Single Payer: A Tax, Not Insurance

by Anthony Robbins, MD, MPH

When my colleagues here at The Pump Handle asked me if I would like to comment on the recent demise of “Single Payer” health insurance in Vermont, I hesitated because my Vermont hands-on experience is so dated. I moved on from being Vermont State Health Commissioner almost 40 years ago. But on second thought, I may have learned some things during my time in Vermont (and from 1970 to 1972 in Quebec) that can contribute to understanding health insurance in Vermont and in the US more generally.

How did I happen to move to Montreal? Canada had just authorized provincial health insurance programs, more aptly named in French–l’assurance maladie (sickness insurance). The plans were tax-financed programs to pay for medical services. I thought national health insurance was just around the corner in the United States, so I went to Montreal to get some practical experience. A foolish optimist I was.

In the early 1970’s, under the leadership of Alan Gittelsohn and Jack Wennberg, Vermont had created a universal hospital services database. (Hospital care was then, and is now, the most expensive part of the medical services sector.) Every Vermonter who was discharged from a Vermont hospital, also from big hospitals in surrounding states and Quebec, became part of the database. Hospitals provided information including the town of residence, age and sex, plus the discharge diagnoses, procedures, and length of stay.

US Census data helped complete the picture of hospital services for Vermonters. Both hospital data and census data recorded the town of residence. Vermont has 251 towns and two “gores”. No longer just counting numbers of discharges, by the early ‘70s, Vermont could consider rates of use. Population denominators made it possible to generate per capita rates of hospital use, town by town. In maps that displayed the rates, the towns clustered around the medical center in Burlington had far higher hospitalization rates than distant and rural towns.

Almost everyone in Vermont was insured, and Blue Cross, chartered under state law, provided most of the hospital insurance to Vermonters. Blue Cross priced coverage using “community rating” where everyone in the state paid the same premiums, irrespective of where he or she lived. It was easy to see that people away from Burlington were subsidizing hospital care for people living in the metropolitan area. I was reminded of what my teacher, Rashi Fein , had taught me: Look at the income transfers in the medical care system. He meant that that medical expenditures were such a large a part of the US economy that they were capable of moving huge amounts of money among parts of the population.

If private insurance companies captured a greater share of the market in Vermont, they might have introduced competition and shifted prices to reflect “experience rating”. Discrimination, such as refusing coverage for pre-existing conditions, would surely have become more common. But, because insurance company earnings are a percentage of their throughput (the claims they pay), there was never any reason to think that health insurance companies, even when competing, were eager to reduce total expenditures.

In Vermont, many of us began to think of health insurance as another tax. And a big one! It ranked after federal and state income taxes and real estate taxes, and ahead of the state sales tax. Health insurance transferred income from poorer residents in rural parts of the state to residents of wealthier towns nearer hospitals and particularly to those near the medical center in Burlington.

It is not surprising that Vermont became one of the first states to consider a tax-financed health insurance system. Such a program might have been able to reduce hospital expenditures and eliminate unfair income transfers.

(A few years later, when I directed the Colorado Department of Public Health, I explored a state takeover of the troubled Colorado Blue Cross plan to create a state insurance program. Community rating was losing out to commercial insurers with experience-rated prices. Employers wanted to take advantage of the fact that their workers were healthier than other people who did not work. Colleagues at Blue Cross of America sensed movement toward national health insurance. They wanted to test in Colorado whether the creation of a state health insurance authority using an existing Blue Cross plan could be the national model.)

By the time that Dr. Howard Dean, a primary care doctor by training, became governor in 1991, Vermonters had learned far more about medical care than citizens of most states. The idea of state health insurance was increasingly popular and Governor Dean explored how to create such a plan.

But what looked attractive to well informed Vermonters did not look as good when perceived as baggage to carry into a national campaign for President. The powerful insurance industry hated national health insurance. Governor Dean abandoned state health insurance for Vermont and ran for President in 2004.

Why, ten years later, has another Democrat, Vermont Governor Peter Shumlin, followed a course not unlike Howard Dean? Shumlin has recently announced that he will no longer pursue a state health insurance program that has been given the awkward appellation, “single payer.”

My own view is that for a state health insurance program to work will require that its advocates recognize two truths, that:

  • It will eliminate private health insurers that now make a tidy profit on every dollar spent on medical services. A public authority will pay bills, just as Medicare does. (Many people will surely find employment working for the public authority.)
  • Health insurance is a tax that causes large income transfers. It will need the same kind of analysis to which we subject taxes: how progressive or regressive do we want it to be. From whom does it take income and wealth and to whom does it provide services they could not otherwise afford?

President Obama was not up to recognizing these truths and the Affordable Care Act, as enacted, leaves the insurance industry in the drivers seat. ACA’s principal accomplishment, and not an insignificant one, is to make health insurance available to more Americans.

Governor Shumlin looked at his prospects in Vermont and evinced no more courage than our President. He no longer had a dominant Blue Cross plan and taxes had become an even dirtier word. Although the cost to Vermonters would have been no higher, expenditures would have appeared in one place, more or less “on-budget”. Shumlin came to see tax-funded medical care, like Medicare, as an evil rather than, as the rest of the world knows, an important step forward.

Anthony Robbins, MD, MPA is co-Editor of the Journal of Public Health Policy. (Facebook page here.) He directed the Vermont Department of Health, the Colorado Department of Health, the U.S. National Institute for Occupational Safety and Health, and the U.S. National Vaccine Program.

Comments

  1. #1 G
    December 29, 2014

    Good points.

    One thing we should take off the table from the beginning, are private insurers’ cries about “unemployment” if they are replaced with a public system. The private sector in general does not complain about its own mass layoffs and firings, and when these occur as a result of “innovation,” opponents are labeled as “luddites.” No doubt the private insurers had their own rounds of layoffs when they computerized their offices, a point that can be used to null out their complaints about their executives losing their own jobs when they are consigned to the proverbial dustbin of history.

    Re. wealth transfers: The core moral principle here, is that every human life has equal value, thus nobody should be denied health care based on their inability to pay. The necessary solution is to build the costs of universal public health coverage into a progressive income tax, supplemented by “health risk taxes” (that replace “sin taxes” where relevant) on products that are known public health risks, notably tobacco, alcohol, high-fructose corn syrup, and agricultural antibiotics.

  2. #2 zebra
    December 30, 2014

    I’m absolutely in favor of single payer. But I’m not sure that you are helping the cause using this kind of language.

    Wealth transfer in health care ends up with providers (and ‘insurers’,) just like defense spending is wealth transfer to the military-industrial complex, and energy spending to the energy monopolies. The question of value received is what matters.

    With your experience, can you elaborate on the disparity in expenditures by the USA relative to other countries delivering the same value?

    It’s much like the energy/CO2 issue; the lowest-hanging fruit is efficiency; with what we save we could easily subsidize the needy– no freezing in the dark, and no unnecessary bad health outcomes.

    But it would mean, I think, a redistribution away from the medical profession.

  3. #3 See Noevo
    December 31, 2014

    “Health insurance is a tax that causes large income transfers…how progressive or regressive do we want it to be. From whom does it take income and wealth and to whom does it provide services they could not otherwise afford?”

    Gee, I wonder what the answers to these questions could be. Please don’t leave me hanging. Please tell me.

  4. #4 Todd Beck
    USA
    January 26, 2015

    Single Payer, aka Government Run Healthcare is a democrat pipe-dream. Government is not equipped to manage the care of our nation. Government is not efficient at running any program, . ie US Postal Service Service that is losing 15 billion per year or how about government investing in Green Companies like Solyndra. Government can only mandate from a macro perspective. The private sector is more effective in micro-managing a business entity. We have to only look to Europe to substantiate this opinion.

  5. #5 Colonel Tom
    January 29, 2015

    If Government can not manage a large system, they explain to me its performance during WWII. An enterprise larger and better managed than any private sector operation.

    I’ll take your Solyndra an raise you a New Coke

  6. […] Click Here To Read Full Article […]