Commentary: The Perils of Dr. Dynasaur 2.0 (January, 2016)

by John McClaughryJohn McClaughry

In December 2014 Gov. Peter Shumlin concluded four years of passionate advocacy for single payer health care by announcing that there was, alas, no way that Vermonters could be made to part with the $2 billion
in new taxes required to make that idea work. Since then, he has devoted his energy and leadership to creating an Accountable Care Organization, probably on the theory that combining all Vermont health care providers into one giant government-controlled organization will make single payer more likely somewhere down the road.

But the single-payer advocates won’t accept this uncertain prospect. They are back with a cut-down variant called Dr. Dynasaur 2.0. Dr. Dynasaur 1.0 appeared in 1989, when the Kunin Administration recoiled from the enormous price tag of her preferred single payer option. It offered state-financed coverage for children from families with incomes below 200% of the Federal poverty level. A few years later it was incorporated into Medicaid, which now pays for health care for 188,602 of Vermont’s 625,000 residents. The new idea – Dr. Dynasaur 2.0 – is to have the state provide health care for everyone under 26, without regard to income, and pay for it with Medicaid funds, 55% of which are Federal matching payments. Single payer advocate Richard Davis hails this as “the resurrection of reform – brilliant in its simplicity”.

The advocates offer as a selling point the removing of 120,000 young people from private insurance into Medicaid. That would produce 308,000 people dependent on Medicaid – almost 50% of the state’s population.  The advocates claim – correctly – that (mostly) “free” government health care will decrease the uninsured rate among 19-26 year olds. It would also reduce premiums for families by shifting their under-26 children to Medicaid.

On the other hand – not admitted by the advocates – removing healthy young people from the private insurance pools will necessarily cause premium rates for everyone over 26 to increase. But the real crunch is: who do the advocates expect to pay for the state’s 45% share of adding 120,000 new people to Medicaid? Sending 188,602 people to get “free”, comprehensive health services at a forced 50% discount means that the providers have to shift their costs, where they can, to private insurance premiums. This makes those premiums much higher.

Gov. Shumlin observed just last week, “You can’t just keep signing folks up, saying ‘we want to expand coverage’. and then say ‘we’re not going to pay for it and therefore providers, it’s going to have to come out of your
pocket’.” He added “We are in denial as a state if we don’t accept that as we’ve expanded Medicaid and taken care of the uninsured and refused to pay for it, every other agency of state government has been robbed to pay for that service.” And that’s the case even though the state is paying only half of the actual Medicaid provider costs.

Independent doctors and dentists are hit especially hard by these forced discounts. Last month four pediatricians in Franklin County alone closed up shop and moved because they can’t keep going when so large a fraction of their patients are on Medicaid. Many if not most remaining doctors limit the fraction of Medicaid patients that they can afford to accept.

The Dr. Dynasaur 2.0 coalition commendably recognizes that this can’t go on. They say that “the State of Vermont must increase [Medicaid] reimbursement rates for providers.” But if the state can’t pay more than half the costs of Medicaid for the 188,602 people now receiving those benefits, how do they expect to increase provider reimbursements for 120,000 new enrollees?

The answer of course is: more taxes! The advocates lamely explain that giving away lots of free health care will produce “savings” for certain people and groups. But unlike the Hsiao study of 2011, that promised that a universal state-run single payer system would produce an astonishing “$590 million in savings the first year”, Dr. Dynasaur 2.0 wouldn’t radically change the delivery system to achieve enormous “savings”. It would just shift health care costs from some people to other people, known as “taxpayers”. The most mentioned funding source is an increased payroll tax, that the legislature rejected when Gov. Shumlin asked for it a year ago.

The advocates want the 2016 legislature to underwrite a $400,000 study to “model” their program. The fix is in, and they’ll get it. They promise that if the study finds that more taxes are needed than there are savings to Vermonters in health care costs, they will drop the proposal. You can bet that the study commissioned by this legislature will not reach that conclusion.

About the only protection for taxpayers from this latest single payer adventure would be to allocate $40,000 of the $400,000 study to a hard-nosed and independent economic group to critique the pro-single payer findings. Its findings would probably put an end to Dr. Dynasaur 2.0.

- John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).

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