Editor’s note: This op-ed is by Jeff Wennberg, the executive director of Vermonters for Health Care Freedom.
VTDigger recently ran a series of three articles by Hamilton Davis regarding Vermont’s efforts to reform our health care insurance, delivery and provider compensation system. Mr. Davis has studied the issue in Vermont for decades and his series offers VTDigger readers a great deal of useful information and thoughtful analysis.
There are a few parts of his excellent work with which I would take issue. First, the examples he presents of financial benefits for families and small businesses purchasing insurance through the exchange were prepared by BISHCA, now the Department of Financial Regulation, as Mr. Davis noted in his article. These examples indicate substantial financial benefits for most of the cases studied, and while a good number of households and some small businesses will clearly realize savings through the exchange, the impression created is that this will be the result in the overwhelming majority of cases.
Our analysis indicates otherwise. All of the examples for individuals and families assume they are purchasing insurance directly, with no current employer contribution toward the premiums. The exchange clearly offers these folks substantial economic benefits, but what about the more typical situation of an employed worker whose employer makes these contributions?
Employer contributions are frequently more than 50 percent of the premium cost, typically around 75 percent. Taking this into consideration and noting that federal tax credits are against household income (not wages), these subsidies will not make up for the loss of employer contributions for most wage earners and for a large majority of two-income families. Only lower income wage earners will see a savings by purchasing through the exchange. Assuming average household size (2.39 people) [1] and median household income ($53,000 per year) [2], and assuming the employer contribution toward premiums is 75 percent, then the current monthly cost to the household is about $313. This same median Vermont household would see exchange premiums (after federal tax credits) of about $390 [3]. Since this example is the median Vermont household, a majority of households in this situation will see higher premiums purchasing through the exchange than they pay through employer-provided insurance.
Even if the employer contribution is less than 75 percent, any advantage of dropping employer-based insurance and purchasing directly from the exchange is clearly small compared to the BISHCA examples. And as household income rises,the penalty for moving to the exchange rises with it; many Vermont families with incomes well below the $92,200 federal tax credit cutoff will see an increase in their health insurance costs.
The small business example is similarly flawed. The restrictions that must be met for a small business to qualify for federal subsidies ensure that a great many will not qualify. The example indicates that the big advantage comes from the business eliminating its cost of paying toward employee premiums. What the analysis leaves out – indeed what the entire Shumlin administration has left out – is how the state will finance the single-payer system itself, just a few years away. If the state imposes a payroll tax as envisioned by Dr. Hsaio’s report, any savings from premiums could be swallowed by the new tax.
Like most single-payer advocates, Mr. Davis is convinced that the fundamental cause of medical cost escalation is the fee-for-service payment system. But nearly all of the balance of our economy uses fee-for-service without any of the problems experienced in the health care sector.
Like most single-payer advocates, Mr. Davis is convinced that the fundamental cause of medical cost escalation is the fee-for-service payment system. But nearly all of the balance of our economy uses fee-for-service without any of the problems experienced in the health care sector. It is not fee-for-service, but the third party payer mechanism that creates the escalating costs. Capturing everyone within a single-payer system will exacerbate this problem, so the response is for even more government control in the form of global budgets. It is global budgets, coupled with the single-payer government monopoly, which creates rationing and the steady decline in availability of care that has plagued Canada.
The next point of disagreement is Mr. Davis’ characterization of my writings on the questionable legality of Vermont’s decision to make the exchange mandatory and outlaw the private insurance market as we know it. The heart of his argument is his belief that I am misreading the Affordable Care Act when I question the legality of Vermont’s law. His quotation of my commentary included the qualifier that “the (federal law) appears to require the continued existence of off-Exchange plans.” Whether Vermont’s action does or does not violate federal law is a matter for a federal judge to decide, but a plain English reading of the provisions of the ACA leaves no doubt whatsoever that what Vermont has done is totally inconsistent with the intent of Congress.
And as for the opinions of various attorneys on this point, I remind the readers that the Vermont attorney general has defended the legality of Vermont’s campaign finance law, Vermont’s action against the continued operation of the Vermont Yankee and a host of others only to learn that the U.S. Supreme Court disagreed.
Finally, Mr. Davis has played a bit loose with the work of Rutland Treasurer Wendy Wilton and her analysis of the financial implications of Green Mountain Care. His main point is to criticize her assumption of 7.5 percent as a medical cost inflator for the next few years. He compares this to the consumer price index, which is completely wrong. Wilton indicated in subsequent comments that the 7.5 percent number was provided by BISHCA, but given more recent data agreed to re-run the analysis with Mr. Davis’ preferred assumption of 3.5 percent. The result? At the end of five years the system has a cumulative $1.6 billion deficit versus the $2 billion in her original projection.
Mr. Davis’ background on the reforms and his analysis of the financing challenges facing the Shumlin administration are valuable contributions to this discussion. It is our view that this is precisely the kind of discussion, debate and analysis that should have preceded passage of Act 48.
[1]U.S. Census Bureau, http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t
[2]U.S. Census Bureau, http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t
[3]DVHA Handout, ACA PREMIUM LEVELS IN 2014, 03/21/2012, 2011 FPL range for 3 person household, MHI=$4,417 per month
[Editor’s note: Links to the three articles by Davis: The single-payer framework: How Vermont is using the ACA exchange as a vehicle for reform, The single-payer framework: Cost containment is the Shumlin administration’s biggest conundrum, The single-payer framework: An analysis of the opponents’ arguments]
