Washington, DC, USA. States like Vermont and Oregon, with ambitious health plans, stand to benefit if the Obama administration eases up on the rules.

President Obama is encouraging states to develop their own health care plans if they want to, but his announcement of that policy last week didn’t mean much to most governors; right now, they haven’t shown signs that they’ve got alternative plans.

For two governors, however, the president’s announcement carried real significance.

Those two are Democrats Peter Shumlin of Vermont and John Kitzhaber of Oregon. Shumlin is promoting a single-payer system that would cover every Vermonter free of charge; Kitzhaber is drawing up a radical change in the way health services are delivered. Both would gain from greater flexibility. All Obama really did last week was support a change in the timing of a waiver that already exists in the federal health care law. As written, the law would prevent states from implementing their own plans until 2017.

Under congressional legislation that the president now endorses, states could apply for an exemption from key provisions of the federal law that would otherwise take effect in 2014. The one real catch is this: States would have to prove that their own plans would result in near-universal coverage at least as comprehensive and affordable as the federal model — at no additional cost to the federal government.

Vermont’s single-payer idea

Shumlin and his state of Vermont may be the biggest beneficiaries if the new rules are enacted. The state’s single-payer statute — proposed February 8 — would run up against nearly every major provision in the federal law, making an expedited waiver essential. Passage of the new waiver rules, Shumlin said last week, would move “our state one step closer” to a health care experiment all its own.

In that case, a payroll tax would fund a state-run insurance plan that would automatically cover all Vermont residents. There would be no need to require Vermonters to purchase insurance or for employers to provide it. With a waiver, Vermont theoretically could pay for part of its plan with federal Medicaid money, and also use federal funds currently set aside for business and individual tax credits.

The single-payer plan likely would also need federal money now devoted to Medicare and veterans’ benefits. That would require another exemption from federal law, which is one reason Shumlin found the president’s remarks last week so encouraging.

Not everyone in Vermont likes single-payer health care. Some critics say that such a major change might be too ambitious, and that in any case it’s not needed: Vermont has been rated the healthiest state in the nation four times in a row, and only 10 percent of the population lacks health insurance now. Shumlin doesn’t buy any of that. He thinks Vermont has a chance to create a system that would serve as a model for the rest of the country. Besides, he says, the current system is “killing small businesses, kicking the middle class in the teeth.”

Kitzhaber’s delivery plan

Oregon’s Kitzhaber has similar concerns. But he first wants to tackle the way health care is delivered. Then, he says, costs will go down and the state can decide how to finance the system. His so-called “triple aim” is to create “better health care, better health and lower costs.”

Kitzhaber would start by addressing Oregon’s current health care budget crisis. The idea is to create community-based, coordinated care systems for Medicaid recipients and workers who receive state health benefits. The program would merge Medicaid and Medicare dollars for certain patients and use new models of care that reward quality over quantity. These would require permission from the federal Centers for Medicaid and Medicare Services.

Would the change announced last week help Oregon achieve its goals? “Yes,” says the governor’s chief health policy analyst, Mike Benetto. “We need to move quickly. We don't really have until 2014 to change our health care system.”

Kitzhaber, who is a physician himself, served two earlier terms as governor starting in the 1990s. And he was a health care reformer back then, especially when it came to Medicaid budgeting. Instead of knocking people off the rolls, Oregon eliminated certain medical services deemed less valuable than others. Criticized as medical rationing, the plan ended up providing a relatively robust benefit package to Medicaid recipients and markedly lowered the number of uninsured people in the state.

This time, however, Kitzhaber wants to go further. He says he wants to change the entire health care debate. “I don’t think the problem is how you pay for health care,” he says. “It’s what we’re buying. We’re buying a product that is very ineffective, very inefficient, and doesn’t have real impact on population health,” he said in an interview with Stateline late last year.

In the next couple of weeks, Kitzhaber will propose a bill outlining the initial plan. It will call for locally accountable organizations charged with improving health care and holding down costs. Unlike the one in Vermont, Oregon's plan is likely to fit within the confines of the private health insurance exchange system as written in the original federal law. But flexibility in implementing other provisions of the law may allow Oregon to more quickly spread its model for Medicaid recipients to everyone in the state.

“We hope that if we can create a delivery model people are happy with,” says Medicaid Director Bruce Goldberg. “Small and large businesses in the state would want to be a part of that.”

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