Shumlin proposal aims to cushion cost increases of health insurance exchange

Gov. Peter Shumlin signed the historic health care reform act on the Statehouse steps in May 2011. VTD File Photo/Taylor Dobbs.

Gov. Peter Shumlin recommended two fiscal measures to the Legislature on Thursday that would mitigate rising health care costs, but would not prevent hikes for lower-income Vermonters.

While Shumlin said during his budget address, “Vermonters currently in Catamount and VHAP (would) not suffer federally imposed cost increases,” the math tells a different story.

In 2014, the state’s new health benefit exchange goes into effect. At that time, roughly 110,000 Vermonters, who aren’t enrolled in Medicaid, will be required to buy health insurance via the online marketplace.

That includes Vermonters currently enrolled in the state-subsidized health insurance programs Catamount and VHAP, which will end as a result of new federal regulations. Those individuals must buy health insurance on the exchange after 2013. And they are facing sharp cost hikes.

Shumlin’s proposal is to allocate $10.3 million in cost-sharing assistance and premium subsidies to cushion the blow of those increases. Although Shumlin’s assistance package would mitigate bumps in the road, it would not eliminate them altogether.

Premiums would be higher for many Vermonters whose income is 133 percent to 300 percent of the federal poverty line, and annual out-of-pocket maximums would jump considerably, making the cost of care highest for those who need it most. Meanwhile, premiums for some lower-income Vermonters would be lower.

State assistance for lower-income Vermonters

The $10.3 million in subsidies for lower-income Vermonters in FY 2014 will turn into more than $20 million in FY 2015, the Shumlin administration promises.

Since a fiscal year begins halfway through a calendar year, and the exchange opens at the start of the calendar year, the FY 2013 amount reflects half a year’s spending.

The proposed funds are broken into two parts: $6.5 million to help pay premiums for Vermonters earning up to 300 percent of the federal poverty line and $3.8 million to reduce out-of-pocket maximum costs for income earners up to 350 percent of the poverty line. Catamount only covers Vermonters up to 300 percent of the federal poverty line.

Robin Lunge, director of Health Care Reform for the Shumlin administration, updates the Vermont Health Access Oversight Committee last  June on the progress of setting up a health benefits exchange. VTD File Photo/Alan Panebaker

Robin Lunge, Shumlin’s director of Health Care Reform, said the state is focusing funds on premiums because high premiums are the largest barrier to health insurance enrollment.

The Affordable Care Act caps premiums and out-of-pocket maximums for Vermonters earning up to 400 percent of the federal poverty line at levels that are more than twice what many individuals pay now.

The feds limit premiums on a linear scale. For example, Vermonters earning 150 percent of the federal poverty line would pay 4 percent of their income on premiums. Vermonters earning 200 percent of the poverty line would pay 6.3 percent of their income. And residents earning 300 percent to 400 percent would pay 9.5 percent of their income.

The Shumlin administration proposes the same linear calculation that the feds use, but with a cap 1.5 percent lower — 2.5 percent of an individual’s income at 150 percent of the federal poverty line, 4.8 percent at 200 percent and 8 percent at 300 percent.

Using this linear equation that provides exact ratios of coverage based on incomes — rather than the series of income tiers that is currently used — will benefit some Vermonters more than others.

“People will not be paying exactly what they’re paying today,” Lunge said about premiums. “Some people will be paying more. But, I think, administratively … and for fairness, using the same calculation as the ACA makes more sense than trying to maintain an old system.”

What this means for an individual earning $17,244 — or 150 percent of the estimated 2013 poverty line — is that this person would pay $431 in premiums annually. That is $35 a year more than the $396 that person currently pays for a subsidized plan, but $259 less than the $689 he or she would have paid with the federal cap. These numbers are derived from a combination of calculations by VTDigger, the state and the Vermont Campaign for Health Care Security.

For some populations new premiums will actually decrease under the Shumlin administration’s plan.

Take, for example, a couple earning $46,548 a year, or 300 percent of the federal poverty line. They would face an annual premium of $3,724 — roughly $1,250 less than the $4,992 that couple would have paid under Catamount. And they would pay about $700 less than the $4,422 they would have with the federal cap.

The couple’s out-of-pocket maximum, however, would rise from $2,100 under Catamount to $5,000. This maximum represents the total out-of-pocket costs for care, co-pays and other fees that the couple is liable for in a year.

For healthy Vermonters who are at 133 percent to 300 percent of the federal poverty line, many of these plans would be similarly priced to the current ones. But if these Vermonters fall ill, they would have less coverage. The higher costs kick in when people need care.

Peter Sterling, director of the Vermont Campaign for Health Care Security, is an advocate for a publicly financed health care system and is concerned about rising health care costs for lower-income and middle-income Vermonters.

Peter Sterling, executive director of Vermont Campaign for Health Care Security Education Fund. VTD File Photo/Alan Panebaker

“The governor should be applauded for making Vermont one of only two states in the country to attempt to lower costs under the exchange, however, he doesn’t go far enough,” Sterling said. “Vermonters will be paying more for their health care in 2014 than they are now, and I don’t think low- and middle-income Vermonters can essentially afford to pay several thousand dollars a year more. That’s health care reform backwards.”

Shumlin told reporters months ago that to hold every Vermonter harmless who is currently enrolled in Catamount and VHAP would require an $18 million injection that he wasn’t sure the state would have. He is now proposing a larger sum than that previous estimate and still it’s not keeping costs level for many of these lower-income Vermonters.

Asked about this shift, Mark Larson, commissioner of the Department of Vermont Health Access, replied, “Our estimates have evolved.” He wasn’t sure, however, exactly how much money would be necessary to hold all of these Vermonters harmless.

Democratic Rep. Mike Fisher, who chairs the House Health Care Committee, said it’s not an apples-to-apples comparison: The new assistance program will operate under a completely different set of rules and models.

“It’s my intent to drive the conversation toward what is affordable, not how does it compare to a system that will no longer be there,” he said. “Everyone wants to compare this to Catamount, but it’s not the right question. The right question is: What is a reasonable amount to expect a lower-income Vermonter to pay for their premiums and out-of-pocket expenses.”

The Medicaid cost shift

The governor’s second budget proposal for restraining the growth of health care costs is to raise the state’s Medicaid reimbursement rate by 3 percent on Oct. 1, 2013. That’s an increase of about $24.4 million.

Commercial providers currently cover the tab for state Medicaid reimbursements to health care providers. These Medicaid reimbursements are below the cost of care and drive up commercial health insurance premiums.

The thinking behind this decision is that if the state pays a larger share for Medicaid patients, then commercial insurance carriers will charge their clients less.

“This step alone will lower private insurance premiums by almost $25 million every single year,” Shumlin said in his address.

The Green Mountain Care Board is charged with regulating health care finance in Vermont. Anya Rader Wallack, who chairs the board, said it’s her board’s responsibility to make sure these state payments produce the desired result.

“We have to oversee this as a board and make sure the new revenue isn’t simply an increase in overall payments but a reduction in what one payer pays versus another,” she said.

Vermont’s medical community has frequently criticized the state for passing the buck to commercial payers by not ponying up enough cash for Medicaid.

Beatrice Grause presenting information on Vermont hospitals to the Green Mountain Care Board in December 2011. VTD File Photo/Josh Larkin

“We have not exactly, as a payer, recognized health care cost increases,” Wallack said. “As we move forward, it’s important for Vermonters to know the state is an honest dealer and pays its fair share.”

Some legislators and members of the medical community are concerned that a 1 percent tax hike on paid insurance claims will offset this aid. The tax increase would be phased in over a two-year period — FY 2015 and FY 2016 — at a rate of a 0.5 percent per year.

“Although you’re increasing Medicaid payments and reducing the cost shift, you are adding an assessment on claims that private insurers pay,” said Leigh Tofferi, a lobbyist for Blue Cross Blue Shield. “While we welcome a reduction in the cost shift, we note that it comes with an assessment on claims. We haven’t worked through the numbers of if that’s a straight balance or not.”

Bea Grause, CEO of the Vermont Association of Hospitals and Health Systems, said that while this Medicaid proposal represents an improvement, the state still has a long way to go.

“It’s up to policymakers to pay the cost of care for Vermonters on public programs,” she said. “If the state is unable to do so, Vermonters with private insurance will continue to shoulder the burden for these costs.

“This Medicaid budget reflects the state’s desire to be a better payer, but doesn’t make significant progress on underpayments,” she added. “We all have a lot of work left to do.”