Vermont health insurers raising rates amid uncertainty

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Vermont health insurers raising rates amid uncertainty

Wed, 12/22/2010 - 1:03pm -- tim

by Kevin Kelley Vermont Business Magazine Faced with multiple uncertainties some they can affect, some they cannot Vermont health care reformers are waiting to see whether state and federal initiatives will advance the cause of providing all Vermonters with access to high-quality, affordable treatment.

The uncertainties also come in long-term and short-term varieties.

Close on the horizon, and within Vermonters' control, are decisions relating to a report due in January from a consultant team that's weighing three options for overhauling the state's health-care system.

Headed by Dr. William Hsiao of Harvard, the study is supposed to recommend the best path toward the goals of universal insurance coverage, improved care and more efficient service delivery. In keeping with a mandate laid down by the legislature earlier this year in Act 128, the Hsiao team is considering a single-payer system for the state as well as a public option and a third model of the consultants' own devising.

Further in the future, Vermont, like all states, is sure to feel a powerful impact from the health care legislation that Congress passed in March following a titanic struggle. The law will have major effects on two federal programs, Medicare and Medicaid, that together cover about one third of all Vermonters. And a key innovation included in the law the launch of health insurance exchanges in 2014 could lead to big changes in employee-sponsored insurance and in the state's Catamount Health Plan aimed at covering otherwise uninsured Vermonters.

There's little or nothing the state can do about federal moves affecting Medicare, which covers older Americans, or Medicaid, which pays health care costs for low-income Americans. But the state can decide how to implement the insurance exchanges, although rules for how they will operate have yet to be written by regulators in Washington. The possibility of folding Catamount into this new, still-undefined system will be examined in the coming year.

Vermont health care experts are also awaiting indications of how a new governor will address these various concerns. They especially wonder whether Gov.-Elect Peter Shumlin will be able to make progress toward his stated objective of establishing a single-payer system specific to Vermont.

For Shumlin, comments Peter Sterling, an advocate for public health insurance programs, everything is being held hostage to the state's massive budget deficit. It's hard to see how Vermont can afford to create a single-payer system, experts say. Many also doubt that the state would succeed in obtaining the federal waivers needed for Vermont to establish a single-payer system of its own.

Among the skeptics is Harvard economist Hsiao, who helped Taiwan develop a single-payer system in 1995. He notes that the federal Employee Retirement Income Security Act, or Erisa, forbids states to establish any program that interferes with self-insurance plans. Twenty percent of people in Vermont are self-insured, Hsiao was quoted as saying in a Nov. 7 report in The Bennington Banner. Many large companies that offer insurance are self-insured.... How do you establish single-payer then?" Hsiao asked in a presentation to the Vermont Medical Society.

The option of creating a public insurance plan to compete with private insurance is also out, Hsiao said. The Banner said he cited Congress' elimination of the public option from its final health care reform bill and pointed out that only private insurers will be permitted to sell products through the insurance exchanges.

Hsiao separately argued in a report submitted to the legislature in June that Vermont will not succeed in controlling health care costs unless it addresses its fragmented insurance system. The current multi-payer approach results in confusion among Vermonters, inequity in coverage, as well as administrative waste that spur growing costs, Hsiao wrote in that report which was co-authored by Vermont independent health care analyst Steve Kappel and MIT economist Jonathan Gruber.

Economic models that Gruber developed served as a basis for the far-reaching health reforms adopted by Massachusetts in 2006.

In his talk last month in Manchester to the state medical society, Hsiao said Vermont should implement a universal data system that includes a uniform claims processing system, according to a report posted on vtdigger.org, a Vermont news website. Hsiao added that the only sure way to achieve that aim is through a state-run single-payer plan, vtdigger reported.

Hsiao is most likely to propose a third option which would put everybody into the exchange, predicts Burlington-based health care analyst Jeanne Keller.

We just better be sure the exchanges will work well.

Hsiao did not respond to requests for an interview.

Regardless of what conclusions the Hsiao team draws, Vermont must address immediate financial issues regarding the Catamount plan. The four-year-old program, which covers 12,500 Vermonters, is expected to operate at a deficit of about $6 million in 2011. That gap is due to be closed by a combination of $3.8 million from the state's general fund and an increase in deductibles for the program's participants.

The shortfall has emerged because financing for Catamount is derived in part from a slow-growing revenue source the tax on cigarettes, says Kappel, the Montpelier-based health consultant. It's good news for public health that cigarette tax receipts are lagging, but that's also bad news for Catamount's financial stability, Kappel observes.

At the same time, one of the two private insurers administering the Catamount system will be raising its premiums by 21 percent for 2011. A single person paying an unsubsidized rate for Catamount through MVP Health Care will be charged $527 a month as a result of the increase approved by state regulators. Blue Cross/Blue Shield of Vermont will meanwhile be charging $414 a month for the same policy.

The MVP rate increase is so much greater than the Blues' because it provides Catamount coverage to a much smaller number of Vermonters, Keller says. She notes that it would take only a few $500,000 surgical procedures and hospital stays to have a big impact on MVP's total costs for the 3,100 individuals it covers. That's not much room to spread costs, Keller says, pointing out that the Blues are better insulated against premium price spikes because their Catamount pool is three times the size of MVP's.

Gary Hughes, an MVP spokesman, says we have to price our plans based on the experience we've had. The company remains committed to administering Catamount, Hughes adds, noting, The only requirement we have is that it at least be revenue-neutral for us.

MVP appears likely to face continuing difficulties in meeting that requirement, given that its share of Catamount beneficiaries will probably decrease. It's hard to see why someone signing up for the unsubsidized version of Catamount would choose to pay $113 more a month for the same policy available through the Blues. And wouldn't it be disadvantageous for consumers if Vermont eventually does wind up with only a single Catamount administrator?

Not necessarily, says Christine Oliver, deputy commissioner of the Department of Banking, Insurance, Securities and Health Care Administration. It's not completely concerning to me because we will still be reviewing the rates, Oliver notes. Bishca has the authority to reject proposed Catamount premium increases that it regards as unjustified. Insurers seeking an increase must persuade actuarial overseers that the request is well founded.

Having only one Catamount administrator could actually prove beneficial for consumers because the application process would become simpler, suggests Sterling, head of the Vermont Campaign for Health Care Security. Despite its financial issues, Sterling describes Catamount as remarkably successful. Many of the 12,500 Vermonters covered through the program are self-employed and would be unable to afford the rates that private insurers charge for non-group plans, he says.

Blue Cross/Blue Shield has managed to assemble a much larger pool of Catamount recipients in part because we work hard at identifying and attracting the 'young invincibles', says Kevin Goddard, the non-profit insurer's spokesman. Goddard is referring to Vermonters between the ages of 18 and 35 who account for a major portion of the 47,000 state residents who still lack health insurance.

But the pool of young invincibles currently or potentially covered by Catamount will likely shrink as a result of the federal reform, already in effect, that enables young Americans to remain on their families' private insurance plan until they reach age 26. That factor further clouds the outlook for Catamount. Younger individuals represent a profitable sector for insurers since they typically pay more in premiums than they cost in claims.

Catamount enrollment could also be threatened by the scheduled expansion of the Medicaid program, which will become available in 2014 to Americans earning up to 138 percent of the federal poverty level. That's the equivalent of about $18,310 a year for a three-person family.

Those with incomes above the Medicaid eligibility point will be required to buy health insurance starting in 2014. Subsidies for the costs of policies will be available through the insurance exchange. And that mandate will have a dramatic impact on the number of uninsured, Kappel says. The effect on the cost of the system is more unpredictable.

Catamount might continue to exist at least semi-independently from the exchange system, but its future is fuzzy, Kappel adds.

Sterling, who works to promote participation in public insurance plans, wants to see Catamount expanded to allow employers to buy plans for their employees. We have failed as a state in helping business owners get affordable health insurance for their employees, Sterling declares.

The insurance exchange, into which Catamount may or may not be subsumed, could emerge as an alternative to employer-sponsored health insurance in any form, suggests Kappel. He cites the example of a Vermont business with about 30 employees. Purchasing a plan through the insurance exchange would qualify the business for tax credits for itself as well as for its employees, Kappel points out. And Sterling flatly predicts that, The exchanges will bring the end of employer-sponsored health insurance.

The current figure of 47,000 uninsured represents 7.6 percent of the state's population. The share for the United States as a whole is about 20 percent. But Vermont is still well short of its stated goal of reducing the proportion of its uninsured residents to 4 percent by the end of this year.

About half of the unprotected Vermonters are actually eligible for state-sponsored Green Mountain Care, the umbrella term for Catamount; Dr Dynasaur, the insurance program for children from families with lower and moderate incomes; and the Vermont Health Access Plan, which provides insurance at a cost of about $50 a month for state residents earning around $20,000 a year. VHAP covers about 25,000 Vermonters, while Dr Dynasaur provides low-cost insurance to some 65,000 children.

There remains the question of how to control costs for a health care system with an annual inflation rate far in excess of that for the economy as a whole. As MVP's Hughes observes, The cost of health care continues to increase. People continue to use more and more health care.

Indeed, costs in Vermont have been increasing even more rapidly than for the nation. According to figures cited by Hsiao, the state's total health care costs are projected to rise $1 billion by 2012, reaching a height of nearly $6 billion. In the 2005-2008 period, health spending in Vermont grew at an annual average rate of 8.2 percent, compared to a national rate of 5.7 percent.

Those inflation factors may call into question the effectiveness of the Blueprint for Health, a Douglas administration initiative intended to slow the rate of increase in health care costs. The seven-year-old program aims to focus the health care system more on preventing and managing illnesses and less on reacting to health emergencies.

Dr Craig Jones, director of the Blueprint program, was unavailable for comment, but Kappel points out that the initiative has received an amazing amount of national recognition. Paul Harrington, director of the Vermont Medical Society, adds that there are preliminary signs of a drop in hospital admissions in Vermont perhaps attributable in part to the Blueprint. And Keller suggests that it is too soon to assess the success of this program. The savings will come 10 to 20 years down the road, she says. That's always been clear with the Blueprint for Health.

This article was first published in the December 2010 issue of Vermont Business Magazine. Kevin Kelley is a freelance writer from Burlington.

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