While the equivalent of a legislative brawl broke out in Augusta last week over Republican efforts to roll back two decades of health insurance regulations, things were a lot quieter over in Vermont.

There at the capital, Montpelier, lawmakers were putting the final touches on a single-payer health care plan that would ultimately centralize administration and billing and even, potentially, lead to the elimination of private heath insurance in favor of a government-led system.

After Democratic Gov. John Baldacci pushed through the Dirigo Health plan in 2003, Maine was seen by some as a national leader in health care reform, pursuing a course later taken up by Massachusetts and, eventually, by Congress. After a year of struggle to pass the bill, President Barack Obama signed the Affordable Care Act in March 2010, which set off an immediate Republican effort to repeal or roll back its provisions.

After winning the governor’s race and both the House and Senate last November, Maine Republicans are also trying to set a new direction on health care, eliminating numerous restrictions on private insurers and heading toward what they call a “market-based” system. The bill that they used as a vehicle, LD 1333, adopts most of the language from a version suddenly unveiled the previous week by the Insurance and Financial Services Committee.

It abolishes the current community rating policy for individual insurance policies, meaning that chronically ill and older Mainers will pay more for insurance, while rates for younger and healthier people will go down — something Republicans say will restore balance to the system. An amendment approved by the Senate restores a policy of allowing patients to get services within an hour’s drive of hospitals, which protects the market share of small hospitals against larger competitors in Portland and Bangor.

The bill also includes a high-risk pool for chronically ill policyholders, funded by an assessment of all private policies, and an overall curtailment of state government’s regulatory role. After debating the bill until 1 a.m. Friday, the Senate deferred a roll call vote until Monday.

Meanwhile, Vermont is poised to push the envelope further than the federal ACA and adopt a system widely used in Europe, Canada and the rest of the world, but still untried in the U.S.

Gov. Peter Shumlin, a first-term Democrat, campaigned on the issue in last year’s primary and general elections, and immediately set to work passing what he called his top legislative priority.

By late April, the Senate had passed the single-payer bill 21-9, and the House took final action on May 5, approving it 94-49.

What accounts for the sharply different direction of Maine and Vermont, two states often cast in similar terms by national observers? Politics is one of the biggest differences, according to Gordon Smith, president of the Maine Medical Association, and a veteran lobbyist and observer at the State House.

“Maine, like a lot of Midwestern states, turned from blue to red last November,” Smith said. “Vermont went from blue to solid blue.”

Bipartisan approach in Vermont

Solid Democratic majorities no doubt aided the easy passage of the single-payer legislation — formally known as the “Universal and Unified Health System”— but Maine’s Dirigo plan also enjoyed broad legislative support, at first.

But a determined counterattack led by Tarren Bragdon, first a health care analyst and later president of the Maine Heritage Policy Center, soon peeled away all Republican support for Dirigo. Bragdon, who is departing this month for Florida to set up a similar organization, is widely seen as the architect of the current GOP effort to undo Dirigo in nearly all its aspects. That effort would also reverse attempts to limit variations in premiums, known as “community rating,” that date to the late 1980s.

Such a move would be unlikely or even unthinkable in Vermont, Smith said. He points out that even Shumlin’s predecessor as governor, Republican Jim Douglas, supported the Legislature’s attempts to widen health care access. Vermont ultimately adopted a Dirigo-like method of subsidizing health insurance for individuals, though within the state’s Medicaid program rather than as a separate agency, like Dirigo.

The Baldacci administration repeatedly sought federal approval to use Medicaid funding to supplement the Dirigo program, but was denied the necessary federal waiver by the George W. Bush administration.Vermont received a similar waiver, however, after the Obama administration took office.

Bipartisanship has been a part of Vermont’s approach for decades, Smith said. “Going back to Gov. Richard Snelling, a Republican who Howard Dean succeeded, there’s always been strong support for the state guaranteeing coverage.”

Bipartisanship is the missing ingredient in Maine now, as it was in Washington when the ACA was being debated — something Smith regrets. He would have preferred that the Maine legislation had been more carefully considered. The Bureau of Insurance, for instance, was not asked to make projections of costs and savings. “The chances of getting a well-considered bill go down sharply” when the process is rushed, he said. “A lot of legislators didn’t even realize what they’re voting on” – something almost guaranteed to cause trouble later on, he said.

“They even decided to repeal the state health plan,” said Smith, which is a Dirigo feature that seeks to fill gaps in care and re-emphasize public health initiatives. “Why would anyone want to do that?”

Vermont aim: $500 million in savings

In its overall makeup and demographics, Vermont really does look a lot like Maine. Though its population is smaller — about half of Maine’s — Vermont is also dominated by small businesses, with its single metropolitan area, Burlington, playing a role similar to Portland’s in Maine. Vermont has 18 acute care hospitals, compared to 39 in Maine, and, like Maine, has many small towns with fewer than 3,000 people.

So could Vermont succeed in creating a unified system?

Anya Rader Wallack, health care policy adviser for Gov. Shumlin, is well-aware of the much-discussed analogy with Canada.

Before Canada adopted its national health care system in 1975, one small province — Saskatchewan, in the far west — adopted the prototype under provincial Premier Tommy Douglas, a pioneer now seen as a national hero.

Could Vermont play a similar role in the U.S.? Wallack, who was deputy chief of staff for Gov. Dean before coming back to serve on Shumlin’s staff, provides a cautious “yes.”

One big advantage Green Mountain Care will have that Dirigo didn’t is, in Wallack’s words, “lots of federal money” for insurance subsidies. Vermont hopes to parlay that funding into a unified system that will spread costs widely while creating administrative savings.

The big number on savings is $500 million, which consultant William Hsaio, a professor at the Harvard School of Public Health, identified in a study that provides the basis for Vermont’s legislation.

Hsaio’s study identified how health care interests — including insurance companies and brokers, prescription drug companies, labs, hospitals and even individual doctors — take money out of the health care system that does not contribute to patient care or better health outcomes. The single-payer system, he told legislators, is the best way to take such costs out of the system. He further recommended that Vermont use $400 million of the $500 million in anticipated savings to expand care to all Vermonters, including those currently uninsured, and reduce insurance premiums by $100 million.

Still, even with robust federal funding, Vermont will need a public revenue source to replace private premium dollars. That could be a sticking point, said Smith, who added that it certainly was for Maine.

Dirigo Health was originally designed to offer subsidized insurance funded by an assessment on all privately paid claims.The actual 2003 legislation substituted a “savings offset payment” that was supposed to recapture savings experienced by the insurance industry because of Dirigo reforms. The insurance industry filed annual, though unsuccessful, lawsuits against that method, and for the last two years Dirigo has received funding equivalent to 2.14 percent of private insurance premiums.

Hsaio suggested that Vermont assess an 11 percent payroll tax on employers, with employees contributing 3 percent, but the actual legislation leaves the funding recommendation to a new Vermont Health Care Reform Board. The board will also devise a benefits package and a provider reimbursement plan that the Legislature would have to approve in 2013.

Like other states, as required by the ACA, Vermont will be operating a health insurance exchange starting in 2014 that is supposed to centralize purchasing but allow private companies to continue offering policies. In fact, under the ACA, it would not be until 2017 that Vermont could obtain a waiver needed for the single-payer system, though Congress may soon consider a bill to move up that date to 2014. At that point, Vermont could diverge sharply from what other states are doing — some of which may attempt to expand private insurance at the expense of public programs like Medicaid.

The ultimate success of a single-payer system, Wallack said, will depend on how many people Green Mountain Care can enroll. “The whole basis of the program is to get more of the state’s population under a single roof,” she said.

Weaker opposition in Vermont

Some businesses, such as IBM, the state’s largest private employer, expressed “concerns” about the legislation, Wallack acknowledged. IBM spokesman John O’Kane told lawmakers, “This is a significant risk for our company to take,” but in the end did not oppose the bill

Private insurers did oppose it, but in Vermont their influence is more limited than in Maine. Anthem, a for-profit company, took over Maine’s Blue Cross plan in 2001 and writes most individual policies, but Vermont Blue Cross remains a nonprofit cooperative. In fact, under the new law, its overhead for administration must be reduced to 7 percent, with 93 percent of revenues going to patient care. Dirigo Health runs with 10 percent overhead, while private insurers often operate at 15 percent to 20 percent or more.

Doctors also have different perspectives on the plan, Wallack said. As they do nationally, primary care physicians support the single-payer plan, while specialists — who often perform the most expensive procedures — tend to oppose it. “By itself, single-payer doesn’t help or hurt doctors. A lot of it will depend on how the new payment system is designed,” she said.

Those who support the option of “Medicare for all” nationally are also advocating for a single-payer system, Wallack said, but the Medicare model is faulty in the way it provides reimbursements. “It’s clear that Medicare will have to change the way it operates to remain viable,” she said — something the health reform board is supposed to take on for Vermont.

Still, Vermont has advantages when it comes to health care costs and access. “We tend to have a cooperative environment for hospitals,” she said. “The evidence is clear that hospital competition, such as you have in the Boston area, tends to drive up prices.”

She agrees that medical practice, in Vermont’s future, may look more like what the Mayo Clinic in Minnesota provides, where annual per-patient fees paid by public and private insurance plans take the place of paying for individual procedures.

Gordon Smith said that most doctors in Maine and Vermont are salaried employees, having abandoned independent practices for hospital-based physician groups. So single-payer may be more workable there. “Their income isn’t based on how many tests they order,” he said. “You wouldn’t start this in Connecticut, where so many physicians still practice on their own.”

Another interested observer of the Vermont plan is Trish Riley, the architect of the Dirigo plan in Maine who ran the Governor’s Office of Health Care Policy for eight years, an effort now being dismantled by the LePage administration.

Riley said Vermont is well-positioned to start a single-payer system not only because of the political continuity Smith identified, but because so many of the basic building blocks are in place.

“Vermont was a pioneer in providing children’s health insurance,” Riley said, through a program launched by Gov. Dean called “Dr. Dinosaur,” even before the federal Children’s Health Insurance Program was launched in 1997.

Vermont was also willing to ask for, and get, a Medicaid waiver for a federal block grant that allowed it much more flexibility about how it spent federal dollars, she pointed out. Republican governors are now seeking similar block grants, she noted, but mostly for the purpose of reducing enrollment in Medicaid rather than increasing it.

“They’re willing to take risks,” Riley said of Vermont officials. “That’s something you’ve got to be willing to do.”

The federal equalizer?

Riley’s office was central to Baldacci’s policy agenda. That isn’t the case with Gov. LePage, whose first health care policy adviser, Mary Mayhew, departed in February to become commissioner of the Department of Health and Human Services and has not been replaced.

Adrienne Bennett, who is filling in for departed LePage spokesman Dan Demeritt, referred to that fact in explaining why the administration has not yet put together a statement about its health care priorities.

The governor supports the health insurance overhaul now before the Legislature, but that bill was written by Republican leaders on the Insurance and Financial Services Committee and health care industry lobbyists.

But are Vermont and Maine really on entirely different courses? Gordon Smith remains skeptical about how different health care will look in Vermont and Maine in the years ahead.

“The big factor is still the Affordable Care Act,” he said. “Federal policy is driving health care, and it will determine a lot of what any state can do” — such as whether Vermont can begin a single-payer system in 2014 or will have to wait until 2017.

“There are so many question marks – whether President Obama will be re-elected, whether the (U.S.) Supreme Court will strike down the law,” Smith said. “There are a lot of moving parts, and no one really knows how this all fits together in the end.”

What is a single-payer system?

There is no precise definition for a single-payer health care system, but it clearly includes centralized billing and administration. The “payer” is generally a government or government-sponsored independent agency, such as Vermont’s Green Mountain Care.

A single-payer system also includes standardized reimbursement rates and, in some versions, standard annual fees per patient rather than bills for each medical procedure. In the United States, private insurers, the federal Medicare program, the federal-state Medicaid programs and the Veterans Administration all pay at different rates.

The Medicare program is a single-payer system, with the federal government determining benefits and reimbursement rates for providers. The plan does allow private insurers to sell supplemental policies known as “Advantage” plans, a feature that Vermont’s law would also allow.

Some nations’ systems include private insurers operating under tight restrictions; most do not. In most systems, such as Canada’s, hospitals and health care providers are private and their bills are paid for by the government through general taxation. In a few, such as Great Britain, providers are government employees.

The most recent conversion to a single-payer system came in Taiwan in 1995. The resulting administrative savings were strongly emphasized in a study undertaken for the Vermont plan. The Vermont plan estimates the state could save $500 million a year through billing and reimbursement improvements.

Some advocates believe Vermont’s system will not be a complete single-payer system. Under the 1974 federal law known as ERISA (Employee Retirement Income Security Act), which sets pension standards, employers are allowed to self-insure for health plans, potentially leaving them outside a state-sponsored system.

The Vermont plan has also been criticized by single-payer advocates for allowing co-payments to be collected by providers, which they believe restricts access for low-income patients.

But the Vermont plan comes closer to a single-payer system than those now in use by any other state.

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