• Be careful what you wish for

    Last July, when I was at my old blog, I highlighted the Vermont Gubernatorial Primary, where the candidates were fighting it our to see which was more pro-single-payer. Well, one of those candidates won, and he’s keeping his promise.  He has unveiled a bill that would potentially transform Vermont into a (very close to) single payer system. As Kevin points out, it won’t be a perfectly-single-payer system because (1) Medicare will still exist and (2) large businesses are still allowed to self-insure. But it’s darn close.

    This is potentially doable, it turns out, because of allowances made in the language of PPACA that allow states some flexibility in the set up of their health care systems. Yesterday, Governor Daniels (full disclosure, he’s my governor) wrote an op-ed in the Washington Post asking for states to have more flexibility in just that. While I may disagree with some of the flexibility he wants (ie less robust coverage options), I’m all for local ingenuity. If a state can set up a system that improves coverage, and do so in a way that saves them some money over PPACA, go for it.

    And that’s exactly why Vermont may prove to be more of a danger than people think, both to those who support the PPACA and those who want it repealed. Medicare Advantage was an experiment to see if private insurance companies could provide the same benefits of Medicare at a lower price. If they could, it might have sounded the death knell for a government run Medicare. Turns out they couldn’t, and Medicare stands strong. Vermont is now betting that they can devise a single payer system that will provide the same benefits as private companies at a lower price.

    By definition, it’s universal, so it will absolutely improve coverage. All they need to show, then, is that it reduces costs. There’s very little reason to believe it can’t.

    First of all, there will be administrative savings, which will be significant. No more profits, stock options, advertising, underwriting, etc. Plus, billing will be simplified in all offices and hospitals. But the big ticket savings may come from the ability to finally influence how we deliver care.

    You see, all the talk of pay-for-performance and capitation and such always comes in the form of Medicare and Medicaid. But private insurers can reimburse any way they want. So even if a government run system tries to influence things, private insurance can always do things differently. Doctors obviously prefer the private reimbursement rates, and the government caves. But with one system, there’s nowhere else to go. Cost cutting measures will actually have teeth.

    Conversely, this could cause a doctor or hospital revolt. If done correctly, though, the market power of a single-payer system may actually deliver on the promise of improved outcomes and controlled costs.

    And – unlike talk of repeal – this has a real chance of happening. The bill exists. Democrats control both houses of the legislature in Vermont and seem to be behind this bill. There’s no reason to believe it won’t pass, and the powers-that-be in Vermont want to get this done ASAP. Moreover, every cry from a Republican governor for more freedom to have the ability to decide things locally makes it more likely that Vermont will get its way.

    Of course, the devil is in the details. To pay for this, they will likely need a tax. That won’t be popular, but if spun right, it should not be more than health insurance costs already for most people, and so should be a wash. It will be a tricky play, though.

    Then we’ll have to watch. If Vermont pulls it off, and creates a single-payer system that covers everyone, works towards better outcomes, and starts to control costs, then it will be harder for other states to argue that it’s a bad idea.  It’s one thing to accuse England of being a socialist nightmare; calling Vermont one will not ring as true. Other than their health care system, it’s America. You can’t attack Vermont without attacking the US.

    From my perspective, it’s a win-win. We get some comparative evidence of how such a system might work in the US. If it fails, then we see why and learn something. If it succeeds, then there is hard-to-refute evidence that a single-payer system in the US is a much more viable option.

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    • Yes. As I said below, I think this is the kind of thing we should be trying. I think the battle over how to pa for it ma be tougher than we think, but hope they work it out.

      ( I also thought that Daniels follow up (his health care adviser actually) with Klein was interesting. What he wants is for states to be able to determine what level of care they will require. That is the status quo. This does not comport at all with the usual stated preference with selling across state lines. )

      Steve

    • I agree completely that the devil is in the details, but I’d extend it even farther than that. First, I would caution against equating Vermont’s solution to Medicare. While I don’t think it’s in the same ilk as the “Mess in Mass”, I do think this will look alot more like Medicaid than Medicare.

      Therein lies the problem. All of the mandatory benefit requirements across states- including some truly outrageous ones- will eventually complicate this. For example, the Medicaid covered pest control in Florida, the OTC drug/supply coverage that is nearly ubiquitous in Medicaid, and non-emergent transportation (regardless of distance) that is so often seen.

      These benefits that are so often excluded from private coverage are generally expensive- both in terms of direct coverage as well as administration. There is truly a benefit to having the ‘evil insurance company’ around as they are able to draw a line in coverage that just won’t be possible in a state legislature. Heck, it wasn’t possible in Congress! Look at the evolution of Medicare from hospital coverage only to introducing Parts B, C, and that insatiable monster- Part D. In microcosm of that even, consider Part D alone. It started as limited coverage, and in just five years it’s now become a nearly open ended benefit without much of a donut hole, and CMS continues to try and reduce the member cost to the point that members have nearly no ‘skin in the game’.

      Single payer (even this version of it) cannot work while the reigns are in the hands of people beholden to those who don’t understand health care finance, who also have the ability to print their own money (either literally or by raising taxes).

      • @Michael Phipps – We strive for evidence-based discussions here. With that in mind, can you provide a citation for Medicaid’s coverage of pest control in FL?

        Also, about Medicare starting out as hospital-only coverage, that’s just factually wrong: http://theincidentaleconomist.com/wordpress/what-did-medicare-cover-in-1965/ .

        Medicare Parts C and D are implemented via private insurers. The point of Part C is for private companies to offer more benefits, not less. In fact, that was the only source of drug coverage within Medicare until Part D.

    • Interesting side note on Part B which I keep forgetting to ask about. Part B has a significant penalty for each year that you delay signing up, 10% IIRC. I assume that this was an attempt to address the free rider problem. How effective has this been at getting people into Part B. I have looked for this data with no luck, but then I am an internet search klutz. Would this be a viable model for replacing the individual mandate?

      Steve

      • @steve – The Part B late enrollment penalty is on my list to look into. I have no idea when it was implemented and how much it is. If I had to guess, I’d say that it probably isn’t even necessary in the case of Medicare. The benefits of that program are so highly subsidized and the elderly are so vastly likely to obtain value (due to high health care use), it is hard to believe they need incentive to sign up. I could be wrong.

    • Here’s your citation for reporting requirements for mandatory pest control coverage in Florida Managed Medicaid products since 2003 (page 8 ) . I’d offer more, but unfortunately the carrier contracts and fee scehdules are not published publicly.

      In terms of the original Medicare coverage, when it was implemented the three part coverage was the final rule, but as originally intended (prior to amendments during initial legislation) it was a hospital only plan with a Medicaid benefit. Part B was added during debate.

      Finally, the point of Part C was certainly not to provide more benefits than original Medicare. It was to provide the same or better benefits for less cost using the advantages available to private coverage such as less expensive administration, more effective care management, and more effective early interventions. It was a function of the market that better benefits than original Medicare were offered. It was necessary to differentiate the original risk plans from both original Medicare as well as the then robust Medigap products.

      As you may remember, drug coverage was not a required benefit under Part C- it became a competitively necessary benefit in many markets, but not all. This was one of the reasons that Parts C&D were designed to work the way they do- MA standalone, MA-PD, and PD standalone. Regardless, my point about Part D remains- it’s a benefit that was originally conceived as a partial benefit initially after a deductible, and then extended coverage if necessary, but well after the member had spent enough that it was clear the expense was individually catastrophic. Now it’s approaching a near unlimited benefit with the reduction of the donut hole, reductions in deductibles, increases in required medications, and reduced member copay costs. This is not to mention the various direct payoffs (sorry, subsidies) authorized by Congress.

      The administrative efficiencies of a single payor product are for the most part not disputed. An effficient single agency can reduce the cost of delivering care, no question. (Although I would dispute how efficient a state agency can be- there’s a reason gov’t bureaucracy and red tape are such legend.) What I’m disputing is the cost of the care itself. Excessive benefits via mandatory coverage, members with no financial motivation to even consider the appropriateness or cost of care, the excessive cost of medical liability, the sheer pandering nature of poltical influence into the determination of coverage- these are the issues that make any government sponsored single payor solution unsustainable.

      Also, for the record, pay for performance is not the exclusive realm of Medicare and Medicaid as you imply. Private carriers have had P4P for many years in the form of quality improvement programs, health risk score based capitation (before Medicare thought of it!), peer education, and more innovative programs. It’s important to mention that even capitation was a construct of private carriers, and private carrier based staff model products were offered to the general public as early as the 1930’s. The only government sponsored staff model I can think of that predates that is military service…. perhaps that’s the solution- conscription?

      At the end of the day the reality is simply this- with few exceptions the government neither drives innovation nor reduces costs. This is the advantage of private industry.

      • @Michael Phipps – Thanks. The pest control is for the purpose of maintaining “a member at home while avoiding nursing home placement.” If pest control were required to do that, and it thereby saves a nursing home placement, that’s probably money well spent. As to whether that service is abused or not, I certainly cannot say.

        I don’t think we should be arguing what was “original” Medicare and what was in the final legislation. We both know that Medicare was a long-time coming and came out of efforts for even more comprehensive programs. What was the “original” plan is really debatable. Fact is, in 1965 Congress decided to enact a program that was far more than just hospital services. Officially there was no “Medicare” program before that, so this is not an “expansion” of a prior “smaller” program.

        In case you don’t know, my ideal system would leverage the potential benefits of both public and private payers: http://theincidentaleconomist.com/wordpress/toward-an-efficient-medicare/ .

        I’m also not the author of this post. I didn’t bring up pay-for-performance so I’ll leave that aside.

    • @Michael Phipps- “At the end of the day the reality is simply this- with few exceptions the government neither drives innovation nor reduces costs. This is the advantage of private industry.”

      How I wish this was true in medicine. It would make everything simpler. There is a lot to unpack, so I will try to be brief. First, private insurers pay much more for the same procedures than does the government. Private insurance rates have grown as fast or faster than government rates. There is little evidence that they do much to hold down costs.

      On innovation, are you referring to private industry as payor or as provider? On the payor front, I certainly dont see any innovation in my practice. The only attempts I see to hold down costs/improve quality come from Medicare with items like the central line initiative. The private insurers do make me fill out a ton of papers every year to make sure I am still qualified. I guess someone out there thinks that having me send a copy of my diploma to the same insurance companies every year is innovative or improves quality. I dont see it.

      As provider, the government does little of that in a direct way, so industry wins, but then I dont really want govt. directly providing care and I know few others who do. OTOH, govt funding of basic research has been very important.

      Steve

    • @steve – I totally agree with you. Private insurers DO pay more than government. They also expect more. Not that this is any more than anecdotal, but I cannot think of any physicians in my region that only accept Medicare and Medicaid with no private carriers. They can’t afford it. Further evidence is the current conflagration over the SGR calculation.

      I would disagee with your assertion that “There is little evidence that they do much to hold down costs.” I still maintain that managed care’s efforts in early interventions, preventive care, care coordination, and benefit management do more to hold down costs than any government program. Radiology management alone has seen plans with a more than 200% ROI that sacrificed nothing in terms of patient care.

      In terms of innovation I’d suggest considering a greater scope than a single practice as judge of innovation. Things like “never” event policies, intensive fraud detection, risk based case management all originated in various private carriers – not Medicare or Medicaid. You may not see these things in a single practice, but I guarantee they exist with the carriers you accept, and you have benefitted from them.

      Also, I would maintain that proving your good standing as a physician does have its own merits. Perhaps its a pain for you because you are in good standing and provide high skill, high quality care, etc. Isn’t finding the rare poser worth the trouble? Finding the odd Dr Feelgood, the forged credentials, the physician that moves to a different state to escape liability or responsibility is in my opinion worth your inconvenience.

      I completely agree that basic research is very important, but the fact is that even basic research requires industry to succeed. The majority of basic / initial research occurs in universities, and once discoveries are identified they are sold or commissioned off to industry for develpment, refinement, and production. There are no real Manhattan projects anymore, least of all in medicine. Even DARPAs own medical research is performed by groups like Johnson & Johnson, Smithkline, and the like. Even the VAs VISTA EMR solution was developed in partnership with private industry, and it’s known as one of the most effective open source EMR solutions in the world. And to your point, the FUNDING is the key- government administration is path to cost explosions.

    • Given your note on feedback, I feel a little guilty posting this.

      In this post you noted: “First of all, there will be administrative savings, which will be significant. No more profits, stock options, advertising, underwriting, etc”

      And in Austin’s earlier post he wrote: “Sometimes one only needs to know one simple fact. It’s this: In each of the past 50 years payment to health care providers has accounted for more than 85 percent of health insurance premiums. Thus, only a small fraction of spending on health insurance premiums is consumed as a cost of insurance.”

      Aren’t you overselling the cost savings from single payer here, or is there something I’m missing? It still seems to me that we are faced with either continued high costs OR reducing actual medical services. Or do you think payment system reform really can deliver the answer to the long term question of health care spending?

    • Jeremy R. Shown,

      No. Austin and I are likely in agreement on how much could be saved in terms of administrative costs. In fact, I explicitly address that in my series on health care costs.

      But in order to qualify for a waiver, they just need to be cheaper and cover more. They don’t need to be WAY cheaper, just cheaper. And, just saving on administrative costs will do that.

      You’ll notice that I said the bigger cost reductions might come from a single-payer’s ability to influence the way we deliver care. So I think you and I are likely on the same page, as well.

      • @Jeremy R Shown – I’m not as convinced as many that single payer would be the cheapest way to go. Nor do I think it is likely outside of a few states like VT, not soon anyway. On the other hand, long term, it may be what we end up with. I see as both more politically practical and likely better all around a competitive bidding system in which private companies compete with a government program. Another option is an all-payer system. Both preserve a role for private insurers and would thereby allow some choice and innovation we might not otherwise see from government alone.

        Any of this is a long way off. But, while we’re dreaming, we should ditch the employer-sponsored insurance tax subsidy and subsidize for low income and high health cost risks whether someone purchases through an employer or an exchange.

    • I think that it will be a good thing if Vermont creates a single payer system. If they use their monopsony power to push prices down and doctors leave the state they can make it easier to become a doctor in Vermont. It bothers me that the Feds and private parties pay so much of the bill for the medical care even while the states constrict the number of providers.

    • ” And – unlike talk of repeal – this has a real chance of happening. The bill exists. Democrats control both houses of the legislature in Vermont and seem to be behind this bill. There’s no reason to believe it won’t pass, and the powers-that-be in Vermont want to get this done ASAP. ”

      I’m not clear whether that statement is naive or whether I’m simply too cynical. If all of the Vermont legislation passes as proposed, that would clearly be the first step toward elimination of the multi-billion dollar health insurance industry across the country. The health insurance industry has a well-established reputation for effectiveness in opposing legislation it doesn’t like…see Wendell Potter’s book, Deadly Spin. It would be fighting for its life. That seems to me to be plenty of reason to believe the bill won’t pass.

      If I were a betting man, I’d wager that we’ll see no opposition to legislative provisions that don’t harm insurance companies. I’d wager that the exchange will be formed, and that payment mechanisms will be modified with no real opposition. Then, when actual movement toward a single payer is proposed, implacable resistance will appear…that won’t have any apparent tie to the insurance industry.

      When the bill is defeated, we advocates of single payer insurance in other states will be reminded, repeatedly, of its failure in the most progressive state, with the most favorable government, despite a plan by the most expert plan designers on the globe.

      It will take more years, many more years before the accumulating pressure of steadily rising health care cost forces the can of worms open again.

    • @Wally R: “first step toward elimination of the multi-billion dollar health insurance industry across the country”

      Sorry, no. Just because you move to single payor doesn’t mean all of a sudden it gets free, or even cheaper. All single payer will do is roll a multi-billion dollar industry into a multi-trillion dollar one.

      I do appreciate the realist attitude though. Hopefully when the wise people of Vermont realize the inevitable- that single payor beholden to government entities is inherently and fatally flawed from the outset- it will make it easier to convince those in such a hurry to abdicate personal responsibility and invite the government to assert control over yet another aspect of our lives that it just isn’t feasible.

      Regardless of the outcome in Vermont however, there are more than sufficient good arguments against single payor.

      • “Regardless of the outcome in Vermont however, there are more than sufficient good arguments against single payor.”

        There must be considerable U.S. data available on the various private / public multi-payer systems that have been operating for a number of years. Seems to me Vermont’s single-payer approach should be welcomed, if only to provide some comparative U.S. data. What are you afraid of? People in Vermont seem prepared to take the risk.

    • Michael:

      I know of no one claiming that single payer is free. Dr. Hsiao’s presentation to the Vermont legislature documents predictable cost-savings that can be anticipated from adoption of a single-payer system. I can get you a link to his proposal if you like.

      I contend that a single-payer system accomplishes two objectives.

      It greatly increases the number of people who have equal access to affordable, high-quality health care.

      When all payments for all of health care flow through a common pipe, it becomes much easier to control health care cost. Single payer is a means to the end of cost control. It is not, of itself, the end.