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With health costs rising, Vermont moves toward a single-payer system

Posted by Alan Wirzbicki  April 7, 2011 01:01 PM

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Faced with rising costs and residents still without health insurance, Vermont lawmakers are poised to pass a single-payer healthcare plan, which would reshape how the state's doctors are paid and become the first of its type in the US.

The plan, approved last month by the Vermont House of Representatives, was designed by William Hsiao, an economics professor at the Harvard School of Public Health. Hsiao also designed the single-payer system in Taiwan, and consulted on healthcare reform in seven other countries.

With many states looking for a way to cope with spiraling health care costs, we asked Hsiao to explain how his prescription for Vermont would work.

When Vermont asked you to devise this plan, what were the state’s goals?
Vermont made clear what goals they wanted to achieve: namely, universal coverage. Because under the [Obama healthcare reform] there are still going to be 5 percent of people not covered. Second, they wanted to bring the under-insured up to some common standard benefit package. In Vermont, 15 percent of the people who have insurance have very shallow insurance. Third, they wanted to have a plan that can control cost escalation. And finally, their goal is to move healthcare delivery into an integrated delivery system. That entails integrating prevention, primary care, secondary care, and tertiary care into a vertically integrated healthcare delivery system. That's what just about every state wants to do. This is what often is referred to by the Madison Avenue term, value-based health care.

One of the goals was to cut costs. How does this plan cut costs?
By introducing a single-payer system you remove the administrative expense, so you can get a one-time savings. Over the long run, the savings come from changing the payment system to providers. Right now we pay on a fee-for service basis — in other words, the more you do, the more you get paid. That encouraged doctors to do more — including more tests, more examinations, so forth. We could change the economic incentives for physicians to reward them for healing patients rather than how many services they provide. Second, the savings come from vertical integration of healthcare delivery. That would remove the duplication of tests, reduce drug complications, improve the continuity of care for patients. That would simplify administration, such as recordkeeping. You could share the same records. This is where the savings come from.

Massachusetts was hailed for its health care reform law. How does Vermont’s plan differ from what we have in Massachusetts?
It’s different from Massachusetts. One is, it decouples insurance from employment. The insurance is based on your residency in Vermont. So that means everyone will be covered, every resident of Vermont. Secondly, single-payer removes the administrative hassle confronting hospitals, doctors, nursing homes, and all providers. Massachusetts doesn’t have that. Massachusetts does not have a single-payer plan. That can reduce the cost of health insurance cost by probably 10 percent.

How would this plan affect individual consumers? Would they see any difference in their day-to-day medical care?
There is one standard insurance plan for everyone, and if you want more you could buy the wraparound. Patients would get better coordination and continuity of health services. The other difference is, instead of paying a premium, the premium now would be transformed into a payroll contribution. An employer pays roughly 70 percent of this cost, through a payroll contribution; employees also pay a portion of it. We use modeling methods to show that employers in Vermont would pay less than what they pay under the current system. So would employees. They are going to see health insurance costs reduced.

What will happen to private insurers in Vermont?
Insurance companies in Vermont will have two roles. We propose that the role of the single payer get contracted out by competitive bidding to one company. So it's possible a private insurance company still can operate in Vermont, but they have to win a competitive bid. Second, private insurance companies can provide the wraparound plans.

How does this differ from the Obama health reforms?
President Obama’s plan really does not address the cost-escalation issue. His plan only argues for experimentation. Vermont’s plan says, single payer is the most effective way to get universal coverage as well as control the health care cost escalation.

A survey recently indicated that a quarter of the state's doctors say they would leave if Vermont adopted this plan. What incentive do they have to stay?
We promise that doctors and hospitals will not see an overall reduction in their income. However, we said some highly paid specialists may see their income get reduced some, while the primary care doctors will see their income get increased. Right now, in Vermont as in the whole United States, primary care doctors are underpaid. Some super-specialties like radiology, dermatology, and cardiovascular surgery — they earn three times as much as a primary care doctor. These doctors may see their income get reduced some, and they are the ones threatening to leave, but I feel that is just a fear tactic, because Vermont has very attractive working conditions. These highly paid specialists work at the University of Vermont, or at Dartmouth-Hitchcock Center on the border with New Hampshire and Vermont. These doctors are working in these medical centers not only for money but for other opportunities, including research and prestige. So yes, they may threaten to leave. One, I doubt that, and two, I do not think these medical centers will have trouble recruiting replacements.

Do you think this is something that can be replicated elsewhere?
That is a hard question. Vermont has certain conditions that may make single-payer possible. It is a very progressive state and the grassroots organizations are strong rather than dominated by large organizations. However, some essential elements of single-payer could be slightly modified to make it suitable for other states, depending on other states’ political institutions.

Compared to other countries you’ve worked in, what are the challenges in the US?
There is a commonality among all nations as what they are confronted with. Namely, most countries I had been engaged with found health care costs escalating too rapidly, and they can't sustain their current systems. Some other countries like Taiwan, China, Cyprus, and South Africa, they were like the US — lack of universal coverage and rapid health cost escalation.

What's unique about the US is that the we spend so much for health care that it has built up very powerful special-interest groups — including the insurance industry, hospital industry, medical associations, pharmaceutical industry. These industries receive so much money, if they only spend one-tenth of one percent of it to fight you, that would amount to more than two billion dollars. You can imagine how many political campaigns they can support. You can imagine how much advertising they can put out on television and radio. That's the difference in the United States. We've let the problem drag on for twenty years and built up such powerful, moneyed special-interest groups.

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ABOUT THE ANGLE Online commentary and news analysis from the Boston Globe. The Angle is produced by Rob Anderson and Alan Wirzbicki. You can follow Rob on Twitter at @rcand.

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