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(Reuters) BRATTLEBORO, Vermont  May 26 2011 - Vermont became the first state to lay the groundwork for single-payer health care on Thursday when its governor signed an ambitious bill aimed at establishing universal insurance coverage for all residents.

"This law recognizes an economic and fiscal imperative," Democratic Governor Peter Shumlin said as he signed the bill into law at the State House.

"We must control the growth in health care costs that are putting families at economic risk and making it harder for small employers to do business."

Legislators say the plan, approved by the Democratic controlled House and Senate this spring, aims to extend coverage to all 620,000 residents while containing soaring health care costs.

A key component establishes a state health benefits exchange, as mandated by new federal health care laws, that will offer coverage from private insurers, state-sponsored and multi-state plans. It also will include tax credits to make premiums affordable for uninsured Vermonters.

The exchange, called Green Mountain Care and managed by a five-member board, will set reimbursement rates for health care providers and streamline administration into a single, unified system.

Residents and small employers will be able to compare rates from the various plans and enroll for coverage of their choosing.

As designed, the goal is an eventual state-funded and operated single-payer system.

But its sponsors say that outcome is far from certain. The plan will be phased in over several years, with an evolving financial structure that mandates a number of conditions.

Among the criteria are adoption of a financing plan by 2014; ensuring the new system costs less than the current fee-for-service one; and obtaining federal permission via a waiver to allow Vermont to proceed with the single-payer option, in around 2017.

Advocates of change say the existing fee-for-service care has a financial incentive to deliver more care, such as tests, with little attention to quality or better outcomes.

The single-payer concept was omitted from the federal health care overhaul championed by President Barack Obama, in part due to Republican criticism it meant excessive government control.

Progressives in Vermont, including Shumlin and U.S. Senator Bernie Sanders, an independent, have worked for years to modify the state's health care system.

Shumlin said he recognized "people have legitimate questions" about how a single-payer plan would be financed and operated.

© 2010 Thomson Reuters. Click for Restrictions.

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