Thoughts of health care reform and 'single payer'

If you thought Vermont's education funding system was complicated, just try getting your arms around the mechanics of healthcare finance. As someone who has lived in the details of education funding, I can tell you that healthcare financing is infinitely more complex. And because of that, it is fertile breeding ground for confusion and misinformation - on both sides of the spectrum. We don't even need to dive into the weeds of this complex issue before hitting the first point of confusion. In the context of healthcare reform in Vermont, "Single-payer healthcare" is the phrase we hear most about - by proponents and opponents - but it's a loaded term that few truly understand.

To many opponents, single-payer is portrayed as a government-run healthcare system; to many proponents, it equals free or low-cost healthcare for all.

But, strictly speaking, neither of those characterizations truly define single-payer. A single-payer healthcare system is one in which a single entity (typically a government or quasi-government entity) is responsible for healthcare funding and payments, with private providers (e.g. hospitals and doctors) delivering healthcare services. In theory, by harmonizing payments and consolidating the responsibility for payment administration (processes, technology, and people) into the hands of a single entity (hence the term, "single-payer"), cost efficiencies can be realized, while the consolidated financing entity can leverage further savings by imposing payment controls on the service providers (e. g. hospitals, doctors, etc.).

While experts may differ on the merits of this approach, and while it would be an ambitious undertaking, the implementation of some form of single-payer system at the national level is entirely feasible. The fact is that the single-payer model functions at the national level in many industrialized nations. Much of the debate around this policy choice is rooted in differing political philosophies around the role of government in healthcare. In Vermont, recent discourse has centered around the question of how we might pay for such a program. But putting aside political ideology and questions about funding, we need to address a more fundamental question; namely whether a single-payer system is even feasible at the state level, and more specifically whether such a system can co-exist with the multi-payer systems that remain the basis of our nation's healthcare system.

In the end, Vermont is unlikely to implement a true single-payer system, principally due to the inherent challenges we would have implementing such a system within the current federal context. The challenge is on two fronts: one, we have cross-border utilization of healthcare services, and two, we have a large population of employees with health insurance who either live in Vermont and work out-of-state, or vice-versa. (The Legislature's Join Fiscal Office and Legislative Council has already started looking into these issues, and have outlined many of the relevant considerations in a presentation you can view here.

A distinct, but overlapping, and even more salient issue concerns a federal law, known as the Employee Retirement Income Security Act (ERISA). ERISA (which preempts state law) provides a federal framework from which many medium and large companies (often operating in multiple states) are able to offer their employees health insurance through "self-funded" plans.

With these self-funded plans, companies are subject to federal regulations, but do not have to abide by the multitude of different state insurance laws and regulations in all of the states where their employees live. This self-funded model has become more and more prevalent, as it provides companies with consistency across state lines, and an opportunity to control costs by allowing companies to fund their own risk-pools and design their coverage options.

To put this into perspective, in 2010 there were 96,565 Vermonters covered by a self-insurance plan. By 2012, that number grew to 109,747. That's over 17 percent of the population - represented by employees of some of Vermont's largest employers. Each plan has its own administrator, with its own negotiated reimbursement schedules, each representing a unique "payer" in the multi-payer system we have today. Absent an act of Congress, the state does not have the authority to discontinue these self-insured plans. There is no waiver, no magic wand, that can erase this fact. Right there, we are left with a multi-payer system, regardless of any other change the state might make to our healthcare system. But the self-funded plans governed by ERISA are merely on the leading edge of a knife that cuts into the pie. Add in 100,000 plus Vermonters covered under the federal Medicare program, 30,000 plus Vermonters covered under a federal employee or military health insurance plan, and 50,000 plus Vermonters covered by an out-of-state insurance plan, and you can see how complicated things become. (The Green Mountain Care board has a good summary of the breakdown of insurance plans on page 14 of a recent report they published on healthcare expenditures).

Even if we ignore the ERISA plans, the state would have to convince the federal government to give the state (or its designated administrator) the authority and funding to fold the various federal government plans into a state-run single-payer framework. Without a true single-payer system, many of the theoretical efficiencies are lost, and public financing of the healthcare system becomes very challenging. With everyone in a single system, the tax options are relatively straight forward (but certainly not trivial), since a mixed bag of taxes would apply more equitably across a population covered by the same healthcare program. But what happens when you have 17 percent (or more) of the population that already has healthcare coverage and will effectively live outside the single-payer system? If Vermont implemented a payroll tax, how would major employers that operate self-insured plans react? Would such a tax be fair, would it be subject to legal challenge? In the case of major employers, particularly ones that are already hanging in the balance, the political considerations are as serious as the policy questions. These are just some of the difficult questions that have yet to be addressed, but will certainly be on the agenda during the next legislative session. Ultimately, I think we will see the conversation shift away from single-payer, towards a concerted effort at shoring up the healthcare exchange, coupled with the implementation of payment reform initiatives that start to move us away from a fee-for-service model. In my view, this is where we have real opportunity to drive down the cost of healthcare, and where we have a much more realistic chance of accomplishing something.

Suffice to say, healthcare reform is an important, but complex issue that does not lend itself to quick fixes.


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