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shutterstock_232955461On Forbes, Ricochet’s own Avik Roy has a good summary of the implosion of single-payer healthcare in Vermont. I’ve been writing about it on my blog, but Avik’s is probably the best summary of why Green Mountain Care’s demise was inevitable. He writes:

What’s remarkable, then, about Shumlin’s attempt at single-payer health care is not that it failed. What’s remarkable is that he wasted the state’s time and resources on something that attempted to refute the laws of arithmetic. That’s four years Shumlin wasn’t spending on making the Vermont economy better for the people who live there. Small wonder that his reelection margin was razor-thin.

If there’s one quote that sums up the whole episode, it’s the one from Anya Rader-Wallack, declaring that “we can move full speed ahead…without knowing where the money’s coming from.” Green Mountain Care attempted to offer Vermonters more generous coverage than they currently had, but couldn’t figure out how to convince doctors and hospitals to accept pay cuts, nor workers to accept tax hikes.

What really struck me as the worst aspect of the single-payer lunacy was that the financing for it was completely and utterly impossible, a financial fact clear to anyone who made even a cursory glance at the state’s historical tax receipts. And yet, they plowed full-steam ahead, missing deadline after deadline that they’d imposed on themselves a scant two years earlier.

As Avik notes, though, the laughably mis-named “single-payer” idea is not dead. I expect we’ll see capitated budgets that will force hospitals to reduce costs by rationing care and cutting salaries. A full 63% of budget of the state’s biggest hospital is labor, which means — if you’re looking to cut costs — there’s a big fat red target on the back of employees.

And here I thought that health care reform would be a “job creator.”

There are 17 comments.

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  1. MarciN Member

    A Harvard public health study years ago found that 90 percent of health care dollars went to administration.

    A single-payer system would not leave much for labor–or patient care, for that matter.

    Welcome to the world of Yes, Minister, of which my favorite episode concerned the hospital that was open for two years, had never taken care of a single patient, yet had managed to win every award in health care in the NHS system! :)

    • #1
    • December 22, 2014, at 5:34 AM PST
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  2. Dr. Strangelove Thatcher
    Dr. StrangeloveJoined in the first year of Ricochet Ricochet Charter Member

    This post has a DoublePlusGood title! Well Played!

    • #2
    • December 22, 2014, at 5:45 AM PST
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  3. Z in MT Member

    MarciN,
    Are you sure that is not just the admintistrative overhead is 90%? A 90% overhead rate slightly less than doubles the cost of services, but doesn’t take 90% of the dollar. Administrative overhead rates for any industry that derives a significant portion of their revenue from government is very high. In addition to administrative overhead, there is also facilities overhead which I am guessing is also very high for hospitals because of the need to ensure proper repair of buildings and equipment. Not arguing that it isn’t too high, just that it isn’t 90% of total dollars spent.

    • #3
    • December 22, 2014, at 7:22 AM PST
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  4. Fake John/Jane Galt Coolidge

    Of course the critics will say it failed because the program just was not big enough and did not spend enough money.

    • #4
    • December 22, 2014, at 8:35 AM PST
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  5. MarciN Member

    Z in MT:MarciN, Are you sure that is not just the admintistrative overhead is 90%? A 90% overhead rate slightly less than doubles the cost of services, but doesn’t take 90% of the dollar.Administrative overhead rates for any industry that derives a significant portion of their revenue from government is very high.In addition to administrative overhead, there is also facilities overhead which I am guessing is also very high for hospitals because of the need to ensure proper repair of buildings and equipment. Not arguing that it isn’t too high, just that it isn’t 90% of total dollars spent.

    I saw it such a long time ago. You may absolutely be right. :)

    Just scanning Harvard health care estimates of administrative costs, I‘m seeing 25 percent–nowhere near 90 percent.

    Too much to do. Too little time to Google. :)

    • #5
    • December 22, 2014, at 8:48 AM PST
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  6. Gazpacho Grande' Coolidge
    Gazpacho Grande'

    I look at our hospital’s budget data all day long, and you can categorize labor into some categories that might help: labor that’s directed related to providing care to a patient (call this direct), and labor that does not provide some kind of patient care (call it indirect). I don’t have the breakdown in front of me, and as indicated above, it’s nowhere near 90%. 63% of the total cost is labor; there are roughly 6,200 employees, 550 of these are doctors (or mid-level practitioners, or physician assisants), some 1,300 or so are nurses (I think that’s the right number, that might be a bit low). So roughly 1/3 are directly related to care.

    I’d be careful calling things ‘administrative overhead’. Administration isn’t overhead, unless it’s actually an overhead cost center, where charges like health care insurance for employees are carried. Everyone from the kitchens, cleaning crews, billing organizations, finance, accounting, parking garage attendants – all fall into an “indirect” bucket.

    There aren’t going to be any administrative “savings”, even if single-payer was turned on tomorrow. Medicare. Medicaid. Medicare part B. Military (champus). Even if you routed all commercial payers through a website to make that constitute a “single” payer, you’re just putting all the dollars into one pot, a pot still segregated by Commercial and everybody else, and those funds don’t mingle – because patients aren’t enrolled in Medicare and Blue Cross. It’s one or the other.

    Even in a small state like Vermont the payer mix in terms of dollars and percentages as broken out by Inpatient, Outpatient, and Professional revenues is a slightly astounding set of data.

    As I hope I’ve said, it’s not about getting health insurance. It’s not about getting access to insurance. It’s about getting access to care, when you need it. An insurance card, as millions of Medicare patients know, does not mean you can access health care.

    • #6
    • December 22, 2014, at 3:37 PM PST
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  7. jzdro Member

    Hi Chris Campion,

    What triggered the implosion? Have you any idea? They go four years, wasting money and time, polluting the civic and civil spheres, then suddenly “pull the plug?”

    As you point out, the numbers were before them, all that time. So it must have been a person, or some people, who pointed out that if they put this through, it would be No Grapefruit Day for them.

    Or is it a third, most dismal possibility: Shumlin campaigned on the basis of this project, and now the vote numbers and the poll numbers (rather than budgetary numbers) have convinced him that he or his party must campaign otherwise from this time on?

    • #7
    • December 22, 2014, at 4:18 PM PST
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  8. Mendel Member
    MendelJoined in the first year of Ricochet Ricochet Charter Member

    I found that article quite sobering. In particular, I think Roy makes a good point about not gloating too much over Vermont’s failure – that many of the same pitfalls for Vermont will arise when trying to overturn Obamacare.

    I find it particularly odd that so many hospitals and doctors are so entrenched in the current system that they would refuse any change. It seems as though doctors are constantly complaining about how difficult the current system is, and that Medicare patients are always complaining that doctors don’t want to take them. Yet Roy suggests that Obamacare has bribed providers into coming on board, and that their powerful lobby would oppose any reform – be it free-payer or market liberalization – which might jeopardize their current subsidies.

    • #8
    • December 22, 2014, at 4:19 PM PST
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  9. Mendel Member
    MendelJoined in the first year of Ricochet Ricochet Charter Member

    Chris Campion:There aren’t going to be any administrative “savings”, even if single-payer was turned on tomorrow. Medicare. Medicaid. Medicare part B. Military (champus). Even if you routed all commercial payers through a website to make that constitute a “single” payer, you’re just putting all the dollars into one pot, a pot still segregated by Commercial and everybody else, and those funds don’t mingle – because patients aren’t enrolled in Medicare and Blue Cross.

    But in the single payer fantasy, there is no Medicaid, no Tricare, no Blue Shield, there’s just The One Government Plan That Pays For Everything. As much as it pains me to say it, I think single payer supporters’ dream scenario would indeed be administratively simpler than the current system – the problem in this case being that the dream scenario was prevented by the status quo system.

    As I hope I’ve said, it’s not about getting health insurance. It’s not about getting access to insurance. It’s about getting access to care, when you need it. An insurance card, as millions of Medicare patients know, does not mean you can access health care.

    I think single-payer advocates would agree with you. They also don’t want insurance (at least not at the individual level), they want the government to pay for all care – which is not insurance, regardless of what anyone calls it.

    My overarching point is: I think that single-payer and free-market advocates actually agree on many of the faults of our current system (and Vermont’s plan was essentially an extension of our current system). The big disagreement is on how to deal with those problems.

    • #9
    • December 22, 2014, at 4:25 PM PST
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  10. tigerlily Member

    I love it when full blown liberalism fails. However, Vermont’s failed single payer won’t affect the world view of a single liberal – All will still pine for a single payer system. One thing I noticed from the Avik Roy piece was the Vermont politico’s decision to proceed with the plan prior to securing a revenue stream for the program. Doesn’t that same problem also exist with Obamacare? As I recall about half the Obamacare new revenue is slated to come from new taxes, while the other half is to come from real or imaginary cuts to existing entitlements of Medicare & Medicaid which are basically a pipe dream because they ( price controls) are not viable either politically or economically. Of course, the Feds have a printing press.

    • #10
    • December 22, 2014, at 4:43 PM PST
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  11. MarciN Member

    I’m just throwing this out there: That 90 percent figure for administrative costs looks crazy, and I can’t find the source, so I’m thinking that I’m recalling it from longer ago than I thought when I wrote the comment yesterday. My apologies for stating it without finding a source first. Perhaps the number arose during one of the crises that occurred when malpractice insurance spiked along with managed care. I shall try to find it after the holidays just to satisfy myself that I’m not totally nuts.

    That said, the costs are irrational. A friend of mine was a vet tech and is now in vet school, and we were talking about my cat one day, and I mentioned that the complete blood count (CBC) that the vet had gotten for my cat was $10 while a CBC that I had had recently for myself was more like $500. She said, “It’s the same machine.”

    The comparison of veterinarian care to human care is off because of course human beings matter more and the health issues are more serious and more complex. I would not want to imply otherwise. Still, the cost differentials are staggering. And I believe a lot of those cost differentials go to regulations and administration. Veterinarian care is a free market, largely unregulated in comparison to human healthcare. If the veterinarians kill their patients, word gets out and they are simply out of business. Remaining in business is a powerful motivation to get things right. And they have the same clinical sterility issues present in human care. So preventing infection isn’t the source of the cost differential compared to human care.

    Lastly, a friend of mine had her gallbladder removed this past year as an outpatient procedure. She was in the outpatient clinic for roughly four hours–one for prep, one for the surgery, two for recovery. The price: a whopping $22,000. I know that the surgeon’s expertise is worth a lot of money, and I don’t question that. But the price tag seems ridiculously high nevertheless. The doctors are worth every penny they earn and more, but the other costs seem out of proportion to the services being delivered.

    • #11
    • December 23, 2014, at 3:26 AM PST
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  12. Gazpacho Grande' Coolidge
    Gazpacho Grande'

    jzdro:Hi Chris Campion,

    What triggered the implosion? Have you any idea? They go four years, wasting money and time, polluting the civic and civil spheres, then suddenly “pull the plug?”

    As you point out, the numbers were before them, all that time. So it must have been a person, or some people, who pointed out that if they put this through, it would be No Grapefruit Day for them.

    Or is it a third, most dismal possibility: Shumlin campaigned on the basis of this project, and now the vote numbers and the poll numbers (rather than budgetary numbers) have convinced him that he or his party must campaign otherwise from this time on?

    Reality triggered the implosion. Shumlin was required, by his own law, to publicly provide the financing plan for single-payer by January 2013. He had two years (I think) to cough it up to hit that date. It’s now two years past that date, and past the last election, which he just barely squeaked by in the popular vote (and the legislature will actually elect the next governor, and since it’s an overwhelmingly Democrat legislature, he’s pretty sure to win, but I expect that there will be some defections in that vote).

    Sooner or later he had to show how he was going to find $2.2 billion. Everyone in Vermont with a couple of rocks rolling around has said there’s no money for this, for a long time. So it wasn’t new. The single-payer advocates know they have a catchphrase that sells. It’s “single-payer”, and I can guarantee that if you asked the average Joe on the street what that really means, he or she could not explain it. But it’s likely they voted for it.

    • #12
    • December 23, 2014, at 3:34 AM PST
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  13. Gazpacho Grande' Coolidge
    Gazpacho Grande'

    Mendel:

    Chris Campion:There aren’t going to be any administrative “savings”, even if single-payer was turned on tomorrow. Medicare. Medicaid. Medicare part B. Military (champus). Even if you routed all commercial payers through a website to make that constitute a “single” payer, you’re just putting all the dollars into one pot, a pot still segregated by Commercial and everybody else, and those funds don’t mingle – because patients aren’t enrolled in Medicare and Blue Cross.

    But in the single payer fantasy, there is no Medicaid, no Tricare, no Blue Shield, there’s just The One Government Plan That Pays For Everything. As much as it pains me to say it, I think single payer supporters’ dream scenario would indeed be administratively simpler than the current system – the problem in this case being that the dream scenario was prevented by the status quo system.

    As I hope I’ve said, it’s not about getting health insurance. It’s not about getting access to insurance. It’s about getting access to care, when you need it. An insurance card, as millions of Medicare patients know, does not mean you can access health care.

    I think single-payer advocates would agree with you. They also don’t want insurance (at least not at the individual level), they want the government to pay for all care – which is not insurance, regardless of what anyone calls it.

    My overarching point is: I think that single-payer and free-market advocates actually agree on many of the faults of our current system (and Vermont’s plan was essentially an extension of our current system). The big disagreement is on how to deal with those problems.

    There’s always been something to this, your point about administrative simplification. But what’s missing in this analysis is the financial aspect of it. I can guarantee – unlike, say, most politicians – that the primary driver of increasing medical costs is unrelated to how many people are processing payments.

    When the flag of “administrative savings” gets waved, you know a) those savings will never be realized, and b) they’re looking something to hang justification on. You will still have billings to process, medical codes to enter, etc, and guess what: You’ll still have to enter a payer, regardless of who it is.

    Even if you could save 5% in one-time administrative costs, in a billion-dollar hospital (which is common, even in small states like Vermont), that’s $50 million. That’s roughly last year’s net income, which is usually around 4%. What I’m trying to get to here is that even the wildest dreams achieved in administrative savings – again, which I think is a laughable premise on its face – still won’t put but a small ding in costs.

    I work near a medical billing area. They do all the billings for our provider network. There’s not even 30 people over there doing it. 30 x $125k (salary and benefits) = $3,750,000. There’s your savings if you eliminate the entire revenue department. How is that going to reduce the cost of your procedure, exactly?

    • #13
    • December 23, 2014, at 3:43 AM PST
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  14. Mendel Member
    MendelJoined in the first year of Ricochet Ricochet Charter Member

    Chris Campion:

    What I’m trying to get to here is that even the wildest dreams achieved in administrative savings – again, which I think is a laughable premise on its face – still won’t put but a small ding in costs.

    I think this is the point we should be making: any cost savings we could achieve will be instantly wiped out by massive cost increases in other areas under single payer.

    I also think there is a somewhat more difficult argument we should make at some point: namely, that administration can also be a good thing, and that trying to cap its share at some arbitrary number like 10% may be counterproductive (although I understand that this provision is directed at insurers, not providers).

    What we don’t want are unnecessary administrative burdens. But the anti-market crowd always assumes that in healthcare, people behind desks = wasted money, whereas there is enough evidence from other industries that judiciously increasing administrators may lead to more efficiency and lower costs for everyone.

    • #14
    • December 23, 2014, at 9:01 AM PST
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  15. Gazpacho Grande' Coolidge
    Gazpacho Grande'

    There’s sort of this “administrative bloat” image that’s easy to adopt if you haven’t worked at a hospital. Don’t get me wrong, there’s a host of people I see walking the hallways that I wouldn’t hire in a second because they wear sweatpants to work and look about as useful as male back hair (and might, in fact, be sporting some, even if they don’t fit the technical definition of ‘male’). But some big prize in savings is never going to materialize. Generally speaking, cutting staff with the same overall workload means more work per person – that doesn’t make them more productive, even though someone realizes an FTE reduction.

    Worse, they only use big levers for this kind of effort, so there will be an edict “your margin must be 3.8% or less”, and since you can’t cut doctors/RNs, you have to spend the time – and the money – to then figure out a way to identify places that might be over their target FTE counts. To put it bluntly, this is a sh*tload of work – and might actually cost money to implement. Software, consultants, termination packages – any savings realized in an FTE reduction might be a wash considering all the other factors.

    But hey – we’re keeping costs down at hospitals. Yep. You sure are. Remember that the next time you demand an MRI for a sore knee.

    • #15
    • December 23, 2014, at 2:21 PM PST
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  16. Freesmith Inactive

    Single Payer, eh. That’s the attractive option for Lefties.

    When there is only one provider of a product or service you have a monopoly, and that’s bad, Bad, BAD!

    Why is it different when you have only one payer for those very same products and services?

    Is there any way the rest of the country can force Vermont, California, New York, Oregon and every other Democrat-governed hell-hole to have state-run single payer healthcare systems? It doesn’t have to be forever, merely for a nice, Biblical 40-year period.

    That should do nicely.

    • #16
    • December 23, 2014, at 8:07 PM PST
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  17. Gazpacho Grande' Coolidge
    Gazpacho Grande'

    Freesmith:Single Payer, eh. That’s the attractive option for Lefties.

    When there is only one provider of a product or service you have a monopoly, and that’s bad, Bad, BAD!

    Why is it different when you have only one payer for those very same products and services?

    Is there any way the rest of the country can force Vermont, California, New York, Oregon and every other Democrat-governed hell-hole to have state-run single payer healthcare systems? It doesn’t have to be forever, merely for a nice, Biblical 40-year period.

    That should do nicely.

    Hadn’t really thought of it in terms of a “payer monopoly”, but that’s exactly what it is. Medicare is a payer monopoly, for a specific demographic – and it is a complete train wreck. But you have no other option, so you have to dance – or cough up out of pocket to buy the supplemental insurance required to cover the things your monopoly coverage does not cover.

    Laughable. For single-payer advocates, it’s all about the window dressing aspect of the idea. When you start crunching the numbers, and get into the details, and look at examples, real-world experience, it falls apart.

    Perhaps that’s why the advocates never get too deep into the weeds. They don’t like what’s staring back at them.

    • #17
    • December 24, 2014, at 6:38 AM PST
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