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The home for VPR's coverage of health and health industry issues affecting the state of Vermont.

Miller: Payroll Tax Would Bring Health Care Pricing Into Public Debate

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Taylor Dobbs
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VPR File
Lawrence Miller, the governor's chief of health care reform, thinks a proposed payroll tax will help reduce the Medicaid cost shift and bring down private health care premiums.

One of the big announcements in Gov. Peter Shumlin's budget address was a proposal for a 0.7 percent payroll tax to help address the Medicaid cost shift. The tax would raise $90 million and would generate an additional $100 million in federal money.  

VPR's Mitch Wertlieb dug deeper into the details of that plan with Lawrence Miller, the governor's chief of Health Care Reform.

Wertlieb: The idea is that when doctors provide treatment to people on Medicaid, the doctors don't get paid the full amount for those services, in fact often quite a bit less, instead that difference is transferred to people with private insurance, which is what makes health insurance so expensive. Would higher Medicaid reimbursements do away with that problem?

Miller: It wouldn't do away with the problem entirely. We're proposing to bring Medicaid reimbursement levels up to Medicare levels across the board, but it would be a very significant improvement.

Wertlieb: This would be tax on businesses. Why should they support it?

Miller: That's correct. It's a tax on business payrolls. So if anyone is subject to unemployment insurance, it's the same wage base. I think the reason they would support this is that currently, this is showing up in the premiums they pay in a process that is not at all transparent. This moves it from something that just happens in the insurance pricing side of things into public debate. The other thing it does, very importantly is by moving it into the revenue system and spending it on Medicaid directly we draw down a significant amount of federal money and make a much more material impact.

Wertlieb: I guess some businesses might say 'can you tell us for sure that my business will get a benefit from paying this payroll tax in the form of lower premiums'? What's not to say they pay the tax and still see their health insurance plans go up?

Miller: Well, and certainly for businesses that don't provide health insurance, it's all new costs. This isn't simple, it's not something that is even across the board. Basically, firms that have a higher proportion premium expenses, a percentage of payroll, would see more benefit in their premiums being reduced, but businesses that don't provide as strong of support would see less of a benefit in that premium reduction and see a little bit more cost. But overall, on a system basis we'd be putting into premium reduction about what comes in in the payroll tax.

Wertlieb: There's an idea that's been floated about saying why not just institute a fee on those employers who don't provide health insurance? Why not take that approach?

Miller: To accomplish the same impact, you'd be talking about a per employee fee in the thousands of dollars range.

Wertlieb: There's really only so much the Green Mountain Care Board can do to push rates downward. They have no control over the health care costs of people at self-insured companies, or costs incurred by Vermonters out of state or federal employees. Why are you sure that rates will actually go down for people?

Miller: Well the area they do have control over is most explicitly hospital rates. But that includes, when they look at hospital budgets, includes physicians employed by hospitals which is a significant component of our mix. When the hospitals and carriers negotiate rates, those commercial payment rates are for that insurer. Those rates are then applied to each of their customers so whether it's the risk pool that's comprised of individuals and small businesses or a large business that is fully insured with one of those carriers or a self-insured business that is using one of those carriers as a third party administrator, the payment rates are the same. So while the board doesn't have direct regulatory authority over self-insureds, they do have authority over those rates, and we'll be working closely with the board, with the insurers and with the third party administrators to make sure that the premium impact is delivered to all commercial payers.

Wertlieb: Gov. Shumlin has said that we've got to change the way we pay for medical services, and this is about fee for service as opposed to charging for outcomes. I'm wondering, though, about the prices that are set and charged for those services to begin with. Isn't that a starting point that needs to be examined to help bring down overall costs?

Miller: It is, and changing the way we pay for care will allow us to shift the incentives. You know, the fact is right now the only way for a hospital to stay in business is to do at least as much as it did before. When we move to an outcomes based system that provides capitated payments you align the hospital's interests with the patient's interests which is avoid care.

Wertlieb: Can you quickly explain capitated payments?

Miller: Sure. We'll go ahead an say we'll pick a hospital, it takes $200 million to run that hospital, it serves X number of people, the notion of a capitated payment is that you're paying that hospital for the number of people it serves in a gross payment and then you monitor the individual incidents of care and the quality of those outcomes and make adjustments to their budget based on those outcomes. So a hospital looks suddenly and says, hey, if I help people in my area avoid coming to the hospital, I actually do a little bit better financially because you don't have the variable cost that go along with taking care of them in an incident. Support for people's behavioral changes and choices, preventative care, all of those things, they're aligned interests among the patients and providers.

Wertlieb: Briefly, do you believe that the administration can get lawmakers in Montpelier on board with this idea of the payroll tax and businesses in Vermont as well?

Miller: Everybody has a clear understanding that we need to do something about the cost shift. We've proposed a mechanism that we believe addresses this efficiently and would be successful. Certainly if people have other ways of approaching the revenue side of things we're open to that discussion, but I think that this was given a lot of thought and when I think the legislature works it through they'll come to the same conclusions that we did.

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