Analysis: Why did the Vermont Single Payer Health System Collapse before Takeoff - Part 1

After nearly four years of pouring heart and soul intensive effort trying to establish into an ambitious plan that would setup a statewide single payer health system in Vermont, Governor Peter Shumlin recently announced that the plan to implement the system by 2017 would be abandoned. the scrapping of Vermont’s plan to implement the system by 2017. The Governor cited that the change would bring huge economic pressure on the state, and the disruption could be too much for small businesses and working families.

Although this single payer system plan was limited to Vermont, it holds a clear implication for the entire country, that single payer system will not be feasible for the country in the near future, and that Obamacare is still the best way to balance the nation’s imbalanced healthcare system and rising healthcare spending. So, what was the reason for the early demise of the plan that had so many hopes riding on it? Let’s find out.

1. Vermont tried to give the residents too much, too soon: Under the single payer plan, Vermont wanted to provide the best of benefits to its residents. Under the current Obamacare system, that translates into the Platinum coverage health plans, where insurance companies bear as much as 90 percent of the insurance liability while the consumer covers the remaining 10 percent through copays and deductibles. However, the total liability in Vermont’s private plan came out to be roughly 94 percent, which was higher than the best, and most expensive, , costliest Obamacare health plans. Naturally, this was too much for the administration to handle, as it was driving the costs up for everyone. Vermont tried to play with the liability by reducing it to 80 percent, but was ultimately unable to settle with the drop in benefits under this reduced liability plan. Between too high cost and too low benefits, Vermont ultimately decided to drop the whole idea.

2. The idea was bottlenecked by hospitals and insurers: Under this new private plan, Vermont wanted to give better benefits at lowest possible costs, which meant elevating taxes and lowering reimbursements to doctors, hospitals and insurers. Had this come to pass, doctors and hospitals would have had to accept privately insured patients at Medicare reimbursement rates. For the entire privately insured population of Vermont, this cut would have meant 16 percent reduction in reimbursements. Naturally, the hospitals and insurers aligned against the single payer system, leading to a collapse of the system. Considering the expensive healthcare industry of America, any such attempt to enforce single payer system is bound to see resistance from these powerful elements of the healthcare industry. Insurers do not want to lose all their business because the government is taking over healthcare, a phenomenon that is going to precipitate whenever a nationwide stab at single payer system is taken.

3. Some other cost savings failed to materialize: A primary source of income for Vermont’s single payer system were was the distributed cost savings they expected to nurture over the course of time. However, almost all of their planned attempts failed spectacularly. For instance, Vermont expected to gather a $267 million under the Obamacare waiver for setting up a competent healthcare system in the state, but after revisions, they managed to project a funding of only $106 million from the center. That’s a whole $161 million short. Another shortfall was on the Medicare funding they expected to receive. Vermont expected about $637 million in funding over Medicare, but the final number was only $487 million. The state also expected reduced tax revenues over the 2017 timeframe, of the order of $75 million. So, $161m, $150m, and $75m, making a total of $386 million, were snatched away from Vermont through mere projections. Considering the total liability of $2 billion, this was a roughly 20 percent loss even before the plan was put into motion.

The above aspects only deal with the planning end of Vermont’s attempt at single payer health system. There still is the subject of finance, which ultimately proved to be the final nail in the coffin of the Vermont single payer health system. In the next part of this post, we will explore the financial challenges that ultimately cemented the disintegration of Vermont’s attempts. Stay tuned!

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