Analysis: The Plan B Debate Shows Difficulties Of Health Care Financing

Apr 15, 2014

The consultant hired by the Vermont Legislature to advise lawmakers on health care reform has developed a concept that differs significantly from the single-payer plan now being pursued by the administration of Gov. Peter Shumlin.

The consultant, Ken Thorpe, a professor at Emory University in Atlanta, Ga., has suggested that Vermont finance its effort to help pay for health care by relying on insurance premiums, subsidized mostly by the federal government under the Affordable Care Act, but also by state government.

Thorpe's idea for an insurance-based financing scheme is contained in a draft memo dated March 24 and obtained by VPR. The draft memo is the first hard-copy manifestation of a wide-ranging discussion in health policy circles about what might be called the Plan B question.

Thorpe would not include self-insured companies or Medicare recipients in his plan; Medicare eligible Vermonters would be able to buy supplemental insurance from Vermont Health Connect, the federally mandated insurance exchange. “Green Mountain Care would cover at least 50 percent of the population,” Thorpe wrote, “and (would) eliminate the purchase of insurance through employment…”

The Thorpe approach differs from the Shumlin philosophy in two essential ways: It is more patchy – it does not provide at all, for example, for families with incomes over 400 percent of the federal poverty level. The Shumlin goal is to cover all Vermont residents.

Premium Politics?

But the premium strategy would also not force the Legislature to confront the challenge of passing a huge tax or fee structure needed to finance Shumlin’s vision. Even if a premium strategy cost a few hundred million dollars – not an unrealistic guess – that would be way easier for the Legislature than the roughly $2 billion that Shumlin would need to implement his project.

Thorpe’s idea for an insurance-based financing scheme is contained in a draft memo dated March 24 and obtained by VPR. Thorpe could not be reached for comment, but the draft memo is the first hard-copy manifestation of a wide-ranging discussion in health policy circles about what might be called the Plan B question.

That question asks, in effect, what happens if a Shumlin financing package that would involve some $2 billion in some sort of revenue package simply isn’t acceptable to the Legislature.

In theory, the money would not really be “new money” as it would replace money now being paid in the form of insurance premiums and out-of-pocket dollars paid by Vermonters in one form or another. That emphatically does not mean, however, that it would be easy to pass such a bill. And if it can’t be passed, health care reform needs to continue on in some fashion. Hence Plan B.

While the Thorpe memo and the tensions over reform financing in the Legislature have brought the Plan B conundrum to the fore for the first time, the fact is that the premium idea as a substitute for a big tax bill has been active in the background for almost three years.

The argument for premiums as the funding base was developed as early as 2009 by John Franco, a Burlington attorney who has been active in progressive politics and causes for more than 30 years.

The reality is, however, that if the Legislature refused to accept a big tax bill to implement the Shumlin single payer plan, some form of Plan B could get some relief for Vermonters, while the cost containment and reorganization of the health care delivery system could continue.

  Franco lobbied hard for his vision with the upper echelons of the Shumlin health reform team and while there has been no public discussion of the issue, the Shumlin team vetted the idea carefully and finally rejected it, at least for the time being. The reason is that it simply left too many holes in the coverage and would therefore violate Shumlin’s pledge to sweep all Vermonters into the program.

The reality is, however, that if the Legislature refused to accept a big tax bill to implement the Shumlin single payer plan, some form of Plan B could get some relief for Vermonters, while the cost containment and reorganization of the health care delivery system could continue.

Winners And Losers

One thing the back and forth over plan B has demonstrated is just how gnarly a problem it is to shift away from the current insurance-based system. The central dilemma is that both the Shumlin plan and any of the Plan B versions create both winners and losers compared to what exists now.

A single family of four, for example, might have a father who does not have health insurance and a wife who is, let’s say, a school teacher with a very good health care plan. The teacher’s plan covers the whole family. If the financing is cut loose from the employee – a school system in this case – then the Obamacare subsidies and the likely state financing structure would probably be based on contributions from both parents and the total paid by the family could rise.

The Thorpe plan, on the other hand, leaves big gaps. If you are a family with a total income of more than roughly $100,000 per year, for example, them you have to simply negotiate the current insurance market; the cost for good coverage in that environment is extremely expensive.

Neither the Shumlin team, nor any of the Plan B advocates, has been able so far to demonstrate a fully elaborated scheme that would eliminate the inequities that plague the delivery of health care now. That is the underlying reason why Shumlin put off laying a financing plan on the table in the current legislative session.

And when, and if, Thorpe lays out the details of exactly what he has in mind, it's very likely that he will get immediately entangled in the whole witches’ brew of winners, losers and tradeoffs that bedevil the reform enterprise.

All of the serious players in the health reform field agree that the current system needs to be recast, but at this point just how to do that still lies over the horizon.