In May, Vermont enacted the nation’s first single-payer health care law, designed by a Harvard School of Public Health economist and his team to provide health care for all legal residents and curb runaway costs. If Vermont can navigate the political waters and implement the plan, said its chief architect, William Hsiao, the K.T. Li Professor of Economics at HSPH, “it will provide a model for other states, and for the country.”
Past attempts to pass a single-payer system have failed, but this time the political stars are aligned. “You must have a plan that is appealing and credible to legislators and the public,” said Hsiao, who was approached last year by the Vermont Senate majority leader, Peter Schumlin, who is now governor.
“We know single-payer can work,” says Hsiao, who helped design Taiwan’s single-payer, universal health coverage system and system reforms for eight other nations. Hsiao also played a leading role in developing the national health insurance plan in the Carter administration, and his development of the resource-based relative value scale, the basis for calculating physician reimbursements under Medicare.
In August 2010, Hsiao and a team of health system analysts were commissioned by the Vermont legislature to develop options featuring universal coverage, an appealing benefits package and controls on health care costs. They were given six months to design three options:
- A pure government-run, single-payer system that would channel all payments, including Medicaid and Medicare’s, through one insurance fund with uniform payment rates;
- Add on a public option that would compete against private insurers in health-insurance exchanges created by the federal Patient Protection and Affordable Care Act, or PPACA;
- A public-private single-payer system, run by the government and by a board of stakeholders.
While computer modeling and analyses found all options resulted in savings, the third—the HSPH team’s choice—did so most effectively. It will slash annual health expenditures by 25 percent when fully implemented in ten years—with $580 million saved in year one. Part of the savings will be used to cover the uninsured and upgrade coverage for the underinsured. “We purposely designed a system that saves almost twice what might be spent so that we’d have a huge margin for error,” said Hsiao.
While all three options would streamline administrative functions, curb fraud, abuse and waste, and introduce a no-fault medical malpractice system, the third offers a twist on the traditional government-run, single-payer concept: governance by an independent board of stakeholders, the Green Mountain Care Board. This plan also calls for the competitive bidding of contracts for administering claims, imparting this modest role to private insurance companies.
The board will hash out benefit packages and payment rates by joining at one table those who must pay—workers, employers, and the state—with those who receive, namely hospitals, physicians, pharmaceutical companies and the public. “We want to let them negotiate directly, without state government in the middle,” said Hsiao. “This is what I have proposed to many governments, and it has worked. It takes politics out of the picture.”
Three months after submitting their report on February 17, 2011, Hsiao’s team saw crucial elements of their plan pass in both legislative chambers. About three months later, Governor Shumlin signed the plan into law.
“Vermont gave us complete freedom to propose what we thought was best,” said Hsiao. His co-authors were MIT economist Jonathan Gruber, whose model predicts the impact of key health-market interventions, and Steven Kappel, who has spent 30 years shaping health policy for Vermont. Hsiao also engaged more than a dozen HSPH graduate students.
Vermont’s new law is merely a first step. It incorporates the board and other fundamental ingredients recommended by Hsiao’s team but leaves the task of figuring out how to finance the plan to legislators, who must first obtain waivers in order to diverge from certain rules set by Medicaid, Medicare and the PPACA. The HSPH team’s proposal, a payroll tax, will be contentious, Hsiao concedes.
Might state-based, single-payer health care be a solution for the United States? Hsiao addressed this question in a Perspectives essay in the March 31 issue of the New England Journal of Medicine. Reform must embrace some components of a single-payer plan, he said, since that is the only way to both fund universal coverage and reduce health care costs.
“Employers, workers and the government all say they can’t afford escalating health care costs,” Hsiao said. “That’s why I’m optimistic that national reforms will come within the next five years.”
Read more about the HSPH students who helped craft Vermont’s health care reform proposal.
To learn more, students may contact William Hsiao at hsiao@hsph.harvard.edu.
