Selling 96,000 Vermonters for $350 million. A good deal?

by Rob Roper

One of the most persistent questions surrounding the healthcare “Exchange” the legislature is creating has been, “why mandate that businesses with fifty or fewer employers participate?” The federal law mandating that states create an Exchange does not mandate that states force any business of any size into it. If the Exchange as Vermont is interpreting it turns out to be all that proponents boast it will be, businesses and individuals will flock into the exchange voluntarily. That’s just common sense.

But, if the Exchange is not attractive, people and businesses will stay away – and therein lies the rub. According to the Administration there are 16,000 businesses in Vermont with 50 or fewer employees, and they employ 96,000 people. These are the folks who will be forced to buy their healthcare insurance in the Exchange starting in January 2014.

At a press conference on Wednesday, Governor Shumlin, Speaker of the House Shap Smith (D-Morristown), and Mike Fisher (D-Lincoln), chairman of the House Healthcare Committee offered some insights into why they are deciding to put their weight behind the stick rather than put their faith in the carrot.

There are reasons to be concerned if you’re one of the folks being herded into the pen. First, the primary reason for forcing Vermonters into the exchange has more to do with money (federal money to be specific) than healthcare. The reason for getting that money has less to do with the Exchange itself that it does with the ideological pursuit of a single payer system down the road. To put this into perspective, these 96,000 Vermonters are essentially being thrown into a program in 2014 as bait to attract cash for another program other that won’t even be considered under the best of circumstances until 2017.

Rep, Chris Pearson (P-Burlington) explained the objectives pretty clearly on the floor of the House, “We need people in there fast so that when we apply for Federalwaivers we demonstrate our need for Fed tax credits – therefore, ultimatelymaking Green Mountain Care as affordable as possible.”

It’s big money at stake. Governor Shumlin laid out what is at stake from his perspective, “The healthcare exchange will bring in $200 million dollars of federal money in the form of tax credits to Vermonters who are currently struggling to pay their health insurance…. It will also bring in another hundred million dollars, we estimate, in additional Medicaid payments to help Vermonters pay for health insurance. So that’s a total of between $200 and $350 million of Federal money that we don’t have today, if we can get enough Vermonters into the healthcare exchange.”

Hence the need for government force. If, given a choice, Vermonters do not chose on their own to play the role of Guinea pig, the grand plans for a single payer healthcare system in Vermont become even less financially viable than they already are.

The consequences of being forced into the Exchange are extreme, because also key to netting a maximum amount federal dollars is that Vermonters enter the exchange as individuals, purchasing their policies divorced from their employer. This means that the incentives built into H.559 are directed toward getting small businesses to “dump” their current insurance plans and “let loose” their employees in the Exchange.

Shumlin, Smith and Fisher see benefits in this arrangement beyond the Federal money. Vermonters purchasing as individuals would have portability of insurance from job to job. Employers could focus on running their business and not waste time and resources running a benefits program. The way the federal law works now, employees who earn less that 400% of federal poverty level would receive federal subsidies that would cap their contributions to their insurance at 2% to 9.5% of their total household income. Employers would enjoy the windfall of no longer having to pay health insurance costs. But the impact on real-life people is up in the air.

What happens, for example, if the U.S. Supreme Court throws out the Affordable Care Act as unconstitutional, and the law providing individuals the subsidies is gone? What happens if the Court renders its decision in 2014 rather than 2013 (a possibility). What happens to employees who don’t fall under the income sensitivity cap? A third of Vermonters forced into the Exchange would not qualify for the subsidies. They would pay “market rates,” but what is this intrusion into the market going to do market rates?

A “back of the napkin” look at the numbers shows that that under the best case scenario for federal dollars, the $350 million spread over the 63,000 Vermonters forced into the exchange who also qualify for subsidies works out to just $5,323 per person. To use one example from the subsidy chart, a family of three earning $36,620 (200% of FPL) would have to contribute up to $2,307 of their income to buy the insurance. That doesn’t add up to the full cost of a silver level insurance plan, which they would need to buy to qualify for subsidies. Where does the rest of the money come from? Will it be a massive cost shift onto non-income sensitized purchasers of insurance?

As Rep. Ron Hubert (R-Milton), the small business owner of a convenience store expressed, “One of the things that we don’t want to be is the Guinie pigs. I don’t think anybody here would look at me and consider me to be a guinei pig or a sheep…. We are being put forth as the people to find out where the most money can be squeezed from in the first parts of this bill.”

It turns out 80 of his fellow house members did view Rep. Hubert as a guinie pig or a sheep. The amendment that would have made the exchange voluntary failed 57-80.