Health Insurance Meltdown in Vermont

March 01, 2004
Conrad F. Meier

Former Vermont Governor Howard Dean, a physician who recently left the race for the Democratic Party's nomination for President, considers his state a model for health care reform.

"In Vermont, where I served as governor for the last 11 years, nearly 92 percent of adults now have [health insurance] coverage," boasted Dean's campaign Web site. "Most importantly, 99 percent of all Vermont children are eligible for health insurance and 96 percent have it."

Universal health care more accurately, universal health insurance has been a Dean rallying cry for more than a decade. In 1992, his first year as governor, Dean pushed through to passage Act 160, which created the Vermont Health Care Authority and charged it with bringing forth two sweeping health care reforms: a single-payer plan Dean had championed in 1991 as lieutenant governor and a measure he dubbed "regulated multi-payer."

Dean's effort to make health insurance universally available in Vermont has in many ways backfired.What has become "universal" in the state are high health insurance premiums and a heavy tax burden needed to support the growing number of Vermonters covered not by private insurance but by government-run Medicaid. Moreover, the number of uninsured Vermonters has increased, not fallen, since Dean's reforms took effect.

In 1991, the Vermont legislature passed Act 52, mandating guaranteed issue and community rating of insurance policies issued in the small group market. This caused young, healthy worker groups to face startling increases in premiums, since their age could no longer be taken into account in determining their risk. Many small businesses dropped their newly unaffordable plans and sent their employees to buy policies in the individual market. To close this "loophole," the legislature followed up with Act 160 in 1992, extending the guaranteed issue and community rating mandates to insurers offering policies in the individual market.

Community rating and guaranteed issue have wreaked havoc on Vermont's small group and individual insurance markets, just as they have in states across the country. The percentage of the state's population that is uninsured has increased, not fallen, since the mandates were imposed; premium rates have increased; and more Vermonters than ever are having to settle for government-run Medicaid in order to get insurance. Vermont is now second in the nation, after Tennessee, in the proportion of its
under-65 population covered by Medicaid (21 percent).

About 25 percent of Vermont's private health insurance market about 18,000 people in the individual market and 33,000 in the small group market is subject to community rating. The remaining 75 percent of the market associations, large groups, and self-insured companies have premiums based on health underwriting and experience rating.

What was formerly a healthy and affordable individual and small group health insurance market boasting 33 competitive insurance companies is now a shell of its former self. Such highly regarded companies as Aetna, Fortis, Golden Rule Insurance, Kaiser Permanente, Nationwide, Trustmark, and, most recently, Mutual of Omaha, have all left a market known to be a hostile environment in which to do business.

Premium increases have led many younger Vermonters to drop their private-sector insurance coverage. Dean administration reformers stepped in, extending eligibility for Medicaid to a wider swath of the state's population. The program has been expanded to the point where children in a family of four earning three times the federal poverty level (now around $52,000) can get "free" health care from the state. The Dean administration actively promoted government coverage, urging parents to take their
children off their private insurance and enroll them in the state program. Medicaid in Vermont has
become a welfare program for the middle class.

If Vermont is going to back out of the mess it has made for itself, acknowledging that misguided public policies are to blame would seem to be an important first step. Repealing community rating and guaranteed issue mandates should be high on the reform agenda. Mandated insurance benefits, which needlessly raise the price of insurance, should also be rolled back. Giving individuals who buy insurance get the same tax breaks as those whose employers provide insurance is yet another promising reform.

Vermonters also should consider additional reforms being entertained in other states, including a functional high-risk pool, to address the needs of the medically uninsured and uninsurable without skewing the insurance market for everyone else, and paying the reasonable charges of physicians, hospitals, and other health care providers who provide services for the beneficiaries of state government health programs.

The meltdown of Howard's Dean's universal health insurance plan bears an ironic similarity to the former Vermont Governor's failed bid for the Presidency: What may have looked like a good idea at first simply could not withstand the scrutiny and analysis of public debate.


Conrad F. Meier is managing editor of Health Care News and Senior Fellow for Health Care Policy for The Heartland Institute. His email address is meier@heartland.org. If you have any questions or need additional information, please contact Allen Fore, Vice President-Public Affairs at The Heartland Institute at 312-337-4000 or fore@heartland.org Reprint permission for this Heartland Perspective on op-ed pages, in newsletters, etc. is hereby granted. Please send a tearsheet to The Heartland Institute, 19 South LaSalle Street #903, Chicago, IL 60603.