Act 128 Health System Reform Design Achieving Affordable Universal Health Care in Vermont Submitted by WILLIAM C. HSIAO, PhD, FSA K.T. Li Professor of Economics Harvard University STEVEN KAPPEL, MPA Principal Policy Integrity, LLC JONATHAN GRUBER, PhD Professor of Economics Massachusetts Institute of Technology And a team of health policy analysts UPDATED January 21, 2011 Updated January 21, 2011 WE WOULD LIKE TO THANK THE MANY INSTITUTIONS AND ORGANIZATIONS THAT ALLOWED US TO USE THEIR DATA TO CONDUCT ANALYSES VITAL TO THIS REPORT. UNLESS OTHERWISE CITED FROM A PUBLISHED REPORT, THE ANALYSES, AND THE RESPONSIBILITY FOR THEIR ACCURACY AND INTEGRITY, ARE SOLELY OURS. ANY CONCLUSIONS AND RECOMMENDATIONS IN THIS REPORT ARE ALSO SOLELY THOSE OF THE PRINCIPAL INVESTIGATOR'S AND ANALYSTS’ AND ARE NOT NECESSARILY THOSE OF THE INSTITUTIONS AND ORGANIZATIONS THAT PROVIDED DATA. ii Updated January 21, 2011 ABOUT THE AUTHORS: Dr. William Hsiao, Ph.D., FSA is the K.T. Li Professor of Economics and director of the Health System Studies Program at Harvard University. Dr. Hsiao received his Ph.D. in Economics from Harvard University and is a fully qualified actuary (i.e. Fellow, Society of Actuaries) with experience in private and social insurance. Dr. Hsiao has been a leading authority in health care financing for more than three decades and the World Bank regards him as the world’s premier authority on national health insurance programs. Dr. Hsiao played a leading role in the development of the United States Medicare and Medicaid Programs and national health insurance during the Nixon and Carter Administrations, and has been actively engaged in designing universal health insurance programs for many countries including Taiwan, China, Colombia, Poland, Cyprus, South Africa, and Uganda. Dr. Jonathan Gruber, Ph.D. is a Professor of Economics at the Massachusetts Institute of Technology, where he has taught since 1992. His research focuses on the areas of public finance and health economics. Dr. Gruber’s Microsimulation Model was used to model the single payer options and public options in Vermont. He has developed GMSIM over the past dozen years to provide objective and evidence-based modeling of the impact of health reforms on insurance coverage and costs. He was a key architect of Massachusetts’ ambitious health reform effort that widely expanded health insurance coverage to its residents. The GMSIM was the basis for the adoption of health reform in Massachusetts and it has also been used widely for state and federal health policy making, academic research, and private foundation analyses. In 2006, he became an inaugural member of the Massachusetts Health Connector Board, the main implementing body for that effort. In addition, Dr. Gruber has worked closely with governments in states such as California, Maryland, Minnesota, and Wisconsin to model reform options to expand health insurance coverage in these states. Mr. Steven Kappel, MPA is the founder of Policy Integrity LLC, which specializes in the development and evaluation of health policy. Mr. Kappel has been involved in the development of health data and health policy in Vermont for nearly 30 years. Since 1993, he has provided analytical support to both the legislature and executive branch on every health care reform initiative within the state. He has worked on the design and implementation of several major state data resources, including the hospital discharge data system, the state “Expenditure Analysis” and the Vermont Household Health Insurance Survey. He has worked extensively with both public and private-sector organizations in Vermont, including insurers, hospitals, the Vermont Program for Quality in Health Care, and several different state agencies. Mr. Kappel is also an adjunct instructor in health policy at the University of Vermont. He holds a Master’s Degree in Public Administration from the University of Vermont and is a graduate of the Vermont Leadership Institute. iii Updated January 21, 2011 PROJECT STAFF, ANALYSTS, CONTRIBUTORS AND COLLABORATORS Anna Gosline, Project Manager Nicolae Done, Analyst Analysts from the Harvard School of Public Health Ashley Fox Nathan Blanchet Jeremy Barofsky Maxwell Behrens Jacob Bor Anthony Carpenter Bradley Chen Victoria Fan Catherine Hammons Bethany Holmes Heather Lanthorn Peter Rockers Susan Powers Sparkes Kristin Bevington Sue Gilbert Collaborators Ian Perry, MIT Nic Rockler, Kavet, Rockler and Associates Tom Kavet, Kavet, Rockler and Associates Contributors from the State of Vermont Jennifer Carbee, Legislative Council Nolan Langweil, Joint Fiscal Office Robin Lunge, formerly of the Legislative Council Jim Hester, former Director, Vermont Health Care Reform Commission iv Updated January 21, 2011 TABLE OF CONTENTS 1. Introduction .......................................................................................................................................................................... 1 A. Principles and goals of Act 128 ................................................................................................................................ 1 B. Current Problems in Vermont’s Health System ................................................................................................ 3 2. CONSTRAINTS to Reform in Vermont ........................................................................................................................ 8 A. Legal Constraint: ERISA .............................................................................................................................................. 9 B. Federal Constraint: PPACA ...................................................................................................................................... 13 C. Federal Constraint: Medicare and Medicaid ..................................................................................................... 15 D. Constraint: Stakeholder analysis .......................................................................................................................... 18 E. Constraint: Provider Human Resources and Health Care Facilities Infrastructure ......................... 27 F. Constraint: Organizational & Administrative Capacity ................................................................................ 29 3. Design Principles & Strategies..................................................................................................................................... 31 4. Methods and data ............................................................................................................................................................. 33 A. Estimating the Savings .............................................................................................................................................. 33 B. Costs Estimations ........................................................................................................................................................ 59 C. Gruber Microsimulation Model (GMSIM) .......................................................................................................... 66 D. Macroeconomic Impacts ........................................................................................................................................... 69 5. PPACA Impacts................................................................................................................................................................... 72 6. Options 1A & 1B: Single Payer..................................................................................................................................... 74 A. Eligibility and Benefits Package Design ............................................................................................................. 74 B. Budgeting Principles .................................................................................................................................................. 79 C. Financing ......................................................................................................................................................................... 80 D. Additional Investments ............................................................................................................................................. 82 E. Payment to Providers ................................................................................................................................................. 85 F. WaIver Requirements and Assumptions ........................................................................................................... 90 G. Impacts ............................................................................................................................................................................. 93 v Updated January 21, 2011 7. Option 2: The Public Option ......................................................................................................................................... 97 A. Overview and Modeling Assumptions ................................................................................................................ 97 B. Governance and Organization ................................................................................................................................ 97 C. Benefit Package and Financing ..............................................................................................................................