THCB

Vermont’s Bold Experiment

I was delighted to see the lead article in Health Affairs describing Vermont’s new single payer health care financing system. Harvard Professor William Hsiao and his coauthors describe this as a “Bold Experiment” and I couldn’t agree more. It is also a very welcome experiment. For over thirty years I have heard the rhetoric that a single payer system would never work in the United States. For that matter, I have heard that a true market-based system (with vouchers) would never work either. Why not let the states experiment and find out what will and won’t work? Thankfully, the Vermont legislators and Governor Shumlin had the courage to take this leap of faith.

The biggest obstacle to implementation appears to be ERISA, which limits the extent to which states can regulate self-funded plans. Apparently, self-insured employers could object to having their tax payments used to support the plan. But Vermont can apply for an ERISA waiver under terms in the Affordable Care Act and the state hopes to begin its bold experiment in 2015.

As bold as the plan might be, Hsiao et al. might be even bolder in projecting the potential cost savings, which they peg at 25.3 percent. Academics rarely go out on a limb with projections like this that can easily be assessed in a few years time. And academics are rarely so optimistic. I wish I could share that optimism.

Let’s take a close look at the projections. Hsiao et al. expect a 2 percent reduction in expenditures from malpractice reform. This is plausible, but malpractice reform is easily severed from health financing reform – many states have already done so – and I do not see why we should attribute any resulting savings to the implementation of a single payer system.

Hsiao et al. also projecta reduction in administrative expenses of 7.3 percent, stemming from “the consolidation of insurance functions” and “reduced administrative costs for providers stemming from uniform claims administration.” This also seems plausible and the actual savings could be even higher, inasmuch as the state will be doing away with all of the marketing and medical underwriting functions of private health insurance.

From here, things get dicier. Hsiao et al project another 5 percent savings from reduced fraud and abuse. How so? The “comprehensive claims database” is supposed to make detection easier. The authors cite a 2007 FBI report as the basis for their 5 percent estimate. That report states that fraud and abuse amount to as much as 3-10 percent of total U.S. health spending, but it makes no mention of the potential cost savings from creating a comprehensive claims database. Hsiao et al. also cite a study of fraud and abuse in Taiwan but do discuss its relevance to Vermont. Will consolidating claims help stop fraud and abuse? Medicare is not a comprehensive claims database but it is awfully big, yet Medicare fraud and abuse is rampant. Large private insurers also fall victim to fraud and abuse. If Hsiao et al believe that Vermont’s state employees will do a better job fighting fraud and abuse than private insurers, good luck to them!

Hsiao et al project the biggest cost savings, 10 percent, will come from payment reform and integration of delivery systems – essentially, moving everyone into an Accountable Care Organization. (Hsiao and colleagues acknowledge that the shift to ACOs is not mandated yet include the projected cost savings as if it was a fait accompli.) As I have previously blogged, any cost savings projected from ACOs are truly speculative. And in a small state like Vermont, the shift to ACOs may backfire. To understand why, consider that single payer systems in Canada and Europe largely hold down costs by bullying the medical community into accepting low wages and restrictions on access to medical technology. The bullying works – the proof is in the cost savings. But Vermont is not large enough to support more than a handful of ACOs, each with a local monopoly. If anyone does the bullying, it will be the monopoly ACOs demanding higher rates and funding for more technology. Dominant ACOs may have even more bargaining power than the state; legislators can always be fired. (I realize that Vermont is perhaps the most liberal state in the nation and I suppose that goes for their physicians. But let’s see how liberal they are when the state decides to slash their fees by 10 percent.)

Lastly, Hsiao et al. project a savings of 1 percent in governance and administration, apparently due to “insulating major spending decisions from the political process.” They expect to keep politics out of the single payer system?

Let me reiterate. The new Vermont law is terrific. I hope they implement it as soon as possible and that it succeeds beyond my wildest expectations. But I doubt it will succeed beyond Hsaio et al’s expectations, as those truly are wild. If Vermont can reduce administrative costs and expand coverage without sacrificing quality or creating shortages, the experiment will be a success. If and when that happens, I hope more states will follow suit.

Now which state will be bold enough to experiment with a fully market-based system?

David Dranove, PhD, is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red”. He has a Ph.D. in Economics from Stanford University.

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  1. Nate- Aetna.com as an exampe has 18 million members. Further take out enrollment, login and claim search hits. What’s left of remaining 1 million hit?

    Also these hits stats do not tell session time.

    We are back to square one. Flyers, emails etc probably make you giddy. I gave pertinent example of FDA being at it for last 30 years and making no progress with their pyramid of food.

    If payors were better than providers in medicine & care, then they would rather take up medicines themselves. New England Journal of Medicine would be full of ground breaking research from payors.

    Payors haven’t made mind on one thing of importance. Let me start with some burning topics
    1. How much IUs of Vitamin D is necessary per day?
    2. Does saturated oil such as coconut oil adversely impact cholestrol?
    3. What is worse- cholestrol or statins?
    4. Are vitamin supplemant adequate replacement of natural vitamins?
    5. Is meat necessary for good health and at what price that comes?

    Payor program, can be better. But the first question is regarding their role. They might as well give some money to providers to do the same.

    So why do payors need to jump in same?

    My two cents because medical establishment is not there to get people healthy but treat symptoms. Do payors believe in that and are they willing to wage the battle?

  2. Nate- few things you need to know. The hits you got are only top level. Secondly they do not tell session time. Thirdly for their respective membership, you have better chances of getting rain Sahara. Aetna.com as an example. They have 18 million members. Now Aetna.com does also serve brokers & providers. Take out all the enrollment, login and claim search hits and you are left with less than peanuts.

    Naturalnews on other hand has ‘rabid’ customer base out to eliminate chemicals, processed food, plastics, white flour and sugar from their lives.

    We are back to circle one where it all started with. I gave pertinent example of FDA pyramid of food. They also do same things- promotion, education etc. Yet, after 30 years what are the results?

    I am not saying payor efforts are wrong things to do but understand priorities and what it takes to build healthy lifestyle by learning from larger endeavors.

    By the way, I have worked on payor programs, so I am fully aware and abreast of programs that run. Its no rocket science that they run. But you need to come out of that shallow clinic and look at people pushing to put health first and how many roadblocks they face, such as from medical institutions themselves.

  3. The last few enries here have spoken to coverage issues and reimbursement issues —- but as Patrick Mac suggested earlier, the sheer challenge of single payer financing is daunting enough all by itself.

    For example:

    Health reformers often underestimate the degree to which large enployers subsidize everybody else in our current non-system.

    When large employers pay for family health insurance, this enables the
    worker’s spouse to go off and work for a company that does not provide health insurance– in real estate, cosmetology, restaurants, churches, retail sales, fill in the blank.

    Under all the single payer plans that I have seen, all businesses would have to pay the 15% payroll tax. This will produce a wild rebellion once it sinks in.

    Small business crushed the Clinton health plan for proposed taxes that were a lot less than 15%. Small businesses in general lack the ability to pass on higher wage costs by raising prices……I mean, there are independent truckers going broke today because they cannot even pass along the cost of gasoline to their stubborn customers.

    I recommend a post by a Vermonter named Cairn Cross called Single Payer, Many Sweatshops.

    Personally I like Single Payer, but I do not see a way to make the transition. One could argue that Germany does just fine with a 15% payroll tax for health care — but then, Germany has had national health insurance in some form for over 130 years, and Germany has strong unions which have long enforced high wages at all workplaces.

    America has offered entrepreneurs the opportunity to start new businesses with cheap labor. Without cheap labor, many new businesses will never get off the ground. It seems to me that a single payer plan will cause an increase in unemployment. The waiter who gets fired because resstaurant traffic is down is not going to get hired at Google.

    Taxing the rich may feel good but it is not the answer either. The top 5% of income earners in America account for one third of all consumer spending. The top 20$ of income earners account for 60% of consumer spending. Raising their taxes wll just create more unemployment also.

    For these reasons I have made my own health care reforms much more incremenetal.

    Bob Hertz – The Health Care Crusade

  4. “A simple website like naturalnews has done more to wean away people from harmful food and discover cheap natural cures than all payors put together.”

    NaturalNews.com #2010 953.,599 unique views
    Anthem.com #1936 986,622
    Aetna.com #1134 1,611,785
    Cigna.com #2021 948,046

    Ya sure they have Vikram. They don’t get enough eyeballs to change a menu let alone the combined effort of all payors together. A good wellness program reaches far more people and is far more robust then you website reference.

    You already came off your first ignorant statement;

    “Any payor who thinks they can positively impact health of members in a way that overall costs will go down is wildy optimistic.”

    “There will be some story telling points to tell for sure but not substantial enough.”

    Your making progress, the problem isn’t what payors do its you have no knowledge of what they do. Your making arguments you can’t back up and backpeddling away from them faster then Obama.

    To claim a website is more effective then a defined healthy eating program with tracking and rewards, printed material, live person coaching, etc shows how off base you are.

    “Very active folks would find Payor program weak and Kindergarden level.”

    Your not familar with 1 1,000,000th of what payors do, how can you make this statement? You don’t even know what a payor program is, your running your mouth based on ideology not fact.

    “If payors are really serious about health they ought to ban soda, fast food, red meat, processed food, sugar, enriched fluor products, ice cream from their facilities and put out full page ad denouncing same.”

    Some do. The one in WI was one of the original businesses to be sued by EEOC for outlawing smoking by employees period. Self Funded plans, which are payors, have taken these foods away, one of my client built raised gardens behind their office for employees and clients of theirs to grow healthy food.

    The problem is your ignorance of what is going on, not what is going on.

    So you want payors to spend respources fighting every socital wrong, that should include the polar bears, whaling, and deforestation. They should stop paying claims and managing insurance all together and devote all their resources to organic strawberry growing.

    Your last couple paragrpahs pretty much sumed you up perfectly your a whack job that likes making things up and chasing windmills with other people’s resources

  5. Nate – read carefully what you have written above. The programs you run are the programs providers need to be doing. Next what, second physician, opinions, alternative therapies at your location?

    It cannot be denied that you got some claims off, but once again its outlier attempt. There will be some story telling points to tell for sure but not substantial enough.

    A simple website like naturalnews has done more to wean away people from harmful food and discover cheap natural cures than all payors put together.

    Now let me get to basic issue with payor program. First recognition that has to happen is to identify different category of patients. Edelman website has done classied those into different types. Essentially very active to passive kind.

    Very active folks would find Payor program weak and Kindergarden level.
    Very passive- I have aleardy mentioned that FDA with its big budget couldnt hammer in the message of veggies over many decades. Then there is stay healthy and reduce the premium scheme of payors. Nothing wrong, but conceptually if you need to pay folks as an incentive for their own better health then they cannot be helped.

    If payors are really serious about health they ought to ban soda, fast food, red meat, processed food, sugar, enriched fluor products, ice cream from their facilities and put out full page ad denouncing same.

    Methyl Iodide which is highly toxic is to be used as strawberry plan pesticide. Payors should up in arms against the posion being introduced in food chain. But they are not and that is for two reasons

    1. Impact is too far in future
    2. They do not understand health in wholistics ways. If they would I would like you to tell me following. Why is that there are 17K rare diseases in US? What cause cancer and why are the rates going up?

    Payors do understand healthcare in terms of claims and they are practicing the medicine the same way as do the providers. That is, control the symptoms and in your case leading to control of claims.

  6. “Any payor who thinks they can positively impact health of members in a way that overall costs will go down is wildy optimistic.”

    On this ignortant statement we can end the conversation. No idea what your head is buried so deep in but this is one of the dumbest statements I have seen on here.

    We(payors) save lives on a daily basis and have the testamonials to prove it. To say the billions spent on wellness programs, nurse coaches, lifestyle education, health screenings, and so on hasn’t improved health is beyound denial.

    When we schedule a blood draw and screening and send someone to the hospital right away becuase what is found that has the positibe effect of usually saving a much larger claim but more importantly the life chanfing effect of scaring the crap out of someone to take better care of themselves. Not to mention what it does for the other employees there.

    Personally I know for a fact our pre-natal program prevented high risk preganacies, we would have people calling and asking for it that weren’t even members.

    When we get non compliant diabetics on the right course we know for a fact it works becuase we see the claims disappear. Or are you claiming the free medicine, phone calls, and coaching don’t count?

    You have a huge hole in your knowledge you need to work on.

  7. Nate- you were not paying few months back and now if you are paying there are two ways it’s happening- a. It through self funded mechanism b. the patient is merely HIV+. Many patients can live with dormant HIV for years without adverse reaction.

    Any payor who thinks they can positively impact health of members in a way that overall costs will go down is wildy optimistic.

    How can I prove that? Heard FDA pyramid of balanced food and eat more veggie campaign? Inspite of all the veggie/vegan fads and invasion of foreign foods vegetable consumption has gone down, even counting the leaves in burger as veggie intake.

    Not that the endeavor is wrong. But claiming plaudits to what one cannot control is standard consultant technique- claim credit of all things good happening for many miles and blame bad strategy for things going wrong.

  8. “backup proof is that you don’t pay for any AIDS patient and CMS does. ”

    ? What are you trying to say here Vikram, I’ll give you the benefit of the doubt that I am misunderstanding your comment and your not claiming private insurance doesn’t cover AIDS patients.

    I have AIDS patients on my plans now.

  9. Nate- backup proof is that you don’t pay for any AIDS patient and CMS does. That population will have higher morbidity than your healthy employee base. That bolsters your claim that your insurance is healthier than Medicare.

  10. Mediciad isn’t the plan, did you even read it before responding? The feds won’t give them permission to continue their plan, how does a state implement a free market system when the government wont release 50% of the dollars?

    You realize you can’t operate a free market system under a government system right?

  11. Medicaid? Medicaid for a plan that wont come into affect for a year or two?
    Again, why hasnt a red state given us a free market health care system, and not just in the last year?

    Steve

  12. Federal government won’t allow it. How do you disolve Medicare at state lines? Opt out of Medicaid?

    http://www.realclearpolitics.com/news/ap/politics/2011/Mar/21/healthy_indiana_plan_expansion_opposed_by_some.html

    Indiana wants to use its public health savings account program for low-income adults to cover people who will become newly eligible for Medicaid under the new federal health care law beginning in 2014, but federal officials haven’t yet said whether they will allow the program to continue beyond next year.

    State officials say they have pressed federal Medicaid officials for nearly a year to say whether the Healthy Indiana Plan, or HIP, can continue beyond the scheduled Dec. 31, 2012, expiration of a waiver that allows the state to divert Medicaid funds for the program.

    “We’ve asked them for guidance, and we’ve really gotten no response,” said Seema Verma, an Indiana Family and Social Services Administration consultant who helped design the Healthy Indiana Plan.

    As usual blame the liberals, they hold up everything successful

  13. “Commercial payors are very good handling healthy population and unhealthy are better served via Govt insurance.”

    Anything to back this up? Every study I have seen says government insurance is more likly to kill you then private insurance. I have never read a sstudy that showed public coverage was better for you.

  14. Nate, there are hundreds of thousands of doctors overseas ready to come to work in VT, if given a chance.

    Now State Medical boards wont allow that. That is where your angst should be directed to.

    There are people who want to get expensive service and there are people who it that way.

    I note Patrick’s analysis of grave situation of VT. Though I would like to point out that paying additional taxes is no big deal, because if alternatively one would pay premium.

    Commercial payors are very good handling healthy population and unhealthy are better served via Govt insurance.

    Payor mechanism dont matter that much

  15. Didnt Hsiao help develop the Taiwan system? Why is it that no red state has given us a free market health care system?

    Steve

  16. Don’t forget that the closest border to Vermont’s population center is not New Hampshire, or New York, or Massachusetts. It’s another country that has had single-payer for many years, and unlike us, it just had its AAA credit rating reaffirmed. That might explain why most of their residents are not terrorized by the concept.

  17. “Apparently, self-insured employers could object to having their tax payments used to support the plan.”

    I think the bigger issue then their tax dollars is not being allowed to be a self funded plan at all. If I was a large national employer with a self funded plan that covered all my employees I wouldn’t be very happy about having to carve out my VT employees and handle them different. What about employees on the border, what about employees that travel, it creates all sorts of headaches if you have to deal with 50 sets of rules that don’t always work together and even less seldom are thought out and rational.

    Reducing expenditures for administration and reducing fraud, only an academic could come up with this. A quick yahoo serach would seem to disprove this assumption pretty quick. If they can’t control fraud in the much smaller Medicaid population then they stand no chance in universal coverage. I haven’t read their study but your reference to a universal claims data base really only helps with duplicate billings which is not a huge problem. The bigger problem is billing for services never rendered or upcoded. You don’t need a database to catch this and both Medicare and Medicaid have failled miserably.

    RUTLAND, Vt.—A Rutland oral surgeon has been charged with fraudulently billing Vermont Medicaid after wrongly diagnosing patients and for services he didn’t provide.

    Partners in Boston is a great example of how a large bully provider can run up rates, and MA is failrly liberal themselves. ACOs will spend on contributions and liberal politicians will reward them with higher reimbursements.

    I also see this breaking down becuase VT is a small state, why take a paycut as a provider if you could cross any number of borders and make twice as much? How are they going to prevent providers from leaving if they cut pay?

    What if they implement these changes and it fails, will we finally admit socialised medicine can’t work or will they blame it on some skelton of free markets and say it wasn’t socialized enough? Medicare failed and they suggest Medicare for all, I see the same thing happening here. Success or failure doesn’t matter its another step towards single payor either way.

  18. Yes, we are talking extremes. A “fully market-based system” is something I would rather not experiment with. I prefer a regulated or mixed market system that harnesses the good influences of the market and dampens the bad ones. A fully market-based system is as crazy as a “total national control” system.

  19. i am not sure what the relevance of your question is? We are talking extremes here. Using market influences in healthcare does not mean it would be carried to extremes. Market influences have good as well as bad features. However total national control removes many self correcting mechanisms not only in financial, but delivery methods, and advances in diagnosis and treatment.

  20. Patrick Mac says:
    Your comment has been awaiting moderation since July 27, 2011 at 7:31 pm

    It will be a great experiment, unless of course you live in Vermont. The Vermont law establishes a single payer health care system but with little details. No funding mechanism has yet been established, although a 14-15% payroll tax has been proposed. This will most certainly be inadequate due to ERISA exclusions. If the state is granted an ERISA waiver, there would likely be self-insured employers moving out of state.

    Other taxes will be needed and a service tax has already been suggested. Vermont already has the highest per capita state taxes in the nation and is the #1 most tax-unfriendly state for retirees, so it has less wiggle room for further tax hikes (http://www.mainstreet.com/slideshow/moneyinvesting/taxes/most-taxed-states-us), (http://finance.yahoo.com/focus-retirement/article/112987/tax-unfriendly-states-retirees?mod=fidelity-livingretirement&cat=fidelity_2010_living_in_retirement).

    Additionally, Vermont has the highest median aged work force and the second oldest population in the nation, and older folks require more medical care (http://en.wikipedia.org/wiki/Vermont#Demographics). These demographics and tax burdens do not bode well for financing the Vermont single payer health care system. Another concern is that medically needy may move to Vermont and further burden the system.

    Vermont has also become very dependent on federal matching Medicaid funds. The Vermont Medicaid program is already the largest payer of health care services to Vermont residents. In 2008 it accounted for 23 percent of total Vermont health care expenditures, and this year it was announced that the state’s failed Catamount Health Plan would be rolled into the Medicaid system, enlarging the Medicaid program even further (http://www.vtmd.org/gov%E2%80%99s-budget-expands-medicaid-cuts-catamount-reimbursement-328). With the growing federal deficit, it is more than likely that Vermont’s share of federal Medicaid funding will be cut, adding more of the cost burden to Vermont.

    How much the producer class will have to pay to implement and sustain this system is a very big concern. If the burden is too high, it may lead to higher paying jobs leaving the state, including health care providers. Vermont is not an island, and it borders low tax New Hampshire that is equally as scenic.

    The health care systems around the world are being stressed by the aging population and the costs of new technology. There will be no easy fix. Vermont’s attempt may be valiant, but it carries a significantly risk for failure. We shall see (hopefully while observing from another state).

  21. “Now which state will be bold enough to experiment with a fully market-based system?”

    What would that look like? Would human organs for transplants be sold at auction? Or would they trade at the CME, along with live cattle and lean hogs? Would there be a futures market for people wanting to sell future rights to their organs in exchange for cash today? The possibilities seem endless.

  22. It will be a great experiment, unless of course you live in Vermont. The Vermont law establishes a single payer health care system but with little details. No funding mechanism has yet been established, although a 14-15% payroll tax has been proposed. This will most certainly be inadequate due to ERISA exclusions. If the state is granted an ERISA waiver, there would likely be self-insured employers moving out of state.

    Other taxes will be needed and a service tax has already been suggested. Vermont already has the highest per capita state taxes in the nation and is the #1 most tax-unfriendly state for retirees, so it has less wiggle room for further tax hikes (http://www.mainstreet.com/slideshow/moneyinvesting/taxes/most-taxed-states-us), (http://finance.yahoo.com/focus-retirement/article/112987/tax-unfriendly-states-retirees?mod=fidelity-livingretirement&cat=fidelity_2010_living_in_retirement).

    Additionally, Vermont has the highest median aged work force and the second oldest population in the nation, and older folks require more medical care (http://en.wikipedia.org/wiki/Vermont#Demographics). These demographics and tax burdens do not bode well for financing the Vermont single payer health care system. Another concern is that medically needy may move to Vermont and further burden the system.

    Vermont has also become very dependent on federal matching Medicaid funds. The Vermont Medicaid program is already the largest payer of health care services to Vermont residents. In 2008 it accounted for 23 percent of total Vermont health care expenditures, and this year it was announced that the state’s failed Catamount Health Plan would be rolled into the Medicaid system, enlarging the Medicaid program even further (http://www.vtmd.org/gov%E2%80%99s-budget-expands-medicaid-cuts-catamount-reimbursement-328). With the growing federal deficit, it is more than likely that Vermont’s share of federal Medicaid funding will be cut, adding more of the cost burden to Vermont.

    How much the producer class will have to pay to implement and sustain this system is a very big concern. If the burden is too high, it may lead to higher paying jobs leaving the state, including health care providers. Vermont is not an island, and it borders low tax New Hampshire that is equally as scenic.

    The health care systems around the world are being stressed by the aging population and the costs of new technology. There will be no easy fix. Vermont’s attempt may be valiant, but it carries a significantly risk for failure. We shall see (hopefully while observing from another state).

  23. Vermont’s Bold Experiment

    Harvard Professor William Hsiao is fond of the phrase “bold experiment’.

    In the late 1980s Hsiao supervised and analyzed a study of expenses in medical practice which specifically analyzed services by physicians accounting for physician time, overhead, capital outlays, malpractice and other physician overhead items.

    He developed the RBRS scale based upon RVUs (relative value units). The formula was based upon a survey and analysis of practices among different specialties, in different locales in the United States. The current system of fees is based upon these units coded for by the CPT codes (current procedural terminology).

    I am very familiar with this since my ophthalmology practice was one of those in the 1989 survey. My opinion is that whatever input was put into that study….the output was pre-determined.. My evaluation of the figures garnered from the study bore little resemblance to what I found in my typical solo ophthalmology practice.

    The RVBRS methodology set off a wave of high specialty fees vs primary care physician fees, based upon Hsaio’s flawed methodology Move forward 30 years to 2011 where the disparity between PCP fees and specialty fees is now even greater. For one thing there are many more procedures available to specialists as the explosion in technology took place. By comparison there have been few changes available to PCPs. I am not even sure if the RVUs were adjusted over the past 30 years.

    The increasing divide between specialty and PCP reimbursement can be squarely placed at the feet of “Harvard superstars”.

    Harvard’s academic staff is always available for another study, or to evaluate and/or pontificate about things surrounding the Boston region. Vermont borders on and touches a good part of Massachussetts.

    Vermont may be bold, however it is far different in demographics and/or challenges delivering health care.

    Let’s assess the following:

    Total Population (2010 census) 625,741

    Census Map by County (pdf)

    Vermont has largely been untouched by multiculturalism
    It is predominantly a rural state.
    The population is not mobile, nor immigrant, it is uniform and fairly homogeneous.

    What is bold about Vermont is that it is highly atypical.

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