Reviving Health Insurance in Vermont

Executive Summary
June 5, 2000

This report explains why unwise laws and regulations have almost destroyed Vermont's health insurance market, and how sound policies will revive it.

Today's health insurance crisis is the direct result of the near-collapse of Blue Cross/Blue Shield of Vermont in the late 1980s. For Blue Cross, survival as an insurer with a "social mission" required getting the state to impose community rating on its competitors, with the aim of driving them out of the state. By the end of 1992 Blue Cross had for all practical purposes become a ward of the state.

Gov. Howard Dean's Act 160 (1992) enacted an elaborate structure for the purpose of creating a state "universal access plan". By the end of 1994 this effort was in ruins. So in 1995 Gov. Dean embarked on expanding Medicaid to cover more and more Vermonters. By January 2000 taxpayer-funded programs covered children from families of four with incomes of up to $50,100.

This decade-long expansion of state protection for Blue Cross and underfinanced government health care has produced

• a massive exodus of commercial health insurers, and the collapse of a competitive health insurance market
• an unfair burden on healthy young families, who are forced to subsidize the health care costs of sicker older people even though the older people are in their peak earning years and have long since paid off their education loans and home mortgages.
• an unfair burden on people who practice a healthy lifestyle, who are forced to subsidize others who smoke, drink to excess, use drugs, are obese, and underexercise with little regard to their health.
• the steady conversion of privately insured Vermonters into uninsured Vermonters, and then into government-insured Vermonters.
• the effective elimination of one of the most promising health insurance reforms of the 1990s, the Medical Savings Account, from the Vermont market.
• the recurring - and sometimes extralegal - regulatory rescue of Blue Cross,
• the costly overutilization of health care by government-certified patients who have come to regard it as "free".
• serious and chronic state underpayment of hospitals and nursing homes for ever-increasing Medicaid services, which forces them to shift costs onto privately insured patients, thus driving up premiums and causing more Vermonters to drop their increasingly unaffordable coverage.
• serious and chronic state underpayment of doctors and dentists for ever-increasing Medicaid services, which forces them to limit the number of Medicaid patients they will treat, or to refuse to treat Medicaid patients at all.
• binding state control of hospital budgets, making hospital management and capital investment subject to political approval.
• an increasing cost burden both on businesses competing in interstate commerce, and on small businesses serving a local market, leading to reduced job growth and reduced employee insurance coverage.

All of this has been accomplished under constant pressure from political leaders for the expansion of government health care, with the goal of creating a state single payer health system that is managed by political appointees, provides virtually free health care for all Vermonters who are below Medicare age and do not work for large employers, does away with private health insurance, puts the state in control of all health care providers, requires them to ration care to meet politically-determined budgets, and sends the bills for everyone's health care to the taxpayers.

A sound reform of health care in Vermont, including a badly needed revival of a competitive health insurance market, should be based on these principles and policies.

1. The primary responsibility for maintaining wellness and paying for health care rests with the informed individual and family, not with the government.
2. Wellness can be significantly increased and demand for expensive health care can be significantly reduced if individuals are educated as to the personal health consequences of their choices, especially those relating to smoking, drinking, drug use, exercise, nutrition, and sexual activity.
3. Health insurance exists to protect individuals from unexpected occurrences. First dollar or low deductible coverage leads directly to costly overutilization of health resources. Such coverage should be strongly discouraged.
4. Individuals and families should be encouraged to create tax-favored medical savings accounts to pay for routine medical expenses.
5. The legislature should repeal community rating. Insurance carriers ought to be allowed to distribute the cost of insurance fairly among recognized actuarial categories such as age, gender, geography, and occupations. Community rating has the regrettable effect of overcharging younger, healthier, but poorer families in order to subsidize older, sicker but wealthier families. Government mandates which have the effect of making the poor subsidize the rich are inherently unacceptable.
6. Insurance carriers should also be allowed to offer healthy lifestyle discounts.
7. Government mandates that force insurance customers to buy coverage they do not want and will never use should be rolled back.
8. The state should resolve to pay the true cost of services provided to Medicaid patients by hospitals, nursing homes, and medical professionals.
9. Medicaid for acute care patients (other than the elderly or institutionalized) ought to be converted into an MSA-style program, with the state providing sliding scale subsidies for individual accounts.
10. The state should explore a program for the recapture of unpaid medical bills of persons who choose to spend their resources on things other than adequate health insurance.
11. The legislature should create a high-risk pool to cover the health care costs of the medically uninsurable.
12. The legislature should examine and tighten tort liability standards governing medical malpractice to reduce the exposure of health professionals, hospitals, nursing homes, and HMOs to predatory tort suits.
13. The state should actively promote the purchase of long term care insurance.
14. Vermont's nine independent community-based free clinics merit continued state support.
15. The legislature should, as essential housekeeping, revisit Act 160 of 1992 and systematically repeal all the provisions that failed, were ignored or abandoned, produced grievous consequences, or appear to commit the state to moving toward a government-controlled health care monopoly.