The report mentions limitations of the stakeholder analysis. What are some of these? What would you change to improve the methodology?

Peter Shumlin assumed office as Vermont’s governor in January 2011. Like all four of his Democratic primary contenders, he had run as a supporter of a single-payer health plan. The outlook was good, given the state’s small, homogenous, and largely liberal population; its history of leadership in health policy; the governor’s electoral mandate; the recent passage of the ACA at the national level; and the policy development foundation that had already been laid in the state.

The previous year, the legislature had passed Act 128, “An act relating to health care financing and universal access to health care in Vermont.” Republican Governor Jim Douglas, who had announced he would not seek reelection, allowed it to become law without his signature on May 27, 2010.

The goals of Act 128 included: (1) providing universal health insurance to all Vermonters under a plan that would give them equal access to a standard benefits package; (2) controlling medical costs; and (3) creating a healthcare system that emphasized primary care and focused on prevention and wellness. The Act also established a commission and directed the commission to hire one or more consultants to proposal three design options—a single-payer system, a public option that would give state residents an alternative to private insurance plans, and “a third and any additional option [that] shall be designed by the consultant.”

The Consultants’ Report

On February 17, 2011, roughly a month after Shumlin’s inauguration, the state
received a 203-page report—“Health System Reform Design: Achieving Affordable Universal Health Care in Vermont”—that provided three options as required by Act 128 (Hsiao, Kappel, & Gruber, 2011).

The consultants who authored the report were William C. Hsiao and Jonathan Gruber, economics professors at Harvard and MIT, respectively, and Steven Kappel, founder and principal consultant at Policy Integrity, LLC. Hsiao had experience with
the design and implementation of single-payer systems in other countries such as Taiwan. Gruber was an adviser to Rep. Nancy Pelosi and consultant to the White House during the development of the ACA, and Policy Integrity develops and evaluates policy alternatives in areas that include health care.

The report contained several pages devoted to a political feasibility study that the authors referred to as both a stakeholder analysis and a “political landscape analysis” (p. 17). (Researchers employing the term political landscape typically focus on identifying which actors have what levels of power and the relationships between them.) The first step was a literature review to understand the state’s history around health policy and identify its major health-related institutions. The second phase primarily consisted of key informant interviews.

In a series of 64 confidential interviews, researchers spoke with almost 120 people. Interview subjects included legislators (15), members of the executive branch (6), hospital administrators (31), healthcare providers (23), representatives of large businesses (10) and small and medium businesses (13), union officials (11), health reform advocates (10), advocates from other issue areas (7), and insurance company executives (2). Most interviews were conducted in person with a pair of interviewers. The researchers also considered information gathered in “less formal stakeholder engagements.”

“Following our interviews, we categorized our finding according to key themes, recorded primary concerns across stakeholder groups, and compared current findings to those from our historical analysis” (p. 18).

They then determined the key interests and concerns of different sectors and identified policy constraints—design options that would be politically infeasible because of strong opposition from highly interested and engaged groups with significant economic and political power. Hospitals would vehemently oppose reductions in their reimbursement rates, for example. They wanted predictable and sustainable funding, but were not attached to the source of the funding. Businesses were wary of direct government control of the system and favored a third-party administrator protected from political influence. There was widespread resistance to reducing benefits.

The analysis did not simply test the feasibility of the various options; the results were used to shape the single-payer plan recommended in the report.

In contrast to previous reports on state-based single-payer plans, in our design process we explicitly considered the political landscape and the fiscal, legal, and institutional constraints on the reform.... We therefore proposed a public-private single-payer system that was financed through payroll taxes and governed by an independent board, and that offered a generous benefit package—while at the same time transforming the payment system and reforming the medical malpractice system.

Hsiao et al. (2011, p. 1233)

Vermont Enacts Single-Payer

In response, the legislature passed House Bill 202 (H 202), which established the basic design of Green Mountain Care (GMC), a system of universal coverage that borrowed heavily from the recommendations of the report. Governor Shumlin signed the bill into law on May 26, 2011, making Vermont the first state to enact a single-payer system.

Hsiao, Kappel, and Gruber estimated the single-payer system would reduce overall costs of the healthcare system by 25.3% through the following reforms:

1. Moving to a single-payer system would reduce administrative expenses by 7.3%.

2. A centralized claims database would make it possible to reduce fraud and abuse,

   saving 5%.

3. Integrated delivery systems (accountable care organizations) and payment

   reform (capitation payments adjusted for acuity and pay-for-performance) would

   save 10%.

4. A no-fault medical malpractice system with award limits would save 2%, largely

   by eliminating waste caused by providers practicing defensive medicine.

5. Insulating the system from politics and creating competition for claims

administration would save another 1%.

178 Chapter 9 The Policy Analysis Process: Evaluation of Political Feasibility

These savings, according to projections, would reduce system costs in 2015
by $580 million, combined with another $56 million reduction if the state created
a uniform payment schedule of no less than $105%–115% of Medicare rates. These savings would more than offset the additional costs: $220 million to cover the uninsured, $32 million to increase benefits for the underinsured, $62 million to support community hospitals and primary care, and $124 million to provide vision and dental benefits. Net savings to the system in 2015 would be $198 million, and business and household spending on health care could be reduced accordingly.

H 202 specified an actuarial value for the plan of at least 87%, meaning about 13% of healthcare costs would be paid for out of pocket. This was consistent with the estimated actuarial value of the average private insurance plan in the state.

Taxes would be increased to pay for the system, but those increases would be more than offset by eliminating the need to purchase health insurance. The consultants estimated savings in 2016 of $370 per household, despite a 3.1% increase in personal state income tax and a 9.4% increase in taxes for employers.

New Numbers Emerge

The bill did not specify a plan for financing the new system, however, requiring another round of studies instead.

A January 2013 study by the University of Massachusetts Medical School Center for Health Law and Economics and Wakely Consulting estimated a much lower level of savings—1.5% of system costs over 3 years (UMass Medical School & Wakely Consulting Group, 2013). It estimated that the state would need to raise an additional $1.61 billion to fund the program.

In November 2013, a report by Avalere Health, which had been hired by Vermont Partners for Health Care Reforms, a group of providers, insurers, and employers, issued a report that challenged elements of the UMass study. For example, UMass had estimated that providers’ reimbursement would be at 105% of Medicare on average and current reimbursement in the state was 107%. Avalere estimated the existing reimbursement rate at 122%. Green Mountain Care would therefore take a huge bite out of provider and hospital revenues. Avalere also challenged the assumption that there would be significant administrative savings. Avalere concluded the state would have to collect $1.9–$2.2 billion in additional annual revenue, a 20%–35% increase over the original $1.61 billion estimate. Avalere also conducted an interview-based “stakeholder impact analysis.”

On February 6, 2014, the legislature and the administration reached a consensus that the state would have to come up with between $1.766 billion and $2.175 billion in revenues to finance GMC.

According to McDonough (2015), some of the differences between the 2011 report’s figures and the projections in the 2013 and 2014 economic analyses had to
do with lower reimbursements from Medicaid to the state under the ACA. But policy decisions also added to the costs—a benefit structure that resulted in an actuarial value of 94% (higher than the platinum plan under the ACA), coverage for nonresidents working in the state, and the elimination of taxes for healthcare providers.

On December 7, 2014 Shumlin pulled the plug on GMC, declaring, “I have learned that the limitations of state-based financing, the limitations of federal law, the limitations of our tax capacity, and the sensitivity of our economy make that unwise and untenable at this time.... The risk of economic shock is too high” (McDonough, 2015, p. 1584).

In a presentation given that day, Michael Costa, deputy director for healthcare reform, said that going forward with GMC would have required payroll taxes of 11.5% for businesses and a sliding scale public premium of up to 9.5% for individuals—a far cry from the original estimates of 3.1% increase in personal state income tax and a 9.4 increase in taxes for employers. As reasons for the higher estimates, Costa cited a major reduction in estimated state and federal revenues from other sources, expensive policy choices, slow economic recovery, and the high cost of transitioning small businesses onto GMC. He also said it wasn’t practical to achieve the estimated administrative savings. (Vermont Health Reform, 2014)

Explanations for GMC’S Demise

McDonough (2015), a colleague of Hsiao’s at Harvard who advocated for a single-payer system as a Massachusetts legislator in the 1990s, points to several political factors that doomed the plan. These include the erosion of public support, the absence of a clear mandate, weak support in the legislature, and concerns about public response to raising the state budget by 45%. Shumlin won reelection by only 1% in 2014, running against a Republican opposed to single-payer. The narrow margin sent the race to the legislature, which awarded Shumlin a second term. An April 2014 poll showed the populace effectively split on single-payer. And while all three studies projected net savings to taxpayers freed from the burden of health insurance premiums, McDonough points out that people often pay little attention to health insurance deductions on their paychecks, but could hardly ignore—and would likely erupt over—a massive tax increase.

Avik Roy (2014), an editor at Forbes magazine who advocates for market-based approaches to healthcare financing, has presented six reasons why the plan failed:

1. Platinum-plated coverage (a 94% actuarial value)

2. Adoption without a financial plan in place

3. A massive tax increase that he estimates would be 160%

4. Opposition from hospitals because of reduced reimbursement rates and from insurance companies that would be eliminated

5. Reduced estimates of state revenues from taxes because of the recession, other state budget restraints, and lower projected payments from the federal government under the Medicaid waiver

6. The inability to create a true single-payer system because some people would be covered by federal plans such as Medicare or by out-of-state insurers.