The Battle for Vermont

Published March 1, 2001

The Vermont legislature, like the legislatures of many other states, recently defeated an attempt to pass a cloned version of the single-payer health care plan devised by the Clinton administration in 1994.

Even so, Governor Howard Dean began expanding the state’s Medicaid program, moving Vermont in the direction of a de facto single-payer arrangement. His intentions may have been good, but the consequences have not. The governor has wrought a badly dysfunctional system of financing and delivering medical services—a predictable consequence when free markets are forced to respond to regulatory demand instead of consumer demand.

There are, however, some courageous legislators willing to question the current direction of Vermont health care. Our inaugural interview is with Representative Frank Mazur, who represents the Chittenden 7-8 district.

Mazur was elected to the Vermont House of Representatives in 1995. He has been a resident of Vermont for 32 years and has served on the Chittenden County Transportation Authority for 24 years, and as its chair for 20 years. He is a member of the South Burlington Business/Education Partnership and Economic Development Committees and a director of the American Red Cross (Northern Vermont chapter). He resides in South Burlington with his wife, Mary, and three sons.

Mazur is known for his openness and availability to the people he serves. He regularly surveys his constituents on various states issues and uses the results to guide his legislative actions. He has written extensively on the issue of health care in Vermont and was happy to share his thoughts with Health Care News Managing Editor Conrad Meier.

Meier: How would you describe the condition of your state’s current health insurance market?

Mazur: I think the health insurance industry in Vermont is a mess. Premiums are skyrocketing, the number of people covered by insurance is falling, and Medicaid rolls are increasing as the state tries to insure more people. If current trends continue, in a few years most of our new state revenue will be needed to fund Medicaid.

Meier: The governor has signed into law numerous mandates that have increased the cost of health insurance. What mandates do Vermont citizens have to deal with?

Mazur: The Vermont legislature considered almost 20 separate mandated benefit bills and passed several into law. Some mandates imposed by the state on health insurance carriers in Vermont are community rating, guaranteed issue, minimum maternity stay, drug abuse treatment, alcoholism, mammography, mental health parity, diabetes supplies, emergency services, metabolic disorders, home health care, jaw joint disorders, and chiropractic care.

Individually, a case can be made that the cost of each mandate is small. But the cumulative effect of so many mandates is very costly.

Meier: What has been the impact of those mandates?

Mazur: Our governor has admitted mandates have increased insurance premiums and medical utilization because consumers have little incentive to control costs. I think community rating alone is the most expensive of all mandates not reflected in the governor’s assessment.

Meier: It has been argued that having lower health care costs should lead to lower uninsured rates. Currently Vermont has an 11 percent uninsured rate while also having some of the lowest health care costs in the country. What is happening in your market that still leads to a double-digit uninsured rate?

Mazur: Governor Dean’s goal in Vermont is to make health care an entitlement, and he has raised the threshold for Medicaid eligibility. All children whose parents earn just over $50,000 a year are eligible to be covered by state insurance. Every working family without health insurance in Vermont whose income is 185 percent of the federal poverty level is also eligible for a comprehensive state health care program.

With almost 20 percent of the state’s population on Medicaid, the underpayment of charges by the state (and federal) government creates a cost-shift to private insurance plans, who must make up the shortfall. State mandates and community rating have also increased private insurance costs.

Each of these cost-drivers has affected insurance affordability, and more people choose to be uninsured as a result.

Meier: Twenty-eight other states have used high-risk insurance pools (HIPs) to provide affordable coverage for medically uninsurable citizens. What does Vermont do to help these citizens?

Mazur: Vermont has instituted community rating, where everyone is charged the same health insurance premium regardless of medical risk. That’s not insurance, because insurance prices are related to risks. This is just another way of cost-shifting from each according to ability, to each according to need.

Meier: Do you think that approach is the best?

Mazur: No I don’t. Community rating forces low-risk people to buy insurance to cover high-risk people.

The younger population pays the same insurance rate as older individuals. This, in effect, takes the risk out of underwriting and forces the younger, healthier age groups out of the market because of high health insurance costs. The insurance pool is left with an older population, more susceptible to costly health problems. The natural progression is higher insurance rates and more people dropping their health insurance coverage.

Meier: Why isn’t Vermont’s current health policy good for Vermont citizens?

Mazur: There is no clear evidence the state’s current health policy has increased enrollment in the private market or decreased the number of uninsured. All the expansion in coverage has come as a result of growth in the Medicaid program. Prices have increased for the lower-risk purchasers in order to hold steady the prices for higher-risk subscribers.

Because of this, the number of people in private insurance pools is falling, thus starting a spiral that eventually could result in insurance that is so expensive almost no one would buy it.

Meier: What should Vermont do to create competitive insurance premiums and increase coverage?

Mazur: The guiding principle of insurance reform should be to restore individual responsibility; put the subscriber back in control of decisions about coverage and their medical care.

More effort should be concentrated on ways to make health care affordable and not reduce competition and innovation. Also, state mandates need to be reassessed with a cost/benefit analysis to determine whether we can afford them.

Meier: Thousands of citizens in other states have purchased tax-free medical saving accounts (MSAs). In addition to paying lower health insurance premiums, they enjoy favorable tax treatment. What’s the MSA climate like in Vermont?

Mazur: The market for MSAs is too uncertain at the national level to have had any effect. Until Washington commits to promoting MSAs as an alternative, there will be reluctance to accept them in any market.

Health insurance coverage should be used to protect against catastrophic loss, not to pay routine medical bills. That is why I personally support MSAs and/or catastrophic insurance as a more affordable and flexible health insurance alternative people could afford.

Meier: There seems to be a growing activist movement for the creation of a single-payer system in your state. What can we expect to see from the conservative and liberal sides of this issue?

Mazur: Vermont is second only to Oregon for the percentage increase in state spending on Medicaid from 1999 to 2000. Vermont’s increase was 18 percent, while Oregon saw a 23 percent increase. The national average was 5.7 percent.

With the election of a more moderate state House of Representatives, under the control of Republicans for the first time in 14 years, I think you’ll see less pressure to expand government health care. If current policy trends continue, the costs of what we’ve done already will exceed our state’s revenue capacity and require rationing care to meet politically determined budgets.

With health care expenditures and utilization increasing, policymakers will have to look hard at program eligibility, reimbursement rates with patient copay, reducing utilization, and controlling program benefits, which are superior to what the average working Vermonter can afford in the market.

I don’t see the liberals being successful in promoting their single-payer agenda in this changed political environment.

Meier: The Canadian experience with government-run health care has led to dangerously long waiting lines for medical care. Why do advocates think single-payer would work in Vermont when it fails elsewhere?

Mazur: The political agenda in Vermont is really a social mission to protect all citizens with health care. Since 1995 Governor Dean, and his Democratic leadership in the General Assembly, have embarked on policies that expand Medicaid to cover more and more Vermonters. In the process, the private market has virtually collapsed.

We are a small state, with just 600,000 citizens, and we do not have an adequate private insurance market. The government has taken upon itself the role of people’s “advocate,” as a way to control health care policy and service.

Hospitals and home health providers in the state have no competition. Vermonters who have private insurance through their employment, and the remaining few with personal coverage pay very high rates to cover the cost-shift caused by the state and federal governments under the Medicare and Medicaid programs.

Under state control of a single-payer system, there would be no choice and everyone would have the promised security of a “uniform benefits package” under the management of “expert” decision-makers who specialize in the scrutiny of societal costs and benefits. Patients would have ombudsmen to look out for their welfare and the state and its agents would be in the driver’s seat.

The advocates of the state single-payer system really believe this is the way to control rapidly rising health insurance costs. They think universal access should be an entitlement, and that free-market competition is more for profit rather than consumer-driven.

Meier: So what do you think is the best way to deal with Vermont’s nagging uninsured rate?

Mazur: There is no silver-bullet solution that will create the optimal health insurance market and reduce the number of uninsured. But we should not think the state bureaucrats will look out for our health care.

The current path in Vermont has driven up costs, prevents consumer choice and competition, and increases dependency on government for coverage.

Patient empowerment and competition are required to facilitate more efficient use of health care technology and innovation. Only then will affordable health care emerge–health care that will give consumers what they need, want, and are willing to pay for.

Meier: The latest health care “crisis” is directed at the pharmaceutical industry. Do you think drug companies are exploiting Vermont residents with high prices?

Mazur: I think there is a political perception that drug companies exploit residents with high prices nationwide, but when you look at the data, that’s not the case.

The price increases are partially driven by inflation, but increased utilization and changes in prescription patterns account for at least twice as much of the annual increase in spending.

The other factor that must be considered is that pharmaceutical expenditures require a much higher reliance on out-of-pocket spending. When there is an increase in drug prices, there is a more direct increase in how much the patient has to pay.

That’s why a crisis developed in Vermont, which prompted Governor Dean and the Democrats to call for price controls. Fortunately, it failed in the House and the Maine bill, which Vermont tried to mirror, didn’t prevail in court.

Meier: My last question deals with Governor Dean’s suggestion that Vermont’s health insurance market should be directed to not-for-profit insurance providers. What’s your take on that proposal?

Mazur: In order to increase competition and choice in Vermont, health insurance providers must be able to make a profit. To do that, the private market must insure more people, so that the health costs are spread across the entire population rather than concentrated on those few who use the service. Looking at a multi-state health insurance pool would help in achieving that purpose.

Until the state decides that, as a matter of policy, it will allow more competition, and until state officials acknowledge that free markets can help provide more affordable health care to Vermonters, the for-profit market in Vermont is very tenuous at best.