Shumlin: It's 'Not The Right Time' For Single Payer

Dec 17, 2014

Gov. Peter Shumlin has abandoned his plan to institute a single-payer health system in Vermont.

The shocking policy reversal comes just six weeks after an election in which Shumlin had vowed, in unequivocal terms, to make Vermont the first state in the country with a publicly financed health care system.

Read Shumlin's prepared remarks from the news conference.

But he said he learned late last week how much and what kinds of taxes would be required to pay for it. Faced with that information, Shumlin said Thursday, he opted to drop what has long been the central plank of his political platform.

“In my judgment, now is not the right time to ask our Legislature to take the step of passing a financial plan for Green Mountain Health Care,” Shumlin said.

Shumlin delivered the news at a mid-afternoon press conference in Montpelier, where supporters and opponents of single-payer had gathered for what administration officials promised would be a major announcement.

Shumlin said recent projections show that Vermont would need to raise far more than he initially envisioned to replace private health insurance premiums with public revenues. The program, he said, would have required a payroll tax of 11.5 percent, and a sliding-scale income tax that would have topped out at 9.5 percent.

Gov. Peter Shumlin, flanked by his top health care reform advisors Robin Lunge, left, and Lawrence Miller, right, announced today that he will not pursue single-payer health care, his signature public policy initiative, in the coming legislative session.
Credit John Dillon / VPR

“The bottom line is as we completed the financing modeling in the last several days, it became clear that risk of economic shock is too high at this time to offer a plan that I can responsibly support for passage in the Legislature,” Shumlin said.

Dr. Deb Richter, a long-time single-payer supporter, called the decision a disappointing setback. But Richter said the announcement doesn’t sound the death-knell for the single-payer movement. And she said she remains confident in Shumlin’s ability to deliver the goods.

“We’re going to need a slower phase-in of this,” Richter said. “And I think trying for the whole thing all at once was what made it impossible, or made it more difficult to do.”

Other single-payer supporters were less charitable. James Haslam, director of the Vermont Workers Center, said thousands of single-payer supporters had entrusted the Democratic governor to take the reins of the “Health Care is a Human Right Campaign.” Shumlin’s announcement Thursday, Haslam said, caught them all by surprise.

"Obviously this is a deep disappointment to lots of us. And it's a slap in the face to a lot of people that worked really hard." - James Haslam, Vermont Workers Center

“Obviously this is a deep disappointment to lots of us,” Haslam said. “And it’s a slap in the face to a lot of people that worked really hard.”

Shumlin says his faith in the possibility of a single-payer system was based on information that turned out to be wrong.

“So the obvious question I asked my team when this incredibly disappointing conclusion came to light is, What’s changed? What’s changed? Why didn’t we know this six months ago? Or two years ago? Or four years ago?” he said.

Shumlin says the answers lie in overly optimistic revenue assumptions on which the single-payer concept had been constructed. Previous projections assumed hundreds of millions of dollars in federal revenue that, as it turns out, won’t actually be available to Vermont.

For example, the administration's consultants had projected that the federal Affordable Care Act, was supposed to bring in $400 million in annual revenue by 2017. Now, according to Shumlin, it appears the figure won’t be close to that amount.

Shumlin said the state will also miss out on about $150 million in federal Medicaid matching money on which previous single-payer assumptions had been built.

"So the obvious question I asked my team when this incredibly disappointing conclusion came to light is, 'What's changed? Why didn't we know this six months ago? Or two years ago? Or four years ago?'" - Gov. Peter Shumlin

Shumlin says he didn’t know any of these developments would become complicating factors until just days ago.

The governor also cited the state's slow economic recovery as a reason for delaying single payer. The state has downgraded its revenues twice this year.

"I suspect another one lies ahead in January," he said. 

Win Smith, owner of Sugarbush Resort in the Mad River Valley, said business owners like him are breathing a collective sigh of relief. Smith says a payroll tax on the order of 11.5 percent would have increased costs by nearly 75 percent.

“A lot of businesses over the last few years feel like it’s death by a thousand cuts, just lots of little tax increases, fee increases. So no one thing is mortal, but cumulatively they can be,” Smith said. “But when I did the calculation (on the payroll tax), this would have been a big gash”

The issue of how to phase-in smaller businesses that don’t currently offer their workers health benefits also turned out to be a fatal flaw in the financing formula. The majority of small business in the state don’t provide health benefits, and Shumlin said any plan would have to bring them in gradually, lest the sudden shock of an 11.5 percent payroll tax put them out of business.

But the governor said doing so would have opened up a $500 million deficit that would have required even higher payroll taxes on big businesses, and higher income taxes on individuals.

At the announcement, Shumlin's, Michael Costa, the administration's lead health care financing expert, also presented a slideshow with financial details of how the plan would have been implemented.

Costa said that even if Vermont was willing to adopt payroll and income taxes of the magnitude needed to support the program, the pace at which health care costs are projected to rise would soon bankrupt the system.

“So in year one, the system, works, with a surplus of $168 million,” Costa said. “However you see by year four, since health care expenditures exceed revenue growth. The system, finds itself in deficit.”

"So in year one, the system, works, with a surplus of $168 million. However you see by year four, since health care expenditures exceed revenue growth, the system, finds itself in deficit." - Michael Costa, administration official charged with designing state health care financing plan

The financing model Shumlin rejected would have paid for a top-shelf benefits package, one on par with the plan enjoyed by Vermont state employees. Shumlin said the state could have reduced pressure on the financing plan by reducing the quality of the benefits package. But he said Vermonters by and large have high-quality plans in the current system.

Offering a lower-value plan, he said, would have resulted in too many residents paying more money for worse coverage in a publicly financed system.

Shumlin says he doesn’t regret promising his supporters a single-payer system that he’s now learned he won’t be able to deliver.

“My view about leadership is to take on the big issues, try to get after the things that are really holding Vermonters back, and think big to try to get things done,” Shumlin said. “And that’s just who I am. So do I regret who I am? No.”

Shumlin detractors say it’s unfortunate that Shumlin spent so much money commissioning reports, hiring outside consultants and using state government resources – Costa has been working fulltime in the financing plan for the last year – to arrive at a conclusion many have said was foregone from the beginning.

“We’ve always believed the financing didn’t work. It didn’t take … millions of dollars to figure that out,” said Darcie Johnston, head of Vermonters for Health Care Freedom. “And we’re glad. We think he’s done the right thing. But there’s still more work to do. We still need to make sure that patients have choice and competition.”

Shumlin says the state will continue to move forward with cost-containment reforms, reforms he says he hopes will lay the groundwork for a publicly funded plan sometime in the future. And he said he’ll ask the Legislature to give even more power to the Green Mountain Care Board, a panel that already has broad authority over health care spending at hospitals, and rates set by insurance companies. Shumlin said the aim now is to treat health care like a public “utility.”

“This is the greatest disappointment of my political life so far, that we can’t advance this ball as quickly as we had wished,” Shumlin said. “But we shall persevere.”  

This post has been updated.

Update 4:32 p.m. Lt. Gov. Phil Scott released a statement in support of Shumlin's decision, noting that he has had reservations about single payer for two years.

Today’s announcement that Governor Shumlin is scrapping his single-payer plan is a definitive step in the right direction for Vermonters, Vermont businesses and Vermont’s economy. As I’ve said continually over the last two years, if the Governor’s single-payer plan places another burden on already overtaxed Vermonters, we simply cannot afford it. … Businesses cannot afford an 11.5 percent payroll tax, individuals cannot afford a 9.5 percent income tax, our State cannot afford a $2.6 billion bill, and Vermont cannot afford to continue down this path of uncertainty. We’ve already spent far too much money exploring this idea, and the discussion has paralyzed our business community.

 

Update 4:43 p.m. Green Mountain Care Board Chair Al Gobeille issued a statement calling for continued focus on Shumlin's goals to control costs and improve care.

"I agree that we cannot abandon our efforts to control health care cost growth, reduce complexity, increase transparency and improve Vermonter’s [sic] experience in our health care system.  These efforts are not easy and are not a full solution to what ails our health care system, but they are necessary and the Green Mountain Care Board stands ready to continue this important work."

Update 4:49 p.m. Bea Grause, the president and CEO of the Vermont Association of Hospitals and Health Systems, issued the following statement about Shumlin's announcement:

Vermont's not-for-profit hospitals support this decision and look forward to working with the Governor and the Green Mountain Care Board on meaningful health care reforms that provide coverage for all Vermonters and make health insurance more affordable without damaging Vermont's economy.

Update 4:54 p.m. Vermont House Minority Leader Don Turner issued a statement in support of Shumlin's move not to pursue single payer, but condemned the government spending involved with reaching this conclusion.

I feel very strongly that the Governors announcement today is good news for Vermont. This ideological experiment was an egregious waste of taxpayer dollars.  The Governor has spent millions of your taxpayer dollars with nothing to show for it.  It is unlikely that a single Vermonter will see an improvement in their healthcare services or reduction in healthcare expenses as a result these wasted dollars.  Just imagine what could have been done for every Vermonter with that amount of money.