Can Vermont's Single-Payer System Fix What Ails American Healthcare?

As Obamacare struggles, progressives hope a bold experiment could offer a better model. But first, it has to work.
Governor Peter Shumlin speaks to healthcare advocates in 2012. (Toby Talbot/Associated Press)

The Affordable Care Act's turbulent implementation has ruled the news cycle, but across the country states like Vermont are experimenting with their own plans.

Governor Peter Shumlin signed a revolutionary single-payer plan, Green Mountain Healthcare—the culmination of decades of work by progressive politicians in the state—into law in May 2011. The new system aims to guarantee universal insurance coverage, improve benefits for those who are currently underinsured, include universal dental care and vision care, and increase the Medicaid reimbursement rate to doctors in order to avoid cost-shifting.

In some ways, the system resembles the ACA, but the the most consequential difference is that Vermont’s law will end employer-provided insurance. "God didn’t create the fact that employers are responsible for healthcare for their employees," says Bernie Sanders, the state’s stalwart socialist senator. 

Yet that change has resulted in an echo of the problems Obamacare has faced in remaking the individual insurance market: Plenty of people aren’t happy about giving up existing insurance that they like.

Meanwhile, there are still major question marks about how Vermont will pay for the plan, whether it can achieve the projected savings, and what might happen when an American state tries to import a European-style insurance program. If the ambitious Green Mountain Healthcare is a success, its backers say it will serve as a model for the rest of the nation—especially if the ACA doesn’t achieve full coverage and help bring costs down. Then, they say, statehouses around the nation will look to Montpelier for guidance. But first Vermont has to figure out how the plan is going to work.

William Hsiao projected that the greatest savings in Vermont's plan would come from unifying the payment system. (Sean McElwee)

The program was designed by Harvard economist William Hsiao, who detailed the plain in a 2011 Health Affairs article. Hsiao projected the state would save 25.3 percent annually in total healthcare spending, lower household and employer healthcare spending, job growth, and higher economic output for the state. The savings would come from lower administrative expenses, reduced fraud and abuse, eliminating middlemen, malpractice reform, and governance improvements. These savings, about $4.6 billion over the first five years, would be plowed back into paying to cover the uninsured and expanding benefits and services leaving $2.3 billion in residual savings. The law also created the Green Mountain Care Board, an independent group charged with overseeing the law and ensuring quality. What the plan didn’t do is lay out how the state government would pay for its increased spending.

A projection of how Vermont would spend savings, based on William Hsiao's blueprint. (Sean McElwee)

But Vermont has already deviated from Hsiao’s blueprint. The state’s new tort-reform law is not as expansive as he had envisioned. The state is still working through the best system to raise revenues, and Shumlin has appointed a tax expert to work on some plans. Cost-containment pilot projects to reform payment and delivery systems recommended by the Green Mountain Care Board are beginning to roll out. The state has yet to finalize its proposals for raising revenues to fund the program, which the legislature will consider in 2015 and contract out the administrative duties through a competitive bidding process closer to 2017 when the plan is ready to implement.

Complicating the revenue project, the plan’s cost is disputed. A University of Massachusetts study commissioned by the administration to determine the cost of the plan estimated Vermont would need to find $1.6 billion in new revenues to fund the plan in 2017. Though the state will end up paying much more, UMass’s study also estimated GMC would save $281 million between 2017 and 2019 by reducing administrative costs and slowing growth in costs. The new system would eliminate the myriad providers currently in the state, and instead enroll nearly all of Vermont’s citizens in GMC. The UMass study estimates that about 70,000 Vermonters, roughly 10 percent of the population, would continue to receive insurance from their employers, the Veterans Affairs Administration, or their federal government plan. GMC would supplement that insurance.

Under Vermont’s existing system, individuals and their employers pay $2.2 billion each year, which will be reduced to just $332 million. Even with $249 million in federal funds for Medicaid, that leaves a $1.6 billion shortfall that must be made up with increased government revenues. And that’s the more conservative estimate. A recent report by Avalere, a healthcare advisory company, commissioned by Vermont Partners for Health Care Reform, a confederation of hospital, insurance, and business groups, found the UMass study may have understated the cost of the plan and estimates the state will need between $1.9 and $2.2 billion in new revenues. The Avalere report uses different assumptions for administrative savings and payment rates, arguing that the UMass estimate—that GMC will pay 105 percent of Medicare rates—may be too low and would drive providers to leave the state.

“The good news about the Avalere report is even if you take their assumptions, it still shows that we can cover everyone, bring everyone up to a better on-average benefit level as what they have today and spend the same or less money,” says Robin Lunge, Vermont’s director of healthcare reform.

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Sean McElwee is a writer based in New York.

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