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Vermont Gives the 'Public Option' a Clinical Trial

David Gratzer
Wall Street Journal
May 21, 2011

In America's courtrooms, ObamaCare is on trial. A majority of states have filed lawsuits arguing that its mandate requiring individuals to purchase health insurance is unconstitutional. But in Vermont, ObamaCare is about to get a trial of a different sort-a clinical one.

This coming Thursday, Gov. Peter Shumlin will sign a bill doing what President Obama and his allies have hoped to do all along: sell a public insurance option alongside competing private insurance as a first step toward a single-payer, government-run system. Unlike the president, Mr. Shumlin has been up-front in his support for single-payer care, even on the campaign trail last fall. At least he can say he has a mandate from voters to do what he's doing.

The last time Vermont's health system gained national attention was in 2004, when Howard Dean, then governor of the state, ran for president. As governor, Mr. Dean expanded public insurance eligibility, struggling to get as close to single-payer health care as he legally could. New regulations pushed out private insurers, reducing competition. Vermont imposed a guaranteed-issue mandate, which requires insurers to sell to any applicant, and forced insurers to use community rating, which requires them to offer the same price to everyone, regardless of age and health. Both measures also appeared in the final ObamaCare law.

The result? The number of uninsured Vermonters barely budged. But costs sure moved-in the wrong direction. From 1991 to 2004, according to the Kaiser Foundation, Vermont's health costs grew by 7.6% annually. Across the U.S. comparable costs grew only 5.5% on average. From 2005 to 2008, in data cited by Dr. William Hsaio, a Harvard consultant studying this for the state, growth in Vermont's health costs grew 8.2%, against a national average of 5.7%.

The current governor says his plan is "all about containing costs," echoing Mr. Obama's absurd claim that increased health spending would mean lower deficits. Mr. Shumlin can talk about government health care and savings in the same breath because millions of Americans still believe the myth that socialized health-care models are immune from cost inflation.

Yet data from the Organization for Economic Cooperation and Development show that U.S. health inflation rates are roughly identical to those seen in European and Canadian systems. From 1990 to 2006, U.S. health costs grew an average of 1.66% faster than the economy vs. 1.62% for OECD nations.

Socialized medicine advocates say the point is moot because government-run systems start from a cheaper baseline. That's true, but that advantage is eroding quickly. A recent paper projected that Canadian health-care costs were growing so fast that they should consume 19% of GDP by 2031. The chief author of the paper is David Dodge, Canada's former deputy minister of health and a former governor of the Bank of Canada.

Single-payer countries also keep costs below U.S. levels by rationing care, not by being more efficient. Several weeks ago, the government-run, government-appointed health authority in the Canadian city where I was born admitted that a dozen patients died in the last three years while waiting for routine cardiac surgery. None was classified as an emergency case. In Canada's system, that made them "elective" surgery patients, triggering wait times that can delay treatment for weeks or even months. Yet single-payer activists persistently claim that "death by rationing" is a myth invented by insurance lobbyists.

In the U.S., Medicare hasn't seen much rationing yet, because it can rely on a privately funded reserve of resources to meet surges in demand. Whenever Congress flirts with serious cuts to Medicare fees, doctors push back. Then, Congress flinches-a sign that the program is more dependent on the private-sector than its champions admit.

Now Vermont is on course to repeat others' mistakes. For American liberals, there's no better place to test-run a public option. But if the new plan doesn't work, Vermont is so small that government-care supporters can pretend it's the state's fault and not a flaw in the concept. Darcie Johnston of Vermonters for Health Care Freedom fears the worst: "the largest tax hike in Vermont history" and a dysfunctional system.

It's a pity, because Vermont is an ideal place to run a very different experiment. Health-care policy thinkers are shifting focus to the potential benefits of a true wellness policy. Your health is as important to health outcomes as your health insurance, after all. Europeans have better life expectancy than Americans because they take better care of themselves on average, not because they get better care in their hospitals.

Through their own lifestyle choices, Vermont residents already have lower than average obesity levels and below-median smoking rates. With a more patient-centered insurance market, Vermont residents could receive, for example, cash incentives to prevent diseases caused by obesity, tobacco, and other lifestyle choices, all at a fraction of the cost of future treatments.

This strategy has a far better chance of saving money than government micromanagement ever could. But don't expect to see Vermont or other liberal states test it any time soon. Not while the public option itch is still out there, waiting to be scratched.

Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute.

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