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State Single-Payer: The Next Frontier of American Healthcare

Harvard Political Review, 12/17/13

By Zak Lutz

If all the states were a giant family, Vermont would be the stereotypical Birkenstock-wearing, hippie cousin—just a little bit different and unafraid to reject the typical way of doing things. So perhaps it should not have been all that surprising when the Green Mountain State enacted a single-payer health care system, called “Green Mountain Care,” one year after the country kicked and screamed its way to an individual mandate. That kicking and screaming, of course, has only become more violent in the past few years; it created the Tea Party, shutdown the government, and singlehandedly defined the Obama presidency thus far. Meanwhile, Vermont Governor Peter Shumlin cruised to re-election, largely thanks to his popular program. In fact, so far Green Mountain Care’s biggest obstacle has been federal regulations, including those in the Affordable Care Act.

Although the ACA had a rocky start, similar to those of Medicare, Medicaid, and most federal programs, most state health care programs became instant success stories; despite its incredibly ambitious goals, Green Mountain Care appears primed for success in its quickly approaching 2017 launch. Similarly ambitious plans have succeeded before in Connecticut, Maine, and Massachusetts (and before ill-advised reforms, Oregon as well) and on even smaller scales in Howard Co., Maryland, and San Francisco. Though health care reform largely remains a federal issue, state success should not be seen as coincidental: it’s an easier, alternative path to universal coverage, especially for those advocating government-provided health care plans. As the ACA becomes a rapidly more settled law, healthcare activists need to focus on implementing an American single-payer system, and doing state-level reform provides that opportunity in the immediate future.

Bush’s “Affordable Choices”

Conservatives, particularly those who preferred not to expand federal programs, have actually proposed state-based healthcare reform numerous times over the past few decades. President George W. Bush, for example, proposed his “Affordable Choices” initiative, which would have redirected federal funding for Medicaid’s “disproportionate share hospital” (DSH) payments—essentially funding for hospitals with overused emergency rooms—to state block grants. With this money, states would have been instructed to insure individuals with low incomes and preexisting conditions through the private marketplace and to create employer pools. Though Affordable Choices’ basic details might somewhat resemble the ACA, cutting Medicaid’s DSH payments couldn’t fund nearly enough private care. The Bush administration proposed coupling the plan with a small healthcare tax deduction, and all together the proposal could have provided insurance for 4 or 5 million low-income citizens. Though this seems to be an unambiguous good, the costs—eliminating the DSH payments and thus emergency room services for tens of millions of still-uninsured Americans—weren’t worth it and Affordable Choices never gained political traction.

The moral of the story is that no increase in efficiency alone will fix American health care and achieve universal coverage; more funding will be necessary, even by the minimalist standards the Clinton and Bush administrations used for defining basic health plans. But, if Affordable Choices’ predictions were correct, reallocating resources to the states has some merit in the short-run. Perhaps more importantly, doing so might be politically viable. Mitt Romney, for example, became the Republican nominee despite supporting Massachusetts’ individual mandate, and Republican state legislatures around the country have generally shied away from attempts to repeal widely popular state universal health care programs.

State Level Success and Advantages

State health coverage plans have been mostly successful, and though some liberals might see these as piecemeal steps that might as well be enacted at the federal level, there’s solid evidence that these plans will initially work better at the state level. In Vermont, for example, Green Mountain Care benefits from an active liberal culture: there aren’t any campaigns encouraging citizens not to sign up, and the payroll tax to fund the plan passed rather painlessly. The state’s 15 hospitals, all nonprofits, had an opportunity to weigh in on the bill’s specifics, and the coverage reflects the atypically healthy and active Vermont population. Other states couldn’t successfully replicate Green Mountain Care, but since it’s written precisely to cater to Vermonters, it can avoid the pitfalls that bloated federal programs have to deal with.

Around the country, different people face different health care realities. West Virginia and its large mining industry would need to prepare more for lung health while Florida and its sunshine would need more resources to prevent and treat skin cancer. No two states have identical people, culture, or industry, and that means that no two states need identical health programs.

Consider furthermore efficiency advantages states have relative to the federal government and their proven track record on healthcare issues. After the ACA exchanges opened, state health care exchanges instantly were resounding successes; of the seventeen exchanges, only Maryland has had major issues. In the meantime, the federal site enrolled only six people during its opening day and struggled in the months following. Building a system big enough to serve the entire country literally required developing a whole new program, while states could model private exchanges and easily accommodate their smaller populations. The current two major government health care programs confirm the oft-uttered “states are more efficient” manta: the federal-administered Medicare costs more and covers less people than the collective state-administered Medicaid programs, even though most Medicaid plans offer significantly more coverage than Medicare does—and, while both have seen prices rise far more slowly than private plans, Medicaid’s prices have risen noticeably more slowly than Medicare’s.

This history means something—that, at least sometimes, state governments really do perform more efficiently than their federal counterpart. Structural reasons still mean that, in the long-term, it’s probably most efficient for the federal government to provide a single-payer or similar program; it has more scope, more regulatory power, more resistance to economic conditions, and an otherwise larger pool through which to control costs. Failures of government provided health insurance programs in Hawaii, Oregon, and Tennessee prove valuable lessons, but each program nonetheless successfully insured many new citizens until unmanageable issues arose, all of which in theory the federal government could have handled: mild recessions, shifts in insurance demand, etc. State-provided health plans might serve a holdover until it becomes both politically viable and policy practical for more comprehensive federal plans, both currently insurmountable problems that would ease if more state-administered programs exist (in the same way that states with individual mandates made it politically possible for the ACA and provided viable studies on how to best implement such programs).

Legal Issues

State healthcare reform’s biggest impediment might be federal law, specifically the ACA and the Employee Retirement Income Security Act (ERISA). The Affordable Care Act’s requirements that states follow its exchanges can be waived, starting in 2017, if states achieve a waiver. The three standards for doing so are providing coverage at least as good as the ACA’s, providing coverage to at least as many people, and costing no more for the federal budget. These are rather easy standards to meet, especially if states implement basic coverage single-payer. At worst, the states will need to supplement funding to meet the third requirement.

ERISA’s requirements, on the other hand, might be a little more difficult to overcome. The law preempts any state laws that “relate to” employee health benefit plans, either in their administration or structure. The federal government tried to make these preemptions as broad as possible, in hopes of creating one universal American health coverage law to keep insurance companies from having to follow fifty different sets of laws. Because of this, writing a state law that circumvents ERISA can be difficult. Multiple states have seen their regulations overturned, while others—Massachusetts, for one—simply wrote their healthcare laws into their tax policy.

Vermont maintains that Green Mountain Care follows ERISA through non-integration of various forms of healthcare compensation and limited exemptions, and while the legal community remains somewhat divided on the legality of a straightforward state single-payer system, it appears possible to avoid ERISA’s regulations through mild legal maneuvering. However, as the federal government’s foremost law on health insurance regulation, ERISA’s current legal interpretation remains a hindrance for those drafting state-provided healthcare legislation.

Next Step in Healthcare Reform

America may or may not join the rest of the industrialized world by eventually implementing a federal single-payer system. But for now it’s not happening, and given the ACA’s third rail status, other major federal healthcare reforms appear unlikely in the foreseeable future. But at the state level, where legislatures regularly enact laws that would be unthinkable at the federal level, Vermont led the way and provided all of its citizens with healthcare. Though state-provided healthcare systems have some comparative weaknesses, they seem more possible now than ever and could provide a transition step before federal reform.

Come 2015 the bulk of the ACA will have been implemented, and the next step for left-leaning health care activists is state-level reform. The ACA will reduce the number of uninsured to around 30 million, a number still utterly unacceptable for any First World country. Short of radically new ideas, single-payer systems will be the only viable choice, and that choice doesn’t yet exist on the federal level. That leaves the states, where even conservatives are sometimes willing to embrace programs, and where liberals need to focus if they want to help the many Americans they’re fighting for.

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