Monday, February 23, 2015

Legislative Update, February 22, 2015

Legislative Update

Feb. 22, 2015

Rep. Anne Donahue


In case anyone is counting, the official budget shortfall has reached $130 million, without counting anything towards Lake Champlain clean-up. We started the year at about $95 million in the red for the coming budget year, but shortly afterward, the new forecast was down by another $18 million.

It has now been officially recognized (as I suggested it needed to be, two weeks ago) that the $16 million in state dollars in new Medicaid caseload has to be counted as part of the deficit, because it is a cost that reflects continuation of a current program.

If we didn’t count it as deficit, we would be pretending we didn’t raise new taxes to fund it, which is the way the governor’s budget presented it.

Our economic engines just haven’t revved back up, so our spending is catching up with us. So how do we even begin to address these numbers?

Most committees have been told that they must find additional cuts beyond what the governor proposed. My committee – health care – has a whole list of increases proposed by the governor that would be paid for through his proposed payroll tax, and we have been told we need to begin to prioritize them in case we cannot do them all.

They are mostly very good initiatives, but I find it hard to imagine any of them as being more important than reducing the amount we will be cutting from essential human services. It is almost inevitable that there will be proposals for some tax increases as well as further cuts when the majority party presents the budget and tax bills several weeks from now.

Here’s what the proposed health care expansions include:

The Blueprint for Health. This is Vermont’s signature health care program to create community health teams to support primary care practices in integrating care for people. It was experimental at first (can we provide better care and save money?), but is beginning to prove its worth, particularly with high-cost chronic illnesses that really need good coordination of care.

If you compare Blueprint practices with others, the cost increases for care are on a slower slope. However, it requires an investment to create the health teams, and it requires a small per patient payment to the providers for the extra time they spend coordinating services.

Although it started as a Medicaid initiative, Vermont has succeeded in making it an “all payer” initiative. Private insurers and Medicare now contribute to the pool of money that makes it work.

Now it faces two problems. The percentage of Vermonters on Medicaid has increased, as part of the effort to get every Vermonter insured. That means the Medicaid share for the community health teams needs to be increased proportionately, since it has more patients in the pool. Otherwise we are adding to the cost shift onto private payers.

The amount of money that the primary care practices receive for providing the coordination of care ($2 per person per month) hasn’t gone up in years, and we all know that costs have gone up.

So those are two of the pieces in the health care budget: increase those two funds by $2 million.

Insurance subsidies. Uninsured Vermonters have dropped almost by a half, down to 3.7 percent, in the year since the insurance exchange (Vermont Health Connect) has been open. About two-third of those folks were eligible for Medicaid – which is what caused our caseload growth. However, many of the others were eligible for federal subsidies to help pay for health insurance.

Vermont chose to provide added support above the federal level, but it still leaves a pretty big affordability gap for low and middle income folks who do not get insurance from their jobs and are buying their own. So another budget item is an increase in those subsidies, at a proposed price tag of $2 million.

The Cost Shift. I’ve discussed this quite a bit. The governor’s budget proposes to not increase the cost shift (and to not leave a $16 million hole), through funding the Medicaid increases with the proposed payroll tax (that’s the new $16 million), but to also attack it more directly by increasing what the state pays providers for Medicaid patients.

That would be an increase of $14.5 million in payments. It actually isn’t a pure increase to providers to get closer to actual cost. A good part of it just keeps up with current cost increases and thus prevents an increase in the cost shift.

The chairman of the Green Mountain Care Board, Al Gobeille, addressed the cost shift with our committee last week, and used the term “price differential” instead of cost shift to describe the problem that we need to address. We shift the cost to private payers to make up for the fact within overall health care spending that we underpay what we are buying, but that does not change the fact that the prices being paid are radically different.

That does not make for a rational, or honest system, and it is something that Gobeille thinks is essential to fix.

In addition, the Health Care Advocate’s office has a shortfall of about $40,000 to stay even with the expansion of issues that it needs to be on top of to protect consumer rights.

The Green Mountain Care Board itself needs money in three buckets in order to do three new things the governor wants done, totaling about $1.5 million. First is to study whether the board should be regulating our health care system as though it were a public utility, which would make it more formal – almost like a court – in how it functions.

The second is to prepare the application for an “All Payer” waiver to the federal government.

The third is a directive to move forward with setting rates for professional services – something it was empowered to do under Act 48 (the universal health care bill), but hasn’t acted on yet, given how full its plate has been.

What is an “All Payer” waiver? Here are two things it is not (despite the rumors): it is not a mechanism to pull Medicare funds into a Vermont-controlled health fund and take over the administration of Medicare. It is also not a step that locks us in to moving to a single payer system, although it would, indeed, make it easier to do so in the future.

Medicare would continue to control Medicare payments, just as private insurers would continue to maintain their separate balance sheets, and the state would maintain the Medicaid budget.

However Medicare and private insurers work as completely independent systems right now. In our Blueprint for Health model for primary care, those three payer groups all come to the table to develop the plan to act in a unified way in how to support the community health teams and the Blueprint practices – creating a more uniform care delivery system.

The All Payer waiver would mean the federal government would sit down at the table and share in the same kind of planning for the whole system. It would include a guarantee that Medicare would not pay any less than is due and owing for what it pays now, and would not reduce any services that Medicare enrollees receive.

The private insurers would do the same thing; they’ve already agreed to the concept. Gobeille calls it a “coalition of the willing” to create better integration. The “waiver” basically is the federal government waiving its normal “we are our own system” approach in order to become part of a joint approach.

My bottom line question: if we never moved to a step where private insurance was shut down because Vermont took over all health care spending (the “single payer” plan), could this exist as a way of coordinating among various funding streams, without taking them over? In other words, it is a better system, all on its own?

Gobeille said, yes, and I think that in understanding it that way, it does make sense.

Act 48, the single payer plan, is still on the books. The governor said he didn’t believe it was possible to do right now. He did not say he was throwing out the long-term intent.

My own position has never been far from that. I have simply not believed it was ever feasible unless and until we were not trying to go it alone as a tiny state with tiny purchasing power. If not the whole country, at least a significant region would need to be participating.

Rate setting for doctors: So what about that second piece, having the state establish physician rates around the state?

Gobeille is the one in charge of doing it, but he doesn’t think that’s the right way to develop a more uniform system. He thinks there should be standards and values that are applied, but not individual professional rates. I think that’s a far better approach, and I will be suggesting language to my committee next week to revise the Act 48 language accordingly.

All of these new budget items, in the governor’s plan, come from a new payroll tax that could produce double the revenue by drawing down federal Medicaid matching money. The theory is that this would raise enough money to do the new stuff while also cycling the payroll tax money back to employers through the reduced private insurance premiums that should result.

Vermont would be the only state in the country imposing a state payroll tax. That’s not a very good way to be competitive in drawing in business and rebuilding our economy. The legislature as a whole has been making big noises about not being in support of that plan.

It was also developed before we discovered we were going to have an extra $18 million shortfall in the budget.

But then, where would the money come from to do any of this, given that we are already $130 million in the hole? And that’s without counting the absolutely essential work we need to do to restore the water quality of our lakes and rivers.

It’s no wonder we are hearing so many new revenue proposals floating around, such as the new sugary drinks tax.

We didn’t get into this situation in a year, and we probably can’t get out of it in a year. But major cuts will clearly have to be a part of the mix. So I’m hard-pressed to consider supporting any new health care spending, however much I think it is the right thing to do, knowing that – even if one assumes some new tax proposals -- it will result in even bigger cuts elsewhere.

Please keep sending me your thoughts and concerns – they are important to me. Contact me any time via messages at the state house (828-2228), home (485-6431) or by email: You can read my past updates on my blog site,

Monday, February 9, 2015

Legislative Update, February 8, 2015

Rep. Anne Donahue

Legislative Update

February 8, 2015


Once one is plunged into the complex details of our health care system, it can be difficult to take a few steps back and provide a useful “big picture” about the challenges and options we face. At this stage of the session, major bills are not yet reaching the House floor. We are all digging into details in our committees. Mine is the Health Care Committee, so I will try to share some of the facts without going too far into the weeds.

To start: the Governor’s proposal to cut back the cost shift (which contributes to increased insurance premiums) by imposing a payroll tax on businesses (which would, in theory, then result in reduced insurance premiums).

What is the cost shift?

It begins when we, as a state, decide to provide health coverage for those in poverty. That is defined in Vermont as earning less than $15,650 a year for a single person, and $24,250 a year for a family of four. But then we don’t have the money to pay for what we want to buy. So we require health care providers to give the care anyway. They lose money.

They are all non-profits, and can’t just close their doors. So they charge private insurance rates that are higher than what it costs for the service, in order to balance their budgets. (You have probably seen your insurance “explanation of benefits” that lists the discount from the full price of the service. But that is like a store doubling its price list and then giving a 30 percent discount. The price list is far higher than the actual cost.)

The insurance companies (virtually all non-profits as well, in Vermont) set their rates based on how much they have to pay. Thus, anyone buying health insurance is paying a part of the Medicaid budget because of the inflated price charged to the private insurance companies. The cost of the underpayment of Medicaid “shifts” onto the private insurance rates.

This means businesses that provide insurance for employees, as well as individual purchasers. Since most insurance is bought by employers, they are the ones paying most of this cost shift.

Of course, it isn’t really the employers paying. Health insurance is considered part of one’s compensation package, which also includes salary and any other benefits offered. So you, the employee, is actually paying for the cost shift.

Think about the last time you looked for a job. You probably didn’t look only at salary. You looked at whether health insurance was included. Employers compete based upon total compensation packages. As many have become painfully aware in recent years, businesses can’t give unlimited increases in compensation, so as premiums go up, they usually begin to increase the employee’s share of the costs.

Ironically, we, the employees, who pay for underfunded Medicaid through lost compensation, are pretty much the same people as we, the taxpayers, who started the whole cycle by not wanting to pay the full cost (in taxes) for the Medicaid we are buying. This is what the model I’ve attached demonstrates.

This explanation of the cost shift is an oversimplification.

It leaves out even some of the very basic additional pieces: for example, the fact that many employers do not offer health insurance. In addition, the total cost shift is much larger than just Medicaid. Medicare – which is all federal money -- doesn’t pay full cost either, although it pays more than Medicaid.

It also ignores other inequities. If we paid full cost for Medicaid in our taxes, it would be based on our progressive tax rate: the more you make, the higher the percentage of your earnings you pay. When we pay for it through our compensation, the CEO and the maintenance person are contributing the same amount – so it is a much lower percentage of the CEO’s earnings than that of a low wage earner.

So, on to the Governor’s proposal.  

The Governor suggests addressing the cost shift through a payroll tax to begin to increase Medicaid to the Medicare rate (still lower than actual cost.) This doesn’t actually reduce the cost shift. The only way to do that would be to pay 100 percent of the cost of Medicaid services in our individual taxes (shared between state and federal taxes.)

What it does is to make the tax shift more transparent. Instead of being hidden in the insurance rate, the Medicaid shortfall would be paid through the new payroll tax. What it still hides is the fact that you and I are ultimately paying for it, because businesses don’t pay taxes. Only people pay taxes – it’s just that sometimes it’s more hidden because the cost is passed on through higher prices for good or lower employee benefits.

The tax of .7 percent would raise about $40 million. Since it’s being used for Medicaid services, it can be matched with federal Medicaid funds, so the fund becomes about $90 million. The theory is that we can then take the $90 million and use enough of it to pay towards Medicaid services so that insurance rates go down, and thereby pay it back to employers by the same amount as what they paid in the tax. That would still leave us with a lot of extra new money.

One result would be that all businesses would be paying. Those that currently give generous health benefits might save money overall. Those that give none would have a new tax burden, and since these are usually small businesses that couldn’t afford to offer health insurance, they will have a hard time affording the new tax.

There is a very big question involved:

Is the cost shift such a clean money flow that money paid in on the Medicaid side will flow back out to reduce premiums at the same level? The answer is a definite no, as far as an equal dollar-for-dollar, but the unknown is, by how much? Our Joint Fiscal legislative experts say that it is very questionable that it will have a major effect on insurance rates.

And then, this week, we found out how the Governor wants to use the $90 million. Only $25 million would go towards paying health care providers closer to the cost of their services – in other words, towards the existing cost shift, even though employers are paying in $40 million.

About $20 million will go to new expansions of various state initiatives to reduce overall healthcare spending (which could save us some in future cost increases), and $5 million to administer the new tax. There’s $5 million in “unspecified,” which leaves $30 million to go.

That $30 million will go to “new caseload.” That means it will go to the increase in the number of people that have enrolled in Medicaid through Vermont Health Connect.

This increase is generally a good thing. We have cut our uninsured population by almost half in the past two years, mostly through getting eligible people onto Medicaid. But yes, it costs money to do this. We don’t have the money in the state budget to pay for it. So we will use the new employer payroll tax to pay for it.

The Governor’s staff – with a straight face – says that this $30 million counts towards addressing the cost shift, making it $55 million in all, compared to the only $40 million employers will be paying in. Why would it count?

If we don’t have the money to pay, they said, then we would have to balance the state’s books by reducing what we pay the providers even more. That would increase the cost shift even more. So this is a prevention strategy: employers will be paying the tax in order to prevent the cost shift from getting bigger! This is like protection money: pay up, or you’ll get beat up worse.

Why would we do it this way?

Without this payroll tax to pay for the increased Medicaid costs, we would have a $16 million hole in the budget, because this scheme is part of the Governor’s plan to fill our $100 million deficit.

There are only two other ways to fill that hole.

One would be to find other areas to cut back, and live within our means.

The other would be to raise taxes to pay for the increased Medicaid cost, and the Governor says he has heard the message from Vermonters: no new taxes.

Hmm? What exactly is a new payroll tax?



I welcome your thoughts on this or any other subjects before the legislature. You can contact me by message at the statehouse (828-2228), at home (485-6431) or by email (  My complete file of legislative updates can be found at