Analysis: Why did the Vermont Single Payer Health System Collapse before Takeoff - Part 2

In the first part of this post, we explored the planning level gaps that ultimately led to the collapse of Vermont’s proposed health system. However, more than any of these planning level issues, the financials were always the pain point of the Vermont administration. Back when the administration was playing with the idea of having a single payer system, they only had the vague idea that the huge $2 billion cost will be covered by an increase in taxes and other connected funding. However, when they actually sat down to make the calculations, the plan worked out to be a failure. Compounding that with the resistance shown by hospitals, insurers and employers, the single payer system was doomed. Let’s take a look at the top financial issues, which broke Vermont administration’s resolve.

1. The administration went ahead without discerning the inflow of money: When the plan for the single payer system was underway, the administration had one thing clear – they were looking at a huge expense, because they were covering more people than Obamacare and were giving better health benefits, both of which were going to cost them a whole lot of money. However, at the beginning, the administration was confident of moving ahead without being fully sure about where the money will come from when they need it. The uncertainty behind cost of this single payer system became an important point of contention in the Vermont elections as well, but fortunately, Peter Shumlin, the long standing proponent of the single payer system, won the election and continued his term. This inconceivable oversight on finances was one of the prime reasons behind the failure of the plan.

2. Vermont needed a 160 percent tax increase to meet the financial liability of the single payer system: According to available estimates, the Vermont administration expects to collect $1.7 billion in tax revenue. For Green Mountain Care, the name given to Vermont’s single payer system, the state needs to raise an additional $2.6 billion in taxes, which comes out to be roughly 151 percent. Similarly by 2019, the state expects to collect about $1.8 billion in taxes, but needs to raise $2.9 billion through taxes for the single payer system. That’s 160 percent of sheer tax increase. Naturally, for each of the ideas suggested for raising this money, the administration witnessed a strong pushback from the segment, subduing the administration into accepting their terms. For instance, when the small businesses were informed of the 11.5 percent payroll tax, they pushed back, ultimately having the administration provide them a grace period for organizations with up to 100 workers, thereby losing $500 million in funding. Another reason for financial failure was that the state tried to replicate a manner of federal subsidies in its system, and for financing those subsidies, put incessant pressure through payroll and tax revenues.

3. Even with all this, a single payer system was out of Vermont’s reach: The federal government spends the most on health insurance, through Medicare, Military Healthcare, subsidized employer sponsored health insurance, and a large chunk of Medicaid sponsorship. Vermont’s plan to replace all of that was too big for the state’s capability, even with that small a population. The only way to make Vermont’s plan work was through waivers on Medicaid, Medicare, and Obamacare. Further, a primary advantage of having a single payer system is reduced paperwork for hospitals and insurers because of a single insurer to reconcile with. However, with the option of buying private health insurance from New Hampshire, the advantage of having a single system is not much to talk about. Further, Vermont has only 3 insurers, BCBS, Cigna, and MVP, and having a single system won’t make much difference in administrative cost savings anyway.

Although this failure of a state-based single payer system is a major setback in having a nationwide single payer system, it does make a few things clear about Obamacare. The failed effort highlights what Obamacare has done right in the last year and a half, including the cost balancing and smart maneuvering of the tricky healthcare domain. At this point, Obamacare is working. Even if a single payer system is not in the American future for at least the next half decade, I think we can make do with all that Obamacare is doing right.

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