No Single-Payer Healthcare System for Vermont....or Anywhere Else

VTSealWhen Vermont Governor Peter Shumlin announced last month the state was scrapping plans to create a single-payer system, he effectively pulled the plug on the only active effort by a state to implement a single-payer healthcare system. His announcement stated simply that the economics didn't work - meaning that the costs were too high.

Shumlin has long advocated for a publicly funded healthcare system and even ran on the idea during his first gubernatorial win in 2010. The effort picked up momentum when the state ratified the law establishing a single-payer-like system in 2011.  However, until recently, officials hadn't really explained the thorny question of how they were going to pay for it.

Vermont's plan was supposed to work like this:

All Vermont businesses would be subject to an 11.5% payroll tax, similar to how the federal government taxes them to support Medicare. For companies that currently offer private health insurance to their employees, the payroll tax would replace those private expenses. State residents would also pay a sliding-scale income tax. The income tax would be capped at 9.5%, and no Vermont resident would pay more than $27,500 per year toward the healthcare system. In exchange, all 626,000 Vermonters would have insurance policies that cover 94% of their healthcare costs.

The payroll and income taxes were expected to generate the $2.6 billion needed to fund Green Mountain Care (the name given to Vermont's single-payer system) in 2017. The plan would have cost almost $2.8 billion in 2018.

Shumlin said last week those taxes were too high, and “the potential economic disruption and risks would be too great to small businesses, working families and the state's economy.” According to his director of healthcare reform, the state also expected to incur higher costs by giving small businesses payroll tax discounts in the near term as a way to soften the transition. Smaller-than-anticipated federal funding, Medicaid provider-fee shortfalls and a slow economic recovery also hindered progress.

Vermont commissioned two economists—Harvard's William Hsiao and MIT's Jonathan Gruber—to analyze the feasibility of single-payer in 2011. Hsiao is known for coming up with some of the framework for relative value units, or RVUs, which are used to determine pay for physicians. Gruber has taken a lot of heat recently for his comments that Democrats relied on “the stupidity of the American voter” to build support for the Patient Protection and Affordable Care Act.

Using the most aggressive modeling from the Hsiao-Gruber report which called for a 17% payroll tax, the state would've brought in about $2.7 billion of revenue. Another alternative scenario had the state raising $2.5 billion if they levied a 10% payroll tax and a 10% tax on non-salary income like capital dividends.

Conservatives, who generally oppose any kind of tax hikes, have consistently railed against single-payer models. Several small employers in Vermont have also skewered the plan. The National Federation of Independent Business said last week that single-payer “would be fiscally impossible without placing an overwhelming burden on the backs of small businesses.”

Whatever the cause - politics or budgets - the effort to enact a single-payer system in Vermont appears to be dead.

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