BURLINGTON, Vermont—Al Gobeille is not your garden-variety health advocate. For the past two decades, he and his wife have hawked fried clams, liquor and ice cream on the Lake Champlain waterfront. He’s a big man with an impish grin and a can-do spirit rooted in an earlier career as a military officer. “Running a restaurant is a lot like being an army lieutenant,” he observes as locals queue up for Maple Creemees at the Burlington Bay Market & Café, one of his company’s four venues. “You stay alive by staying alert, and you lead by getting people to believe you care about them.”

Close video A side of universal coverage with that? Al Gobeille, chair of the Green Mountain Care Board, explains why single-payer health care is good for business. Al Gobeille, chair of the Green Mountain Care Board, explains why single-payer health care is good for business. share tweet email Embed

It’s an apt description of the new job Gobeille stumbled into last fall. As the chair of Vermont’s Green Mountain Care Board, this plainspoken entrepreneur is overseeing one of the boldest social experiments in Vermont’s history, or the nation’s for that matter. Under his board’s guidance, the state is creating a health care system that will insure every Vermonter—regardless of income or employment—through a public entity that defines benefits, sets uniform prices for medical services, and covers patients’ bills.

That’s the dream anyway. President Obama’s Affordable Care Act gives private insurers control of the market through 2016, but Vermont lawmakers have voted to adopt a single-payer system as soon as that federal mandate expires. If state officials can devise a viable financing plan—and keep all the critical stakeholders onboard—the transformation could come as soon as 2017.

“We’ve already agreed we want universal health care,” Gobeille says. “The challenge is to fund and deliver it in ways that everyone can live with. Some groups will benefit more than others, but we can’t leave anyone feeling ripped off. The winner-loser issue is the place where the alligators live.”

A bold alternative to Obamacare

Vermont’s plan is a radical departure from Obamacare, but it embodies the bolder vision the president once embraced as a candidate. “I see no reason why the United States of America, the wealthiest country in the history of the world, is spending 14 percent—14 percent!—of its gross national product on health care and cannot provide basic health insurance to everybody,” Obama told an AFL-CIO audience in 2008. “A single-payer health care plan, a universal health care plan—that’s what I’d like to see.”

By the time he signed the Affordable Care Act in March 2010, Obama had ditched that idea—along with the more modest one of letting consumers choose between public and private insurance plans. The advent of Obamacare was an epochal achievement, to be sure, but it leaves commercial insurers a dominant role, bets on market forces to control spiraling costs, and keeps large employers in charge of most people’s health care. Beyond the small subset of Americans (about 7% of those under 65) who buy insurance on the individual market, Obamacare simply preserves the status quo.

So four years ago, Vermont elected Democratic Gov. Peter Shumlin to pursue a bolder alternative. The legislature hopped on board, and in 2011 Shumlin signed Act 48, a law that defines health care as a basic public good, like roads, schools or potable water. It gets employers out of the insurance business by sponsoring coverage for everyone. And instead of making consumers choose among four levels of coverage with different premiums and cost-sharing formulas, as Obamacare does, Act 48 seeks to cover at least 80% of people’s essential health care costs. Under the ACA, only those who can afford gold or platinum plans get that level of security.

“I don’t think we can nibble around the edges to fix our health care system,” the governor declared again last winter, as the state scrambled to launch its private insurance exchange. “We should look at how regressive and unfair the current system is. And we should embark on the path of designing a new system that is built upon equity, fairness and common sense.”

Act 48 grew out of a report by William Hsiao, a Harvard health economist who has helped remodel health care systems in a dozen countries. Four years ago, state officials asked Hsiao’s team to assess several routes to universal care. The object of the game was to cover all Vermonters without (a) raising overall health spending, (b) cutting providers’ earnings, (c) forfeiting any federal support, or (d) increasing burdens on workers or employers.

Hsiao’s analysis, detailed in a 130-page report and summarized in a 2011 statement and journal article, make a compelling case for a single-payer system. In keeping with past national studies, his team found that if doctors and hospitals could submit claims to one central payer instead of dozens, the administrative savings alone would cut health care costs by 7% over 10 years. If the new system also took proven steps to promote wellness, curb fraud and reduce waste and duplication by medical providers, the cost of care would fall by a quarter.

Hsiao showed that by reinvesting those savings in its health system, Vermont could cover the 32,000 residents who remain uninsured under Obamacare, boost everyone’s benefits, and expand the clinical workforce—all while reducing the total amount that businesses and employees spend on care.

Taxpayers could balk

The initiative will count as a victory if it works even half that well, but alligators lurk at every turn.

The state’s first challenge is to coordinate its plans with federal agencies that administer Medicare and Medicaid and subsidize private health coverage for people without job-based plans. Medicare will remain separate from Green Mountain Care. But if the feds grant the necessary waivers, the state will pour all its other federal disbursements into one pot, starting in 2017. Those negotiations are underway and reportedly going well.

The state also needs to raise a staggering $2 billion in new taxes. While it’s not really a tax increase—just a different way to amass the same money individuals and employers now spend on private insurance—$2 billion is still a staggering sum for a state whose entire tax base is now just $2.7 billion.

Hsiao suggested that the state levy a new payroll tax and earmark the proceeds for health care, but no one expects Shumlin to do that. “It’s too blunt,” says Gobeille. “If you suddenly started taxing every employer at 7% to finance health care, the shock would tip a lot little companies over.”

The financing plan will be a hard sell no matter how deftly Shumlin spreads the burden. But proponents believe resistance will fade if they can show people the true cost of employer-sponsored coverage.

The public already subsidizes that coverage when employers and workers deduct the cost from their taxable income. Those deductions cost the federal and state governments more than a quarter of a trillion dollars each year—and the biggest subsidies go to those with the costliest health plans. “We need to show Vermonters that we have a more efficient and more equitable way to raise the same money,” says Anya Rader Wallack, the policy expert who leads Vermont’s Health Care Innovation Project.

Gobeille crystalizes her argument with a just-wondering shrug: “Why should low-wage workers subsidize better health care than they can afford for themselves?” he asks.

Coming from an activist or a politician, the question would be easier to dismiss. But Gobeille enjoys some street cred among skeptics. Shumlin appointed him to the Green Mountain Care Board in 2011, when the well-credentialed Wallack was leading it. She was flabbergasted (“What’s he going to do, cater lunch?” she asked at the time). But Gobeille emerged as such an effective diplomat that he inherited Wallack’s post (and her enthusiastic support) when she stepped down last year. “I’m experiencing health care reform as a business owner,” he says. “That’s how I got interested in the whole thing. The questions employers are asking are the same ones I’m asking myself.”

Doctors are uneasy

Taxpayers and business owners aren’t the only groups that need to be placated. Hospitals, doctors and other health care providers have a lot on the line too, and even some friendly ones worry about getting run over by the single-payer juggernaut.

Act 48 authorizes the Green Mountain Care Board to establish a statewide health care budget and set uniform payment rules for different clinical services. Under the status quo, which Obamacare preserves, clinicians receive wildly different rates for providing the same care to different patients. The rate depends on who’s paying. In Vermont, Medicaid pays about 38% of what medical services actually cost. Medicare pays about 88%, and commercial insurers average 141%. In order to break even, doctors and hospitals have to monitor the mix of patients they serve, making sure they don’t accept more cut-rate patients than they can cover with other patients’ surpluses.

By leveling reimbursement rates, Act 48 will free providers to focus on patients’ health instead of their insurance status. The plan is to set rates slightly above the Medicare level, where profits will be modest but no patient will represent a liability. At the same time, Vermont will move away from traditional fee-for-service reimbursement. Rather than pay piecemeal for whatever tests and procedures a provider performs, the state will more often pay a group of providers a fixed annual sum to handle all of a patient’s health needs. Under this accountable-care model, groups that achieve good outcomes with minimal waste earn more money rather than less, and health care dollars tend to buy more health.

Vermont’s doctors and hospitals have already joined accountable-care organizations in droves, and they’re as frustrated as anyone by the current hodgepodge of reimbursement rates. But they have yet to coalesce behind the single-payer solution. The Vermont Medical Society is officially neutral, but its misgivings are audible in a 2013 report it helped sponsor.

“As proposed,” the report says, the state’s reimbursement model “could create a significant disincentive for health care practitioners to work in Vermont due to reduced compensation and increased payment uncertainty compared to what they might earn in other states.” Likewise, the report warns the care board not to assume that different types of hospitals and health facilities can deliver good care at standardized rates. “Some facilities could suffer gravely if actual policy conforms to [that] assumption,” the authors conclude.

Gobeille and his four fellow board members spend countless days traveling the state to hear such concerns first-hand. On a recent Tuesday morning, he grabbed a 7 a.m. coffee at his Burlington deli and drove 70 miles south to spend six hours immersed in the hopes and concerns of Rutland Mental Health Services/CCN, a quasi-public agency that provides vital community services through an ever-changing patchwork of grants, loans and service contracts.

As he tours the group’s programs and facilities—the long-term residence for profoundly disabled adults, the family-style halfway house for psychiatric inpatients, the college prep program for disadvantaged youth, the daycare center for socially isolated seniors, the diversion program that that keeps people with treatable mental-health issues from filling courts and jails—the message is the same at every stop. To paraphrase: People’s lives depend on our work. It’s delicate and complicated, and a careless footnote in your financing plan could shatter it.

Insurers are sanguine

Is Gobeille amassing enough trust to build a new health system? It’s too soon to say, but if any state can succeed at this experiment, surely it’s Vermont. Hospital executives who were hostile or silent two years ago are now pursuing pilot projects to see how fixed global budgets will affect them. And the commercial insurance industry—by definition the biggest loser in the coming transformation—has put up no resistance at all so far. Blue Cross Blue Shield of Vermont, the nonprofit corporation that dominates the state’s private market, is not only accepting the new order but celebrating it.

“It’s been obvious for years that we need to change the way we finance health care and deliver it,” says Don George, the company’s president and CEO. “The world is changing whether we like it or not. This company had to decide whether we would focus on the threat to our own organization or work with other stakeholders to build a better system.”

As it happens, Act 48 calls on the state to select a vendor, through competitive bidding, to handle claims and payments for the whole state. George’s civic-mindedness may yet prove to be good business. And one small state’s bold experiment may yet redefine health care in America.