The governor is proposing a 0.7 percent payroll tax, which would generate roughly $86 million a year, in order to increase Medicaid payments to doctors and hospitals. The boost would push reimbursements up to the level of Medicare, which pays at a higher rate, and to pay for other initiatives intended to strengthen Vermont’s health care system.
The purpose of the plan is to make health coverage more affordable and set the table for more aggressive reforms in the future, Shumlin said.
“Many of you share my disappointment that we will not achieve at this time the grand vision of Green Mountain Care. If we adopt the package I’ve just set out, we will achieve a significant and meaningful part of the goal we set for ourselves in in Act 48,” Shumlin said.
Currently, Medicaid pays doctors and hospitals 60 percent of what medical services cost, while Medicare pays closer to 80 percent, according to figures from the Green Mountain Care Board.
Underpayments from those government programs are problematic because doctors and hospitals have to make up their losses from insurance companies and self-insured employers — a cycle known as the “cost shift.” Increasing health care providers’ Medicaid income is intended to allow private insurance companies and self-insured employers to negotiate lower rates with providers. That, in turn, is expected to lower premiums. The increased payments are also intended to encourage providers to treat the program’s growing number of beneficiaries.
To make sure that happens, the state will rely on the Green Mountain Care Board to regulate the outcome through its insurance rate and hospital budget-setting processes.
Administration officials said they have assurances from the board’s chairman, Al Gobeille, and Blue Cross Blue Shield of Vermont, the state’s largest private insurer, that they will commit to lowering premiums in 2016. Large, self-insured employers will have more leverage to negotiate with providers as well, but how they use those savings will be up to them.
The payroll tax would take effect Jan. 1, 2016, to sync it with the insurance plan year. The tax would generate six months of revenue in the 2016 fiscal year, a total of $41.4 million. Vermont can use that money to draw down a federal Medicaid match worth $44.5 million. In a full budget year the tax would generate roughly $86 million, plus a federal match.
The payroll tax revenue isn’t a “Trojan Horse,” administration officials said, and can’t be raised to plug holes in the General Fund as the money would be dedicated to the Health Care Resources Fund.
Shumlin wants to put $55 million of the payroll tax revenue toward increasing Medicaid payments. That won’t eliminate the cost shift, which results from both Medicaid and Medicare underpaying. The cost shift was valued at $150.8 million in 2012, the last full year with complete data, but administration officials say it’s a critical first step toward broader health reform.
The Affordable Care Act has expanded Medicaid eligibility to higher income levels and the program covers 185,000 Vermonters as of October 2014, an increase of 20,000 people, according to the administration. The $55 million includes $25 million for increased payments and $30 million to cover expanded Medicaid rolls, officials said.
The other $27.8 million will be used to increase payments to physician practices that participate in Vermont’s Blueprint for Health primary care management program; increase subsidies for out-of-pocket costs on the exchange; increase the Green Mountain Care Board’s budget, and support the administration’s pursuit of a federal all-payer waiver.
“Our Blueprint medical homes and community teams have effectively increased social services for the sickest and most needy Vermonters on Medicaid, and it reduced the medical need of people with private insurance,” Shumlin said.
“Today, its future is at risk because participating providers haven’t seen an increase since the program was launched … my proposal fixes this by more than doubling payments to Medicaid’s Blueprint providers,” he said. The increase would cost $4.5 million.
Boosting the subsidies for out-of-pocket costs on the state’s health exchange would cost $2 million.
The all-payer waiver will let Vermont determine how, and at what rate, Medicare pays doctors and hospitals, thereby allowing the state to incorporate Medicare into payment and delivery reforms already underway for Medicaid and commercial insurance.
“We must push full steam ahead to become the first state to move from the fee for service payments system by pursuing our all-payer waiver from the federal government with all vigor,” Shumlin said.
To support payment and delivery reform, Shumlin called for increased authority for the Green Mountain Care Board, including the ability to open investigations, to align health care technology investments — through budgetary control of the public-private Vermont Information Technology leaders — and the power to approve payments and delivery models.
“The board faces a difficult challenge since national health care costs are expected to grow more than 6 percent annually by 2019,” Shumlin said. The board’s cost containment efforts have held growth at between 2.7 percent and 3.3 percent over the past two years.
House Speaker Shap Smith supports higher reimbursement rates for Medicaid and he said the payroll tax “addresses that issue.”
“To the extent that we can draw down as much money as the governor suggested and drive it right into a reduction in the insurance premiums I think it’s one of the fairer ways we can think about this issue,” Smith said. “If we move in this direction it’s going to be incredibly important that we have the regulatory tools that any money raised goes directly into the reduction in premiums. If we can’t show that, it’s going to be almost impossible to move forward with the payroll tax.”
Rep. Bill Lippert, D-Hinesburg, said he is pleased the governor is still committed to making health care affordable for Vermonters despite having had to back away from public financing. “I know there is a lot of interest in taking a significant step forward,” Lippert said.
Sen. John Campbell, D-Windsor, says some businesses could save money with the governor’s plan, while others could be hurt by the payroll tax. Many companies that dropped insurance coverage and gave raises to employees who went into the health exchange could feel as though they have been penalized.
Health reform proponents had a lukewarm response to Shumlin’s proposal.
Peter Sterling, the executive director of Vermont Leads, a health care reform advocacy group, said the governor didn’t go far enough to make sure low-income Vermonters have access to health care.
Many aspects of the proposal are steps that had to be taken, such as the $30 million in state money to cover people new to Medicaid. Several expressed skepticism that the package would meaningfully reduce private insurance premiums in 2016.
Deb Richter, a long proponent of single payer, says the payroll tax could be a vehicle for single payer in the future. “It could be the camel’s nose under the tent,” Richter said.
But advocates also said the new 0.7 percent payroll tax dedicated to health care costs could pave the way for a publicly financed system in the future.
“It certainly would open the door to that,” Sterling said.
For now, Richter says the governor is taking some necessary steps toward addressing the cost shift, but she worries that hospitals will be the main beneficiaries. As long as the bulk of it goes to primary care, “that’s a good thing.”
“I think we can go much further this session than just what the governor proposed this session,” Richter said. She hopes to pursue a publicly funded primary care coverage for all Vermonters, which she says would boost compensation for doctors, reduce administrative costs and ultimately reduce costs across the system. Private insurance would cover everything else.
Republicans said they support the governor’s plan to address the cost shift, but not how he plans to pay for it. House Minority Leader Rep. Don Turner, R-Milton, said he believes the Legislature can find the $41 million in state money required to fund the administration’s health care proposal by trimming spending in other areas.
Editor’s note: Anne Galloway contributed to this report.