Vermont’s Single Payer Washout
The left’s health-care ideal implodes over punishing tax rates.
Believe it or not, there really are liberals disappointed that ObamaCare does not involve more taxation and central planning of medicine. So be grateful for the state laboratories of federalism and in particular Vermont, where the purest progressive version of ObamaCare has imploded.
Last week, in a reversal that deserves more attention, Democratic Governor Peter Shumlin announced that Vermont would no longer create America’s first statewide single-payer health system. Vermont was seeking a waiver from the Affordable Care Act to abolish what’s left of the nominally private insurance market by 2017, but Mr. Shumlin’s budget gremlins concluded the plan was too expensive and would damage the state economy.
As crises of faith go, this is Mikhail Gorbachev circa 1991 territory. Mr. Shumlin ran in 2010 on an explicit single-payer platform in the most liberal state east of California, and the plan was conceived as a model for other states. He called his retreat “the greatest disappointment of my political life so far.” May there be others.
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Single payer is the polite term for socialized medicine and the ultimate goal of the political left. President Obama has often extolled such a system as his ideal, were the politics not so messy; and many Democrats such as Nancy Pelosi and Harry Reid frequently aver (or threaten) that ObamaCare is a way-station toward uniform government coverage for everyone and tax dollars replacing premiums as payment for doctors and hospitals.
The Vermont plan was far more developed than such bumper-sticker sentiments. Health and Human Services bestowed a $45 million grant for planning, and since 2011 Mr. Shumlin’s team has worked closely with HHS, the Treasury and White House budget office.
They hired William Hsiao of Harvard and Jonathan Gruber of MIT as policy architects. The former economist created Medicare’s price controls in the 1980s and as for the latter, well, he’s the guy who famously thinks you’re stupid.
Under the Vermont plan, all 625,000 state residents were to be automatically enrolled in the government plan, with the same benefits for all. As with Medicare, employers would be subject to a payroll tax that would reduce wages, and workers would pay a premium based on a sliding income scale.
Though businesses were allowed to continue to sponsor insurance or buy more generous supplemental benefits, in practice few could have afforded to do so.
If Mr. Shumlin would give to each according to his need, he would take from each far more than his ability to pay. The state accountants estimated that his plan required an 11.5% tax on worker payroll, with no exceptions.
Individuals, meanwhile, would have paid as much as 9.5% of earnings, which would have applied to everyone making more than four times the poverty level, or $102,220 for a family of four—hardly the 1%. The full $2.59 billion in necessary funding would roughly double current state revenues (about $2.85 billion today).
Even Mr. Shumlin called such a tax wallop “in a word, enormous” and “the risk of economic shock is too high at this time to offer a plan I can responsibly support.” Vermont already collects a top income tax rate of 8.95% that is the country’s seventh highest, as well as a 6% sales tax and 8.5% on corporate income.
Vermont is growing more slowly than projections, meaning that “every percent of tax raises fewer dollar than we anticipated, requiring higher tax rates than we had hoped to fund this system,” Mr. Shumlin added.
The promise of single payer is that governments can save money by eliminating the profit motive and administrative costs. Messrs. Hsiao and Gruber assured Vermonters that these efficiencies could cut costs by between $870 million and $1.35 billion in 2019, rising to as much as $2.1 billion by 2025, or by 25.3%. Yet Mr. Shumlin’s accountants concluded these gains are “not practical to achieve.”
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This surrender is all the more remarkable because the Green Mountain People’s Republic is the ideal socialist laboratory. Beyond the Democratic supermajorities in the legislature, Vermont’s small size and population make regulation easier to impose. There are only 14 hospitals, and providers are already divided into nonoverlapping “service areas” meant to reduce competition. The nonprofit Blue Cross Blue Shield of Vermont controls 80% of the commercial insurance market.
Then again, maybe Vermonters are smarter than their politicians. Republican Scott Milne ran for Governor against single payer this fall and lost by 2,095 votes. Had Mr. Shumlin disclosed the true costs before the election, he’d have been turned out.
At least the Governor deserves credit for admitting failure. His ideological comrades are rarely dissuaded by the prospect of economic damage, as ObamaCare proves. But Mr. Shumlin has succeeded in making Vermont a national model: By admitting that single payer will make health care both more expensive and less efficient, he has shown other states what not to do.
From WSJ 12/22/14
