HEALTH CARE/Joan Retsinas

Vermont: Up the Medicaid Hole

Much like Alice, states have been slipping down, down, down a hole -- though for states, it's the Medicaid hole. The more citizens covered, the more comprehensive the benefits and the more generous the payments to physicians, hospitals and nursing homes, the deeper the state will sink.

Vermont has been plummeting fast, measuring its descent by deficits. Although the federal government picks up roughly half the tab, that other half has cut a swathe in state budgeting.

Looking into a 5-year crystal ball, Gov. Jim Douglas (R) foresaw deficits of $78 million in 2006, rising annually to total $597 million in 2010.

Who can pull Vermont out of this rabbit hole? Certainly not the federal government, which has been paring its own social service budgets.

Vermonters cannot boost the state out of this hole either. To cover these deficits, residents would have to pay dramatically higher taxes. State income taxes would rise 12% in 2006, 20% in 2007, 23% in 2008, 26% in 2009 and 29% in 2010. With sales taxes, Vermonters would pay 21% more in 2006, 36% in 2007, 44% in 2008, 51% in 2009 and 60% more in 2010.

One solution is to slash spending. Cover fewer people for fewer services. Pay hospitals, physicians and nursing homes less. Yet draconian cuts are not only cruel, they ultimately make residents sicker. It is to the state's benefit that all pregnant women get prenatal care, that children with chronic illnesses get treatment, that adults get immunizations.

Vermont, moreover, stands out for its outreach. Vermont Medicaid -- in all its programs, from traditional Medicaid to Dr. Dynasaur to Vermont Health Access Plan -- covers a quarter of Vermont residents. State government is the largest insurer in Vermont. Fewer than 10% of Vermonters are uninsured.

Looking to health maintenance organizations for inspiration, the state of Vermont has drafted an exit-strategy out of the hole. The state recently negotiated with the federal government the kind of per capita payment agreement that HMOs have with corporations. The federal government will pay the state a set amount, to take care of the health of all eligible Vermonters. The state will pay the rest.

And Vermont will write the rules. Without federal strings, the state can collapse the varied Medicaid programs into one streamlined state system. Without going through channels to get federal approval, it can negotiate partial-capitation and risk-sharing agreements with physicians. It can do the same prospective payment schedules for hospitals that private insurers do. It can force more use of generic drugs. It can institute whatever premiums it judges best.

Indeed, Vermont plans to expand coverage to employed residents. Currently low-income workers who can't afford their workforce insurance sign up for state insurance. Vermont proposes subsidies: It will cover from one-half to 60% of the cost of group coverage for somebody who might otherwise seek coverage from the state. The state foresees saving $2,300,000 the first year, rising to $6,500,000 in year five.

Vermont is counting on efficiency and innovation: Without federal shackles, the time-consuming need to seek waivers and the 40 year-old regulations, the state bets it can spend less money -- without draconian cutbacks.

Vermont is taking a risk. The federal government is budgeting a capped amount -- calibrated at 60% of the expected costs. That is Vermont's to keep. But if the state overspends, the federal government will not increase its payment.

If Vermont overspends, Vermont taxpayers will need to pay. The beauty of global budgeting is that the state, freed from federal bureaucratic shackles, might be able to work its way out of the Medicaid hole. The downside is that the state risks sinking even deeper.

Vermonters have started to take that risk, hoping that "global budgeting" will nudge the state out of the hole. Other states will be watching.

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

From The Progressive Populist, Nov. 15, 2005

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