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What Bernie Sanders can learn about single-payer from his home state of Vermont

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To understand the challenges Bernie Sanders's "Medicare for all" plan would face in the United States, you need look no further for instruction than his home state of Vermont.

In the early 2010s, Vermont made a serious, years-long attempt to build a single-payer system. The state's governor, legislature, and even many hospitals and businesses got behind the effort. When I went to Vermont's capital, Montpelier, in March 2014 to write a long story about the single-payer effort, the working assumption among pretty much everyone I spoke to was that this was it — this time, a single-payer plan would actually happen.

And then it didn't. Vermont Gov. Peter Shumlin announced in late 2014 that he would give up on single-payer after budget analysts realized Vermont would need an additional $2.5 billion in tax revenue to pay for the system. That would have required raising the payroll tax by 11.5 percent and income tax by 9 percent.

Vermont's failed single-payer attempt helps explain the difficulties a Sanders administration would face in building a Medicare-for-all system. Like Vermont, the United States would also need a massive tax increase to build a health care system like Canada's.

It's true that many Americans would ultimately save money, as they would no longer have to pay health premiums. But others would have to pay more, and that would create all sorts of political backlash.

Any attempt to lower the system's price tag by significantly cutting health prices would be disruptive.

Most single-payer countries use the government's massive buying power to negotiate low health care prices; they essentially demand a bulk discount.

But in the United States, using a single-payer discount that way is essentially out of the question. Getting American prices in line with other countries' would require slashing pay for doctors, hospitals, and drugmakers in half. America's $2.8 trillion health care industry would immediately revolt, and with good reason: Their business models rely on receiving the highest reimbursement rates in the world.

The result is that for all the talk of cost savings, single-payer plans are very, very expensive in America — and the mixture of shocking price tag, massive new taxes, and stakeholder backlash makes them very hard to pass.

Vermont wanted to be the first single-payer state in America

Vermont prides itself on passing bills first. It was the first state to abolish slavery in 1777 and, in more recent history, pioneered same-sex civil unions with a 2000 law.

And the Green Mountain State wasn’t satisfied with the health reform law that Washington passed in 2010, the Affordable Care Act. That law expands health coverage by growing the existing health-care system. Americans who already had health insurance have seen barely any change. Uninsured people have gotten covered through two existing programs: the individual insurance market (where millions of Americans now receive subsidies to help buy coverage) and Medicaid, a public program for low-income people.

As incoming governor, Shumlin — much like Sanders — didn't want to build on the status quo. He saw insurers as parasitic middlemen and believed without them the state could achieve lower health spending.

On May 26, 2011, Shumlin signed into law Act 48, the first law in the nation that provides health coverage to all residents of a state.

In passing a bill, Vermont had gotten closer to single-payer than any other state. California's legislature passed a single-payer bill in 1994, only to have it vetoed by Gov. Arnold Schwarzenegger. A Colorado attempt at single-payer didn't get enough signatures to qualify as a ballot initiative.

"My opinion about single-payer in the United States is that there are so many powerful political groups, like the American Hospital Association and the American Medical Association, that dominate Washington that it can’t really happen," Bill Hsiao, the Harvard health economist who designed Vermont's plan, told me in an April 2014 interview. "In Vermont, there’s much more grassroots activism."

Vermont never knew how it would pay for single-payer

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Vermont's single-payer bill, Act 48, had a detailed list of what it would and wouldn't cover (preventive care made the list, whereas dental did not).

What it didn't include was a plan for how to pay for all that health care — or even an estimate of what it would cost. Some now reflect back on that as an ominous sign for what would happen next.

"I was skeptical when the original bill passed," Peter Galbraith, a Vermont state senator, said. "When you pass a benefit and don't say how you're going to pay for it, it raises the obvious question of, 'How are you going to pay for it?'"

The answer, for Vermont, was a disheartening one: The state wouldn't ever pay for the plan. By December 2014 — more than three years after Act 48 became law — the Shumlin administration had run the numbers dozens of different ways. And its analysts had found that it would cost $2.5 billion to buy coverage for all Vermonters.

In Vermont, this was massive: The state only raises $2.7 billion in taxes a year — the single-payer plan would mean doubling tax collections. The Shumlin administration estimated it would need to increase payroll taxes by 11.5 percent and income tax by 9 percent. That's a big lift even if it would replace existing health premiums.

But it wasn't just the new taxes that killed Vermont's plan. If Shumlin could have told Vermont businesses, "You'll pay slightly less than you used to for health care — it'll just be a tax rather than a premium," his plan may have just barely squeaked by.

But he couldn't: The proposed taxes would ask higher earners to spend more on health care than they do now — in some cases, far more.

"An 11.5 percent tax would look great if I'm a low-wage employer," says Cathy Schoen, executive director of the Council of Economic Advisers at the Commonwealth Fund, a nonprofit that focuses on health policy research. "But if I'm a high-wage employer, 11.5 percent is going to be way higher than what I used to pay to buy insurance."

Single-payer would not have just changed how Vermont pays for health care — it would have changed who pays, shifting more of the burden onto large companies. This is an underappreciated fact of policy change, where even reforms that mostly create winners can still lead to a lot of angry losers. Even if many of Vermont's residents and business would have paid less under the new plan, many others would have paid more — and they organized to stop that from happening.

High prices helped kill Vermont's single-payer dream

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The Vermont plan didn't have to cost $2.5 billion. It could have cost $2 billion or even $1.5 billion, if Vermont decided that local health care prices should look similar to neighboring Canada's.

Shumlin could have told Vermonters, "Across the border, in Canada, it costs $97 for a CT scan — and $896 here in Vermont. That's crazy! We're going to have Canadian prices for our Canadian-style health care system."

But Shumlin didn't say that, likely because such a massive price cut would cause incredible disruption to his state's health care system. Hospitals and doctors would near certainly oppose the single-payer plan if it posed a significant threat to their income.

It's not just that the pay cut would make people angry; providers have more leverage than just their fury. Facing big pay cuts, hospitals might close. Doctors could move their practices to neighboring states, ones that still paid generous American reimbursements. Pharmaceutical companies might refuse to sell to Vermont's system.

This is another big obstacle to passing a single-payer system in Vermont, or anywhere in the United States: Our health care system is so expensive, it makes any change — any attempt at serious cost control — nearly impossible.

Our health care system costs $2.8 trillion annually, about 17.7 percent of the entire economy. This is way more than any single-payer system anywhere in the world costs. Take Canada, where 11.2 percent of all spending goes toward medical care.

Vermont started, in 2011, from a place where it spent $7,876 per person on health care — about $3,000 more per person than Canada.

In order to make single-payer work there, Vermont had two hard options: a huge tax hike for state residents or a huge pay cut for state doctors and hospitals.

It's a telling fact about health care providers' political clout that the latter option was never really on the table. And that's a real problem for trying to make a single-payer plan work in America, something my colleague Matt Yglesias wrote about recently:

The problem, politically speaking, is that doctors and hospital administrators like money. When politicians try to take away their money, they complain and they lobby. And it turns out that most people have more confidence in doctors than they do in members of Congress, so not only does the lobbying cash count but the complaining is extremely effective.

Vermont was a single-payer test case. And it failed.

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About half of countries that attempt to build a single-payer system fail. That’s Hsiao’s estimate after working with about 10 governments in the past two decades. Whether he is in Taiwan, Cyprus, or Vermont, the process is roughly the same: Meet with legislators, draw up a plan, write legislation. Only half of those bills actually become law. The part where it collapses is, inevitably, when the country has to pay for it.

When I interviewed Shumlin in March 2014, he predicted that Vermont's single-payer push would have huge national ramifications. Back then, his state had the potential to serve as a model. It could be what Romneycare was in Massachusetts: a template for national reform. But if single-payer couldn't succeed in deep blue Vermont, Shumlin and others mused, how could it possibly move forward anywhere else?

"If Vermont gets single-payer health care right, which I believe we will, other states will follow," he predicted. "If we screw it up, it will set back this effort for a long time."

The Vermont failure suggests reason to view Sanders's plan with skepticism. Sanders suggests a 6.2 percent payroll tax, a 2.2 percent flat tax, higher tax brackets for high earners as a financing plans, and other tax increases you can read more about here.

These taxes would run into the same political issues around redistribution as the Vermont plan did. High earners would have to pay way more for their health care than they currently do — unless Sanders had a way to convince hospitals and doctors that they should earn a whole lot less.

Shumlin was right: Vermont was a test case for single-payer, and it's a test that Sanders ought to pay attention to — even if it doesn't have the outcome that they'd hoped for.

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