8-29-16 – Health Insurance in Vermont, the dam is about to break

by Matthew Strong

During my 10 years in the insurance industry, one of the highlights was an account I worked very hard on. It epitomized why insurance is really useful, and how it is supposed to work. I convinced Lloyd’s of London to offer $4 million of flood insurance to a property owner in Johnstown, Pennsylvania.

Yes…. that Johnstown.

This particular level of insurance is almost completely unregulated. In true free-market form, the association of insurers in London (a miniature version of a stock exchange, but for insurance) offered coverage and terms at a price they felt appropriate, and the property owner, who originally wanted $12 million of coverage, compromised on price and level of coverage, and the two parties signed a voluntary contract.

Insurance is simply the transfer of risk from one party to another, for a price which seems reasonable to both parties. Here in Vermont however, the powers that be seem to have forgotten what makes insurance work, and a huge problem is slowly gathering steam as a result.

One of the primary goals in the mountain of healthcare legislation since 2011 has been to get everyone insured. But health insurance works for everyone only if two critical issues are met. 1) Consumers value the coverage more than the dollars they spend on the insurance (they think it’s worth the cost are willing to pay for it). 2) They actually transfer the risk of future financial calamity in exchange for those premiums.

Here’s the problem. Vermont now has the third highest monthly premiums in the country (based on 2015 numbers). $398 per month for a for the entry-level Bronze plan, based on a 40-year old non-smoker It adds up to $4,776 per year, and the cost is going up again! On top of that, the likelihood of hitting the “maximum out-of-pocket deductible” is extremely likely in the event of a health issue (even a relatively minor issue), since there is a 50% deductible on hospital coverage. This means having to pay an additional $6,850 in a single year if you have health issues. I don’t know many people who can afford to have $11,626 removed from their income without serious repercussions.

If consumers are being forced to pay extremely high monthly premiums, but also have a huge potential deductible in the event of a health crisis, the reality is they are not really transferring much risk. In essence, they are purchasing a catastrophic plan for full coverage prices. Many people will be forced to forgo insurance because they can’t afford it, or try to avoid healthcare costs by not seeing the doctor to avoid large deductibles which will lead to higher bills later when conditions go untreated. Massive government intervention has distorted the very purpose of health insurance. On top of that, taxpayers have footed a massive bill for Vermont HealthConnect, as well as the large increase of Medicaid recipients.

When you add in the high cost of housing ($21 per hour employment required to afford the average rent here in Vermont) and high overall tax burden (10 highest “state/local tax burdens per capita and as a percentage of income,” and 46th worst business tax climate), the financial reality for Vermonters struggling to afford health insurance becomes even more pressing. And, many people believe a “carbon tax” is in the works in the very near future, adding another huge cost to an already pinched income stream for Vermonters.

Just like in Johnstown, PA in 1889, there is tremendous pressure building just upstream from hard working folks, and we may not see the final drop that finally sets the flood in motion until it’s too late. Lloyd’s of London was convinced to offer flood insurance after I sent them a full report on the U.S. Army Corps of Engineers massive flood control project.

Rather than trying to hold the water back, they rebuilt the river to handle any amount of water coming downstream if the dam failed again. The same idea needs to be applied to healthcare and health insurance here. Rather than trying to build a dam of legislation and bureaucracy, we need to let the consumer’s funds flow where they want them to through competition and direct accountability. Money, like water, will follow the path of least resistance. The less resistance healthcare consumers face, the lower the costs, and health risks, for everyone.

{ 3 comments… read them below or add one }

H. Brooke Paige August 31, 2016 at 3:59 am

Spinning Gold and Winding Up with Something Less

The undeniable reality has always been that real insurance is merely shared risk with a small administrative fee added to the equation – there is no magic solution.

Peter Shumlin and his minions at the Green Mountain Care Board have tried to Spin Gold from Wool and have ended up with sheep $hit instead.

Two universal axioms are in play here: 1) there is no free lunch and 2) you can’t get something for nothing ! The sooner everyone understands these, the sooner we can move on to an adult conversation about healthcare costs AND healthcare insurance costs.

H. Brooke Paige


forbes morrell August 31, 2016 at 11:52 am

Why the initial health care problem wasn`t delt with , is way beyond my understanding. The problem was that 25% of Vermonters were under insured or had no insurance. Was it so difficult to have started answering this concern? Add that to the rewriting of the meaning “managed health care” and you have the situation we are in today.Long gone are the reasonable minds for some verry basic problems.


Nancy Sweeney September 3, 2016 at 2:19 pm

It would be interesting to know if the expense associated with the creation and maintenance of the Green Mountain Care Board combined with the expense associated with complying with their regulations exceeds the supposed increase in health care costs that they have limited. Supposedly they are “bending the cost curve”. From my paycheck and health care experience, I don’t see any decrease in costs or even leveling of costs. For me, Green Mountain Care Board equals “Spin City”!


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