State Profile: Vermont

Last November, Vermont voters elected Peter Shumlin as the state's 81st governor. Shumlin ran in part on a platform of health care reform in the state, which has absorbed one of the highest rates of medical inflation in the country. Since Shumlin's election, the Vermont General Assembly passed Act 128, which sets forth four goals for health care reform

1. Universal health insurance coverage;
2. Provision to every Vermont resident of an adequate standard benefits package and equal access to health care;
3. Control of the rapidly escalating health care costs in Vermont; and
4. Establishment of a system that prioritizes community-based preventive and primary care, as well as integrated health care delivery.

Vermont turned to Dr. William Hsiao to develop alternatives based on these principles. Hsiao designed Taiwan's health care system and has led or advised eight other nations on health care reform. He is one of the world's leading experts on health care economics and the implementation of health care reform. 

Vermont's health care issues are acute: The medical inflation rate of 8% exceeds the national rate of 5%, with a predictable impact on employment, wages, and quality of care. While Vermont has a relatively high coverage rate of residents (93%), the state estimates that 15% of Vermonters are underinsured. Combined with the 7% uninsured, over a fifth of the state lacks adequate access to health care.

In designing a plan for Vermont, Hsiao and his team operated within the parameters of six design factors:

1. We must maximize federal funds for Vermont;
2. There must be no increase in overall health spending and therefore all funding for the options must derive from savings;
3. No option could result in an overall increase of the health care cost burden faced by employees or employers;
4. No option could yield a reduction in the overall net income received by physicians, hospitals, or health care providers;
5. The implementation of any option must move Vermont toward an integrated health care delivery system that allows for a transition to global budgets and risk-adjusted capitated payments;
6. No option would entail changes for Medicare efficiencies in Vermont.

Guideline 5 in tandem with the first and fourth goals of Act 128 form the crux of a successful universal coverage: Elimination of fee-for-service replaced by capitated payments that finance a delivery system based on primary care and preventive health.


Hsiao has recommended that Vermont make significant structural changes in the way it delivers health care by adopting a single payer system funded by an employer-employee payroll deduction. Hsiao stated to the General Assembly that moving to single payer would by a conservative estimate save Vermont 25.3% in otherwise expected health care costs between 2015-2024. According to Hsiao, single payer in Vermont will

• yield administrative savings because there will be one standard benefits package and one common system for payment and adjudication of claims;
• significantly reduce instances of fraud and abuse within the system;
• allow providers to share information about their patients more efficiently, resulting in considerable savings and reduce overuse of services, tests, duplicative procedures, as well as the negative impact of overtreatment and drug interactions. 
• result in a favorable environment to reevaluate how medical malpractice claims are litigated and paid out. The opportunity to design tort reform, including the possibility of a no fault system, would reduce the practice of defensive medicine.

(Note: Strictly speaking, the recommendation is single payer for that portion of Vermont's population that is not on Medicare or Medicaid.)

As requested by the General Assembly, Hsaio's team designed packages of essential and comprehensive benefits based on these three principles:

1. Reduction of financial barriers to provide access to all levels of health services;
2. Emphasis on the need for prevention and primary care;
3. Protect Vermonters against the risks of poverty and bankruptcy brought on by health care expenses.

The comprehensive benefits package covers a range of services including prevention, primary and specialty medical care, mental health, other allied health services, prescription drugs, vision care, dental care, nursing home care and home health care. The essential package does not include nursing home care and home health care. For both packages, the cost-sharing burden on patients is light and based on co-payments. They also encourage employer-based incentives for a healthier workplace and preventive care, as well as a statewide initiative to promote healthier lifestyles. Hsiao estimates that the savings produced by changing systems will be more than adequate to finance either package of benefits.

In terms of provider payment, the proposal recommends a transition to Accountable Care Organizations by first establishing a uniform payment method and uniform rates for all insurance plans. Eventually, the ACOs will negotiate payment rates for providers; the proposal recommends that primary care providers be paid on the basis on risk-adjusted capitation (wherein the providers receive a premium for each person in a population as opposed to charging fee-for-service to individual patients) and pay-for-performance. Specialists would receive a salary and bonus.

The General Assembly anticipates passing some version of Hsiao's proposal. Vermont must also apply for a waiver from the Affordable Care Act, which the Obama Administration is expected to grant. Vermont would be come the first state to adopt single payer, and the second entity (after the Veteran's Administration). Meanwhile, Governor Shumlin's office released the following statement:

Healthcare reform is tremendously important. The current system will bankrupt us, and bankrupt small businesses. In just 10 years Vermont has gone from spending $2.5 billion to spending $5 billion a year on healthcare. Yesterday the best Congressional delegation in the country joined Governor Shumlin to talk about how they will help Vermont get a federal waiver to make single-payer a reality. We are not asking for a penny more than we would otherwise get from the federal government, we are simply asking to be able to distribute that money to providers in a way that is more fair. The current reimbursement is not sensible. It is not fair to patients. It is not fair to providers.

We are committed to moving as quickly as we possibly can. It is an ambitious goal but we need to get it done. And we will.

Dr Hsiao's statement to the General Assembly is here. His team's complete report is here. Click here and here for reactions to the proposal.