A model projection of estimated costs & funding sources for Green Mountain Care

By Wendy Wilton

The Vermont legislature passed a sweeping health care reform bill in 2011, at the urging of the governor. This legislation will impact all Vermonters and has prompted questions such as: Who will be covered, what are the costs, how will it be funded, who will pay and will it be feasible? Like you, I wanted to know the answers to some of those questions. So, I prepared a projection model to explore how we would transition to a new health care system and what impacts it might have on the state, employers, providers of health care, and individuals.

The legislation does not specify the universal program it sets the framework to establish, but leaves the details of such a system to a five member board to be appointed by the Governor. The board will be funded in July 2011, and a universal plan can begin as early as 2014 through the exchange required by the new federal health care law. Neither the governor nor the legislature presented a projection based on a possible plan design during the deliberation of the bill, although the coverage and funding sources have been discussed openly by elected officials. The five member board may see projections similar to those in this handout as they work to define a new system of health care.

The Base Model: Health care costs increasing at 7.5% per year

Dr. Hsaio, a Harvard economist hired by the legislature to design a new healthcare system for Vermont, made cost saving recommendations contingent upon obtaining waivers from the federal government. Some of the waivers may not be possible, yet it is assumed that Hsiao’s ideas will be implemented resulting in the expected 11% cost reduction to the growth rate of health care costs. The Joint Fiscal Office of the VT legislature has predicted that health care costs after 2013 will be in the 6-9% range, so a midpoint-7.5% was used in this model. After the 11% expected annual savings is applied, the net rate of increase becomes 6.7%:

Wilton Chart 1

Conclusion: Green Mountain Care is unsustainable unless significant increases in taxes or reductions to health care costs occur (or both)to mitigate expected losses. 

 

 

What is the benefit and how will we pay for it?

A Catamount health-type of benefit plan funded by a payroll tax and Medicaid funding received by the state has been widely proposed. Current costs and details for Catamount health plan are available through the state website. A payroll tax of 11% of gross payroll paid by the employer and 3.5% by the employee has been suggested as the primary funding source. Vermont currently receives about $1 billion annually for its Medicaid global commitment from the federal government and the model assumes it increases. The Medicaid global commitment also includes tobacco taxes and provider taxes.

Who will be covered? Who will be exempt?

Three groups would be exempt from participation in the universal plan due to current federal laws: 105,302 Vermonters covered by employers with self-funded insurance plans, 13,917 Vermonters covered by military insurance, and 78,182 Vermonters covered by Medicare. However, it is assumed in the base model that the exempt groups will pay the payroll tax. If groups covered by self-funded plans are not required to pay the tax the model shows significant financial losses that cannot easily be overcome:

 

Wilton Chart 2

 

Conclusion: Green Mountain Care cannot be created unless exempt groups, including self-funded insurance plan participants, are also paying the tax.

Will it work?

It appears the answer is no and that is unfortunate because reform is needed. The proposed system has the same flaw as our current health care system: the rate of growth in health care costs is rising faster than growth of the economy which is tasked to support it. Stephen Klein, Legislative Fiscal Officer, Joint Fiscal Office, stated the following in a March 7, 2011 letter to Rep. Mark Larson, the Chairman of the House Committee on Health Care:

“The underlying costs versus revenue trends are likely to continue into the foreseeable future as I indicated in my February 24th remarks. This trend raises a fundamental challenge to any public or private health care program. Proposals that lower base spending, and/or ongoing cost growth may mitigate but not necessarily alleviate this trend”

If federal Medicaid funding drops, the state’s economy erodes, health care costs increase faster than predicted, or utilization increases then the fiscal results are worse than the base model.I leave it to you, the reader, to think about the possible consequences of creating this health care system if my projection model is correct. I urge you to contact your legislators about these decisions and what evidence they might have to support the proposal. You can find out more about the detail of my assumptions and how I built this model by viewing it at www.vthealthcarefreedom.org or contacting me at 802-770-0743, or at wendywilton@comcast.net