Eric Davis: Health care decision no surprise

Gov. Shumlin announced last Wednesday that “it is not the right time” to introduce a single-payer health care system in Vermont. He said he would not propose such a plan to the Legislature in 2015.
A version of a financing plan for single-payer that was leaked to the press earlier this month received a strongly negative reaction, so the governor’s decision to abandon further action is not a surprise.
The leaked reports were based on information provided by members of the Business Advisory Council with whom the administration had been vetting its proposals. These reports indicated that the financing plan would have relied on a combination of a payroll tax on employers, and an income-based premium on individuals, with both levies in the range of 8 or 9 percent.
At the governor’s press conference, his aide Michael Costa, who has been working on the financing for single-payer, indicated that, in order to make the numbers work, the payroll tax would have had to be assessed at a rate of 11.5 percent, and the income-based premium would have had to range from 0 to 9.5 percent, depending on income and family size.
Costa explained that the taxes would have to be even higher than anticipated in the version leaked earlier, because the resources available from other federal and state funding sources for single-payer are less than estimated. Also, the Vermont economy is growing more slowly than expected, thus reducing the revenues potentially available to fund health care reform. Finally, the costs of transitioning small businesses and individuals to Vermont Health Connect have been higher than anticipated.
The leaked plan assumed that the “actuarial ratio” in the single-payer plan would have been 80 percent. This means that the individual participants would have been responsible for the remaining 20 percent, through a combination of deductibles, co-pays, and co-insurance. Many Vermonters, including the state’s own employees and their families, are covered by plans with actuarial ratios in the low-90 percent range.
The assumptions Costa presented at the press conference assumed a 94 percent actuarial ratio, in order to keep participants’ out-of-pocket costs down. However, the higher actuarial ratio also would have meant higher taxes and premiums, on both businesses and individuals.
If the proposal had gone forward, among those hit the hardest by the new taxes would have been small businesses that currently provide little or no health insurance coverage to their employees. These businesses, many of which operate on low profit margins, would have faced a payroll tax of 11.5 percent starting on their first dollar of payroll. Such a tax could well threaten the viability of many of these businesses.
It was clear from the reactions to the leaked proposals that the administration’s plans were not yet ready for prime time. It is no surprise that Shumlin, who is in a weak political position following the November election, decided not to expend more of his limited political capital on single-payer in 2015.
By abandoning single-payer, at least for the next several years, Shumlin raises several political and policy questions. First, because he has been so closely associated with the single-payer issue since he declared his candidacy for governor in 2010, is Shumlin now less likely to be a candidate for re-election in 2016?
Second, how will progressive Democrats, the Progressive Party, and single-payer advocates react to the governor’s announcement? Will they continue to urge enactment of single-payer, even without the governor leading the charge? Is there another political figure in Vermont who could carry the single-payer banner successfully? Or does Shumlin’s announcement mean that single-payer is off the agenda of realistic policy alternatives in Vermont for a long time?
Eric L. Davis is professor emeritus of political science at Middlebury College.

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