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

Medicaid Funding Issues Complicate Proposed ‘All-Payer’ Health Care Plan

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Funding issues could jeopardize the 2017 kickoff deadline for the Shumlin Administration's publically-fuvded "all-payer" health care plan.

Single-payer is becoming a distant memory, but Gov. Peter Shumlin continues to push for a massive overhaul of Vermont’s health care system. And hospitals and doctors are worried that there won’t be enough money in the new system to provide the care Vermonters need.

Shumlin’s latest reform plan might not have generated the same kind of popular buzz as single-payer, but it could be every bit as transformational as the administration’s previous push for publicly funded health care.

The concept, in a very tiny nutshell, calls for a global budget for nearly all medical expenditures in the state. Health care providers would then have to operate within those financial caps.

Instead of private and public insurers paying hospitals and doctors for various services and procedures, providers would get a lump sum to take care of a large population of patients.  It’s called the “all-payer” model, and Shumlin wants it in place by the beginning of 2017.

“There would be no need to consider this if what was happening in the world right now was working for provider and patients really well,” says Lawrence Miller, chief of health care reform for the Shumlin administration. “And it’s not. It’s not working for providers, it’s not working for patients and it’s not working for our economy.”

So how much money is enough to provide health care to Vermonters? And where is it going to come from?

Those questions lie at the heart of a debate now roiling the health care system. Two groups that will be key to all-payer’s success are, as of now, unconvinced that elected officials will come up with the right answers.

Among their many concerns is the “chronic underfunding” of Medicaid. If lawmakers don’t increase state support for this government health insurance program, they say, then the all-payer experiment is doomed from the outset.

“And it’s just going to become a downward spiral where you have more and more people under Medicaid, Medicaid not paying enough to keep our health care system viable, and we’re not going to be having the hospitals and physician services that people need and are accustomed to,” says Paul Harrington, the executive vice-president of the Vermont Medical Society.

Harrington says his group, which represents more than 2,000 doctors statewide, supports the spirit of the reform plan.

“The Medical Society certainly conceptually agrees that we need to have better coordination health care here in Vermont. It also agrees there are problems with fee-for-service in some instances,” Harrington says.

In order to proceed with the plan, the state needs a waiver from the federal government that would allow Vermont to change the framework under which Medicare compensates providers.

The Shumlin administration is now in the midst of negotiations for that waiver. The state already has the ability, effectively, to capture and distribute funds from Medicaid and private insurance.

The all-payer budget would fund operations for a vast network of hospitals and doctors, called an “accountable care organization.”

The administration’s all-payer plan would hold overall per-capita increases in health care spending to 4.3 percent annually. Harrington says he’s worried that the overall number will fall short of what’s needed.

He says whatever the final budget figure, however, lack of increased funding from Medicaid will put undue pressure on the private insurance rates that would have to make up the shortfall between the amount Medicaid pays, and the cost to care for the patients that are eligible for it.

In Vermont, Medicaid reimburses providers at about 80 percent the rate of what they get from Medicare. Harrington says that in order for the all-payer model to work, and in order for the Medical Society to support it, lawmakers need to summon the political will to bring Medicaid up to par with Medicare.

“If the state is going forward with what it calls an all-payer waiver, and it does not at least pay physicians and other health professionals the same under Medicaid and Medicare, I don’t see how that all-payer waiver is going to work,” Harrington says.

Bea Grause, president and CEO of the Vermont Association of Hospitals and Health Systems, says her organization supports the general concepts behind the reform proposal.

“The whole idea of all-payer model is a five-year experiment, to try to create the predictability and stability to help move hospitals and employed physicians into new forms of payment, at the same time that we are trying in each of our communities to redesign how care is delivered so we can improve the health of the population and, over time, reduce health spending and create that affordability,” Grause says. 

Grause says there are several entities paying into the system – private insurance, Medicare, and Medicaid being the big ones. And she says that “having each of them participate fully is incredibly important.”

“The whole idea of all-payer model is a five-year experiment, to try to create the predictability and stability ... at the same time that we are trying in each of our communities to redesign how care is delivered so we can improve the health of the population.” - Bea Grause, president and CEO of the Vermont Association of Hospitals and Health Systems

“Full” participation, according to Grause, means financial commitments that better reflect the fiscal realities of providing health care. Grause says the cost of caring for patients is going to rise over the course of the all-payer experiment.

“So each of the payers has to commit to spending a certain amount in the base year, and trending that forward with a different inflation amount year after year,” Grause says. “We need the same from Medicaid. That in the recent years has not happened.”

Grause says Medicaid’s failure to “fully participate” in the all-payer model will exacerbate a cost shift that threatens to push the price of private insurance out of the reach of people who can barely afford it now.

“The shortfalls from Medicaid turn into premium inflation on the commercial side, so if we don’t have an inflationary increase from Medicaid as well as other payers, we can’t close that gap,” she says.

"If the Legislature doesn’t increase Medicaid payments, then the same mechanism will solve for the final funding necessary the same way it does now, which is to see rates of commercial insurance raised beyond what can otherwise be justified." - Lawrence Miller, chief of health care reform for the Shumlin administration

Miller says he agrees that lawmakers should find new revenues for Medicaid. Shumlin in fact proposed a $90 million a year payroll tax to do just that.

But the Legislature rejected the plan, and Miller says he doesn’t expect they’ll come around to the idea in 2016. Lack of new Medicaid revenues though shouldn’t dissuade Vermont from pursuing the cost-saving potential of the all-payer model, according to Miller.

“If the Legislature doesn’t increase Medicaid payments, then the same mechanism will solve for the final funding necessary the same way it does now, which is to see rates of commercial insurance raised beyond what can otherwise be justified,” Miller says. 

Al Gobeille, chairman of the Green Mountain Care Board, also thinks it’s unlikely lawmakers are going to increase substantially revenues flowing into Medicaid. Like Miller, he doesn’t think that should be a stumbling block to all-payer.

“What I’m fundamentally saying is the cost shift will continue, and so you’ll have to use the cost shift to finance this thing, which isn’t the answer we want to give, but it is the practical reality,” Gobeille says.

House Speaker Shap Smith says he doubts lawmakers will approve increased revenues for Medicaid in 2016, though he says he thinks elected officials will need to create a “dedicated funding stream” for Medicaid in the future.

This post was edited at 8:43 a.m. on 12/16/15 to correct an erroneous explanation of how Medicare funds would flow into Vermont under the all-payer waiver

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