Monday, July 11, 2016

Why Colorado's Single Payer Health Plan Would Work Better Than Vermont's

All through most of the 2015-16 Dem presidential campaign Sen. Bernie Sanders of Vermont was asked why his single plan proposal would work when the state of Vermont's attempt at it failed. That has now come up for scrutiny again as Colorado seeks to pass an amendment in November with a single payer type system.

Colorado Care, however, contains built in protections that Vermont's law didn't and also leaves out the toxic political concessions that resulted in the downfall of the latter.    The bottom line is that universal health care systems work and cost less in all other industrialized countries. All previous analysis of universal health care showed it was more affordable.

So what happened in Vermont?  The MSM in the wake has repeatedly claimed that the Governor’s Vermont proposal did not find much savings. But, was the Governor correct in saying universal health care was too expensive or did something go wrong? 

Here's what went wrong  in Vermont as determined by those actively supporting 'Colorado Care', including My wife, Janice.

1) Vermont approved a single payer health care system without specifying the policies that would make it work. Not surprisingly, policy issues matter. Dr. William Hsiao, who designed and guided the implementation of the successful Taiwan universal health care system in the 1990s, offers relevant commentary on a similar situation in Taiwan. He reports that before he went to Taiwan, problems arose when four technical experts tried and failed to come up with a successful universal health care proposal. He said, “It was like a wagon drawn by four horses, with each going in a different direction and nobody driving.1”

2)Vermont’s proposal, in which political forces and political concessions shaped a plan that did not have a driver keeping track of realistic economics, is similar to the first, unsuccessful attempt at a plan in Taiwan. Interestingly, Dr. Hsiao, who has experience designing and at times implementing health care systems around the globe, also conducted the preliminary analysis of the Vermont proposal before the political concessions, and he found that it was economically feasible. 

3)The VT governor’s economic proposal featured  a plan with too many political concessions and too little focus on what would work. Vermont adopted universal health care based primarily on a “health care is a human right” campaign without an emphasis on economics. The proposal’s governing body, the Green Mountain Care (GMC) Board, which was not responsible for financing, designed a system without a focus on the economic and policy decisions needed to make it economically feasible. Its design included political concessions to insurers, hospitals, and providers.

4) On top of that, the VT Governor offered financing concessions to low-income constituents, high-income constituents, and the self-employed, and as a result, the cost for the remaining payers—middle-income workers and employers—became too high.  

5) In addition, Vermont faced a number of situational challenges. Vermont has a high per capita health care cost, limited median family income, a small population, and a workforce and medical services that intermingled with neighboring states. All of these factors decreased Vermont’s ability to reduce costs.

6) The Vermont plan did not attempt to retain obvious savings. It claimed there would not be any savings, which ignores potential savings from obvious factors, such as the reduction in administrative tasks when there is one primary payer, the elimination of the marketing and advertising costs in the multi-payer system, and the elimination of the need for insurer profits, among other things. When administrative costs go down, someone has more money, and it appears that Vermont allowed providers to use the administrative savings to increase income

Colorado, fortunately, does not have these challenges. 

Now, how is the Colorado Amendment 69 proposal different? The Colorado proposal for ColoradoCare aka Colorado Health Care Cooperative is a system designed to establish universal, high-quality, and accessible health care; decrease the overall costs of health care through efficiencies; and collect premiums in an efficient and fair manner.

 It differs from Vermont’s approach and plan in multiple ways:

• Colorado’s plan does not make an alliance with the insurance industry. The GMC Board Chair was closely associated with the insurance industry and had been a strong advocate of the RomneyCare program in Massachusetts2, which expanded coverage but also greatly increased costs. The Board agreed to subcontract with a large insurance company and promoted this as a public-private partnership. This partnership did not report the administrative savings that are expected to come from removing the multiple, for-profit, middle managers. 

• Colorado would obtain the benefit of savings, not pass the benefits onto hospitals for higher profits. Vermont made a political decision to eliminate the Hospital Provider Tax, presumably because in a universal health care system such a tax only increases the cost to GMC. However, the economic analysis showed that GMC would not reap any benefit of lower cost, and the hospitals would retain the savings.

 • Colorado would pursue decreases in the cost of pharmaceutical and durable medical equipment. Multiple analyses, as well as model programs such as the VA Hospital system, have found that a unified system can use its market power to lower the costs of pharmaceuticals and medical equipment. However, Vermont decided not to pursue lowering pharmaceutical costs.

 • The Colorado proposal decreases administrative complexity instead of increasing it. The GMC Board decided to implement a complex transition to payment reform through Accountable Care Organizations (ACOs)3,4 in order to pursue a theoretical cost savings later on. While ACOs are supported by health care economists and offer promise, they are still in the process of development and have not yet been shown to maintain quality care and offer savings when applied over a whole state. This expensive transition consumed natural cost savings from administrative simplification. The Colorado proposal minimizes the Cooperative’s administrative expense in order to achieve a savings. Colorado’s proposal phases in ACOs and other payment reforms only to the extent that they decrease cost and improve value.

 • . The Colorado proposal incentivizes the system to benefit from savings. As a provider’s administrative costs decrease, the payments would correspondingly decrease. Colorado’s obligation would be to maintain overall provider compensation at a level that is competitive enough with other states so that Colorado would have a sufficient health care work force.

 • The Colorado proposal is less disruptive to employers.  While in the long run both the employer’s and employee’s premium payments come from the funds available for the wage/benefit package, in the short run, the Vermont proposal requires that employers who did not previously pay for health care pay a 10.5% payroll premium. Such a large increase is burdensome. The Colorado proposal: o Shares the 10% payroll premium between employer and employee so that the employer pays 6.67% and the employee pays 3.33%.  o Allows employers that have previously paid for most of health care to pay employee’s share if the employer agrees to do so by union contract or any other contract. o Covers the medical portion of workers’ compensation, which decreases workers’ compensation costs by 60%. This reduces the administrative and financial burden on employers.

• The Colorado proposal has premiums that are fairer—one combined employer/employee rate for everyone without the large difference between the effective rates for low-income and high-income residents. The Colorado proposal is modeled after the successful Social Security and Medicare insurance premium collections. Everyone pays the same percentage rate for combined employee and employer contributions (10% split between employer and employee). In addition, to be fair to working people, the same percentage rate is applied to non-payroll income. Vermont would have collected its premiums using two methods, a payroll premium tax of 11.5% paid by the employer, and a progressive income premium tax that rose to 9.5% of adjusted income. The combined employer/employee premium contribution varied greatly as the Table below shows.  

Many thanks to Janice for assembling this information from the Colorado Care site!

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