Single Payer Optimism Over Report is Pemature

Vermont’s single payer health care reform activists are pointing with enthusiasm to supposed savings in health care spending that the University of Massachusetts report is said to claim would be realized if their suggested reform is adopted.

Advocates of the state’s decision to move to a government-financed health insurance system in 2017 cheered the conclusion of a financing report the Shumlin administration delivered to lawmakers this week because it concluded what many supporters have always believed — that all Vermonters can have quality, comprehensive health care at a lower cost than they collectively pay today.

“The big story of this report,” Mark Larson, commissioner of the Department of Health Access told two House committees Friday, “is for less money Vermonters can have more coverage.”

He argued that the report showed that Green Mountain Care could be implemented, cover more Vermonters, provide more comprehensive coverage to many, extend vision and dental care to all children and raise the rate the state pays for medical services — and the bottom line would be $281 million lower over the first three years compared to projections for the status quo.

Putting aide that the bulk of the supposed $281 million comes from the fact that they are taking credit for $249 million in federal funding that has nothing to do with Single Payer, studies have trumpeted savings from such schemes before that were not realized in reality. The universal coverage program that Mitt Romney enacted in Massachusetts in 2006 was supposed to put a lid on skyrocketing health care costs. As pointed out in this Reason Magazine article: “So far, the evidence has been on the critics’ side. Indeed, a 2010 study by Stanford University’s John Cogan and others in the Forum for Health Economics & Policy found that in the first two years after Romneycare, premiums in Massachusetts in nearly every category shot up above the national average.”

According to some liberal bloggers, that is changing:

But that picture changed in the subsequent two years—at least according to Fred Bauer, a liberal blogger. Premiums in Massachusetts are growing at a slower rate than the national average. For example, average family premiums between 2002 and 2006 grew 5.5 percentage points more than the national average but 3.1 percentage points less between 2006 and 2010. Likewise, average single-coverage premiums grew 3.6 percentage points more before Romneycare and only 1.7 percentage points after.

This prompted The Washington Post’s Ezra Klein to jubilate in sentence fragments: “Romneycare is working. Across the board.” And Igor Volsky of Think Progress exulted, “The very fact that the law did not meet the doomsday scenario of critics and cause premiums to skyrocket is significant.”

The problem with this narrative is that it looks like other factors are driving recent changes:

You could claim success if the premium declines actually stemmed from the logic of universal care—that is, from savings generated through more preventive and timely care and less emergency use. And there is evidence of fewer emergency visits. But is that the cause of the declining premiums? No.

The Boston Globe reported a few weeks ago that the main force driving premium drops was people postponing care in a down economy—and that trend is already ending. Indeed, health plans whose “cost trend” (a combination of overall medical claims and the cost of care) increased 6 to 8 percent during the past few years are likely to return to 8 to 10 percent going forward, once again putting upward pressure on premiums.

But the other thing driving premiums down is that after RomneyCare busted the state budget in its first full year with cost overruns of 48 percent, Massachusetts started aggressively looking for cost-control measures. In 2009, Gov. Deval Patrick blessed an effort to nix coverage for 37,400 legal immigrants (and this from a liberal Democratic governor), but the courts outlawed the move as discriminatory last month. The courts also barred Patrick from imposing a uniform rate cap on insurers in 2010, although individual insurers still face price controls, since they need the state board’s blessing for any premium increases.

There’s more. Massachusetts has implemented something called “global budgeting,” a form of managed care under which providers are given a fixed sum per patient per year instead of being paid on a more traditional fee-for-service basis. Since providers keep any money left over in the patient’s budget, the hope is that they would offer more cost-effective care.

Although one in five Bay State residents are now on this “global budget,” the expected savings haven’t quite materialized: Powerful insurers and providers have simply negotiated a bigger per-patient budget. Hence, in 2010—when Bauer observed the biggest premium drop—the Bay State passed a law requiring insurers to offer cheaper, tiered-network plans that compel patients to get care from community hospitals and cheap providers unless they cough up more for better ones.

The Vermont plan is not the Massachusetts plan, but it too relies on “global budgeting” and is more aggressive in shielding the patient from the cost of individual decision-making. Again, the Massachusetts plan was supposed to realize cost savings, but it is not at all clear that such savings are being realized. I would be surprised if the Vermont plan fares any better.