Universal health care plan could save $1.834 billion

November 03, 2011


The Shumlin administration’s signature “single-payer” style health care plan could save as much as $1.834 billion by 2020, according to a report released on Tuesday.

That’s the best-case scenario. Under more conservative estimates, the report from the Joint Fiscal Office and Department of Banking, Insurance, Securities and Health Care Administration, [2] puts savings at $553 million by 2020. The report, produced with assistance from consultant Steve Kappel with Policy Integrity, LLC, builds on a study produced in February by Harvard Professor of Economics Dr. William Hsiao.

The wide spread in the amount of savings derived from a universal health care plan is a reflection of the inherent complexities of medical system reform, and political and economic uncertainties, according to BISHCA Commissioner Steve Kimbell.

“We’re trying to predict the future here, so trying to nail down specific numbers is not wise,” he said.

Act 48, the health care bill passed by the Vermont Legislature last session, mandated this savings report more than a year before the secretary of the Agency of Administration is required to submit a financing plan to the General Assembly in early 2013.

Projected savings derived from the universal health care system, which is currently in the planning phase, would be between $553 million to $1.834 billion a year in 2020, according to the JFO/BISCHA study. Hsiao predicted that a single-payer system would reduce medical spending by $1.1 billion a year in 2019. The state study shows a savings range of $451 million to $1.48 million that year.

Like the Hsiao report, which Kappel was also involved in shaping, the state predicts that a portion of the savings – about $140 million in 2019 – will come from a reduction in administrative costs. The universal health care plan would create a “single pipe” system in which all claims would be processed by one entity instead of a handful of private and public insurers.

Steve Klein, director of the Joint Fiscal Office, said one of the primary goals of the report was to “put a stake in the ground for baseline growth.”

Health care spending in Vermont will rise by more than 7 percent a year without reform, and total medical expenditures will more than double from $4.7 billion in 2009 to $10 billion in 2019, according to BISHCA. The Vermont rate of health care spending is 1.4 percent higher than the national average, and the model incorporates that assumption.

The savings, however, come at a price. The state would have to spend between $50 million and $150 million to initiate reform. Part of this investment, Klein said, would be for information technology to track health care claims and to determine eligibility levels for individuals and small businesses that participate in the federally mandated insurance “exchange,” which provides tax credits and subsidies for those who qualify.

Under the federal Affordable Care Act, Medicaid spending will increase as cover is offered to more Americans in 2014. Vermont has already expanded Medicaid eligibility for residents at a level beyond the ACA requirements. The BISHCA/JFO report projects a smaller increase in Medicaid spending for Vermont than the national average.

Wendy Wilton, Rutland city treasurer, who has been a persistent and outspoken critic of the state health care reform, says the additional Medicaid money might not be available. She cites a study by the Kaiser Commission on Medicaid and the Underinsured that reports some states are worried about the looming federal deficit reduction efforts. The Medicaid program, which provides health coverage to poor or disabled individuals, is funded jointly by the federal and state governments. Each state administers separate Medicaid programs within broad federal guidelines. The Hsiao report and the recent state report count on Medicaid Global Commitment revenue in their savings calculations, but Wilton is skeptical additional funding will arrive.

Wilton has calculated her own projections for the financial outcomes of a single-payer system. She predicts a $2.1 billion deficit by 2018.

Wilton says her assumptions are different from those made by the authors of the JFO/BISHCA report. Her projections are based on two-thirds of health care spending in Vermont (she excludes Medicare recipients and ERISA and military employees), while the state’s estimates are based on total health care expenditures. Wilton also significantly lowers the cost savings under a universal plan. She doesn’t think the medical fraud and medical malpractice estimates in the Hsiao report are accurate.

Wilton used the MVP benefit plan for the state-subsidized Catamount Health program for uninsured Vermonters to derive estimates for the Green Mountain Care “essential” benefit. (She says the less expensive Blue Cross Blue Shield plan for Catamount beneficiaries is underpriced, since she says it covers younger, healthier people.) Wilton added $5 million in administrative costs each year starting in 2014. Her calculation includes more than $100 million in cost increases for an in-migration of uninsured people and undocumented workers who she says will move to Vermont to take advantage of a universal health care program. Wilton anticipates that government employees will bargain for supplemental coverage to ensure the “essential benefit” plans are on par with the insurance coverage they have now. She also includes in her analysis a financing mechanism based on a payroll tax, which was recommended in the Hsiao report in part because it would enable employer contributions to remain tax-exempt. If the program was financed through an income tax, workers would lose this benefit, and contributions could be taxed as income at the federal level.

Kappel said he had not picked apart Wilton’s analysis, but he was skeptical of her assumptions. The Legislature, he said, did not charge BISHCA and the state Joint Fiscal Office with conducting an analysis of financing models for a universal coverage plan.

At this point, it’s too early to narrow the state’s broad estimates, Kappel said.

“It would be nice to squeeze the ranges (in savings) down,” Kappel said. “I don’t think it would be wise, though.”

Kimbell emphasized that the cost savings estimates were slightly more conservative than the Hsiao report.

“We’re trying to be realistic,” he said.

The report, Kimbell said, establishes an approach for future analyses and gives the Green Mountain Care Board a framework for reform. It also sets a baseline in place that the secretary of the Agency of Administration can use to develop a financing plan for Green Mountain Care. Under statute, the financing plan must be presented to the Legislature in 2013.

Editor’s note: A write-thru of this report was posted at 10 a.m. Nov. 2, 2011.