[G]ov. Peter Shumlin wants to increase Medicaid payments to reduce the ripple effect that causes privately insured people to pay more.
Medicaid reimburses providers at 60 percent of what private insurers pay for services. People who pay private insurance premiums pick up the difference in higher rates in what is known as the cost shift.
The $90 million would draw down roughly $99 million in federal Medicaid matching money for a total of $189 million for Shumlin’s health care package. Enmeshed in that package is $16 million in non-discretionary state spending, mostly to cover increased Medicaid rolls, that lawmakers would have to find from another source if they don’t approve the governor’s tax strategy.
Shumlin wants to invest $141 million from the matched payroll tax revenue to increase Medicaid rates for certain primary care services.
But market forces are working against Shumlin’s proposal to reduce the growth in private premiums by increasing Medicaid payments, according to Joyce Manchester with the legislative Joint Fiscal Office. Manchester previously worked for the federal Social Security Administration and the Congressional Budget Office before joining JFO last year.
In a loosely regulated health care market, increasing the rates paid by government programs can result in higher rates across the board from providers, she told the House Ways and Means Committee recently.
That’s because hospitals view greater public payments as an opportunity to invest in new or better quality services and facilities, and they look to increase private rates to complement their efforts, Manchester said. Conversely, one recent study on the cost-shift found that when Medicaid payments decreased, private rates went down as well because hospitals found ways to more efficiently povide services used by both public and private patients.
In order to buck those market dynamics, the governor is relying on buy-in from insurance providers and hospitals, and the fact that Vermont’s health care market is highly regulated compared with other states.
Shumlin is counting on the hospitals to submit budgets with lower aggregate rates for private insurers and counting on the insurers to submit rate requests that contain commensurately lower premium growth.
The Green Mountain Care Board and its staff will be responsible for determining whether hospital budgets and insurance rate requests achieve the desired reductions in premium growth, and rejecting them if they don’t.
“Therefore, it’s really important to pay attention to the regulatory authority of the Green Mountain Care Board,” Manchester told the committee.
The Green Mountain Care Board is a five-member panel appointed by the governor that, with the help of its staff, regulates hospital budgets, insurance rates and major hospital expenditures.
Al Gobeille, who chairs the board, says getting a dollar-for-dollar return on the Medicaid investment would be unrealistic, Gobeille said. Offsetting the $90 million in payroll tax with a reduction in premium growth is possible — but not something he can guarantee.
Winners and losers
The Shumlin administration hopes businesses will support the payroll tax if they receive an equal or greater amount of premium relief. But there will be winners and losers in the business community. Firms that don’t offer health coverage will pay the tax without seeing any premium relief.
Shumlin’s plan also faces several hurdles, including a compressed timeframe. Insurers will file premium rate requests in mid-April, before the Legislature is likely to have voted on a payroll tax.
Another wildcard is the utilization of health care services. If people who have private insurance plans use more health care services while the Medicaid population’s use remains flat or decreases, the money invested in reducing the cost shift would instead cover increased utilization.
“What happens with utilization can then make this look like the smartest thing we ever did, or it could obscure all the good work we do,” Gobeille said. The health care system would still be structurally better off, but people wouldn’t feel the relief, he said.
There are also large areas of health care spending the board doesn’t regulate. Sixty-three percent of what Vermont spends on health care goes to non-hospital providers and services, which the board does not regulate, and 30 percent of the private insurance market is in self-insured health plans that the board does not set rates for, according to figures collected by the board.
Forty percent of Vermont businesses won’t offer employees health insurance in 2017, according to projections by the administration and the Rand Corp. Many of these companies could ask workers to purchase plans as individuals on the exchange.
For businesses that do offer health insurance, the potential benefit from reduced premium growth would depend on what percentage of their payroll they currently pay toward employee health insurance.
A company with $268,000 in payroll that spends 5 percent of that total toward health insurance would see costs go up by $950 after premium relief and the payroll tax. A company with the same payroll total currently paying 20 percent toward employee health care would see their costs go down by $630, according to a calculation presented by the administration.
Health care providers will also see different impacts from the Medicaid increase.
Those who treat a higher proportion of Medicaid patients will be better off, while those who treat fewer may lose revenue. That’s because commercial insurance rates for providers will decrease by some amount to realize premium savings, according to testimony from Gobeille and administration officials.
A hidden hole in the budget
Shumlin’s health care proposal includes $16 million in non-discretionary state spending that lawmakers would have to find another source of funding for if they don’t go along with the payroll tax.
The $16 million is needed to cover increased Medicaid caseload, a statutory rate increase for nursing home providers and other undefined “budgetary pressures,” according to a presentation from Lawrence Miller, chief of Health Care Reform.
The administration has not released figures on how many people are new to Medicaid as a result of income eligibility changes under the Affordable Care Act.
The total cost for the increased Medicaid caseload in the FY16 budget has not yet been released by the administration.
An alternative path
Burlington attorney John Franco told lawmakers on the House Ways and Means Committee that a payroll tax dedicated to funding health care initiatives is a commendable idea.
However, Franco argues in a commentary that the revenue would better leverage federal money if it is put toward increasing premium subsidies for individuals purchasing insurance on the Vermont Health Connect exchange.
Two-thirds of individuals on the exchange get federal subsidies supplemented by the state. Increasing the state investment in those subsidies would make health insurance more affordable and could make it possible for the state to achieve universal coverage in the coming year, Franco said.
If the state encouraged small businesses to allow employees to buy insurance on the individual exchange market, more workers would potentially have access to subsidized health care, and medical insurance costs for many companies would be eliminated, he said.
Every Medicaid dollar spent draws down close to $1.10 from the federal government, whereas Franco estimates each dollar in state subsidies draws down between $4 and $5 from the feds.
If the $90 million generated by a 0.7 percent payroll tax were put toward state subsidies in the exchange it would leverage $430 million in federal subsidies, according Franco’s calculations.
That’s more than four times the $99 million in federal money drawn down by Shumlin’s proposal, and it doesn’t involve any regulatory uncertainty, he said.
Administration officials cautioned that they haven’t had time to weigh Franco’s calculations. Franco admitted they’re not based on “complicated modeling,” and he encouraged lawmakers to scrutinize them too.
Franco’s basic message to the Ways and Means Committee was that it’s time to embrace the Affordable Care Act and make it work for Vermont.
