Vermont’s All Payer Waiver: The Maryland Experience

Part 1 of a  3 Part Investigative Series

by Matthew Strong

In the very near future, Vermont will be seeking an “all payer waiver” from the federal government regarding Medicare. So, what would such a waiver allow the state to do? In a nutshell, Medicare would “waive” the right to set the reimbursement rates for hospital and doctor services, allowing the State of Vermont, most likely through the Green Mountain Care Board, to set those rates.

Maryland is the only state currently with a Medicare waiver (this for hospital reimbursements only). They claimed to have saved $100 million last year because of that waiver. To those who espouse limited government, it sounds great, right? More local control and money saved! With Maryland’s experience and our experts in Vermont, such a policy should help our state out a lot, right? Let’s take a look.

Vermont officials will be touting the “success” of Maryland as they pursue their All Payer Waiver. However, the devil in the details shows there is a lot to be questioned before calling it a “success.” The state of Maryland almost lost their Medicare waiver two years ago because they hadn’t saved any money, and, in fact, cost the Medicare program a lot more every year since 1977 — $1.6 billion in 2013 alone. If the federal government had retrieved the reins, the program would have reduced the state-set reimbursement rates in Maryland back to lower federally approved levels.

As a last ditch effort to save their waiver, Maryland threw their whole hospital reimbursement system out the window, and, rather than tying reimbursement to admissions (fee for service), created a new system giving hospitals a pool of money to treat a specific population, a process known as “global budgeting” or “capitation”.

Moving to a global budget (the direction Vermont is advocating) created a perverse incentive: the less the hospital spends on treatment, the more money the hospital keeps. On one hand this sounds altruistic; paying hospitals to get people out quickly and keep them healthy (outside the hospitals). On the other (and in reality) it means the federal government is paying Maryland hospitals to NOT treat patients. What could possibly go wrong with that model?

Maryland’s hospital association claimed to “save” Medicare $100 million dollars last year. Would you like to see the actual financial reports? Sorry, you have to be a member of the hospital association to see them; you’ll have to take their word for it. But, according to a two page press release, in truth, the “savings” are actually just a reduction in anticipated growth! Overall hospital spending still increased.

Medicare hospital spending growth (per beneficiary) in Maryland reduced by a whopping 1.12% in 2014, but total spending increased by an additional $1 billion (on top of the normal Medicare allowance). In other words, while claiming to “save” $100 million they spent an additional $900 million. And, most critics of the new global budgeting program said the first year was “the easy year” for spending cuts.

Did all of this extra money affect the cost shift to private insurance in Maryland? CareFirst, the state’s largest private health insurer, has just been approved by the state of Maryland to raise their rates between 19% and 26%, having requested increases as high as 30.4%.

On average, CareFirst rates for individual plans will increase by about 24%. They only handle about 8 percent of the population. More than 90% of Maryland state residents are covered by health insurance plans offered through large employers, employers who self-insure, or federal plans, which normally pay much higher reimbursement rates to hospitals and doctors. On top of that, 90% of the state exchange enrollees receive financial assistance, compliments of tax payers.

The state of Maryland is throwing everything but the kitchen sink at the cost shift, and it is still increasing dramatically. A bad idea, no matter how well it is managed, will still produce a bad outcome.

{ 3 comments… read them below or add one }

jim bulmer October 17, 2015 at 1:18 pm

The folks in Montpelier are quite nimble at enacting bad ideas. Stay tuned and fasten your seat belts.


Doug Richmond, Underhill October 17, 2015 at 5:02 pm

“Global budgeting, or Capitation” !! De-Capitation of Choice!

Paying hospitals to deliver as little medical care as possible. Yeah!! But this goes with creating expensive count and analyze, huge staffs of beaurocrats to analyze the data to see if the hospital is doing it’s job. Why not let the patients decide which facility to use, based on experience??

Would we offer this payment to car repair facilities? Local restaurant?


Hugh Hermann October 20, 2015 at 2:46 pm

Whenever there is health care rationing ( no matter what the label is)
be assured that the State officeholders, the legislators etc will have unrationed
care.There will be a two layer system. The citizens of VT will be the losers.


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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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