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Legislation introduced by Governor Peter Shumlin on February 8 could be the first step in making Vermont the first state with a single-payer health insurance system.  The proposal would eliminate most forms of private health insurance and move state residents into a publicly-funded insurance pool.[1]  According to the governor, by de-linking insurance from employment, a single-payer system could reduce the financial burden on companies and increase workers’ flexibility in seeking new job opportunities.

The proposal included in the bill is based on a report by Harvard economist William Hsiao, who was commissioned by the legislature to provide recommendations on reforming Vermont’s health care system.  Dr. Hsiao had previously designed Taiwan’s single-payer system and consulted on health system reform efforts in eight other countries.

According to the report, the impetus for a single-payer system comes from the need to stem rising health care costs and increase efficiency through mechanisms available to a centralized organization.[2]  Dr. Hsiao estimated that a single-payer plan would save the state $500 million in the first year.[3]

The establishment of a single-payer system would be accomplished in three stages, according to a testimony by Anya Rader Wallack, special assistant to the governor for health care. In the first stage, beginning July 1, 2011, the state would authorize the creation of a health care exchange and a health reform board that would develop payment reform and cost containment methodologies for the purpose of reducing health spending to sustainable levels. The exchange would include Medicaid, Medicare, the subsidized populations from the Patient Protection and Affordable Care Act (ACA), groups and individuals, public employee coverage (for state and municipalities), the medical portion of workers compensation, and two federally administered plans.[4] In the second stage, beginning in 2014, the exchange would become operational. In the third stage, upon receiving approval from the federal government, the state would convert the exchange to a publicly-funded exchange, which would offer “essential” benefits to all Vermont residents.  Premium payments by individuals and employers would be eliminated unless an employer chose to continue providing health insurance coverage.[5]

For the proposal to take effect however, Vermont needs to clear certain hurdles, including obtaining waivers from the federal government to opt out of some requirements in the ACA. Although the ACA gives states the opportunity to opt out of many of its requirements starting in 2017, Vermont legislators—out of concern that the single-payer proposal may lose support by the time of the next election cycle—are hoping to be able to opt out sooner.[6]

Another issue the state has to work through is how to fund the single-payer system.  The legislation does not include details about the funding mechanism, but requires that state officials recommend financing plans by January 2013.[7]  Dr. Hsiao’s recommendations on funding mechanisms include levying a payroll tax divided between employers and employees, which could create some resistance among small business owners.[8] Given that the legislature is overwhelmingly Democratic and that the governor campaigned on the idea of implementing a single-payer system for Vermont, the bill is likely to be adopted.