore you pass the financing.

    A 15% payroll tax might offer some relief to General Motors and State Employee plans (both with an aging risk pool), but a 15% tax is a killer to marginal small businesses, plus the entire restaurant industry.

    If small business are exempted, a likely political concession, then the 15% will just have to be higher on those who do pay.

    And this does not even address the large issue of two-earner couples who go onto one spouse’s health plan. (i.e. one spouse is a teacher, the other sells real estate.) Right now, the real estate employer is a free rider. Ending this will have a huge financial impact.

    To Nate Ogden:

    Thank you, thank you for bringing out the element of raw force in high medical bills.

    The pathetic response of virtually all politicians is to figure out how to insure against high costs. They do not choose to fight the high costs in the first place.

    I have said in my newsletters for years that all large medical/hospital claims should be published in the newspaper (after blanking out the patient’s and surgeon’s names.)

    The effect would be electric. Even your brief example is electric.

    Bob Hertz
    The Health Care Crusade

  5. They could but why solve a problem when you can milk it instead. Everything they do is counter to actually resolving the problem.

  6. Nate –

    That was a very interesting and informative post about the mob and the unions.

    What puzzles me is why regulators can’t do the following:

    1. Prohibit providers from precluding payers from auditing provider bills to ensure that services paid for were provided and were medically necessary.

    2. Prohibit all or none contracting. If a payer needs some but not all of a group’s hospitals in its network, it should be able to contract for those that it needs / wants but not the others.

    3. There should be special rules that cover care delivered under emergency conditions, especially hospital admissions that come through the ER. A reasonable ceiling on charges, perhaps 125% of Medicare, would be in order, I think.

    4. Confidentiality agreements that prohibit disclosure of actual contract reimbursement rates should be outlawed. Let referring doctors, patients, the media and the general public see and understand what is being charged, especially by providers with the most local or regional market power. Higher coinsurance to access such facilities for services for which quality is no better than competitors’ is a reasonable payer countermeasure to push back against unreasonable rates. CMS rates are already public. Commercial rates should be as well.

  7. Imagine the Mob and Unions. The Mob goes to the business and says you are going to hire my Union or I will put you out of business. They put them out of business by charging prices so high they can’t afford to pay them.

    If you hire this Union the Mob will give you a discount of 40%. That sounds great but its 40% off a bill marked up 800%. While its impossible to afford the non discounted bill its barely affordable still to pay the discounted bill.

    So you begrudgingly hire the Union, knowing you’re paying a 480% mark up, and hope to figure out a way to get by. Then you start noticing things. You’re being charged for things that aren’t done. Things that are being done are being marked up to more expensive services. Other things are being done and billed for no logical reason, busy work. On top of the usury 480% mark up now your being gauged even further.

    Now we get to the crux of the lawsuit. You get feed up and say you’re going to audit their bills, your no longer paying for services not done, services marked up, or unnecessary work. The union steps in and says your contract doesn’t allow you to audit, you have to pay the bill as is with the 40% discount. You refuse and say you’re not paying bogus charges. They say ok then we cancel your contract and you pay full price for everything.

    The lawsuit is attempting to break the protection racket that has been going on with PPOs and Hospitals. They are trying to prevent PPO contracts from dictating payment terms to payors. Hospitals force people to join PPOs then the PPOs protect the high prices of the Hospitals. Under the current system we have no choice but to have the hospitals and we can’t afford to pay their full billed charges. It’s going to be a tough suit but the implications are bigger than anything Washington is considering.

    Around 40% of a plans cost is facility. If payments average only a 300% markup and we cut that back to 150% we could save 10-20% of total cost with a judge’s decision. I think we need to be careful how this happens, hospitals couldn’t eat that much of a reduction overnight but it needs to happen. CEO, Physician, Nurse salaries all would need to come down. The way they staff and schedule would need to change. Charity care would need to be rationed.

    This doesn’t require the lawsuit to succeed to happen. Some plans are already dropping their PPO and auditing bills, this is just costly and scaring to the employee. I had a call from a Hospital last week. They charged $258,000 for treatment and according to their cost, as they report to CMS, it cost them $60,000 to deliver that care. The PPO had a 20% discount which means they were expecting $206,000 for care that cost them $60,000. We offered them $75,000 and they said no. Next call was from the Attorney that represents them and the other large hospital chain in town saying if we don’t pay the PPO amount they are coming after the employee and employer. They threaten the employee saying the employee owes them $206,000 or they will ruin their credit, take their house, and garnish their pay. Obviously the employee freaks and goes to the employer who freaks and says this isn’t what they pay insurance premium for and they want the bill paid, this is how the inflation perpetrates itself.

    Hospitals charged more and more until they finally crossed the line. They finally got so far out of line that employers had enough. They hired their own attorneys to protect the employee and plan and said lets have it out. Now hospitals have a choice, accept the lower amount and go away or go to court and justify why they are making 243% profit. Luckily they haven’t been very successful at it. Problem is paying a claim now takes 6-12 months and attorney fees. Money you would think would be better split between the two parties.

    If Plans could keep their PPOs for the small and routine claims it would make it easier to fight the hospitals on just the large ones, in fact numerous PPOs will sell just their physician contracts or even allow you to audit the hospitals, those PPOs usually don’t have as good of discounts though. How ever this turns out the current delivery model is changing, PPOs are on the decline, something will need to replace them. Anything tied to billed charges should be avoided. FFS was never the problem; it’s the environment under which FFS was operated. FFS makes sense for large unplanned or irregular expenses, like hospitals admissions. Capitation makes sense for routine expenses like primary care.

  8. Nate, I don’t get this. What is the mechanism for the drop? Let’s say MultiPlan disappears…how does that diminish Sutter’s pricing power? Market dominance seems to explain high hospital costs better than a relationship with a network PPO company like MultiPlan.

  9. “The state(s) that are progressive in this endeavor will benefit.”

    MA has the most expensive insurance in the country.

    CA is extremly expensive as well and is only as low as it is becuase of their heavy managed care concentration that rations care better then the more common PPO model in the rest of the country.

    I’m all for state expirmentation, as long as MA, CA, VT aren’t billed out when they go bankrupt from these crazy ideas.

    CA did just enter a very interesting lawsuit that could dramaticlly shake up the entire healthcare system.


    “The Commissioner’s recent press release states that MultiPlan’s agreements with Sutter hospitals prevent payers from meaningfully auditing Sutter’s bills. This statement is based on an allegation in dispute which MultiPlan has denied on the record.”

    More details;


    “According to the insurance commissioner’s motion, Sutter and intermediary Multiplan put provisions into its contracts preventing insurers from refusing to pay bills even if the insurers thought they were being wrongly charged.”

    Odd Maggie and none of the others have written about this. If the Hospital PPO kabal could be broken you could see hospital bills cut 30-50% over night and total insurance cost drop 10% the next day.

  10. ” repeal McCarran-Ferguson which gives insurance companies an unfair exemption from anti-trust laws.”

    Dr. Wonderful, you never read the law have you? Any clue at all what the exemption actually is or you just parioting what MSNCB told you. Let me help you out so you don’t make this silly illinformed mistake again;

    “McCarran-Ferguson does not give insurers a blanket exemption from antitrust law but it does permit insurers to pool loss data that makes it possible to price insurance products.

    Insurers contend that without this limited federal exemption, many small and medium-sized insurers would not be able to afford this costly data and would either have to raise premiums or go out of business. Even large insurers would have difficulty expanding to compete in new regions or lines of business without actuarially credible loss historical loss data, according to PCI.”

    huh, pretty much the exact opposit of what you thought the exemption does.

    Example of how this exemption actually helps the public;

    “Sampson said that the antitrust exemption has been useful in resolving medical liability insurance market problems. In the 1980s, a number of doctor-owned mutual insurance companies were formed to provide medical liability coverage to the doctors who owned the companies. This helped fill the gap that had developed in the medical liability insurance market. But without aggregate loss information, many of the doctor-owned medical malpractice insurers would not have been able to enter the business when they were needed, he said.”

    “Not only would this be harmful for consumers and the economy, but it would also be completely unnecessary. Price fixing, bid rigging, and market allocations are already illegal under state laws that cover insurance companies. All states have laws governing rates and insurance conduct, generally prohibiting any rates that are excessive, inadequate, or unfairly discriminatory.”

    I suggest you read more, then let us know if you still think it needs repealed.


  11. They have actually done quit a bit, just to limit competition and drive up cost unfortunetly.

    NY Pool with its reporting would be a great example.

    Implementing stop loss minimums to prevent competition with fully insured carriers would be another.

  12. By this logic Mike only a UN ran international singer payer would work. In case you haven’t heard we already have a problem with foreign free riders and companies outsourcing.

    In your utopian single payer dream do illegal aliens magically disappear and production cost in Mexico and China skyrocket to parity?

    Medicare fraud far exceeds the cost of insurers why are you ok with replacing private profit with public waste?

  13. This is a bit of a departure from the previous posts, but I’d like to discuss the big picture ideas of the preceding article about Vermont. The “Policy Demonstration Laboratory” at the state level is the only way that real progress will be made in American health care reform. It’s obviously not going to happen in DC. There are some benefits to the state level pushing this forward. It’s obviously beneficial for Americans as any concerted effort to curb the cost of health care is welcomed.MA has moved in this direction and CA tried to pass legislation to curb insurer administrative costs. There are less constraints at the state level. The state(s) that are progressive in this endeavor will benefit. They will be able to sell their favorable health care environment to employers and consumers alike. If lagging states don’t keep pace, they will risk losing business and tax income.

  14. Margalit –

    I haven’t heard much about Maryland’s all payer system for paying hospitals lately either. Their system has been in place since 1977. I know that AHIP isn’t enthusiastic about it, probably because the insurers with greater market share in a given state can negotiate more favorable reimbursement rates than their smaller (state market share) competitors. The biggest complicating factor, though, is that any all payer system would require both Medicare and Medicaid to pay the same rates as private insurers pay. In practical terms, that would mean private payers would pay less than they do now and Medicare and Medicaid would pay more per service, test or procedure. In light of the budget pressure on both federal and state governments, that would be a mighty tough sell and probably a non-starter.

    The Vermont legislation is incredibly disingenuous because it didn’t address the financing issue. Germany’s sickness fund approach is probably closest to our employer based model, though I personally like the Swiss system best among all of the models used by other countries. Germany finances its system with a payroll tax of 15% (7% paid by the employee and 8% nominally paid by the employer) but only up to the first €43,000 of wages or $64,000 at current exchange rates. The Central Fund then uses as many as 80 separate variables to calculate the premium that will be paid to a sickness fund to insure a particular individual or family. In Switzerland, premiums paid by individuals for their own and their family’s coverage pay for about 35% of healthcare costs. Another 35% is financed by general tax revenue which covers the cost of subsidies for those who can’t afford the full premium on their own (about 35%-40% of the population) plus part of hospital operating cost. The remaining 30% comes from out-of-pocket payments. The bottom line is that any attempt at a single payer system financed by taxes in the U.S. would require a huge payroll tax, value added tax or combination of those, especially given our much higher healthcare costs and medical prices.

  15. Dr. Wonderful and Jonathan Halvorson –

    The McCarran-Ferguson Act only provides an anti-trust exemption to allow insurers to share claims data. They cannot collude to set premiums or market share or anything else. The claims sharing exemption allows smaller insurers to more accurately underwrite and estimate aggregate medical claims in a market or for a population. The net effect is to increase competition among insurers, not decrease it.

    It would take a more substantive anti-trust exemption to permit what happens in Switzerland where all insurers negotiate with providers as a group in each canton which then allows them to pay the same rate for a given service, test or procedure in a given canton. Insurers by law cannot make profits on the basic insurance plans in Switzerland but they can sell supplemental plans for a profit. I’m not sure what happens when they incur losses on the basic plans. Perhaps the government makes them whole.

    As Jonathan notes, we could use a lot more anti-trust enforcement on the hospital side. That’s where the real market power is as well as the high costs and much of the waste in the healthcare system.

  16. “Providers and suppliers know that and negotiate accordingly, and build their business models around having the most attractive facilities, or the “must have” drug, or the latest technology”

    I am not even sure why this needs to be pointed out. Don’t people see that all these marble lobbys, new facilities/extensions, birthing centers, valet parking, advertisements have to be paid for somehow?

  17. Correction, I should have said the more insurers, the less leverage they have. The main reason we don’t get declining prices with more competition among insurers is that health insurers don’t get to choose between lots and lots of suppliers in critical areas like hospitals and patent-protected pharmaceuticals. Most insurers need all the big players in their networks or their products are not attractive to employers. Providers and suppliers know that and negotiate accordingly, and build their business models around having the most attractive facilities, or the “must have” drug, or the latest technology that let’s you see things never seen before about the human body. Efficiency is not the name of the game for providers and suppliers.

    There was a brief moment in the early to mid 90s when insurers could and did negotiate aggressively with providers and would remove them from their networks if they didn’t compromise. That led to the one and only sustained drop in health care costs relative to GDP growth in the last 40 years. It lasted until about 1998, when complaints from providers and the insured knocked the reputation of managed care into the basement, and insurers cried Uncle. They’ve been in a relatively weak negotiating position ever since, and we have the boom in health care costs since 1999 to show for it.

  18. DrWonderful, this is just wrong. There is a very weak correlation between health care costs and market dominance by one or two insurers. There is a much stronger correlation between health care costs and market dominance by one or two hospital systems in an area. You get it exactly backwards. The fewer insurers, the less leverage they have in negotiating rates, and the higher the rates will tend to be.

    As for anti-trust, it is only a federal exemption that insurers have, not state, and this is only partial. If a state doesn’t have anti-trust laws, then federal laws apply, so in fact in every single state there are either federal or state anti-trust laws that insurers must deal with. And again, the cases where a single insurer dominates a market do not have a higher health care cost then other markets.

  19. PMac is correct on the whole, but much is consciously ill-defined. Legislating a wish list of health system goals but postponing how to fund it until after the next gubernatorial election is popular politically but depends on the governor winning another term.

    Enthusiasm will dim as costs expand and which groups will be excluded via ‘waivers’ make it apparent that it is not truly single payer and an increasingly smaller group is actually paying for it. One-third of the tertiary-care that VT residents receive is delivered out-of-state at Dartmouth-Hitchcock Medical Center in Lebanon, NH–perhaps DHMC will not accept the reduced payments VT offers–what option will these patients then have? What will happen to the VA hospital in VT and those patients? What will happen when various currently insured groups discover the proposed plans are more costly and offer fewer of the current benefits?The problem of single-payer within state boundaries not national boundaries and the problem of ‘free-riders’ crossing state borders is perhaps one reason why no other state has successfully implemented this.

    Will anyone truly believe that a five-person ‘panel’ will actually be able to determine a satisfactory health package absent political influence? These panels will survive only if they accede to every advocacy groups’ wish-list of ‘essential’ coverage-mandates. This further isolates the consumer from the payer and exacerbates the upward cost spiral. Politically savvy groups garner votes by saying yes but seldom by saying no to constituents. It is very cynical but very typical of the entitlement enabling class and the results will be neither pleasant to behold nor do much to enahnce access to necesary medical care.

  20. All we really need to do is repeal McCarran-Ferguson which gives insurance companies an unfair exemption from anti-trust laws. There is no fair business, or even a free market for that matter, when an industry is literally allowed to price fix and collude and thereby completely control the market. Remove their anti-trust exemption, actually force them to compete against each other to make patients and doctors happy, and see how quickly all of the problems are solved.

  21. My take is that it is painfully apparant that until campaign finance and election reform becomes a reality at the federal level that the Federal Government remains highly dysfunctional in many arenas including health care reform.

    Thus, while not ideal ,the states are forced to act now. Bravo Vermont!

    Longer term Dr. Jonathan Halvorson is correct.

  22. We need more experimentation at the sate level. I have long been disappointed that the states have not done more.


  23. The Vermont approach is wonderful news, but as Patrick notes it is always dangerous to behave well on a unilateral basis. Doing the right thing is risky if others are committed to doing the wrong thing, or otherwise owned by bad actors such as the insurance industry.

    Only a national single payer environment can prevent free riding by individuals and employer exit and political attacks by well financed insurers.

    Until we eliminate the health insurance industry as the primary payer/pooler for health services, we won’t be safe in our homes. These predatory corporate vultures simply have to be destroyed. As long as they exist they will prey on us all.

  24. I am running for President in the 2012 elections as an Independent candidate.

    Here are my health care policies:

    He says Obama Care does not go far enough, and proposes a completely new healthcare plan he calls “Americare,” which will provide government healthcare for everyone from cradle to grave.

    “Americare will pay for the needs of all United States citizens and allow healthcare providers to be compensated according to their skill set. It will replace Medicare, Medicaid, and all private insurance. I believe that all private insurance companies are criminal organizations, because they make profits by delaying and denying care which could in many instances cause unnecessary deaths and suffering to people who rely on private insurance,” explained Abramson.

    Abramson wants the liquidation of all private insurance companies, moving their administrative workers into Americare jobs. He wants to offer forgiveness of all medical indebtedness for anyone with debts resulting from the previous healthcare system. He said the cost of Americare will be paid from the savings obtained through military budget cuts.

  25. Vermont is on its way to a single payer system, although the bill was passed without any mechanism of how to pay for it, much to the dismay of many Vermonters. An 11% employer and 3.5% employee payroll tax has been suggested. Employers, including IBM have grave concerns of the extra burden it will place on them, and some have begun exit strategies, as have some health care providers.

    Another unaddressed issue is that the Vermont legislature made no plans to limit the number of low income medically needy individuals that move to Vermont from other states, to take advantage of what will appear to be low cost or “free” health care. Hopefully this concern will be addressed before the system gets implemented, assuming funding sources prove feasible.

    The Vermont plan is like a mini version of the Patient Protection and Affordable Care Act (PPACA), but will graduate to a single payer governmental system as insurance companies are eliminated. It proposes to develop Accountable Care Organizations that will take the form of regional hospitals that will get a lump payment to care for the regional population (this will include those currently covered under Medicaid, Medicare, private plans, and the uninsured). The Governor will appoint a 5 member committee that will determine what services to provide, and how much to pay providers. This is like a mini version of the 15 person Independent Payment Advisory Board proposed in the PPACA.

    Watching this system roll out should help determine the feasibility and sustainability of such a system. Currently the entitlement class is very excited about this proposition. However the Vermont legislature should take pause and specifically address the concerns of the producer class that will be bearing a large portion of the cost. Up to this point most of these concerns have not been addressed in a meaningful way. The last thing Vermont needs is to loose more employers and health care providers, as the full participation of these two groups is essential, if the system is to succeed.