The Health Insurance Exchange: Your Questions Answered

by John McClaughry 

John McClaughry

Many members of the Vermont House uncomfortably confided that they really didn’t understand what they did last month, when they voted 88-38 to pass Gov. Shumlin’s health insurance exchange legislation (H.559). The bill is now under consideration in the Senate, so this easy to grasp format may prove helpful to legislators and citizens alike.

What’s a health insurance exchange? It’s an online marketplace where individuals and small businesses can purchase from among various state-approved insurance plans. Individuals purchasing through the Exchange will qualify for Federal tax credits to reduce their premium costs.

Why does Vermont need this? Because ObamaCare says so. If Vermont won’t create one according to federal rules, the federal Department of Health and Human Services will step in and create one.

Who is required to buy their health insurance in the Exchange? All individuals, plus all small businesses with fifty or fewer employees.

Is this an ObamaCare requirement? No. This is a Shumlin requirement.

What about small businesses with 51-100 employees? They objected to the 18% increase in premiums the State projected, when they are forced to pool their employees with the group the governor’s legislation mandates to buy only through the Exchange. So Gov. Shumlin backed off his demand that they also be forced into the Exchange – until 2016.

Why this urgency to get as many people as possible covered through an Exchange-based plan? Because in 2014 ObamaCare will provide tax credits for persons to assist them in buying insurance through an approved exchange. Gov. Shumlin hopes that he can, in 2016, persuade the federal government to discontinue the tax credits and turn the total amount in cash over to the state, to help finance Green Mountain Care in 2017.

What’s Green Mountain Care? That is Gov. Shumlin’s version of Canadian-style single payer health care for all. The Green Mountain Care Board is working now to decide what benefits people will have, which hospitals can remain open, how much doctors and nurses will be paid, how much pharmaceutical and medical supply companies will be reimbursed, and the global budgets that will contain the costs of health care.

So the Exchange is the pathway to single payer health care in 2017? That’s what the Governor says.

What becomes of the Exchange when Green Mountain Care comes into being? The Exchange will be “suspended”, since most private health insurance will be abolished.

Will there be a choice of plans available in the Exchange? The Shumlin administration says there will be ten or twelve plans, varying by the size of the deductible etc.

From how many carriers? Most likely, one: Blue Cross Blue Shield of Vermont. Possibly MVP. Those two carriers now insure 83.6% of the lives in Vermont’s private health insurance market. (Cigna – 14.7% – insures only large groups that are not mandated to enter the Exchange.)

The state long ago drove out all of their competitors, which are not coming back into this small market with its oppressive insurance regulation, just to sell policies for three years.

How much will the Exchange cost to create and operate? According to a state consultant’s report, $13-22 million for startup, and roughly $30-38 million for the following three years.

How will this Green Mountain Care be paid for, when it springs to life in 2017? Gov. Shumlin says it will be paid for by Medicaid funds, the hoped-for cash out of the Exchange tax credits and Medicare payments, the state’s current premium payments for state employees and teachers, and perhaps some new tax dollars.

Tell me more about these new tax dollars. The legislature’s consultant Dr. William Hsaio estimated that the Green Mountain Care model chosen by the legislature would require new payroll taxes of 12.5% , split between employers and employees. Since then, the Shumlin administration has departed significantly from the Hsaio model, and the Joint Fiscal Office has suggested that the enormous savings projected by Hsaio ($11 billion over ten years) are not likely to be realized. Gov. Shumlin has said that the payroll tax rate will likely be 14.4%. Other new taxes will almost certainly be needed to fill the gap.

When will we be told what taxes we will have to pay to finance the Shumlin plan? In January 2013, after the November elections. The Governor’s party in the House defeated an amendment to make the administration tell the voters the magnitude of the new taxes in September, before the election. It failed 86-49. Sorry.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).