A Reply to "Thumb on the Scale"

By: Lawrence Miller, Robin Lunge, Michael Costa

The decision to not move forward with a public financing system for health care in Vermont was an incredibly difficult one and it was not taken lightly.  The charge that we essentially cooked the books for political purposes, is both absurd and insulting. There are many difficult tradeoffs in designing a new health care system that affect the lives of almost all Vermonters.  It is neither fair nor borne out by serious scrutiny of our plan and the documents we released with it to say otherwise. 

Some say that we could keep costs down by offering a less generous plan. This ignores the fact that the majority of Vermonters have health insurance that is equivalent to or better than our recommended plan.  If you look at what most large, private employers offer today, 65% of Vermonters would have worse insurance if we had recommended a less generous plan. This percentage goes up if you include state employees and education employees and their families. To argue for a less generous plan would be to ask Vermonters to support taxes that would require some to pay more than they do now – while asking the majority of Vermonters to also swallow a benefit cut. Doing that would be unfair, impractical and divisive.      

More importantly, choosing a lower benefit level – as shown in the plan and the documents we released – would actually be worse for Vermonters, as shown in the economic modeling. What a lower AV level actually does is shift more costs to individual Vermonters in the form of out-of-pocket expenses, while still requiring a sizable individual and business tax contribution. The overall burden on individual Vermonters was shown to be worse, not better, than a higher AV plan.  Given the data, we can only imagine the opprobrium that would have been aimed at us had we chosen to recommend the lower AV plan.  In addition, a lower AV plan has some real-world consequences – such as individuals forgoing care – that undermine the very notion of universal health care.  Lastly, it asks Vermonters who are sickest or have chronic illnesses to bear the burden of more of the costs – shifting to a less fair and equitable financing plan.

Some also argue that we increased cost by deciding to cover commuters at the last second.  Commuters were in our thinking from the start.  Commuters pay Vermont income tax, and their employers would be asked to pay the payroll tax under Green Mountain Care so excluding them from the program would not be good policy.    The documents we released with the plan shows that staff recommended including commuters in June, many months prior to the modeling, though the cost was unknown until the economic modeling was settled in early December.  The implied question is why didn’t we drop commuters from the model after learning how expensive it was?  Removing commuters would have required employers to not only pay for Green Mountain Care but also to continue offering insurance to commuter employees, or drop them altogether.  Overall, excluding commuters would have undercut the basic message to businesses that GMC ought to be simple and allow businesses to focus less on health care and more on their work.    

One curious omission is any discussion of the challenge of transitioning thousands of small Vermont businesses into Green Mountain Care.  Small businesses fewer than 10 employees who do not offer health care today would pay hundreds million more in taxes.  If only such a problem could be ignored.  Sending these employers from scant contribution for health care to a large payroll tax with no transition would be reckless to our economy, yet would cost upward of $500 million to solve. 

Obviously, we expected criticism of the decision to delay implementation of Green Mountain Care.  That’s fair.  Yet claiming that we somehow purposefully made the numbers look bad is not.  The fact is that the math didn’t add up.  Sometimes facts are stubborn things.  The fact our current health care system is a mess that makes transitioning to a new system especially difficult seems to be the most stubborn fact of all.

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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.

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Vermont Health Architect Moves

by Hamilton E.Davis

   Anya Rader Wallack, the lead designer of Vermont’s single payer health care reform initiative, has been selected by Rhode Island governor-elect Gina Raimondo to run that state’s Obamacare insurance exchange, according to sources in Rhode Island.
   The move by Wallack would be the first loss for Gov. Peter Shumlin of the team that has run health care in Vermont since 2011. She was the first chairperson of the Green Mountain Care Board, and has served as a consultant to the Shumlin project since she stepped down as chair last year. She has also been in charge of administering the $45 million federal grant to support Vermont reform.
   She will have to sever all her formal ties with the Shumlin administration if she becomes employed by the incoming Rhode Island administration. An irony in the situation is that managing an Obamacare exchange is the lone element in the Vermont reform effort that Wallack had nothing to do with.
   Wallack’s move comes in the wake of Shumlin’s decision to drop his effort to finance his single payer project in the upcoming session of the legislature. Shumlin has said that health care reform will continue in the efforts of the Green Mountain Care Board to contain costs in the health care delivery system. 

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Ready or Not--Vermont 2016

by Hamilton E. Davis

    If you think it’s just terrible that political campaigns go on so long, don’t read this story. It will ruin your day. If you’re into political reality, however, then you need to know this: the 2016 election in Vermont is well underway.
   With the 2014 election just over a month behind us, Phil Scott, the Republican lieutenant governor who won re-election handily, is already under heavy pressure to run against Gov. Peter Shumlin two years from now. Elected in 2010, Scott has coasted along in the second spot in Vermont government without any sign of strong political ambition or deep interest in any particular policy area.
   Scott is the only proven Republican vote-getter at the state level, however, and given Shumlin’s extraordinarily poor performance in the November election, Scott’s allies are pushing him to make more political appearances and to begin laying the foundation for a run for the top spot.
   That means more than just pounding the political streets, which he is already doing. His supporters, and the press, will expect him to become the leader of his party. That in turn will require him to step to the forefront on such policy hairballs as single-payer health care reform and education finance. There isn’t much heavy lifting involved in the lieutenant governorship, but the agenda in the coming legislative session is heavy indeed, so if Scott is serious he needs to be doing lots of homework now.
   While center-right Republicans, and no small number of Democrats, love Phil Scott, far-right Republicans don’t. So the early steps by Scott are generating pressure on the Republican right to look for a candidate of their own much earlier than they would otherwise.
   The key player there is Darcie Johnston, a long-time GOP operative, who ran former state Sen. Randy Brock’s unsuccessful challenge to Shumlin in 2012, and who supported the Libertarian candidate, Dan Feliciano, in this year’s race. Johnston and her conservative cohorts will have to decide soon how to deal with a Scott candidacy.
   Johnston pleaded with Brock to run this year, but he refused. So she and other prominent conservatives shifted to Feliciano. He got only 4 percent or so of the vote, but he was far more coherent than Scott Milne. So what do leaders on the far right do? Do they try again with Brock, if he’ll go? Do they accept Scott, hoping to push him to the right? Do they try to build Feliciano’s credentials to the point that he could win a Republican primary? Or do they simply look for another horse to ride?
   One decision that doesn’t have to be made is what to do about Scott Milne, who came within a hair’s-breadth of defeating Shumlin last month. Milne’s performance had very little to do with him and pretty much everything to do with disappointment in Shumlin. Moreover, Milne has acted like a political dingbat both before and after the election. So he is likely to just disappear.
   Shumlin, meanwhile, is in a strange position for a sitting governor. After winning his third election, he should be free to focus on strengthening his management team and getting ready to drive ahead on his major policy objectives, particularly single-payer health care reform.
   Instead, he has to let his team and his supporters know that he’ll run again in 2016. He won’t announce that publically, of course; but there has been considerable speculation that he is too disheartened by the 2014 election to run, and he has to lay that speculation to rest.
   Moreover, Shumlin can’t afford to wait until 2016 to begin building his re-election effort. He has to begin now, because it wouldn’t be safe — not even close to safe — to assume that he couldn’t be beaten in 2016. We discussed this in Shumlin Redux.
    Rebuilding his standing with the state’s voters will be unusually tough, because the atmosphere around the single-payer issue is already pretty toxic. And given the signs that the introduction of single-payer legislation in January may not go smoothly, the political environment for Shumlin could get worse before it gets better.
   Political ripples from the 2014 election will reach beyond the governorship. One of the most important players in the political firmament is House Speaker Shap Smith. A Democrat, Smith will preside over one of the most complex and difficult policy agendas in Vermont history, while considering his own political future. If Shumlin doesn’t run, should he try to seize the top spot? If Shumlin does run and Scott runs against him, Smith would have to decide whether to run for lieutenant governor or perhaps attorney general.
   That calculus in turn rests on such questions as whether Bill Sorrell, the current attorney general and a Democrat, runs for re-election. Smith would not run against Sorrell; but if Sorrell steps down, then T.J. Donovan, the Democratic state’s attorney in Chittenden County who ran a strong if losing primary campaign against Sorrell in 2012, could try again for statewide office.
   Smith will have to parse these questions at the same time that he is grappling with Shumlin’s health reform monster, as well as with education financing and property tax reform. The speaker has already told some legislators that in the current session he will adopt the following priorities: education, education financing, jobs, and health care, in that order.
   He also is committed, however, to giving Shumlin’s single-payer project a fair hearing. Can he do all that at once? Possibly, if not easily. One route would be to conflate education finance with health care reform: health insurance is a huge burden for Vermont school districts and successful health care reform could ease those pressures markedly.
   A critical question for Smith is the way that he and the legislature assess the quality of the health care proposal that Shumlin drops on them at the end of this month. If the conceptual plan -- and the depth and solidity of the details — are compelling, then Smith has to be all in. If they are shaky, all bets are off.  
   Out on the left wing, the Progressives will have to decide whether to take advantage of a markedly roiled political environment to push one of their number forward.  Dean Corren, a former state representative from Burlington who ran as a Democrat against Scott this year, could claim precedence for something like the lieutenant governorship. While his poor performance this fall would be held against him, the Progressives have never lost their taste for third party candidacies. Just last week, for example, the Progressives decided to run Steve Goodkind, a former Burlington city engineer, against Mayor Miro Weinberger, a Democrat, who is seeking re-election in March. There is no Republican in the race, yet. Regardless of whether one appears, Goodkind will stay in the race.
   Even further out on the political margins, the uncertainty at the governorship level has to be stirring political calculations. The Republicans could seek out a potentially stronger candidate than Scott, Brock, or Feliciano.
   The business community is growing more critical of Shumlin. A business publication recently ran blistering critiques of single payer by a spokesman for National Life, and by Bruce Lisman, who has run a government advocacy website for the last couple of years.
   The state Republican Party has been searching desperately for a truly credible gubernatorial candidate since Jim Douglas retired in 2010. Brock was certainly credible, but 2012 was a terrible year for Republicans in Vermont, and Brock’s showing (38 percent of the vote) was poor. So they could keep looking. A possibility might be state Sen. Kevin Mullin of Rutland. Mullin is pretty conservative, but he is widely respected, and he has already played an important role in drafting the single-payer law.
   On the Democratic side, the Shumlin difficulties almost certainly are stirring ambitions on the party’s bench. As we have seen, Shap Smith could step up. But he is not the only one.
   State Sen. Tim Ashe of Chittenden County might think about it: he very nearly won the Democratic nomination for mayor of Burlington three years ago and as chair of Senate Finance he is well positioned to play a major role on single payer, and indeed, on any financial issue that galvanizes the legislature. Another possibility is Sue Minter, Shumlin’s secretary of transportation.
   You get the idea: At the roots of the political system lots of things are already in motion. The public won’t pay attention till 2016, but two years is none too long to build a campaign for a tough election. Which is what 2016 looks like it will turn out to be.

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Losing the Narrative

by Hamilton E. Davis

   With three weeks still to go to the official launch date, the Shumlin administration has begun to lose its already-tenuous grip on the narrative around its single payer health care initiative. One of the most sensitive issues involved—the payroll tax for Vermont businesses—leaked out to the press last week, with no comment or explanation from the administration.
    That led to an ad hoc exchange on Vermont Public Radio about what the tax would mean to big, self-insured companies that enjoy federal ERISA protections from state action. In the wake of that, National Life, a large central Vermont employer, expressed concern about the effect of the payroll tax.
   Both of these reports were necessarily incomplete and raised more questions than they answered. And both are certain to turn into major battles once the whole Shumlin plan goes to the legislature in January. Their importance lay in the fact that the Shumlin team really couldn’t defend or explain them because the financing plan isn’t yet complete.
   Moreover, the administration’s hunkered-down posture means that it has not been able to make the positive case for its plan as a whole. There definitely is a case for the plan, but the opponents have gotten another month to hammer away, with no response. They surely appreciate it.

The Leak

     The payroll tax issue was cracked open by Morgan True of VTDigger, who reported that a business group had been told by the administration that the tax would be set at eight percent, which could be a difficult burden, especially for small firms. There are thousands of small companies that do not provide health insurance now, so the payroll tax could pose a threat to their survival.
   The designer of Shumlin’s financing plan is Michael Costa, who has been working at it for two years. There are lots of ways that the eight percent could be applied: there could be protections for marginal small firms, for example, and there will be small firms that do provide health insurance that will save money at eight percent.
   But no one can get a full grip on the issue until the administration turns Costa loose to explain it. Neither Costa nor anyone else in on the Shumlin team has made the broader case in the last several weeks for rebuilding health insurance financing. Instead every business owner in the state is simply multiplying his payroll by .08 and some of them, perhaps many of them, are freaking out, before the Shumlin plan has been put on the table.
   As for the ERISA company question, Administration Secretary Jeb Spaulding left some misimpressions about how the payroll tax would affect big companies. Spaulding told VPR’s Bob Kinzel that he hoped the ERISA companies would sign up for Green Mountain Care.
   In fact, no ERISA company can “sign up” for Green Mountain Care, as the Shumlin project envisions it. The payroll tax is a tax, which means that big companies would have to pay it. What they did about their own insurance plans would be up to them. They could shut them down, at least for their Vermont-resident workers, or they might pay for better benefits than the state would provide. But nobody is going to ask them to sign up for anything.
   If the Shumlin payroll tax were to pass, the biggest question surrounding ERISA companies is whether they would attack the tax in court as an infringement on their rights under federal law to operate a health plan without state interference. No one can say what the outcome of that would be. But it would be a legal question, and then a political one—could they be talked out of a legal challenge.
   In any event, you almost certainly won’t be hearing about any of this in the next several weeks. Nor will you be hearing any substantive defense of the Shumlin plan in broader terms.  
In bits and pieces over the last few years some of those broader issues have emerged.
   Single payer proponents, in and out of government, have argued, for example, that going to public-based financing would give Vermonters more security, because their insurance coverage would not depend on their job.
   They have argued that we need a much fairer system, since people in pretty much identical circumstances now pay dramatically different amounts for coverage. A group of Harvard students recently put a video on YouTube, comparing two Vermont women with identical jobs in different companies, identical salaries and identical insurance coverage. One paid $1,200 a year; her employer offers health insurance. The other pays $6,000 a year; her employer doesn’t offer health insurance.
   Probably the strongest arguments in favor of the Shumlin plan is that it will rein in health care costs, after more than four decades of trying. The Green Mountain Care Board, a major component of the single payer project, has already cut the inflation rate in Vermont hospitals to a third of its historic trend.
      I mention all of this not because it means that the Shumlin plan should be adopted, but rather to point out that the partial information that leaked out will be used at maximum decibel level by single payer opponents leading up the launch. That may not be fatal, but it certainly isn’t helpful.

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Shumlin Redux

by Hamilton E. Davis

    It’s often said that politics is a contact sport. It is also often said that when athletes get knocked down, they get up. Pete Shumlin is trying to get up now. It isn’t easy.
    On election day last month, Governor Shumlin got absolutely flattened, by far the worst beating he has taken in his political life. Technically speaking, he won-but by a tiny margin. In a very real political sense he actually lost; the total vote for the Republican, Scott Milne, and the Libertarian Dan Feliciano, exceeded Shumlin’s total.
   Because Shumlin got less than 50 percent of the vote, it will be up to legislature to pick the winner. It will be Shumlin; but that should be scant comfort to him. He knows, better than anyone else, that the vote amounted to a rejection of him personally, not of his administration or his policies, but him personally.
    So, what does he do now?
     His first response was to embrace humility, saying that the voters have spoken and he will listen. He is holding more press conferences, which is a good thing. But humility doesn’t solve policy problems, and humility isn’t leadership, which is what Vermonters elected him for.
    And the policy landscape is an absolute minefield: the state budget is diving into deep deficit; there is a developing wrangle over education policy and property taxes; and, most difficult by far, Shumlin will bring his signature single payer health reform package to the legislature in January.
    Moreover, in a way that is rare in Vermont, partisan politics will be inextricably tied up with the policy arena. The first decision that Shumlin has to make-- and make really quickly--is that he will run again; he can’t wait for a year, or a year and a half to decide. If he leaves the slightest doubt that he might not run, then single payer will slide into political limbo. The major players in both major parties will begin to parse everything they do in terms of the succession questions. Indeed, the governor will lose political leverage on whatever issues come up. 
    In the first week or two after the election, some of the people who know Shumlin best were sure that he would not run in 2016. He doesn’t have the stomach for it, ran a common refrain. That may have had as much to do with the shock experienced by Shumlin supporters than it was the case for the governor himself, and in any event, the he-won’t-run sentiment appears to be fading.
    A more important question, however, is not fading: Can he win in 2016?
    Not everyone thinks it is an issue. This election was a complete fluke, the argument runs. The turnout was very low, there were no major Democratic races to generate involvement of the voters. That will change in 2016—it will be a presidential year, all those hold-out Democratic voters will come back and since Vermont is famously a blue state, more than enough of them will vote for Shumlin.
    That could turn out to be true, but in my view there really is no such thing as a meaningless election. Some can signify more than others, and they may be difficult to interpret, but none is irrelevant. In this case, it seems to me, an important outcome is that the Shumlin spell has been broken.
    Ever since he began his rise as a leader in the Vermont Senate he has been an unusual political player. He has never been loved and often has not been trusted. But he was always recognized as very politically astute and after his very decisive reelection in 2012, he seemed, well, inevitable. Too smart, too clever, too well financed to be dislodged in blue, blue Vermont. That magic is gone.
     It emphatically does not mean, however, that Shumlin can’t win in 2016. It is true that Shumlin has invited a serious Republican into the race. But it isn’t clear that the Republicans can find one. And even if they do, it isn’t clear that he or she would produce a serious policy agenda for Vermonters to consider. Virtually the entire Republican agenda consists in a plea to dump Shumlin—it’s very hard to win a purely negative campaign.
    Still, the fact remains that Shumlin is in a deep political hole and he needs to find a way to reestablish himself as the dominant political leader in the state. He did so in the past on the strength of two liberal planks—single payer health care and closing Vermont Yankee—reinforced by his bravura performance in the wake of Hurricane Irene.
    The only one of those elements still in place is single payer and it is hard to overstate how problematical that is right now. The Obamacare insurance exchange still doesn’t fully work, and Shumlin has to take the blame for that. His single-payer financing plan, which is scheduled for launch at the end of December, started leaking out last week and probably can’t be reeled back in, which means that Shumlin has lost control of the narrative around the single most troublesome element of his plan. (more about that soon)
   The underlying question for Shumlin going forward is whether he can shift his style from political maneuver, one deal at a time, to operational management. For example, Shumlin has been delaying and ducking and dodging on his financing plan for at least three years, all in the service of making sure that it couldn’t be used by his political opponents or that the public wouldn’t fault him for it.
    There isn’t any place left to hide now, and Shumlin is going to have to defend a massively complex plan in a bitterly contentious environment. He is almost certain to suffer very serious setbacks on the plan’s particulars. The more important question, however, is how he handles it.
    He has to open the whole issue up to the public as well as the legislature and then persuade Vermonters of the virtues of his vision. In other words, the best political strategy at this point is to demonstrate that he can manage a complex structure competently.
    Can he do that? He has done it in the past: the reform design team he put on the field in 2011 was a very good one, the plan embodied in the single payer legislation enacted in 2011 was superb. The management of the issue since then has ranged somewhere from good—the Green Mountain Care Board is first rate—to awful; the exchange, and the overall management of the financing issue have cost the single payer plan virtually all its political momentum.
    In 2010, Shumlin won his first election by just a few thousand votes, so it made sense to delay any talk about money until after the 2012 election. But Shumlin won that one big, against a strong opponent: Republican state senator Randy Brock got just 38 percent of the vote in 2012. The result left Shumlin with plenty of political capital.
    But he then completely wasted two years, 2013 and 2014, leaving his Republican opponents to keep chipping away at public confidence in the single payer idea. In the recent campaign, he scarcely mentioned health care reform from Labor Day on. There was no deal to be made, so Shumlin said nothing. It is that style that has to change.
    So, the next two months will be the biggest political test of Shumlin’s life. My own feeling is that he can pass it, that he is at bottom a good political athlete. But he has to change his approach. And he has to get up, really fast.

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A Missed Opportunity

by Hamilton E. Davis

   When the Shumlin administration presents its single payer health reform plan to the legislature in January, it will do so without a key feature that could have significantly increased the plan’s political credibility: an agreement with Vermont Blue Cross to manage the delivery of care to most state residents.
   Such an agreement has been talked about for more than two years, but as the end of the planning period nears, no such agreement is in sight. There have been some informal discussions between Shumlin planners and Blue Cross, but the state never developed a proposal that could have led to something specific.
   They could certainly do so in the future; indeed, that is likely, but the negotiations would be complex and would take at least six months, well past the end of the 2015 legislative session. The political benefit, therefore, will be lost during the critical early days of legislative consideration of the Shumlin initiative.
   The potential value of a Blue Cross agreement as a component of the overall plan grows out of the botched rollout of the federally-financed insurance exchange, a failure that drained much of the political momentum from Shumlin’s effort. Reform opponents have charged that since Shumlin’s bureaucrats couldn’t handle the basic operation of the exchange, they couldn’t be relied upon to handle the far more challenging job of directing coverage of the whole state.
   The most effective reply to that claim would have been the assignment of the paperwork dimension of single payer to a proven performer like Blue Cross. The loss stings even more, given the increased toxicity of the political environment for reform recently, the hairs-breadth margin of the governor’s reelection last month, as well as the flap over Jonathan Gruber, the nationally known consultant to the Shumlin planners, who has made a series of disparaging comments about the passage of Obamacare.

Blue Cross on a Longer Reach

  While the administration has forgone the political benefit of having Blue Cross standing shoulder to shoulder with Shumlin planners in January, the long-term prospects for solving the management problem with the company are intriguingly good. Blue Cross, which could have been a dangerous reform opponent, actually sounds like a supporter.
  When asked about the issue Blue Cross President Don George issued the following statement:
   “Since Act 48 was approved, Blue Cross and Blue Shield of Vermont’s overriding focus has been to support the principles of reform and establish our company as a contributor to the state’s policy initiative. We continue our commitment to work with the administration and legislators to assure that all Vermonters have access to timely, affordable health care.”
   That apparently isn’t just rhetoric. Last winter, when problems with the exchange left many Vermonters wondering whether they had health care coverage Blue Cross stepped up and crafted programs to bridge the gap.
   Lawrence Miller, the Shumlin administration’s single payer chief, referred to that fact when asked about the status of contacts with Blue Cross. “The company has helped out in the past, and could be a suitable partner in the future,” Miller said. Still, Miller added, it is critical to go slowly because of potential difficulties with the flow of federal money. It would also be a good idea, he said, to see what the legislature has to say about the proposed plan before trying to solve the management problem.
  Most significant of all is the unique role that Blue Cross plays in the Vermont health care world.  To the outsider, Blue Cross is simply a Vermont-based insurance company, not that different from other carriers. The outsider would be wrong. Blue Cross is unusually well positioned to play a central role; it is already something pretty close to a single payer itself. Here’s how it is unique:
   Unlike other carriers, and unlike any private company, Blue Cross is a creature of the Vermont Legislature; it was established under Title 8 of the Vermont Statutes Annotated, which says the company must be maintained and operated solely for the benefit of the subscribers, that is to say, the people of Vermont. It can have no shareholders, it cannot make a profit, and it is exempt from all taxes. One of the intriguing possibilities, therefore, is that the ultimate owner of the Blues reserves of some $150 million or so may be the people of Vermont.
   The legal situation notwithstanding, Blue Cross has operated like any other private carrier much of the time. In 1983 the company mounted a counterattack against state regulation when the then-insurance commissioner ordered the company to take a series of actions to justify its request for a 30 percent rate increase. The increase flowed from very rapidly expanding hospital budgets and the commissioner wanted the Blues to show what they were doing to keep costs down.
   In its appeal to the Vermont Supreme Court, Blue Cross argued that it ought to be able to make the same kind of management decisions any other company might make. The commissioner’s orders were “an unlawful intrusion” into its decision making.
   In 1984, the Court slapped - Blue Cross down hard on that issue. Under Vermont law, the Court said:
   …Blue Cross is not a private business operating freely within the competitive marketplace; it is a quasi-public business subject to the regulation of the commissioner…A contrary holding would, we think, place the commissioner in an untenable position.  He would, on the one hand, be required to ensure that subscriber rates were not excessive, inadequate or unfairly discriminatory, and that benefits and services were being provided at minimum cost, and yet, on the other, not have the means actively to bring this about.
   I bring up this ancient history simply to demonstrate how closely aligned the interests of the state and Blue Cross are in their commitment to advancing the good of the state, without the involvement of business success and profits.
   That does not mean, however, that reaching a management agreement would necessarily be easy. If Blue Cross decided it did not want to get involved in Green Mountain Care, it could make several arguments. It could assert, for example, that maintaining its insurance standing could benefit subscribers who liked having the Blue Cross access card, especially when operating out of state.
   There also could be a problem with a provision in the federal Affordable Care Act that prohibits a firm that is managing the flow of federal funds from also selling an insurance product in the market place.
   Finally, it could appeal to the legislature to protect it from getting entangled in the Shumlin plan simply on the grounds that the program as it has operated so far is a tar baby that would endanger Vermonters’ health benefits.
   Nevertheless, as noted above, there is no evidence that Blue Cross wants to avoid a major health care reform effort. What it will take to get an agreement is a serious effort on the part of the Shumlinites to engage on the issue. That can’t be accomplished in the near term, but it remains very much on the agenda for the future.

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Still a Bogus Claim

by Hamilton E. Davis

   For close watchers of health care reform in Vermont, there is a technical but important issue left over from the recent election. That is the late-campaign claim by Republicans that Gov. Peter Shumlin is trying to “take over” Medicare in order to fund his single payer initiative. If he succeeds, these critics say, it could cost Vermont seniors their health care benefits and their access to doctors.
   I have written about this issue previously, but it is worth labeling this claim again for what it is: a total fabrication. Federal law does not allow anyone to deny Medicare recipients their coverage and all that comes with it, including the right to choose their own physicians.
   It is true that Shumlin’s planners will seek to shift the way that health care providers are paid by federal Medicare officials. That effort involves standardizing the wildly variable payment  patterns now in effect, as well as encouraging cost containment and higher quality. None of that implies denying care to seniors. Improving the efficiency of care delivery is the central goal of all reform efforts, including Obamacare. In fact, federal officials have already approved such a shift in Maryland.
  When the legislature wrote Act 48, the health reform statute, drafters thought it might be desirable to ask that Vermont become its own Medicare claims administrator, using either the state’s Medicaid machinery or an administrator such as Vermont Blue Cross.
  Subsequently, however, research by Shumlin’s planners showed no such step was possible. Vermont is part of a larger Medicare administration district that includes New York state. If Vermont administered Medicare claims, it would have to do so for the whole region. Given this landscape, it became obvious that the language in Act 48 was moot, so it was removed from the law.
   What remains, however, is critical to health care reform -- shifting the way doctors and hospitals are paid for services to seniors. Acting on its mandate from Act 48, the Green Mountain Care Board has been working for the last three years to design such a new payment structure.
  That work is not yet complete, but when it is the Shumlin administration will apply for something called an “all-payer waiver” that would work as follows: If Vermont can show the feds that the state’s new payment mechanism will save the federal government money, as well as improve the quality of care, then they (the feds) can adopt it for Vermont doctors and hospitals.
   Such a new payment methodology would, in practical if not legal terms, have to be acceptable to both doctors and hospitals. If it wasn’t there is little chance that the feds would have anything to do with it.

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Shumlin Can Recover From His Train Wreck, But He Has To Change His Game - Soon

by Hamilton E. Davis

   Governor Peter Shumlin presided over a political train wreck last Tuesday, barely beating a political amateur who ran a comically bad campaign, and having to watch his party lose seats in both the Vermont House and Senate. His performance drained what little momentum was left behind his signature single payer health reform initiative; its most lasting consequence might be that he has revived a moribund Republican party in the state.
   At this writing, it is not even fully clear that Shumlin actually won. He leads Scott Milne by just a few thousand votes, roughly one percentage point, so the final tally won’t be available for a few more days. Shumlin is still virtually certain to win, but that fact can’t blunt the breadth and width of the political spanking that Shumlin has taken, one of the most striking in recent state political history.
   When the governor finally took stage at the Hilton in the dying hours of election night, his opening comment neatly captured the political style that has been weighing increasingly on his governorship. “We all knew this was going to be a close election,” he said. That statement was pure Vermont fertilizer. Nobody had the faintest idea the election would go the way it did, including Shumlin himself.
   By mid evening at the Hilton, as the results reached a third or so of the total, the ballroom was enveloped in a blanket of shock and depression. The crowd had its usual complement: a 150 or so politicians from the Congressional delegation, Leahy, Sanders and Welch to state representatives, the political press, lobbyists and political operatives—political junkies of all stripes. Most had been in many other ballrooms and they knew exactly what had happened, so they were stunned and depressed, the usual political gabble muted. Many drifted away early.
   And the shock was still palpable Wednesday. There was some spinning, but most of the political class was still just trying to figure it out. Some said it was the very low turnout; there would obviously far more Democratic voters in a presidential year. True, but how did you explain how Congressman Peter Welch got 30,000 or so more votes than Shumlin? Some thought it was that he had angered the teachers union by his comments on the South Burlington strike. Others looked to the Republican claim in the closing days that Shumlin was trying to “take over” Medicare spending so that seniors would lose their benefits and their doctors. And what about the way he bought that property from his neighbor…
   As to the effect of the vote going forward, much of the speculation was overwrought. Shumlin’s career is over, according to one of the wise men. He can’t win a fourth term in 2016. Maybe he won’t even want another term, said another. Health care reform is obviously dead; the central issues will be come property tax issues and education restructuring.
   By Thanksgiving, the outer reaches of the Shumlin political angst will have receded. Reality will begin to take precedence. For one thing, Shumlin is far from dead. He remains—by far—the most capable political leader in the state. It is true that if he ran next week against a serious Republican opponent he probably would lose. There won’t be another election for two years, however, and even in little Vermont two years is plenty of time to turn things around. Beyond that, the fact that Shumlin has revived the Republican party, doesn’t mean that he has  given the GOP any better candidates, and even more important, he hasn’t given the ones they have any good ideas.
   As for health care reform, the single most important issue ever to face the state and a long time principal concern to the author, not only is health care reform not dead—it is strikingly healthy and it is going to remain healthy for many years to come. That is true even if the legislature refuses to even consider enacting whatever bill the governor drops on them in January. It would be true even if Shumlin ends up losing to Milne. (One of the most encouraging auguries in the campaign was the refusal of serious Republicans like Lt. Gov. Phil Scott, and even Milne himself, to join in the Vermont’s yahoo, tea-party right wing campaign to junk health care reform.)
  The reason for this claim is the regulatory and other powers embedded in state law already, along with the presence of a thriving accountable care organization that includes the bulk of the state's medical care provider. Together, they can advance the essence of health care reform, no matter what happens politically. We will elaborate on this contention in the lead-up to the legislative session in January. But there is an important caveat to what some may see as an overly optimistic view. It is this:
  Peter Shumlin has to dramatically change his game by the first of the year. If he does not do so, then he is likely to succumb to an at least marginally competent opponent in 2016; and he will slip away into political history, a mere echo of unfulfilled promise. What does that mean?
  Major executive branch politicians have to have two types of skill. One is political, they need that to gain the office. But then they need bring to bear management skills. They need to get serious about how you get things done. As small as Vermont is, it is still a multi-billion dollar operation and it takes a competent CEO to run it.
   Signs of the deterioration in Shumlin’s performance in both realms have been growing for at least a year and a half. First, the political.
   A politician must communicate with the public, and a major, if not the major, channel for that is the press. Over time, Shumlin has become more and more remote. He is the most distant governor of the modern era. Howard Dean served six terms as governor—if a reporter called Dean at his house at 10 oclock at night,(his number was in the book) Howard would answer the call himself, he would cheerfully answer all the questions, and he would never lie. Reporters never had trouble reaching Madeleine Kunin, or Dick Snelling or Jim Douglas.
   The process of getting through to Pete Shumlin runs closer to gum surgery. He wants no part of talking to the press, even though he can be very good at it. And his press apparatus reflects that bias. Shumlin’s press operation has treated the press as the enemy, and when a politician treats the press as an enemy, the press becomes an enemy. Right now, the Vermont press, to a very considerable extent, has a very sour view of Pete Shumlin. That has to change. Right now, by, say, tomorrow at the latest. In the matter of health care reform, neither the public nor the legislature has the faintest idea what Shumlin’s initiative portends, and he has done virtually nothing to bring them along. He pretty much ignored the issue in the fall campaign. Coupled with the mess surrounding the Exchange that omission can only amplify the difficulty of selling his plan in January.
   As for managing, Shumlin’s performance has also been deeply flawed. He has to a far too great a degree, treated statesmanship as a political game. Solve problems by slick political maneuver. It worked for him when he ran the Senate., It won’t work anymore. The damage flowing from that posture is unmistakable. When he took office in 2011, he named his opponents in the Democratic primary to major jobs in his administration, an obvious play on the same policy carried out by President Abraham Lincoln, as described in the book by Doris Kearns Goodwin (Team of Rivals) Not necessarily a bad idea, but it was all about political resonance.
   The problem came when he turned over his most important bureaucracy, the Agency of Human Services, over to Doug Racine, and installed as his most important deputy Mark Larson. Racine and Larson were good guys, and were good at policy. Both had excellent records, Larson in the House and Racine in the Senate. But the jobs they got required strong skills in the management of complex operations; and neither Racine nor Larson had the operational experience to run a Jiffy Lube.
   So when Shumlin turned over the establishment of the Obamacare Exchange to AHS, the result was chaos, and then failure. Shumlin eventually turned the problem over Lawrence Miller, his Secretary of Commerce and Development, and Miller began to impose order on it. But that move came more than a year later than it should have and the whole, unnecessary blunder has left health care reform in a mess.
  Back to the political dimension for a moment: There is no reliable way to tease out the roots of the vote on Tuesday, and it may be my particular bias toward health care reform, but I continue to believe the kerfuffle over the “take over” of Medicare had a measureable impact on the vote. At a minimum, it demonstrated the deleterious effect of Shumlin’s penchant for secrecy and his failure to be candid with the public on a critical element of health care reform.
  The details of that issue are too complex to go into here (I will assess that issue in the next few days) but what was clear is that Shumlin never made any effort to explain to the public what was going on with Medicare as an element in his single payer planning; so that when the Republicans began making the entirely dishonest claim that he wanted to steal seniors’ Medicare money to fund his nefarious single payer scam the administration had no quick answer.
  Any delay on an issue like that is fatal. In fact, reporters who cover state government should have blown the Medicare canard out of the water. But how were they to understand it? There are dozens of hideously complex issues tied up in health care reform. And Shumlin has never said as much as a syllable about most of them. So—the press flounders, the public and the legislators are at sea, and Shumlin is just letting the whole mess drift.
  The conclusion: Shumlin can right his own ship. He can win future elections, if he wants to. And by navigating the state toward successful health care reform he can eclipse the performance of any governor in the state’s history, including giants like Phil Hoff and Deane Davis.
   But he has to bring up his game, and bring it up fast. We won’t have to wait long to see whether he does.
   January at the latest.

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A Bogus Claim and Vermont Politics

by Hamilton E. Davis

    The 2014 Vermont election now drawing to a close is one of the strangest in memory. There is virtually no competition for the U.S. House or Senate, or for governor. There is one huge issue on the state’s agenda in the form of Governor Peter Shumlin’s single payer initiative, and some lesser but still important questions like property tax levels and education financing. However, none appear to be affecting either the gubernatorial election or any significant number of legislative races.
   Yet, there are important forces at work underneath the surface which can be seen, if indistinctly, in the one competitive statewide race, the contest for lieutenant governor. Phil Scott, the Republican incumbent, is being challenged by Dean Corren, a former Progressive legislator who has been endorsed by the Democratic Party. Scott is an easy going, very popular Republican who has won his recent elections handily. The smart money calculates that Corren’s vote is likely top out at just a little over 40 percent.
   That reading could be correct, although the smart money often turns out to be wrong. Even if it is correct, however, the importance of the Corren candidacy extends well beyond the current campaign. The reason is that Corren himself and his campaign encapsulate the deep contradictions presented by the progressive movement. In the first decade of the millennium the Progressive Party very nearly turned the management of the state over to the Republicans, notwithstanding the huge margin enjoyed by the Democratic Party.
   In the 2002 campaign, Anthony Pollina, a Progressive, ran for Lieutenant Governor against Peter Shumlin, the Democrat, and Brian Dubie, the Republican. Dubie received just 41 percent of the vote; Shumlin got 32 percent, and Pollina drew 25 percent. The center-left, in other words had the support of 57 percent of Vermonters, a huge margin over Dubie.
   Yet Dubie got to spend eight years in an office that is tailor-made to get its occupant ready for a run for Governor. And when Dubie and Shumlin ran against one another for the governorship in four years ago, Shumlin prevailed only by a hair’s breadth. I have written about this issue and its recent history previously; that article is available on my web site, A Vermont Journal.
   Is that ancient history, or relevant contemporary history?
   I believe it is relevant for two reasons. The first is that the lieutenant governor could play an outsized role in the coming debate over single payer. He will have the deciding vote in the Senate in the case of a tie. Corren professes to be a strong supporter of single payer, and in the abstract he certainly is. But the single payer is much more complex than is generally supposed, and it is possible that Shumlin’s plan could be opposed by the left, in particular if the left decides that the level of benefits at the end of the legislative debate is too low, in their view.
   On a longer reach, Corren or another Progressive could run as a third party candidate in the future, just as Pollina did in 2002. I have heard no public discussion about that issue at all, despite its potential to have enormous effects on state politics. Over the past decade, the Progressives have alternated between a focus on issues and party building. And there is no evidence yet that the commitment to party building has receded.

    When Corren announced in June that he would run for lieutenant governor, he did so as a Progressive. His major issue, he said, would be his support for single payer. Up to that point, the narrative that Progressives have labored for more than a decade to establish is that the Democratic Party is worn out and reactionary and that any progressive legislation that advances does so because of the support from Progressives.

   And the commitment to party building was evident in the announcement. Morgan Daybell, the executive director of the Progressive Party, told Vermont Public Radio that Corren's candidacy would advance that cause. The Republican Party is weak, he said, and that leaves an opening for Progressives to step up to a statewide stage. He concluded:

   And I think what Progressives are able to do is to start to make the case that we can be the opposition party to the Democrats, and really pull the debate in our direction.

   In the same interview, also pressed the claim that Progressives rather than Democrats are the leaders on forward looking legislation. The roots of the health care reform movement lay in the bill that he, Corren, introduced into the 1993 session of the legislature, he told VPR.  That would be interesting, if it were true.
   It isn’t. The actual roots lay in the previous session of the legislature, when then-Senator Cheryl Rivers, a Democrat, introduced a single payer bill, S127, when the session opened in the winter of 1991. During the entire biennium, the Senate Health and Welfare Committee under the chairmanship of the Chittenden County Democrat Sally Conrad worked on the Rivers single payer bill, at the expense of almost all other issues.
   They not only held hearing after hearing in their own committee, they spent the entire summer of 1991 holding hearings all over the state and worked hard to garner public support. In 1993, Howard M. Leichter, a political science professor from Oregon, published a long article in the journal Health Affairs detailing the Rivers effort and he came to this conclusion:

   Two things were clear on the eve of the 1992 Vermont legislative session: There was broad and deep support for health care reform, and the option with the most visibility, although not necessarily political support, was S127 (the Rivers single payer bill).

   The House, meanwhile was working on a multi-payer reform bill, and Conrad and Rivers failed to get their single payer bill out of their own committee. But in a striking bit of legerdemain Conrad and Rivers struck a deal with Ralph Wright, the House speaker, to modify the House reform bill to include the design of a single payer system as well as a multi-payer system, both to be available to the 1994 legislature.
   The legislature subsequently decided to pursue the multi-payer option, which then failed.
   I bring up this history because it so clearly impeaches the Corren claim that he was the leader of the single payer reform movement. Corren did submit a single payer bill in 1993 session of the legislature, but it was purely grandstanding, given that the development of a plan based on the Rivers bill was already in process.
   While this history is in my view important, it is nowhere near as critical as where the Progressive movment goes from here. For Corren’s part, he sought and obtained the Democratic endorsement in his current campaign. He has professed to be enthusiastic about working with Democrats in the future, and he has been endorsed by major Democrats like Shumlin and Senator Pat Leahy.
   But there has been no discussion about whether the Progressives will run third party efforts in the future. In fact, it is quite clear that they have in no way renounced doing so. That is true despite the mountain of evidence that third party candidacies almost always function as spoilers…
  If you’re looking for evidence of the baleful influence of these spoiler candidacies, you might look to Maine, which has a governor named Paul LePage, who was elected with just 38 percent of the vote in last election and is running now for reelection. LePage, an almost comically right wing character, won despite the fact that Maine voters by a two to one margin favored a center-left candidate. LePage prevailed because there were two such candidates and they split the center-left vote. The same thing is going on in the current election.
    The New York Times has written about similar spoiler potential in statewide elections this year in North Carolina, Iowa, Hawaii, and Alaska, as well as Maine.
   It is the spoiler issue that sits beneath the surface of the election this year in Vermont. 

N.B. I am familiar with these events because I was a member of the Legislature in the 1991-92 session and I worked on the House bill; I also served on the conference committee that resolved the differences between the two chambers. The reader should also be aware that Corren and I ran against each other for a House seat in the 1990 election. In the two-seat district, I finished first, the late Rep. Alice Cook Bassett finished second, and Corren finished third. I did not seek reelection.  

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Giving credit where it's due

by Hamilton E. Davis

   Vermonters will elect a governor next week and it is virtually certain to be the incumbent Peter Shumlin. It is an unhealthy irony, however, that he will be elected more in spite of his successes than because of them.
   This judgment is based solely on the issue of health care reform. The governor has dealt with a range of other issues in his nearly four-year tenure of course, from school financing to genetic labeling to energy matters. But his single-payer initiative is the central issue of his governorship so far; health care reform dwarfs everything else. 
    Yet the whole issue of single payer has become a strange political enigma. The shrewdest political operatives thought the reform initiative would be the central concern in the current election campaign.
   It wasn’t. Health care reform will have virtually no impact on the outcome of the voting, although Shumlin’s margin will clearly suffer because of his handling of the insurance Exchange established under Obamacare.
   A major problem is that real health care reform is so complex that it has, so far at least, eluded the public, the legislature, the press---just about everybody, including, in the greatest irony of all, the governor himself.
  As a result, all of the attention over the last several weeks has centered on the Exchange, which isn’t really health care reform at all, just more money to get some more care for some more people, and isn’t really Shumlin’s at all, but rather Obama’s.
   Still, getting the Exchange up and running is Shumlin’s responsibility so it is fair to say it seems clear that all of the criticism of Shumlin’s performance in that regard is justified. Lost in the process, however, is any sense of the positive elements of Shumlin’s single payer plan. Which is a loss not only for Shumlin, but for all Vermonters.
   For the Shumlin initiative is truly stunning in its scope and ambition. It far exceeds anything even contemplated by recent governors, like Jim Douglas, Howard Dean, Madeleine Kunin, and Dick Snelling. You have to go back to Philip Hoff’s effort in the 1960s to build union schools and wrench an isolated, rural Vermont into the 20th century or Dean Davis, who saved the Vermont environment with Act 250, to find anything comparable.
   Moreover, in some important ways, Shumlin’s performance has been superb. Here’s how:
   Health care is by a wide margin the most important and difficult domestic issue that Americans have dealt with ever, with the possible exception of social security. Beginning in the mid-1960s, health care has exploded, both in its reach and complexity and its cost.
   Even before the turn of the millennium, it had become clear to everyone whose head was not under water that the current health care delivery system was not sustainable at its historic inflation rate. The costs simply were not bearable. So reform was essential.
   But who would do it? How would it work? How would doctors and hospitals, insurance companies, employers, policy makers, and the public at large summon up the political will to rework a social institution that deals with life and death and in the process eats up one dollar out of every five of our national output?
   Vermont and a half dozen other states tried hard in the middle 1990s, and failed utterly. Hilary and Bill Clinton tried for a national system in that decade also, and delivered one of the biggest policy train wrecks in our history. The whole history of the HMO movement was a litany of failure.
   As a candidate for governor in 2010, Shumlin plowed headfirst into this stony ground without a backward glance. He would go all the way toward full reform—single payer. He needed two things to get going—a plan that that had the potential to fully rework the system, and he needed a core team with the skill and drive to make it happen.
   He got both of them. He talked the two major players---Anya Rader Wallack, a national class policy analyst, and Steve Kimbell, a veteran lobbyist—into committing to the project. They in turn brought in other major players, like Robin Lunge in the governor’s office; and in a matter of weeks the team wrote and convinced the legislature to pass Act 48, which established the framework for the single payer plan.
   It is impossible to overstate the importance of Act 48. The early efforts to pass single payer in the U.S. focused on replicating the single payer system that Canada adopted in the mid 1980s. The left is still entranced by Canada, but the consensus in the American health policy community is that it wouldn’t work here.
   The Canadians built their plan so as to cover everyone and pay for it with taxes at both the federal and provincial levels. They left the delivery system, the doctors and hospitals, alone; there was no clear cost containment system to cope with the inflation that ensued with a huge increase in demand. Within months, the Canadian system began to crack under demand and they had no way to deal with it except by making people wait for care.
   The Shumlin team turned the Canadian system on its head. They started with cost containment and built the system based on their ability to control inflation. It is important to understand that policy makers of every stripe in the United States had been trying since the early 1970s to get American costs under control. All failed.
   To cut that knot, Act 48 established the Green Mountain Care Board, with the power both to regulate hospital budgets and to restructure the delivery system itself as well as the mechanism to pay the doctors and hospitals. That was critical because regulation alone had proved inadequate to corral costs.
   Moreover, the Green Mountain Care Board itself was designed to be light years more effective than its inadequate ancestors, the Vermont Hospital Data Council  and the Public Oversight Commission.
  Act 48 in short was simply brilliant—there is nothing to compare with it in the United States today, including Obamacare.
   At the same time, the Shumlin designers utilized a provision of Obamacare that envisioned the establishment of accountable care organizations (ACOs), coalitions of doctors and hospitals that would cooperate in delivering care. The purpose of these structures would be to replace the kind of competition between providers that had driven up costs for so long…
   Once in place, the Green Mountain Care Board began to fulfill its mission to bend the cost curve. After 40 years in which costs in the Vermont hospital system routinely rose by from eight to 11 percent, the trend is now running at just about three percent. That could still be a little high, but the board has delivered a solid cost performance for the first time in the modern era.
   For this performance—assembling a really good team and designing a brilliant reform plan, as well as getting an excellent start toward cost containment and restructuring—Shumlin has gotten no credit at all. As of this writing in Oct. 28, the Shumlin performance on the essence of health care reform has been, as far as I know, completely absent from the political environment.
  Why should that be?
   Part of the problem, although far from all of it, is the fault of Shumlin himself. The government machinery he built is excellent; his management of it, particularly the way he has dealt with the legislature and the public, not so much. Terrible, in fact.
   He talked about health care reform with an airy insouciance. It would all be perfectly straightforward, he was prone to say. We can get a single payer up and running by 2014, he said, “because we’re smarter than the feds.” The problems with the Exchange were a “nothing burger.” The feds will give us whatever waivers we need. It will be simple, you just swipe a card…
   So far from being routine, getting from a really good start in the first three years to an actual operating system that will fulfill the promise of Act 48 will be brutally hard, a fact that has been clear to the real health care players in the state but one that Shumlin hasn’t begun to share with the public.
   It hasn’t all been Shumlin’s fault, however. Part of it lies with much of the Republican Party in the state, whose candidates have had nothing substantive to say about health care reform. No Republican that I know of has said what she or he would do about health care reform in Vermont.
   But Shumlin remains the leader. I suspect that the reform environment will change drastically after the election. The plan for single payer has been developed pretty much in secret, but the veil is going to be pulled away once the legislature is back in session.
   At that point, the concept will still be brilliant. Act 48 will stand and it is finely wrought. And the team Shumlin has on the field is very good. But there has never been this big a challenge for the state ever, so success will be elusive.

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More Bunk on Single Payer

 Bob Frenier, the Republican candidate for the Vermont Senate from Orange County, has caused a stir in the Northeast Kingdom with his Burma Shave-type signs suggesting that Gov. Peter Shumlin's single payer initiative would degrade the benefits now available to seniors under Medicare.
  In fact, that would be impossible: the federal government will not grant a waiver to a state or region  to manage Medicare if there is any reduction in true federal level of benefits. Which makes total sense. Any move to reduce Medicare benefits would be political suicide for anyone contemplating it. 
   The only way that Shumlin could affect the current level of benefits would be to improve it. That could be done by reducing or eliminating the amount that Vermont seniors pay to get supplemental insurance coverage for their share of an episode of medical treatment. The buzzword for that is "Medicare wraparound", which is under discussion by the Shumlin design team. According to Robin Lunge, a top Shumlin aide, the wraparound would be complex, but a decision on the issue will be contained in the plan that Shumlin brings into the legislature in early 2015.
   The idea that Shumlin could or would want to degrade Medicare benefits is simply ridiculous. There are too many real, very difficult issues to wrestle with when contemplating health care reform to waste time dealing with phony issues like Frenier's, whatever you think about Burma Shave.

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Time To Get Serious

by Hamilton E. Davis

  State Senator Anthony Pollina got some media attention recently with his recommendation Governor Shumlin base his single payer health care reform initiative on the insurance system now in place for state employees.
  Pollina, a Progressive, told VPR’s Bob Kinzel that using the VSEA platform would be much simpler than setting up a whole new management operation for the envisioned Green Mountain Care; it might also avoid the kind of problems that have hamstrung the federal financed Exchange.
  What Pollina didn’t tell VPR is that just extending the VSEA plan would add a cool $288 million to the already very high estimate of more than $2 billion to get to single payer. According to Michael Costa, Shumlin’s finance designer, that would be the cost of shifting from the tentative Shumlin plan to have the state pay 87 percent of a patient’s costs to the VSEA level that pays 94 percent of those costs.
  A comment: with less than three months to go until the legislature begins to grapple with the Shumlin plan, it’s important that players such as Pollina stay somewhere in the vicinity of reality land. Ignoring a 14 percent bump in an already high number doesn’t meet the standard.

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Transparency Studies are Opaque

by Hamilton E. Davis

   For more than a year, the Green Mountain Care Board has been struggling to understand how the money spent on Vermont doctors and hospitals flows through the system. How much does a hip replacement actually cost at one hospital compared to another? Does that depend on who the insurance company is? Do different insurance companies pay one hospital differently from another? If so, why?
   The board has commissioned two studies to tease out these kinds of details about the payment system in the state. Yet the analyses are so convoluted that they have served more to demonstrate how opaque health care financing is than to render it transparent.
   The need to cut this knot is critical to the cause of getting costs in the system under control. And cost control is the single most important structural piece of Governor Peter Shumlin’s single payer reform initiative. Act 48, the statute governing health care management in the state, says plainly that the board’s responsibility is to get costs on a sustainable track, and that no single payer system can be put in place until it is clear that they are.
   Can it be done? And what will it take?
   Everyone involved in the health care arena knows that the way providers are paid makes no sense and badly needs to be rebuilt. But it has been very hard to see the finance problem clearly because for decades insurance carriers and hospitals have kept prices in the system hidden. They do this with non-disclosure agreements that make it impossible for the ordinary consumer, and for regulators like the Green Mountain Care Board, to figure out how the system actually works.
   The studies of the transparency issue have shown that there is incoherent variation in who gets paid how much for what. But the non-disclosure agreements have prevented anyone outside the system from seeing what the variations mean in dollars and cents.     It works this way: if you call a hospital and ask what it will cost to have your hip replaced, they will ask you what your insurance policy says. Based on that, the hospital will tell you what your out-of-pocket costs will be; if you ask, they will also tell you what they will charge the insurance company for the work. However, no one pays charges, there is always a discount.  If you ask what the hospital actually gets paid, they won't tell you because of the non-disclosure agreement. So, you never know the real price.   
   Buried in these studies, however, is enough information to get a glimpse of what’s going on. Here is an example:
   The first transparency study commissioned by the GMC board was carried out by Mike Del Trecco, Gary Zigmann, and Ted Gates of the Vermont Association of Hospitals and Health Systems and published in June of 2013. The second, by a group including Steve Kappel for a group at UVM and the UMass Wakely consortium, was presented to the board a couple of weeks ago. The data in the first study was from 2011.
   Both documents are pretty much torture to read, not because of any deficiency on the part of the consultants, but because the whole system has been built to be impenetrable. Still, the Del Trecco study contains a fascinating visual pricing diagram that inadvertently throws the current system into high relief.
   The diagram shows the variation in prices for DRG 470, a block of medical care that includes joint replacement of the lower body—mainly hips and knees. Here it is:

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   The diagram provides a look at how payments to the hospitals by various insurance carriers deviate from a mean value, represented by the heavy grey vertical line down the middle. Paler lines left and right of the central line are shown for amounts that are either plus or minus 25, 50, 75 or 100 percent of the mean.
   A quick glance will show you that payments to Rutland, Copley, Porter, and North Country hospitals tend to be higher than the mean, while Fletcher Allen and Central Vermont are below it. There are no dollars shown, of course. For a real shopper it would be like knowing how five television stores differ from one another, but without having any idea what it would cost to buy an actual t.v. set.
   The crack in this presentation is the straight line of eight red bullets left of the center line. These are Medicaid payments to the eight hospitals, and Medicaid payments are made by the state and are a matter of public record.
   So, voila, once you know from the state that the Medicaid rate for joint replacement is $16,000 per case, and the rest of the diagram is drawn to scale, you can convert the whole thing to dollars. The mean value scales up to $22,000 (hint: one millimeter equals $400).
   And the dollars are indeed fascinating. Take a look at Rutland. Vermont Blue Cross paid Rutland $31,200, far more than the mean. The diagram also shows that TVHP paid the hospital $34,000 for the same service. But Vermont Blue Cross and TVHP are the same company…why so high and why the difference within one carrier?
   And why are the payments to Fletcher Allen so much lower, ranging from $15,600 to $24,000. As at Rutland, the Blue Cross-TVHP passes understanding. Blue Cross pays FAHC $18,800 per case, while TVHP, the same carrier, pays them just $15,600.
   You can see these price differentials in the following table and bar graph:

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    Getting at what ought to be perfectly transparent payment flows this way is obviously a kind of guerrilla operation, and some caveats are in order. The amounts won’t be exact; scaling deviation from the mean with a ruler graduated in millimeters is less than precise, although the differences are clear enough. Payments from Medicare are not shown, although they would be the same for each hospital.
   A more important factor could be that some hospitals may be getting higher than average rates for a joint replacement in order to make up for short falls in revenue for an important community resource, such as delivering babies or running an emergency room, which might not pay for themselves.
   But the extra money could also be used for providing staff pay raises, or something else: the point is that nobody knows.
   A striking example of payments that don’t seem to make sense can be seen at Copley, a small rural hospital in Morrisville. Copley draws orthopedic patients from a much bigger area than just its community hospital service area. So there would not appear to be any reason why Vermont’s insurance carriers should be paying them such high rates.
   MVP pays them $30,000 per case, and Blue Cross pays them even more, $31,600. TVHP on the other hand pays Copley a relatively parsimonious $26,800. You will never find out the reason for these price discrepancies, but they make a mockery of the often-voiced sentiment that patients ought to be price conscious in selecting providers.
   One might argue that the patient really needs to know only his out-of-pocket costs. Still, the patient also pays the premiums and if a carrier is paying excessive prices for a service, that fact will drive up the premiums. 
   The whole system is, in fact, ripe for change and the resistance to such change may be crumbling. Asked about the disparities in the DRG 470 case, Don George, the president of both Vermont Blue Cross and TVHA,  said that Blue Cross has shifted its strategy over the last couple of years.
   “The payment rates in the reports and the variations they created between payers and providers reflected discounts off fee for service charges and product and network partnerships that made sense in the past, but are not consistent with how we approach things now,” he said.
   “Our entire focus is in reforming the payment system, not only to address these variations and provide greater transparency but more importantly to provide incentives to improve outcomes and control costs.”
   Responding in the same vein, MVP noted that the contracts reflected the circumstances "unique to each negotiation," but concluded, "We welcome the Green Mountain Care Board's ongoing analysis of payment variations among commercial payers and we fully support transparency moving forward."
   The decades-old system is already showing serious cracks in some other states. As of Oct.1 of this year providers in Massachusetts will have to publicly list their actual charges (albeit not the actual prices).  And for some time now Maryland law has required that insurance carriers pay providers the same amount for the same service.
   Given the fact that the current system can’t be seriously defended, the impetus appears to lie with the Green Mountain Care Board, which has enormous powers in this arena. Act 48, the main health reform statute, empowers the board to set hospital budgets, to set payment rates to providers if it so chooses, and it controls the rates that insurance carriers can charge its customers.
   Moreover, the board is the custodian of VCures, a statewide health finance data base that will become the foundation on which the entire system is operated. 
   If the board tells hospitals and insurance carriers that it won’t accept non-disclosure agreements that curtain the public and the board off from a clear view of the financing in the system then the secrecy will vanish from the scene.
   Such a  development would be an important step forward for health care reform in Vermont.  Neither the Green Mountain Care Board nor anybody else is going to achieve sustainable costs without it.

Seven days goes on the road

The Wayward Press
(with apologies to A.J. Liebling)

by Hamilton E. Davis

   I was standing in the mess in my office the other day when my phone dinged and I noticed that it was a feed from Seven Days, the alternative weekly in Burlington. The headline said something about Bernie Sanders and I assumed it was the usual local stuff, but since I can’t stay away from politics, I read the first couple of paragraphs, then a couple more.
   Before I realized it I had read the whole thing and I thought, Wow, I haven’t read one of those for two decades. I was still standing up.
   The piece was a long, very long, report by Paul Heintz on Bernie Sanders' trip to Wisconsin and Iowa, a staple reconnaissance for a politician contemplating running for president. Sanders has no chance to actually win the presidency, but he has a real following on the political left, and he wants to get a national hearing for the issues he cares about. Hence the trip.
   The Seven Days piece had no dateline and I assumed it had been written in Burlington. I wasn’t surprised at that: an aggressive reporter can get a lot of information on the telephone and Heintz digs really hard. But as I kept reading I was struck by the way he way he was weaving all sorts of local color into his narrative and how successful that was.
   I began to feel that I was there, I was getting carried along, and then it hit me. Wait a minute, Heintz is there. You can get some good stuff on the phone, but you can’t create a whole atmosphere without faking it, or just making it up. After that epiphany, I just enjoyed it.
   Heintz was getting the whole Bernie: the passion, the ranting speech, the rage at what Bernie sees as the depredations against the common man and the working and middle classes.
   And at the same time, Bernie’s reluctance to engage directly with the people that flock to hear him. Or to engage in the backslapping and schmoozing that functions as the machine oil of American politics.  Bernie as grump.
   It was all there: you read Heintz’s story and you’ll know Bernie Sanders as well as you’ll know any political candidate. Worth every syllable of the 4,600 words.
   What made it particularly remarkable for me is that small, medium and even the huge majority of big newspapers in the United States don’t do that kind of journalism any more. Long form political stories were one of the early victims of the collapse of the newspaper industry that began around 20 years ago.
   The reason is that the stuff costs so much. The meals and hotel rooms on the road, the airplane fares. The business model of American newspapers has collapsed in the face of competition from World Wide Web and the loss of huge numbers of readers.           
   I covered presidential campaigns in 1968 and 1972 and the campaigns charged reporters and t.v. crews first class fares on every leg of every flight. My editors at The Providence Journal didn’t blink.
   Today, editors from one end of the country to the other aren’t just blinking, they are backing away from strong journalism as fast as they can. I think that is a major factor in the increasing toxicity of American political life.
   The Heintz foray was in fact “pricey”, according to Paula Routly, the editor of Seven Days, who fronted the money to send Heintz on the road. Still, Seven Days did it, and performed the kind of public service that used to be the hallmark of newspaper journalism.
   I may be deluded, but I am choosing to think of it as a straw in the wind…and I think A.J. Liebling would have been pleased. 

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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:

Financing:

   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.           

   Reorganization:

     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.

Operations

   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.

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Reading the tea leaves at the Vermont Exchange

     During the cold war, American intelligence experts would often try to suss out what was going on in the Soviet Union by looking at photographs of Kremlin public events. If Ivan Somebody was in the picture two places from the Russian leader in March and again in May, but was gone in a similar photograph in July, that meant something. Most likely that Ivan was toast.

     In a much more minor way observers of single payer health care reform in Vermont can gain some insight about what is going on inside Governor Peter Shumlin bureaucratic management structure by looking at pictures accompanying stories about the progress of reform.

   Over the last three years, the stories that have come out of the Department of Vermont Health Access, one of three centers of reform activity, have been illustrated by photos of Mark Larson, the commissioner of DVHA, or less often Doug Racine, his boss, who is Secretary of the Agency of Human Services. That was true until the last two weeks.

  Now, the picture accompanying the stories is of Lawrence Miller, the former Secretary of Commerce, who is taking over as the Czar of health care reform in the Shumlin administration:

   July 24, DVAH gets permission to hire 37 new staff members to begin cleaning up the mess over the federally financed health insurance Exchange, a key piece of the reform puzzle. Picture: Lawrence and Stephanie Beck. July 25, Shumlin press conference in Barre. Gets questions about the Exchange mess. Miller on his shoulder. July 28, Miller (pictured) says Vermont will seek extension of federal funds for the Exchange.

   And it isn’t just the pictures. The whole tone of the discussion around reform has changed dramatically.

   On July 10, Doug Racine, the secretary of AHS, gave a presentation to the Green Mountain Care Board, another of the three principal focal points in the reform effort. Al Gobeille, the board chair, had asked the Agency for an update on where the state bureaucracy stood on the various problems facing the Exchange.

   Racine provided a lengthy power point recitation of how the whole thing is structured; he said that DVHA is moving forward on its problems and that they would get solved. There was no hint of a crisis, or indeed anything the board really needed to worry about. There was some apparent unease in questions from the five-member board, but no sense of anything really untoward.  

  Less than two weeks later, the whole atmosphere changed dramatically. Miller went before Mike Fisher’s House health care committee and told them flatly that the whole Exchange effort was a mess and that it would take a huge effort to fix it. Considerable shock attended this information. News headlines spoke of the Exchange issues reaching a “crisis.”

   In fact, there was no new crisis. The whole operation of the Vermont bureaucracy’s management of health care had been a total mess virtually since its inception in 2011, when the newly elected Governor Shumlin took office. The Exchange has never worked properly, and the way that DVHA was headed it never would.

  This failure was costing Vermont millions of dollars in lost federal subsidies, since many Vermont employers didn’t dare to cut their workers loose from company- financed insurance. But that wasn’t the worst of it, by a large margin.

   The problems at the state agency have threatened to sink the whole health care reform itself. 

   The reason: Shumlin can’t get the single payer system he wants unless he can convince the legislature to raise around $2 billion to replace the private premiums that now finance the system of doctors and hospitals that deliver care to the people of the state.

  Doctors and hospitals have provided rhetorical support for the reform effort, but there are huge implicit caveats attached to that support. Doctors and hospitals will have to be confident that whoever manages a whole new management structure for health care.    

   In the simplest terms: The legislature raises two billion dollars and there it sits, in some form of government bucket. A big question: what happens to it? How does it get distributed to the doctors and hospitals who are delivering the care? Who gets paid how much? How does the whole thing work? 

   The answer is still being worked out by the Shumlin team, so we won’t really see it until next winter, but one thing is already clear to all the major and most of the minor players on the field: The money can’t be managed by Doug Racine and Mark Larson. In the starkest terms:  If the doctors and hospitals think that they will be working for DVHA, there will be no health care reform in Vermont.

   So, is that conclusion valid? Call it the competence issue. What is known about it, what is the evidence?

   Few if any of the major players are going to state the case in terms that are this unequivocal. The evidence is nonetheless compelling.

   The attitude of the Shumlin high command is evident by simply looking at the skein of events involving Lawrence Miller.

   Miller is a highly respected businessman who was building a solid reputation in government in his management of the Agency of Commerce and Community Development. Last January, however, Shumlin asked him to help Mark Larson get a grip on the computer problems at the Exchange.

   After spending a couple of months dipping into the DVHA operations in Williston and Winooski while still running his own agency, Miller apparently decided that it would take more than just dipping in because on April 10, Shumlin decreed that Miller would take charge of the whole health care effort for the administration.

   Al Gobeille would continue in charge of the Green Mountain Care Board which has  both regulatory and system design responsibilities. But all health care reform activities in both the Agency of Human Services and in Shumlin’s own office would come under the direct control of Miller.

   It is hard overstate the importance of this, not least because it is unique in Vermont government. To recap, one agency secretary is superimposed on the most important function (health care) in another state agency. Has that ever happened before?

   Not according to Steve Terry, a long time Vermont journalist and utility executive, who has been watching state government closely since the Hoff administration in the mid-1960s. “I’ve never seen anything like that,” he said when asked.

   Add to this Governor Shumlin’s often-repeated comment that “there is no way that Vermont is going to run an insurance company.” And finally, it is important to look at the posture of the “partners”—a group of reform stakeholders that includes the medical society, the hospital association, Vermont Blue Cross, business community and a few others.

   These groups all say they support health care reform, but they are nonetheless very leery about it. For example, last year, the partners contracted a consultant, Avalere Health, to “examine the assumptions” involved in the Shumlin reform effort. The report was superficial and flatly wrong in some of its arguments. Its real importance lay in the simple fact that the partners wanted to send a message that they would oppose a reform plan they thought was damaging to them.

   What all of this adds up to is that the Racine-Larson regime at AHS has lost the confidence of very important player in the game—the reform team operating out of the Governor’s office, and the key stakeholders in the system.

   Equally important, they appear to have lost the confidence of a significant portion of the Vermont legislature. The evidence for that conclusion is that the legislature has insisted on hiring its own consultant to duplicate the effort by the administration to develop technical data necessary to complete the Shumlin plan.

   Wasting money like that can only be justified by a conclusion on the legislature’s part that they can’t trust the information they get from the administration. There is no apparent reason to paint the Green Mountain Care Board with that brush---the GMCB’s performance on getting costs under control has been exemplary. Nor is it likely that anybody distrusts Michael Costa, the tax expert that is working on the financing plan for reform.

   Moreover, there was no movement at all in the legislature and the Joint Fiscal office, the legislature’s data arm, in the direction of hiring its own consultants to replicate the data they would get from the executive branch. They didn’t need their own consultant for the original Hsaio plan, nor for the plan drafted by a University of Massachusetts consulting firm. Nor for the passage in 2011 of Act 48, which came from the administration planners.

   It was only after press reports that the Shumlin administration had known in the spring of 2013 that the Exchange was a mess, while continuing to issue reassuring reports, did the Legislature revolt. Their first move was to hire Ken Thorpe, a health policy consultant from Georgia, to advise them in the 2014 legislative session. You could argue that the $40,000 they spent on that was wasted also. Nothing appeared to come of it, and in fact no one seemed interested in retaining Thorpe again.

   In the light of all this, it seems clear that the Legislature’s action in getting a consultant now to get the same information the administration is gathering is driven not by a substantive need for the resulting data but by the distrust that has permeated the legislature.

   It’s perfectly reasonable to ask why somebody hasn’t been fired, given the record of performance on the Exchange. Well, the governor, who bears a piece of the responsibility for misleading the legislature on the Exchange, is not going to fire himself.

   And he is also apparently not firing either Racine or Larson, which would have happened long ago in the private sector and to lesser extent in state government. But that is not Shumlin’s style.

   Hence the need for Lawrence Miller. And on the record of the last three weeks, Miller is not kidding anybody. His assessment of the mess at DVHA couldn’t have been more blunt. Under his watch, the state recently severed its ties with CGI, the Canadian information technology company that designed Vermont’s exchange. Miller is the man with the broom ready to clean up the exchange mess.  And it would be hard for anybody to believe that he isn’t determined to fix it.

   It is impossible to know at this point whether he can fix it—fixing it meaning not only that the Exchange begins to work, but that the whole reworking of the information systems for AHS takes hold. That effort is in the early stages, but the primary change has been Miller’s moves to get more operational skills as opposed to policy expertise into the bureaucratic machinery.

   Racine, Larson and Larson’s chief aide, Lindsey Tucker, are all policy wonks. Policy they know, operations not so much. Hence the need for Miller, whose whole background consists of operational experience in the private sector. Miller has also recruited operational help in the person of David Martini, who has experience running an insurance company and who has been working for the Department of Financial Regulation. Another addition is Tom Boyd, who has operating experience at Rhode Island Blue Cross.

   In sum, there is a new broom and a new message, both of which were necessary if the Shumlin single-payer plan is not to die before it ever got fully launched.