Wednesday, July 13, 2011

Single Payer System Discussed

Last May, Vermont Governor Peter Shumlin signed the single payer healthcare law that will be financed through payroll taxes. This means that the Vermont single payer health system will operate as one publicly financed insurance fund to provide basic benefits to all citizens and pay providers under uniform mechanisms and rates. The legislation’s goal is to lower cost growth over time and overhaul the state’s payment system.

William Hsiao, PhD, K.T. Li Professor of Economics, Harvard School of Public Health, speaking at the National Press Club at a briefing presented by “Health Affairs”, discussed the hurdles, legal, fiscal, and institutional constraints on Vermont’s single payer system. His presentation was based on the paper authored by Hsiao and his colleagues now appearing in the “Health Affairs” July thematic issue “New Directions in Systems Innovations”.

According to the paper titled, “What Other States Can Learn from Vermont’s Bold Experiment: Embracing a Single-Payer Health Care Financing System”, Vermont’s recent passage of single payer legislation will greatly impact savings. The study came up with realistic predictions that will concur after ten years. Figures show that the single-payer system will reduce health spending by 25.3 percent compared to current spending, cut employer and household healthcare spending by $200 million, create 3,800 jobs, and boost the state’s overall economic output by $100 million.

Variations in Medicare claims and outcomes suggest that up to 30 percent of all health spending is attributable to waste and duplication of services. To help reduce the waste, the single-payer system will create a comprehensive claims database to further detect fraud and abuse. The study indicates that a single-payer system with a claims database could save 5 percent in health spending in the first two years of operation.

The goal is to overhaul Vermont’s payment system and transition away from its largely fee-for-service payment system. The study points out that payments going through an ACO and not going through individual physicians would create incentives, and in the end would improve outcomes and reduce inappropriate care.

The study also recommends that Vermont move to a “no fault” system of medical malpractice, both to maximize savings and to strengthen physician support for the proposal. The final single-payer law requires a plan for reforming medical malpractice that must consider a no-fault system but left ample room for more modest reform.

Vermont’s experience with the single payer system provides lessons for other states. As Hsiao pointed out, other states need to have a credible, viable, and practical reform plan ready when a political space in their state opens for reform.

In reality, states will need to take into account and overcome political, economic, legal, and institutional hurdles, employ credible, impartial, and technically competent groups to design the plan, and very importantly rely on evidence to derive recommendations.

However, if states find that they can’t adopt a full single-payer plan than they can develop parts of the plan in other ways. One suggestion is that states might establish single-pipe payments with uniform payment methods and rates as well as uniform claims processing. Also, a single-pipe system could promote establishing ACOs as a way to reduce the escalation of healthcare costs.

According to the conclusions contained in the study, the system can generate large savings, bend the cost curve while achieving universal coverage with generous benefits, and at the same time lower the cost of health care to families, businesses, and the state.

For more information, go to or email Dr. Hsiao at “Health Affairs” is published by Project HOPE and appears in print each month and on Facebook and Twitter. Web First papers are published periodically along with health policy briefs published twice monthly. Daily perspectives are posted on Health Affairs Blog.