A Shumlin Thumb On The Scale

by Hamilton E. Davis

   In the dying hours of 2014, Governor Peter Shumlin issued an autopsy report for his single payer health care initiative. Shifting the financing of health care away from employment to simple residence in Vermont would be way too expensive and disruptive, especially to small business, the report said. The degree of difficulty was exacerbated by a $100 million hole in the state’s budget, along with doubts about how much federal support would be available.
   The cost of going forward now, the governor said, would be about $2.6 billion, which he described as an “eye-popping” number that was simply out of the question.
   On the day before the new year, the governor’s staff held a briefing for the press on the report, which consisted of many hundreds of pages of financial analysis, charts, tables, and models for how the cost of health care might be redistributed across the state.
There hasn’t been time for a line-by-line analysis of this huge pile of information, but a preliminary reading suggests that the governor larded what was already a pretty strong case with as much as $1 billion in additional costs. Here is what a first pass over the material looks like: 
   The first flag shows up in a simple inspection of the 15 ways to finance a single payer plan that Jonathan Gruber, the administration’s consultant, produced. From that group, the governor chose the most expensive one -- $2.6 billion. By itself, that might not prove something, but it will get your attention.
   The second obvious issue is the richness of the program to be put forward. In 2013, the University of Massachusetts-Wakely consulting group estimated the cost of implementing single payer in Vermont at about $1.6 billion. A key assumption inside of that estimate was a decision to confer benefits valued at 87 percent of the cost of care.
   That means that if a Vermonter used health services valued at $10,000 the state would pay $8,700 and the patient would pay $1,300. The 87 percent is called “actuarial value” in the health care world and is the basic measure of richness of benefits.
   Shumlin, however, opted to increase that percentage to 94, which took the costs up by something like $300 million. Was that necessary? The Shumlin staff argued in the briefing that it was; most people who have insurance in Vermont have benefits that exceed 90 percent, they said.
   That is only partly true, however. If you strip out schoolteachers and state employees, a majority of Vermonters have insurance that amounts to a value of 87 percent or less. You can certainly argue, and many have, that an actuarial value in the mid-nineties is better than 87, but the 87 percent was established by the legislature in the single payer law and has been the basis for the discussion over the last four years.
   Another anomaly concerns what the planners call commuters, people who live outside the state, but who work for Vermont employers. The original assumption was that Vermonters would not pay for insurance for non-Vermont residents. At the 11th hour, the Shumlin planners put them back in. The defense for that is to relieve employers of administrative inconvenience. The inconvenience, however, was certainly not a mystery: the issue has been on the front planning burner for four years.
   In his talks with the press over the last several weeks, the governor has lamented that he just didn’t have any choice but to pull the plug on his signature issue. No one could show him a program that could get the job done for markedly less than the $2.6 billion figure, he said.
   Actually, he could have found one in his own report, albeit buried about as deep as it is possible to get. That would be Alternative 12 of the 15 scenarios modeled by Gruber. The cost of that scenario: $1.6 billion, very close to smack-on the UMass-Wakely estimate.
   So, where does this kind of analysis leave us?
   Some press commentary has argued that the whole single payer project was a political scam by Shumlin to get elected and then stay ahead of any possible opposition. Another view is that Shumlin gave it his best shot, and that he deserved credit for owning up to its failure.
   My view is that Shumlin sincerely hoped to accomplish his vision for single payer, and he made a very good start, putting an excellent team to work on it and winning approval in 2011 of the single payer law. Act 48 is the best state-level piece of reform legislation. His management of the program, however, has been weak and shallow. And in any event, even the realistic price of $1.6 billion had no chance to pass the legislature.
   Once Shumlin realized he couldn’t get his program passed, at least in the near term, he just bailed. And having decided to bail, he reverted to his old political habits. Load up the bill with everything but the kitchen sink so as to avoid getting blamed for not pressing on.
   One of the defenses put forward by his staff in the press briefing is that they have only had real numbers from their consultant for a few weeks. That defense is sheer fertilizer. Shumlin has spent the last four years hiding from the cost of single payer, as well as how to pay it.
   He put off hiring UMass-Wakely for at least a year, so as to avoid having to defend any cost numbers before his reelection campaign in 2012; that was understandable in the light of his very narrow winning margin in his first run in 2010. He won big in 2012, but when the UMass group submitted their report in 2013 they were instructed to avoid any suggestions for how to raise the money. The obvious problem was that specific financing recommendations could have been used against him in the 2014 election.    
   Meanwhile, Shumlin spent nearly two years talking utter nonsense about the financing. His first idea was to get the speaker of the House, Shap Smith, and the president of the Senate to figure it out. That was obviously a non-starter, so the governor drafted a business group to figure it out. That was just slightly less obviously a non-starter.
   He finally happened upon Michael Costa, a young, skilled tax expert who was working in the Tax Department. Shumlin gave Costa the job of figuring out the payment structure but Costa knew he needed help from a modeler to understand how any payment scenario would play out in real life. He got the modeling help he needed, but so late that no numbers were available until after the 2014 election.
   No one can know what was in the governor’s mind through all of this, but if he did load up the estimate it would be pure political Shumlin, of a piece with the way he has handled a lot of the tough issues.
   When everything looked good in the early days, he assured Vermonters they would have a single payer system in operation by 2014, a notion so absurd that it left policy experts speechless. When he found out in the spring of 2013 that the Obamacare insurance exchange was headed for a ditch, he insisted it was a “nothing burger” and continued to be reassuring about progress on that issue. The press then unearthed the internal e-mails that showed the administration knew about the exchange mess months before admitting it.
   The problem in the current situation is that by insisting on an inflated cost for single payer now, he has not only drained all the political energy out of the reform effort, but he has poisoned the well for a longer time because so much of the public will write off the shift away from an employer base as a financial pipe dream.
   The sad thing is that he didn’t need to do it. The legislature was never going to pass a $1.6 billion tax bill anyway. Not in 2015 and probably not in 2016 either.
   Where does it leave us? Health care reform will continue, based mostly in the Green Mountain Care Board rather than the governor's office. There will be no great leap forward to full single payer. Beyond that lies uncertainty. We'll discuss many of the issues involved over the next several weeks.