As more details come to light about the financing of Vermont’s new health care exchange, the difficulty of constructing a hybrid system based on health insurance becomes increasingly evident.
Vermont is on a pathway toward a single-payer system that would be independent of insurance. Instead, it would provide something like Medicare for all, administered by the state or by an entity hired by the state.
But at present, state officials are constructing an important way station on that pathway. They are establishing a health insurance exchange where people can choose among insurance coverage options, with subsidies based on income for those who cannot afford insurance. The Shumlin administration wants to enroll as many people as it can on the exchange so as to draw down a maximum amount of federal money.
But there are some problems. One element of the state’s present programs is a penalty paid by small businesses who do not insure their employees. This penalty produces a revenue stream of about $11 million that is used to subsidize coverage for low- and middle-income Vermonters.
In order to add as many people as possible to the new exchange, the administration is urging small businesses to drop insurance coverage for their employees. At the same time, those businesses would be hit with a penalty of $476 per employee who is uninsured.
Officials say even taking into account the penalty, employers will be saving money by dropping their insurance coverage. And yet it is a peculiar mixed message to tell employers they should drop coverage and if they do they will be penalized.
The point is to preserve the revenue stream. Should the $11 million come from a particular class of small businesses? If the point is to drive people away from private insurance and onto the exchange, why not tax employer-sponsored insurance policies? Or is the problem that small business is not really the best source of the money?
In building a new system, state officials should probably not be bound by vestigial fees left over from the old system, but instead create a new, appropriate fee and call it a fee, rather than a penalty.
There are other problems in making the transition to the exchange. One of the state’s principal health care programs, Catamount Health, will disappear when the exchange starts up, but some low- and middle-income people moving from Catamount to the exchange may face a significantly higher exposure to out-of-pocket expenses.
The Shumlin budget provides about $22 million to offset those higher costs, though administration officials say it would actually cost $26 million to hold harmless those moving from one program to the other. That $4 million gap would fall on the shoulders of Vermonters who may not be in a position to pay.
Higher out-of-pocket costs only affect about 30 percent of insured residents — those who max out their deductibles and co-payments. The subsidies received by residents will be income-sensitive, but even so, an individual making $17,000 would see potential out-of-pocket costs rise from less than $600 to more than $1,000.
All of this calibration of subsidies and expenses, plans and payments, is made necessary by the fact that under the exchange the state is still adhering to the insurance model. The exchange is expected to be significantly more efficient than the current grab bag of private and public policies and programs, but even greater efficiency could be expected when the state finally moves toward a single-payer system.
Republicans have been hammering the Shumlin administration for failing to provide details on the financing of the new system, including where new taxes will come from. It is apparent, though, that the administration is weaving its way through a complicated labyrinth of financial considerations and is revealing information as it is developed. The Legislature, too, is taking an interesting in ensuring that the new system achieves the goals of providing comprehensive, universal care without putting new cost barriers in the way. That goal should not be lost amid the labyrinth.
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