Vermont’s All Payer Waiver: What Is It?

Part 2 of a 3 part investigative series

by Matthew Strong

In the second post in this series on Vermont’s attempt at an “all payer waiver”, we are going to take an in-depth look at the details of what it actually is, and how it would work here in Vermont.

Medicare and Medicaid are federal programs, paid for by federally collected tax dollars, and doled out by the federal administration at reimbursement rates set in D.C., with minimal input from the states, although most states have more control over Medicaid. What Vermont will attempt is to get the federal overseers of Medicare to “waive” their control over setting the reimbursement rates for all Medicare covered health services in Vermont — but still foot the bill. Put another way, Vermont wants Medicare to sign the checks to providers, but Montpelier will fill in the amounts.

Only one other state in the country, Maryland, has had a waiver of any kind, ever (see Part 1 of this series). Maryland has used federal subsidies to increase their hospital reimbursement rates for over 30 years, which means they receive more from the federal pot of money annually than they would without the waiver — $1.6 billion in 2013 alone.

Medicare and Medicaid, originally meant for only a small portion of the population, have become national behemoths, but the individual payments they make to health care providers have not followed suit. This is even more true in Vermont. A full third of our residents are enrolled in Medicaid, some of whom were recently insured by insurers or employers who had much higher reimbursement rates. This puts medical providers in the situation an old Vermonter once told me about trying to make ends meet in this state; “I lose a little bit on every deal, but I make it up in volume!” Only the smallest, leanest healthcare providers can make money off a transaction with these institutions, and the vast majority of them lose money.

A great example of this is the recent revelation from Dartmouth-Hitchcock hospital, which lost $40 million on servicing Medicaid patients alone. It’s so bad, Dartmouth Hitchcock, which is the second largest provider of health care to Vermonters behind UVM Medical Center, is threatening to sue the state of Vermont over our state’s Medicaid reimbursement policies. To offset these kinds of loses, providers charge more to private insurance companies and self-pay patients to make up the difference. This is called “cost shift.”

There is a fair amount of controversy about the cost shift phenomenon because the compensation system within the healthcare community is very complex.  In addition, there is constant contractual and reimbursement rate change, as health care providers and insurance carriers carry on a modern day “arms race” of conglomeration, because the biggest organization with the biggest market share gets the best deal at the reimbursement negotiation table.

With the number of “payers” in the state of Vermont dwindling due to government regulation, Medicare and Medicaid have become larger pieces of the available pie. As such, their low payments are becoming more troublesome. And, it’s a double whammy; low reimbursement rates for one third of the population, and increased taxes on the way to make up for “unforeseen” budget shortfalls. “In the current year fiscal budget, the state needs to find another $38.1 million to cover Medicaid costs, and for the FY 2017 budget, it will need to find $58.2 million.”

In order to compensate for the increasing cost shift to the few remaining private insurance companies, Vermont state officials, under the Shumlin administration, need to have Medicare and Medicaid payments increased. With all hospital budgets requiring approval by the GMCB (Green Mountain Care Board) already, if Medicare agrees, it will mean the GMCB will be in control of setting the reimbursement rates for all payers, and will be a huge step closer to single payer healthcare.

{ 2 comments… read them below or add one }

Jim Bulmer October 24, 2015 at 1:00 pm

Cost shift? Now I understand why Humana no longer provides medigap coverage in Vermont. Futher this is Bernie’s dream come true- the haves are paying their “fair share”. Will this insanity ever end????

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Hugh Hermann October 26, 2015 at 4:18 pm

Jim Bulmer has it correctly………

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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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