PREGAME: Shumlin design team faces tough deadlines in runup to 2015 Legislative session

by Hamilton E. Davis

   Governor Peter Shumlin’s single payer health care reform initiative, which was born in the winter of 2011, will crest in January when the administration brings its financing and operating proposals for a radically reconfigured delivery system into the legislature.

   The last three years have been something of a wild ride, owing mainly to the difficulties with the federally-financed insurance Exchange. But those difficulties pale into insignificance compared with the challenges involved in rebuilding the health care delivery system and shifting all or most of its financing to the state.

   The most important thing for the legislature and the public to understand is that the proposal for a new system is not yet complete—it is still very much a work in progress. And there isn’t much time left, probably less than three months, assuming that it will take some time just to clean up the details once the final decisions have been made.

  Most of the final design work will be done off stage, without much public notice, but the Shumlin team is now stretched to the maximum extent possible. Every member of the team, including the governor himself, will have to perform at a higher level than they ever have if the project is to succeed.

   Here are the basic problems they face:


   The approximate cost of shifting to the Shumlin version of a single payer has been estimated at $2 billion. That would not be new money. The people of the state and many employers are paying it now in the form of private insurance premiums and out-of-pocket payments. The point of the shift to state financing is to begin to repair the inequities in the way the burden of these costs is shared by Vermonters.

   Nevertheless, the sheer size of the money-raising bill that the legislature will have to pass if it wants the Shumlin single payer is unprecedented. There’s lots of speculation in policy circles that this number—I call it the BN, the big number—will sink the reform effort by itself. That could happen, but I believe the financing issue is more complex.

   For one thing, no one so far has seen the financing design now being developed by Michael Costa, Shumlin’s tax expert, who has been working on the problem for the last two years. The components of the financing scheme are certain to include some sort of employer tax along with contributions from individuals based on their ability to pay. Costa has shared some of these potential sources with some key legislators and key insiders, but there is no actual plan as yet. 

   The reason is that the political impact of the financing plan will rest not only on the BN, but on how its burden is distributed across the state. Some Vermonters will see their health care costs go down, others will see it go up. The system now is grossly unfair, but people are used to it. So the legislative decision is likely to be affected by how compelling the burden-sharing plan turns out to be.

   Moreover, there could be pressure from the left to take the BN even higher, to as much as $2.7 or $3 billion, so as to eliminate problems with out-of-pocket costs that will increase the complexity of the system. There is no chance, however, that such a shift will come out of the fifth floor—Governor Shumlin thoroughly dislikes first-dollar coverage. But there is no way to predict how such a proposal would fare in the legislature.

   There is already some confusion about the Costa work. The opponents of single payer have accused the administration of developing a “secret” plan and hiding it from the public for political reasons. The reality, however, is that while Costa obviously has a pretty good idea about how to fashion a financing mechanism, he has no way to tell how the people affected would react to those changes.

   For that reason, the administration contracted with Jonathan Gruber of MIT, one of the leading national experts on health care reform, to build a model that would allow Costa to run test scenarios of the various financing options. The model will not be available until mid fall.

   The press got tangled over the issue, reporting in the summer that Costa had hired Gruber to “help design” the financing plan and then reporting, just a few days later, that Costa had shared the financing plan with key legislators. Gruber is good, but he’s not that good…

   In any event, a coherent financing plan should be available by January. There is no way to tell, given the BN, what the response will be, but two things appear clear.

   The first is that the BN is indeed huge and many observers are writing off Shumlin’s project for that reason alone. They could turn out to be right, of course, but it’s my view that the legislature could buy into the plan if the rest of the project looks rock solid.

   Which right now is a huge problem. The administration is already at a confidence deficit owing to the problems with the federally financed insurance Exchange, which still isn’t fully operational after two years of work. The Exchange issue got worse earlier this week when the Shumlin team had to shut it down until November to install the latest fixes.

   Shumlin has moved, even if too slowly, to remedy that problem; he has installed new leadership at the state bureaucracy that now runs the Medicaid program and it’s reasonable to expect that the Exchange should be in working shape over the next several months.

   The biggest gap in my view is what I call reorganization, building the governance and infrastructure to run a program of this magnitude. There hasn't been much discussion about this aspect of the reform project in recent months, but  in my view it amounts to the heart of the matter.           


     If you ask the basic question: what does a single payer actually do, you get a deceptively simple answer: it pays doctors, hospitals and other providers of health care. In fact, there is an ocean of hideously complex problems tied up inside that formulation, and after three years of work by the Shumlin team there is no definitive answer yet as to how a refashioned delivery system would work.

   As a way of looking at this problem, let’s assume the legislature has taken a huge collective breath and voted to raise $2 billion for single payer, and the money is now flowing into a bucket in Montpelier. Who manages the bucket?

   In the early stages of the campaign, many people assumed that the manager of the bucket would be the Department of Vermont Health Access in the Agency of Human Services, which has a long history of paying the Medicaid bills for lower income Vermonters.

   The mess with the Exchange exposed that proposition as a fantasy, and if there was any doubt about it, Governor Shumlin assured anyone who was listening that the state was not about to build its own insurance company. It is clear to everyone now, since the Governor turned over control of health reform to Lawrence Miller, formerly his secretary of commerce, and followed that up by firing Doug Racine, his secretary of AHS.

   If not the Medicaid bureaucracy, then who? Or what?

   One way to start thinking about this problem is to divide it into two domains—the issue of governance and authority, much the more difficult, and the very difficult but ultimately more manageable one of operations.

Governance and Authority

   Governance and authority is so difficult because it is so fundamental: it asks the question how does our society—the people of Vermont—want to structure the health care delivery system that plays literally a life and death role in their lives and in the process consumes one out of every five dollars they earn.

   How should the societal decisions about health care be made? How much of our resources should we devote to health care? How do we decide that? And how should that money be spent? Who speaks for all of us?

   Well, there are choices available. The place to start is the legislature and no matter how the rest of the structure-building plays out, its role will be very large. But there are very large constraints on it also: legislators can make policy, but they are absolutely terrible at running anything. 

   A second option is the executive branch of state government. It operates the government. And it already manages the payment for Medicaid, a major piece of the health care revenue. Even more important in that line is the federal government, which runs the Medicare program. Medicare and Medicaid together pay for roughly half the health care system now and have for nearly 50 years.

   A third option is that the legislature can delegate critical powers to entities it creates and we now have one—the Green Mountain Care Board. The legislature set up the board under Act 48, which it enacted in 2011.

   The GMC board now regulates hospital budgets, along with the premiums that insurance carriers such as Vermont Blue Cross can charge to enrollees in the Exchange. It also has the responsibility for overseeing the restructuring of the delivery system, including shifting the payment mechanism for doctors and hospitals.  

   The GMC board is an obvious place to locate even more responsibility for overseeing the system, but the legislature would have to decide whether both regulatory authority and major policy judgments are too much for one body.

   In which case, it could establish some new authority to deal with some of the decision-making. Or it could retain for itself a direct role in the governance and operation of the system.

   What are the decisions involved? Even a partial list would include:

  •  How much money needs to be raised? Even more important is how much year-over-year inflation it will permit. On any big program, the legislature can do the first year right. It’s how fast the program grows that is troublesome. What if the costs of system regularly outstrip the financing source?
  •   Will the legislature agree to insulate the flow of money to doctors and hospitals from the vagaries of state financing? The absence of any such machinery would be a huge threat to the whole enterprise because doctors and hospitals almost certainly would refuse to function under such a system.
  •   There will have to be some way for the payer--the state, in the Shumlin initiative--to negotiate with care providers over the total expenditures in the system, as well as at least some operational aspects of the delivery system. No such plan has yet been settled on.   
  •   How comprehensive should the program be? What benefits will be available and will there continue to be out-of-pocket or premium costs to some Vermonters? One of the few certainties is that there will be fierce lobbying over that question, as there will be over every important pressure point.
  •   Assuming an adequate amount of money flows to the delivery system, how does the money get distributed through the system? The way this happens now is so tangled and inefficient that it hurts to think about it. Nonetheless, there is no way that you can achieve a financially sustainable system without a dramatic increase in the operational efficiency in the system. The principal tool here is to shift from fee-for-service financing to some sort of group-based payment that shifts financial risk from payers to providers. Achieving that is a huge challenge.
  •   If the previous issues weren’t knotty enough, the Vermont structure will have to figure how to manage the places where Vermont authority intersects with other sources of authority, such as the federal managers of Medicare and Medicaid.


   Once you decide on the big issues of the flow of authority and money to doctors and hospitals, you still have to build machinery to make that actually happen, day after day.

   Who determines eligibility and enrolls people? Who actually writes the checks to doctors and hospitals? Who in the executive branch oversees all this stuff?

    One major decision that has already been made, albeit implicitly, is that the paperwork dimensions of the Shumlin plan—the actual writing of checks and the processing of claims—will be managed by Vermont Blue Cross and Blue Shield, with possible participation by the New York-based carrier MVP.

   Still, there would be very complex negotiations around this issue, both for the state and for the two carriers. 

   One of the routes to at least a partial solution to all of this tangle would be the maturation of OneCare, the state’s most important Accountable Care Organization. OneCare is comprised of all the state’s hospitals and two third of its doctors; it includes Dartmouth-Hitchcock Medical Center, which delivers tertiary care to much of the eastern Vermont population.

   The importance of OneCare lies in the implacable reality that no team of reform designers, including the very good one that Shumlin now has in place, is competent to decide what medical resources need to be in place at what location and how much those individuals should be paid.

    If this reasoning is valid, it makes sense that something like the Green Mountain Care Board should represent the interests of the people of the state, for both affordable costs and necessary services. And that OneCare, or something like it, that is to say, an entity that can credibly decide just what medical resources are available and whether the services they deliver are of high quality and cost effective, be empowered to negotiate with the board.

   OneCare is now in the early stages of building its systems, but it is nowhere near ready to come up to full speed in the next few months. Which is one of the factors that are pressuring the design team getting ready for January of 2015.

   If you have read this far, you may be tempted to conclude that it can’t be as complicated as all that. In fact, the above survey is just the surface, the highlights. The complexity underlying it is even more formidable…

   The Shumlin initiative is hugely ambitious: it proposes nothing less than a template for a new American health care system. Neither the federal government nor any other state government so clearly aims at the stars. Not even the gods of politics and political life can know the outcome, but it is a magnificent effort and, in one way or another, all Vermonters will be part of it.