Tag Archives: Vermont

States are ditching GDP

Co-Authored with Lew Daly

In Douglas Adams’s The Hitchhiker’s Guide to the Galaxy, Deep Thought informs Loonquawl that the meaning of life is 42. Loonquawl exclaims, “Is that all you’ve got to show for seven and a half million years’ work?” Deep Thought replies, “I think the problem, to be quite honest with you, is that you’ve never actually known what the question is.” In much the same way, Americans talk about GDP growth without ever wondering what GDP actually measures. We all know the answer, but most of us don’t know the question.

GDP, or Gross Domestic Product, measures the market value of all goods produced within a country. It was first developed in the heart of the Great Depression, a context of dramatic declines in economic activity and scarce information about what was happening. When the architect of GDP, Simon Kuznets (who later won the Nobel Prize for this work), presented his first report to Congress, he warned against expecting GDP to answer the most important questions for a country: “The welfare of a nation can scarcely be inferred from a measurement of national income as defined by the GDP.” Later, he wrote in The New Republic, “goals for ‘more’ growth should specify of what and for what.” To quote Yogi Berra, “If you don’t know where you’re going, you might not get there.” Kuznets’s concerns were not heeded, and GDP growth increasingly became the primary standard for measuring a society’s economic progress and standard of living.

In the wake of the Great Recession, Americans have become cognizant of the fact that GDP bears little connection to their well-being, and many states are working together to implementalternative measures that more accurately reflect the progress of human well-being. One such measure is theGenuine Progress Indicator (GPI), which assesses 26 variables related to economic, social, and environmental progress. Economic indicators include inequality and the cost of unemployment. Environmental indicators include the cost of water pollution, air pollution, climate change, wetlands depletion, forest cover change, and non-renewable energy resources. Social indicators include the value of housework, higher education and volunteer work as well as the cost of commuting and crime.

Two states, Maryland and Vermont, have officially adopted GPI (Maryland through administrative action by Governor Martin O’Malley; Vermont through a bill passed by its legislature). Oregon and Washington are also moving toward adoption of the GPI in some form. At a recent national summit for “GPI in the States,” organized by the policy think tank Demos, delegations from 20 states, including researchers, advocates, and public officials, met in Baltimore todiscuss implementing GPI in their states. O’Malley went to the heart of the issue in a powerfulkeynote address:

 

To make genuine progress, we must be willing to adopt a more holistic definition of progress itself.  To seek an honest assessment of whether our graphs are moving in the right direction – or in the wrong one. A system without feedback eventually fails. And our country, our states, our cities – they are all systems.  Life creates the conditions that are conducive to life. Period. Full stop. Perhaps, there is no better description of the intent of GPI. Its purpose is to further the conditions that are conducive to life.

 

In a recent interview, reflecting on Maryland’s leadership with the GPI, O’Malley noted that, “In drafting a Constitution to form ‘a more perfect union,’ our founding fathers identified justice, tranquility, security, general welfare, and the blessings of liberty as necessary components for achieving that goal.” O’Malley noted the irony that, “more than 200 years later we do not formally take stock of any of these in evaluating our nation’s prosperity.” Already, GPI is influencing the development of new green growth and clean energy programs in Maryland. The state has established new goals that affect GPI but not Gross State Product (GSP, a measure of state economic output), such as reducing infant mortality, cutting greenhouse gas emissions by 25 percent by 2020 and planting more cover crops (crops that improve soil fertility).

Policy development using GPI is in its relative infancy. As with any new measurement framework, there are implementation challenges. The Gund Institute of the University of Vermont recently released an initial set of estimates under the state’s new GPI law, and many legislators from both political parties are interested in applying the new metrics to policy. Anthony Pollina, who crafted the legislation to develop Vermont’s GPI in 2012, told us, “We make policies the same way every year and we make the same mistakes every year. We cut programs and deny the fact that we are hurting people and undermining their well-being. The GPI can put a halt to that.”

Under Governor John Kitzhaber, honored by Governing Magazine as a “public official of the year” for his bipartisan achievements, Oregon is developing a ten-year state budget plan which will be integrated with GPI. He told us that many of the Republican concerns in his state aren’t adequately measured by GSP, citing growing support for early childhood education as an example. “GPI can get public bipartisan support when it moves from the academic to the practical,” he told us. “We have to show the practical applicability.” With GPI and related approaches, some public costs can be better understood as smart investments. “By more exclusively connecting the consequences of our budgetary and policy decisions to downstream costs, it becomes more resonant,” Kitzhaber argued.

Alternative measures of progress are getting significant traction internationally. The Human Development Index (HDI), which measures life expectancy, literacy and Gross National Income (GNI) per person, is now widely used and increasingly influential in policy debates, particularly in developing countries. More recently, the United Nations introduced the Inclusive Wealth Index (IWI) in 2012, which measures human capital and environmental capital as well as physical capital to determine the sustainability of growth.

But the U.S. government has lagged behind states and the international community. Eric Zencey, who was influential in bringing GPI to Vermont, argues that if states begin to use GPI it will put pressure on the federal government to do the same. “GPI is proceeding the way other important movements have, on a state-by-state level,” he said. “We don’t need all 50 states to adopt it before it becomes clear this needs to be done at the federal level.” Senator Bernie Sanders believes that federal action along these lines is critical for our future and said that state-level initiatives are “enormously important,” in prodding the federal government into action.

There are signs that the government is moving in that direction, notably the HHS-funded panel investigating measures of well-being and a recent report by the Bureau of Economic Analysis that examined the limits of GDP and suggested a review of the national accounting system. The National Research Council has investigated methods for including environmental values in the national accounting system.

In 1968, Robert Kennedy said that GNP “measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.” We ignored those words then, and instead rushed headlong toward an unsustainable future. Only now, nearly half a century later, are we beginning to heed them.

Originally published on The New Republic.

 

Vermont’s push for universal healthcare

The Affordable Care Act’s turbulent implementation has ruled the news cycle, but across the country states like Vermont are experimenting with their own plans.

Governor Peter Shumlin signed a revolutionary single-payer plan, Green Mountain Healthcare—the culmination of decades of work by progressive politicians in the state—into law in May 2011. The new system aims to guarantee universal insurance coverage, improve benefits for those who are currently underinsured, include universal dental care and vision care, and increase the Medicaid reimbursement rate to doctors in order to avoid cost-shifting.

In some ways, the system resembles the ACA, but the the most consequential difference is that Vermont’s law will end employer-provided insurance. “God didn’t create the fact that employers are responsible for healthcare for their employees,” says Bernie Sanders, the state’s stalwart socialist senator.

Yet that change has resulted in an echo of the problems Obamacare has faced in remaking the individual insurance market: Plenty of people aren’t happy about giving up existing insurance that they like.

Meanwhile, there are still major question marks about how Vermont will pay for the plan, whether it can achieve the projected savings, and what might happen when an American state tries to import a European-style insurance program. If the ambitious Green Mountain Healthcare is a success, its backers say it will serve as a model for the rest of the nation—especially if the ACA doesn’t achieve full coverage and help bring costs down. Then, they say, statehouses around the nation will look to Montpelier for guidance. But first Vermont has to figure out how the plan is going to work.


William Hsiao projected that the greatest savings in Vermont’s plan would come from unifying the payment system. (Sean McElwee)

The program was designed by Harvard economist William Hsiao, who detailed the plain in a 2011 Health Affairs article. Hsiao projected the state would save 25.3 percent annually in total healthcare spending, lower household and employer healthcare spending, job growth, and higher economic output for the state. The savings would come from lower administrative expenses, reduced fraud and abuse, eliminating middlemen, malpractice reform, and governance improvements. These savings, about $4.6 billion over the first five years, would be plowed back into paying to cover the uninsured and expanding benefits and services leaving $2.3 billion in residual savings. The law also created the Green Mountain Care Board, an independent group charged with overseeing the law and ensuring quality. What the plan didn’t do is lay out how the state government would pay for its increased spending.


A projection of how Vermont would spend savings, based on William Hsiao’s blueprint. (Sean McElwee)

But Vermont has already deviated from Hsiao’s blueprint. The state’s new tort-reform law is not as expansive as he had envisioned. The state is still working through the best system to raise revenues, and Shumlin has appointed a tax expert to work on some plans. Cost-containment pilot projects to reform payment and delivery systems recommended by the Green Mountain Care Board are beginning to roll out. The state has yet to finalize its proposals for raising revenues to fund the program, which the legislature will consider in 2015 and contract out the administrative duties through a competitive bidding process closer to 2017 when the plan is ready to implement.

Complicating the revenue project, the plan’s cost is disputed. A University of Massachusetts study commissioned by the administration to determine the cost of the plan estimated Vermont would need to find $1.6 billion in new revenues to fund the plan in 2017. Though the state will end up paying much more, UMass’s study also estimated GMC would save $281 million between 2017 and 2019 by reducing administrative costs and slowing growth in costs. The new system would eliminate the myriad providers currently in the state, and instead enroll nearly all of Vermont’s citizens in GMC. The UMass study estimates that about 70,000 Vermonters, roughly 10 percent of the population, would continue to receive insurance from their employers, the Veterans Affairs Administration, or their federal government plan. GMC would supplement that insurance.

Under Vermont’s existing system, individuals and their employers pay $2.2 billion each year, which will be reduced to just $332 million. Even with $249 million in federal funds for Medicaid, that leaves a $1.6 billion shortfall that must be made up with increased government revenues. And that’s the more conservative estimate. A recent report by Avalere, a healthcare advisory company, commissioned by Vermont Partners for Health Care Reform, a confederation of hospital, insurance, and business groups, found the UMass study may have understated the cost of the plan and estimates the state will need between $1.9 and $2.2 billion in new revenues. The Avalere report uses different assumptions for administrative savings and payment rates, arguing that the UMass estimate—that GMC will pay 105 percent of Medicare rates—may be too low and would drive providers to leave the state.

“The good news about the Avalere report is even if you take their assumptions, it still shows that we can cover everyone, bring everyone up to a better on-average benefit level as what they have today and spend the same or less money,” says Robin Lunge, Vermont’s director of healthcare reform.

While the national individual health market is both viewed as inefficient by experts and wildly unpopular with most users, its overhaul has still caused uproar. That could be a bad omen for Vermont, which is upending the far more popular employer-sponsored healthcare system.

But one of the advantages of Vermont’s small population may be a tolerance for disruption. “Vermont is a small state, says Sara Solnick, chair of economics at the University of Vermont. “There are very few degrees of separation so people are more willing to do something for everyone’s good for the good of the state.”

Testing the Public’s Appetite for Change

Vermont’s plan is a bold experiment in whether the government can convince humans, naturally risk-averse, to drop their wariness about changes that might affect their access to healthcare.

“At the national level we haven’t had that discussion because it’s politically impossible,” says Jonathan Gruber, an MIT economist who worked with Hsiao during the early stages of the initiative, and who also worked on the Affordable Care Act and Massachusetts’ universal-coverage plan. “I am a fan of experimentation. We learned a lot experimenting with one model in Massachusetts and I think we can learn a lot experimenting with another model in Vermont.”

While the bounds of the ACA were tightly circumscribed by political realities, Vermont—a state with a homogenous and reliably Democratic population—has more latitude. But even now, Gruber says the proposals are still protean: “There is no Vermont plan. There are Vermont ideas, but there is no Vermont plan.”

That has led to major challenges on several fronts: medical providers, businesses, and most of all the general public.

Darcie Johnston, a Republican political operative who runs Vermonters for Health Care Freedom, calls the GMC the largest tax increase in state history—even though taxes haven’t actually increased yet—and worries the cost-containment measures Hsiao and Shumlin counted on will fail and the savings will never materialize. She notes that the legislature failed to pass comprehensive tort reform (which accounted for 8 percent of the savings) and says she fears the plan will drive doctors to reduce care or even leave the state. Recent research suggests the fear may be unfounded. Doctors often threaten to opt out of Medicare, but few follow through. In Britain, where nearly all doctors and nurses are employed by the government, medical programs continue to attract students, even as other programs flounder.

But the state’s business community—including groups that support reform—worries about the tax increases that will fund the plan. Sanders argues the new system will actually be a major relief to businesses, which will see an increased tax burden but won’t have to spend vast sums to paying for their employees’ insurance and administer the benefits. The plan amounts to a cost-shift. What businesses once paid in premiums, they will now pay in taxes. Hsiao forecast that cost per employee would drop nearly $1,900, from $2,228 to $332.

The paradox of Vermont’s peculiar politics is that while perhaps only a small, homogeneous state could pass a plan like Green Mountain Care, there are also challenges a single state faces in implementing it that a nation would not. Single-payer can work at the national level, but what about Vermonters who work over state lines, or corporations based in other states doing business in Vermont?

For the plan’s defenders, the best counterexample is to the north. “Canada’s healthcare system began as province-by-province initiative as well,” Lunge notes. “It started at Saskatchewan before becoming a national initiative.”

And just as the Saskatchewan plan became a model for Canada, many in Vermont, including Sanders, hope the state’s plan will eventually become an example for other states. “Americans want to see a model that works,” the senator says. “If Vermont can be that model it will have a profound impact on discourse in this country.”

If Vermont can work through the legal, technical, and administrative complications, it will be easier for others to follow. Lunge told me legislators in other states have called to ask about the system. “There are a number of states that have expressed interest. They have said to me that if ‘you figure this out, that will give us an opportunity,’” she says.

Vermont Health Connect, the state’s insurance exchange, opened October 1 and faced problems similar to the federal government’s system. Since then, Vermont has managed to fix some of its flaws, though it has also criticized its contractor on the project. The launch is phased, so customers can currently choose a plan, but the payment function has not yet finished testing.

The late launch of the payment system, which has been decried by critics, may be a symbol of the administration’s willingness to work with small businesses and customers, who were unwilling to pay for health insurance they would receive in January in October. Either way, the next few months will be crucial, because all individuals and businesses with fewer than 50 employees have to obtain coverage through the exchange by March 31.

A Need for Reform, Nationwide

Vermont’s enigmatic political preferences have baffled political scientists for decades. The state voted Republican in every presidential election for over 100 years, the longest streak in history (1854 to 1963), and had no Democratic governors during that span. Now its home to the nation’s only socialist senator, and after Barack Obama’s home state of Hawaii, no state voted for the president by a larger margin.

Arthur Woolf, an associate professor of economics at the University of Vermont, says the state “is very much like a Social Democratic Western European country,” both economically (because of its equality and prosperity) and demographically (because of its homogeneous population). So perhaps it’s not surprising that the state is also the first to explore a Canadian-style single-payer system. Sanders says, “When I was mayor of Burlington in 1981 we had a commission, we had a lot of discussion, we had town meetings, we brought it people from Canada.” That attempt came to naught, but 30 years later, a Democratic House, Senate, and governor and strong popular support produced a perfect opportunity to pass a major reform. But of course Vermont’s unique political system might make it hard for other states to replicate its single-payer system.

Despite the setbacks for Green Mountain Care, the economic rationale for a single-payer system remains strong. The U.S. healthcare system is dreadfully inefficient and exists in its current condition largely because of path dependency, not its merits. In his seminal 1963 paper, “Uncertainty and the Welfare Economics of Medical Care,” Kenneth Arrow noted the features of the healthcare market that made laissez-faire untenable. The sector is rife with market failures—externalities, asymmetric information, time-inconsistent preferences, and principal-agent dilemmas. As Paul Krugman writes, “There are … no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work.”

A 2012 Institute of Medicine report finds that the U.S. healthcare system wastes$750 billion each year. A study published in the Journal of the American Medical Association found, “Among 34 OECD countries between 1990 and 2010, the U.S. rank for the age-standardized death rate changed from 18th to 27th, for the age-standardized YLL [Years of Potential Life Lost] rate from 23rd to 28th, for the age-standardized years lived with disability rate from 5th to 6th, for life expectancy at birth from 20th to 27th, and for healthy life expectancy from 14th to 26th.” OECD countries pay half of what the U.S. does, in per capita terms, for better outcomes and universal coverage.

If Vermont can slay the chimera of employer-based healthcare, governors across the nation will take notice. “The single-payer model is harder, it requires more change, but it also holds out more hope because it has the best opportunity to control costs and everyone wants to control costs,” Solnick says.

The U.S. healthcare system is in dire need of reform. In a 1928 in Vermont, Calvin Coolidge declared, “I love Vermont because of her hills and valleys, her scenery and invigorating climate, but most of all because of her indomitable people. They are a race of pioneers who have almost beggared themselves to serve others.”

His words seem prescient today.