Legislative Update January 24, 2015

Legislative Update

January 24, 2015

Rep. Anne Donahue

 

New legislative proposals are beginning to gain speed as we near the end of the first month of the new session; I can only touch a few highlights in an update. The legislative website has been revamped this year, however, and is much more user-friendly if you want to track bills or hearings, or any of the reports that now cram the committee web pages of legislators.

In my Health Care Committee alone, we have already amassed more power points and briefings documents than we can keep up with. Six of our 11 members, including the chair, are new to the committee, and four of them are new in the legislature, so we are catching up with a lot of information.

Most staggering is the administration’s budget adjustment request for an increase from $550,000 to $5.5 million for the second half of the year for the unexpected increased costs of maintaining the Vermont Health Connect infrastructure. That’s the technology that combines our Medicaid enrollment and insurance exchange products, and that is still only partially functional. Most of the initial money has been federal, but we are must now pay for all operating costs.

Another big mid-year adjustment comes from missed estimates about how many people would sign up under the broader eligibility for Medicaid, and for new individual market subsidies. The good news is that compared to two years ago, our rate of uninsured Vermonters has dropped from 6.8 to 3.7 percent.

However, our analysts had predicted about 35,000 new Medicaid enrollees, and 42,000 applicants for subsidies. Instead, there were 48,000 newly joining Medicaid, and 18,000 seeking a subsidy for the exchange, meaning most of the reduction in uninsured came from increased Medicaid enrollment. (The subsidy-eligible group reflect the next-up income bracket, between 135 and 400 percent of the federally-designated poverty level, or $15,755- $46,680 for a single person.)

Since full coverage for Medicaid costs is vastly higher than the cost of subsidies, the grand total difference (with other less dramatic adjustments added in) comes to an additional $11 million, or $4 million in state funding, for January to June of this year (and then carried forward at double that in the 2016 full year budget.)

The full budget adjustment bill will be on the floor this week for a House vote, and as a whole it reduces last year’s budget even beyond earlier cuts, to match our lower-than-projected revenues. So the increased health care system costs mean that more of something else was cut from somewhere else.

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I have known for some time that Vermont is a “receiving” state: that is, as a whole, we receive more from the federal government that what we all pay in federal taxes, combined. Put another way: we’re not paying a cent of taxes toward federal government expenses. Or yet another way: other states are contributing to maintain our state budget.

Until last week, though, I had no idea how huge that discrepancy was in terms of paying for health care in Vermont. If you put everything together in one big ball of wax – federal taxes, tax exemptions for health insurance purchases, Medicaid cost-sharing, federal grants, and what we pay out of pocket or is paid by our employers – on average, Vermonters get back 30 percent more in health benefits value (what is bought) than what we pay for.

While it’s true that a big piece of that is because 21 percent are on Medicaid (shared state-federal) and 18 percent are on Medicare (all federal), if you look at the value received on a scale based upon income, all but upper income residents of Vermont are getting more than what they pay for. The break-even point is about at $190,000 in income for a family of four.

So if you think you are paying a lot for health care, you are likely still getting more than what you pay. Health care is that expensive, and our neighbors around the country who are chipping in to pay for our health care are in worse shape that we are. You can look at this analysis directly by going to the legislative web site; go to the House Health Care Committee web page, and look up the Rand report in the documents for Wednesday, January 14. It includes a chart of sample value received versus paid for different family sizes and incomes, and where the money comes from.

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Legislators from Montpelier have introduced a bill that would allow towns to control the use of surface water that they use for drinking water but that is located in another town. The bill says that the municipal ordinance would control over any rule adopted by the state’s Agency of Natural Resources. The target is the Berlin pond, to give Montpelier the ability to control what happens in that body of water located in Berlin. It would overturn both the court decision that said that under current law Berlin controls the water in its own boundaries and the ANR rule that permits limited access for fishing. Is that even constitutional? Rep. Patti Lewis and I are consulting with Legislative Council.

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There has been much attention to the introduction of a bill to expand background checks for gun sales between private individuals. It is hard to see what problem this is trying to address, since Vermont has the safest gun record in the nation. This bill will generate a great deal of controversy, and a large turnout of gun owners is expected at the state house on Tuesday to rally against restrictions.

One component of the bill directs the state to provide the names of persons who have received any court-ordered mental health treatment to be sent to the federal registry. This, also, misses a target, since the tiny percentage of persons who are at risk of violence as a symptom of a serious mental illness tend to be persons who have not received treatment, rather than those who have.

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A big focus of the governor’s new health reform proposal is a .07 percent payroll tax on all employers that would be blended with federal matching funds. The money would be used for three things.

It would go to increased funding of health care reforms that are slowing health care cost increases, such as the “Blueprint for Health” that helps primary care to work collaboratively with other providers. It would also go to partially make up for the state’s underfunding of Medicaid. Finally, it would add money to increase the subsidies for low-income families that are buying their own insurance on the exchange.

There are several theories at work. First is that when we underpay for what we are buying in Medicaid services, health providers – in particular, hospitals -- make up the loss in their budgets by charging private payers more, and this results in higher insurance premiums, amounting to a hidden tax to pay for public Medicaid. This is commonly called the “cost shift,” and it is further increased by shortfalls in Medicare payments and hospital free care and bad debt. I was surprised to learn this past week that our economists don’t believe it is as significant a factor in insurance rates as we have always believed.

The second part of the theory is that if we invest more money in Medicaid payments, this shift will be reduced because private insurers will reduce their rates. Since employers will thus pay less for the insurance they provide employees, there will be no actual cost to them to pay the new tax. The bonus is that the $80 to $90 million raised by the tax will be more than doubled by the draw-down of more federal funds. In addition, since all employers would pay in, it would spread the cost more broadly. Right now, only employers who provide insurance coverage (or individuals buying their own insurance) are paying for this cost shift.

There are a number of questions our committee will be asking. Assuming the cost shift is real, this “solution” doesn’t actually help to resolve it. The cost of taxpayer underfunding of Medicaid will still be paid by employers, but just through a tax instead of through higher insurance rates. The only way to actually eliminate the cost shift would be for the state (that means us, as taxpayers) to fully pay for what it is buying. That would require a tax increase that no one wants to pay.

But are we already paying for it through a hidden tax, regardless? If we assume that employment compensation comes as a package of salary and benefits, then the higher costs of the health care benefit means a lower salary. Many employees have seen this effect as health care costs rise far beyond the rate of inflation: employers are requiring them to pay a larger share of health care benefits… in effect, a lowering of overall compensation.

So we paying one way or another, but in very inequitable ways, depending upon whether and what level of a benefit an employer offers. Five years ago I introduced a proposal to do an economic analysis to look at the actual money transfers involved, and what outcomes would result if we grappled with the whole issue transparently, by paying directly (taxes) in support of our decision as a public policy to provide health care for our lowest income residents.

Doing that analysis was rejected in 2010, but is what we will need to figure out now in order to analyze the governor’s proposal. How do all these numbers actually work? Will a new tax on businesses that might be increased in future years be helpful or hurtful to the intended aims?  We need to always keep in mind that the different ways that we impair economic growth (whether through direct or hidden taxes) impacts how many jobs and taxpayers are contributing to our overall wellbeing as a state, and to how we pay for the things we want.

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Please always feel free to share your opinions on this or other topics before the legislature. You can leave a message at any time by email (counterp@tds.net) or phone (485-6431) or at the state house (828-2228.)