[G]ov. Peter Shumlin says his health reform package that relies on a 0.7 percent payroll tax would save schools $3 million and municipalities $900,000 on health care expenditures annually.
However, the Vermont League of Cities and Towns and the Vermont Education Health Initiative (VEHI), which purchases health insurance for school employees, appear dubious about whether that will happen.
VEHI says it would take 18 months from when the payroll tax is implemented before school districts could realize any savings, and both question whether savings will materialize at all.
Shumlin has said repeatedly that his payroll tax proposal sunsets after two years; so that, if the savings aren’t there, the plan can be scrapped.
Savings are expected to come from reduced growth in health insurance premiums, as the result of increased Medicaid payments. By increasing what Medicaid pays to doctors and hospitals, the governor hopes to give insurance companies the leverage to negotiate lower rates for their clients, including municipalities and schools.
Shumlin has said that outcome will be ensured through the Green Mountain Care Board’s regulatory authority over hospital budgets and insurance rate filings. He’s pegged the anticipated reduction to premium growth at 5 percent next year.
To the extent Shumlin’s investment in Medicaid gives insurers more leverage, both schools and municipalities stand to benefit from lower rates, representatives of both groups said. But the Medicaid cost shift is just one factor in rising health care costs, said VEHI President Laura Soares.
The average premium growth for VEHI plans over the past seven years is 4 percent, Soares said. The largest driver of that growth is prescription drug costs, she said, and Shumlin’s plan doesn’t address that. It also won’t address rates from out-of-state providers, where many VEHI members get medical services, she said.
At 5 percent savings, premiums for school employees would actually drop, something Soares said she’s not comfortable advising school districts to budget for. Savings would need to be greater than 3 percent for schools’ health insurance costs not to rise under the proposal, according to figures from the Shumlin administration. The same is true for municipalities.
Steve Jeffery, executive director of the League of Cities and Towns, said his group “isn’t enamored” with Shumlin’s proposal, because, as the Green Mountain Care Board has acknowledged, there’s no way to guarantee a reduction in premium growth.
The $900,000 in savings Shumlin highlights is only 1.4 percent of their health care costs, and he views the entire proposal as “basically just another way for us to pay for the cost shift,” he said.
The governor’s projected savings rely on estimated payroll growth of 2.5 percent annually, and estimated health care spending growth of more than 6 percent. If health care spending grows faster than the administration is assuming, that will eat up the projected savings, Jeffrey said.
The timing issue
The payroll tax would take effect next January. School and municipal budgets are approved in March at town meeting for the fiscal year that begins in July, so there’s no way they can properly budget for the savings expected to accrue in the first half of next year, according to the two groups.
Robin Lunge, director of Health Reform, said there’s no reason that timeline should create greater uncertainty, at least for cities and towns.
Municipalities, with the exception of the few that self-insure, like Burlington, must already make assumptions in their budgets about what premiums will be, she said. That’s because most purchase in the small group market created by the Affordable Care Act, where rates aren’t set until April or May. Lunge said municipal budget writers should just reduce the low end of their assumption to account for potential savings.
VEHI’s won’t be able to set rates that assume savings in the following year’s either, Soares said. That’s because the fiscal year 2017 rate setting process starts this July, before VEHI will have anything “definitive,” from the governor’s proposal to base its rates on.
However, there are ways for VEHI to pass along the savings in fiscal year 2017, if they wanted to, Lunge said. The savings would theoretically go toward VEHI’s reserves if they’re not included in lower rates, and therefore, the health plan could offer its members mid-year rebates to make the savings available earlier, Lunge said.
Lunge said her team will reach out to VEHI and the League of Cities and Towns to try and address their concerns and work toward solutions that will help the governor deliver on his promise.
At this point, Soares said that addressing the Medicaid cost shift may be the right “long-term public policy” for health reform, but implementing it in a way that will yield immediate savings will be a “challenge.”
