Financing plan for Vt. health care exchange up in the air

May 01, 2013

Posted By Andrew Stein

When the federal government gave the Shumlin administration permission in January to create a state-based insurance marketplace, the approval of Vermont Health Connect [2]was conditional.

With fewer than two weeks left in the legislative session, a key condition — legislative approval of a self-sustaining financing plan — remains unmet.

The Shumlin administration has maintained that the state needs $18.4 million annually to run the web-based marketplace, which is slated to open on Oct. 1 for an estimated 118,000 residents. [3] Legislators, however, were wary of the hefty price tag for maintaining the exchange (to learn more about that issue, read here [4]).

The Legislature’s Joint Fiscal Office asked Health Management Associates (HMA) to audit the administration’s work to see if they could craft a lower estimate. Much to lawmakers’ disappointment, the estimate came in on par.

The Michigan-based firm found the administration has done its due diligence. But, HMA warned, the state is biting off an ambitious mouthful, and it needs to shore up long-term health care financing plans — whether it adopts a single payer system or not.

Tom Dehner, managing principal at HMA, told VTDigger that Vermont is behind most of the other 18 states that have chosen to create an exchange under the Affordable Care Act. The other main option for states under the federal law, better known as Obamacare, is to default into the federal exchange.

“Most of the states that I know that are operating state-based exchanges have already determined the long-term financing method,” Dehner said.

A state-based exchange gives Vermont greater control over its health care finances, like the ability to create and regulate its health insurance plans. But this local control comes at a higher cost.

Raising the revenue
To raise the lion’s share of the $18.4 million, the administration has proposed levying a 1 percent increase on health insurance claims, which would raise roughly $17 million annually, said Mark Larson, commissioner of the Department of Health.

The hike would take effect in 2015, when the state needs to begin financing the exchange. Health insurers point out that this tax hike would raise health insurance rates for Vermonters.

While the House’s tax bill did not address a funding source for the exchange, the Senate bill calls for continuing a contentious assessment on employers who don’t provide coverage. The Joint Fiscal Office estimates that the assessment would raise $14.4 million in 2015.

If the revenue raised from this assessment does not cover the exchange’s operating costs then the premium for each plan issued through the exchange would be charged monthly to make up the difference.

Sen. Tim Ashe, D-Chittenden, chairs the Senate Finance Committee, which drew up this proposal. The $18.4 million price tag for the exchange is the administration’s best estimate, and it falls between a high estimate of $21 million and a low estimate of $17 million.

“To implement the claims assessment as the administration recommended would create perhaps too much revenues through the claims assessment,” Ashe said. “It was unclear why we’d authorize more than is needed to be collected. The fog is still lifting on what the profile of the exchange looks like.”

The House tax bill, with its $27 million in new taxes, eliminated the employer assessment. But House Speaker Shap Smith, D-Morrisville, said that this route was more popular among lawmakers than the claims assessment.

“I think what will end up happening is we’ll end up negotiating it out in the final bills,” he said.

As the session accelerates to an end on May 11, Smith isn’t guaranteeing it will pass.

“I think it’s likely, but it’s still possible that it might not,” Smith said.

The cost and the complications
HMA’s Dehner met with the House Appropriations and Health Care committees on Wednesday to review the report.

“The bottom line,” he said, is that “state-based exchanges are very expensive.”

To compare Vermont’s health care costs to other states’, HMA looks at per-member costs.

Based on the administration’s numbers, the exchange would cost Vermonters $155.93 a year for every one of the residents enrolled.

Vermont has a higher cost on a per-member basis when compared to many larger states, but Vermont’s exchange costs are not out of line when compared to states with similar-sized exchanges. According to HMA estimates:

• Connecticut residents would pay $224.88 annually with about 150,000 members.
• Washington residents would pay $259.68 annually with about 190,000 members.
• Massachusetts ratepayers would pay $133.56 annually with about 200,000 members.
• Nevada ratepayers would pay $107.40 a year with about 180,000 members.

“From an analytical perspective, Vermont is not an outlier,” Dehner said.

He pointed out that the state’s decisions have led to higher costs in some areas, like providing health care subsidies for lower-income working Vermonters and implementing numerous information technology projects [5]at once. The administration has repeatedly asserted the latter could pay off in the long run because of the massive federal dollars they are able to use to create these systems.

Dehner also cautioned lawmakers that attempting such ambitious IT projects and payment reform with the uncertainty of a single-payer financing plan would make the situation more difficult for everyone.

“It is really hard — really hard, really really hard — to deal with multiple IT projects at the same time that interrelate to one another,” Dehner said. “It’s hard in a vacuum. It’s harder when the idea of single payer in 2017 is kind of floating out there, but is kind of unclear.

“This represents a great opportunity for Vermont and also a serious challenge,” he added.