DAVE GRAM

Associated Press

MONTPELIER – Calling it the biggest disappointment of his career, Gov. Peter Shumlin says he is abandoning plans to make Vermont the first state in the country with a universal, publicly funded health care system.

Going forward with a project four years in the making would require tax increases too big for the state to absorb, Shumlin said. The measure had been the centerpiece of the Democratic governor's agenda and was watched and rooted for by single-payer health care supporters around the country.

"I am not going (to) undermine the hope of achieving critically important health care reforms for this state by pushing prematurely for single payer when it is not the right time for Vermont," Shumlin said to reporters and two boards advising him on health care changes.

Legislation that Shumlin signed in 2011 put the state on a path to move beyond the federal Affordable Care Act by 2017 to a health care system more similar to that in neighboring Canada. Shumlin adopted the mantra that access to quality health care should be "a right and not a privilege."

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Scott Milne, the governor's Republican challenger who hopes the state Legislature will elect him in January, said the announcement vindicated his own earlier predictions.

"During the campaign I said that single-payer is dead — I'm telling you that now, and Peter Shumlin's going to wait until after the election," Milne said in an interview. The Brattleboro Reformer reported Milne making that claim on Nov. 1.

Milne said he hopes legislators will pause and reflect on the announcement before casting a ballot to decide the governor's race in January — a necessary step because Shumlin, the first-place finisher in the general election, did not win a majority of votes.

The legislation called for the administration to produce a plan for financing the Green Mountain Care system by 2013, but it wasn't completed until the past several days. Shumlin said it showed the plan would require an 11.5 percent payroll tax on businesses and an income tax separate from the one the state already has of up to 9.5 percent.

Shumlin said small business owners would be hit with both, and he repeatedly expressed concern about whether those businesses, many of which now don't offer health insurance or offer much less costly insurance, could cover the new expense.

Lt. Gov. Phil Scott, a Republican, called Shumlin's announcement "a definitive step in the right direction for Vermonters, Vermont businesses and Vermont's economy."

"As I've said continually over the last two years, if the Governor's single-payer plan places another burden on already overtaxed Vermonters, we simply cannot afford it," Scott continued in a statement. "At the same time, I've kept an open mind about the idea, waiting to hear the details.

"Fortunately we heard them today and I am glad the Governor agrees with many of us: Businesses cannot afford an 11.5 percent payroll tax, individuals cannot afford a 9.5 percent income tax, our State cannot afford a $2.6 billion bill, and Vermont cannot afford to continue down this path of uncertainty. We've already spent far too much money exploring this idea, and the discussion has paralyzed our business community."

Shumlin said he had asked his health care team for alternative designs, but no one could come up with a plan to offer quality coverage at an affordable cost.

"The bottom line is that, as we completed the financing modeling in the last several days, it became clear that the risk of economic shock is too high at this time to offer a plan I can responsibly support for passage in the Legislature," the governor said.

He said that was especially true at a time when the state has not fully recovered from the recession and has seen recent revenue forecast downgrades of $75 million. In addition, Shumlin's health care team concluded the state would get $150 million less in federal help with the health care changes than anticipated earlier, and an additional $150 million less in Medicaid assistance.

The decision was welcomed by some members of a Business Advisory Council that Shumlin had appointed to provide feedback on proposed health changes.

"My health care costs would have gone up by 61 percent if that plan had gone through," said Win Smith, president and owner of the Sugarbush ski resort. "If there were that 9 percent (income tax) on employees, many would have been paying more than they're paying now. It would have been a lose-lose. So I'm not unhappy that that plan is not going forward."

A leading single-payer advocate, James Haslam of the Vermont Workers' Center, called the announcement "a slap in the face" to thousands of Vermonters who had supported the proposed changes.

Dr. Deb Richter, leader of Vermont Health Care for All and a member of Physicians for a National Health Plan, said single-payer advocates nationally were bound to be disappointed. But she added, "Vermont is still going to lead the way. We're just not going to get there as fast as we had hoped."

Here is the news release from Shumlin's administration:

FOR IMMEDIATE RELEASE

December 17, 2014

Gov. Shumlin Details Health Care Financing Report to Business and Consumer Advisory Councils

Says Tax Rates Would be Too Great at this Time to Move Forward

MONTPELIER – Gov. Peter Shumlin, a long-time supporter of moving to a universal, publicly-financed health care system in Vermont, today detailed his Administration's health care financing report, set to be delivered to the Legislature in January. The financial models unveiled by the Governor today would require both a double digit payroll tax on Vermont businesses and an up to 9.5% public premium assessment on individual Vermonters' income to pay for Green Mountain Care, the statewide public health care system proposed in Act 48. The Governor acknowledged that given current fiscal realities, such a financing plan would be detrimental to Vermonters, employers and the state's economy overall. Therefore, he said, despite his steadfast support for a publicly-financed health care system, he reluctantly will not support moving forward with a financing proposal at this time or asking the Legislature to consider or pass it.

"I have always made clear that I would ask the state to move forward with public financing only when we are ready and when we can be sure that it will promote prosperity for hard-working Vermonters and businesses, and create job growth," the Governor said. "Pushing for single payer health care when the time isn't right and it might hurt our economy would not be good for Vermont and it would not be good for true health care reform. It could set back for years all of our hard work toward the important goal of universal, publicly-financed health care for all. I am not going undermine the hope of achieving critically important health care reforms for this state by pushing prematurely for single payer when it is not the right time for Vermont. In my judgment, now is not the right time to ask our legislature to take the step of passing a financing plan for Green Mountain Care."

The Governor outlined the financing proposal in a meeting with his Business and Consumer Advisory Councils, both of which have provided advice on health care financing to the Governor and his advisors over the past few months. He thanked the councils for their hard work and dedication in working towards a more sensible health care system.

Although the Administration explored several different benefits and financing proposals, the preferred proposal outlined by the Governor's Deputy Director of Health Care Reform Michael Costa today would cover all Vermonters at a 94 actuarial value (AV), meaning it would cover 94% of total health care costs and leave the individual to pay on average the other 6% out of pocket. Lower AV proposals create significant administrative complexity and reduce disposable income for many Vermonters. Costa explained that paying for that benefit plan would require:

· An 11.5% payroll tax on all Vermont businesses

· A sliding scale income-based public premium on individuals of 0% to 9.5%. The public premium would top out at 9.5% for those making 400% of the federal poverty level ($102,000 for a family of four in 2017) and would be capped so no Vermonter would pay more than $27,500 per year.

The Governor stressed that even at these tax figures, the proposal would not include necessary costs for transitioning to Green Mountain Care smaller businesses, many of which do not currently offer insurance. Those transition costs would add at least $500 million to the system, the equivalent of an additional 4 points on the payroll tax or 50% increase in the income tax.

"These are simply not tax rates that I can responsibly support or urge the Legislature to pass," the Governor said. "In my judgment, the potential economic disruption and risks would be too great to small businesses, working families and the state's economy."

The Governor outlined a number of factors that in recent months have made financing Green Mountain Care more expensive and less practical. These include:

· The amount of federal funds available to Vermont for this transition, which are over $150 million less than had been previously anticipated.

· The state failure to meet the goals set forth for increases in Medicaid provider payments, which adds more than $150 million cumulatively to the amount that needs to be raised through public financing.

· Covering cross border commuters who work for Vermont firms, a policy necessary to prevent complexity and costs for businesses, which adds up to $200 million to the amount that needs to be publicly financed.

· Slower than originally projected economic growth, already resulting in $75 million less in general fund revenue than anticipated in the next two fiscal years. Because of this, every percent of tax raises fewer dollars than had been anticipated, requiring higher tax rates to fund the system.

Acknowledging the disappointment he and many others will feel about not moving to a publicly-financed system now, the Governor said, "I will not let up on the gas pedal to improve our health care system in Vermont. We can and must make progress in 2015 to put in place a better, fairer, and less-costly health care system, one that in the future supports a transition to Green Mountain Care so that all Vermonters receive affordable, publicly-financed health care. In order for us to get there, we need to accelerate the hard work we've begun on cost containment and a more rational payment and delivery system."

To do that, the Governor outlined a number of proposal he will pursue this legislative session, including:

•Enhancing the Green Mountain Care Board's role as a central regulator of health care with the goal of lowering health care spending increases to between 3-4% in the long term.

•Continuing to pursue an "all-payer waiver" with the federal government so that Vermont succeeds in being the first state to move from the current quantity based fee-for-service system to one that reimburses providers for quality and outcomes.

•Strengthening Vermont's commitment to the Blueprint for Health and building on the preliminary results it has shown in bending the cost curve while ensuring quality health care to Vermonters.

•Restructuring of the function and oversight of Vermont Information Technology Leaders (VITL), the state-created nonprofit that oversees the Vermont Health Information Exchange to push the state toward greater levels of technology utilization and integration. This would include shifting VITL to the Green Mountain Care Board and giving the Board the authority to approve and monitor VITL's budget to ensure VITL's priorities and investments are consistent with the statewide health information technology plan.

The Governor concluded that succeeding in these areas would set Vermont on a path to a more sensible, affordable health care system and preserve for another day the vision of universal, publicly-financed health care.

"I recognize that it may be hard to put this news in perspective given the scrutiny it has received over the past four years," the Governor said. "There will be quite a bit of analysis and commentary that comes from my announcement today. In all of that, I urge us to remember what we have been fighting for and how our work fits into the larger picture. This year – 2014 – is the 80th anniversary of the first federal proposal for Medicare, one of our country's greatest achievements. It was first proposed by FDR's Committee on Economic Security and it took 31 years to become law. Medicaid took 50 years to pass; Social Security took 25 years. The point is that change is difficult to achieve, and worthy causes take time to take root. A better, fairer, more rational, and more sustainable way to pay for health care is worth fighting for. We must continue our hard work and our successes. Our time will come."

The Governor's speech, as prepared for delivery, and the presentation delivered by Michael Costa are attached.

Contributing: April Burbank, Free Press Staff Writer