Vermont Moves Toward Reforms Under Federal Medicaid Cap

Published November 1, 2005

On October 1, Vermont received federal approval for a Medicaid reform plan. If the plan is approved by the state’s Joint Fiscal Committee, Vermont will be the first state to accept a cap on Medicaid spending from the federal government.

The plan, described in the Global Commitment to Health introduced by Gov. James Douglas (R) in February, states that Vermont agrees to accept federal caps on funding for Medicaid in exchange for more flexibility in managing the entitlement program, which currently covers nearly one in four Vermonters.

Savings Expected

Under the plan, the Centers for Medicare and Medicaid Services (CMS) will cover 60 percent of Vermont’s Medicaid costs and will increase the amount of funding every year over five years, resulting in expected savings for the state of $135 to $165 million per year. The state is required to cap costs at $4.7 billion over those five years. If the state exceeds that amount, it must cover the extra expenditures. If it spends less, the state can pocket the difference.

Instead of paying a fee for each service provided, CMS will give the state a lump sum per person enrolled, which will give the state more flexibility in managing the care of each enrollee and, theoretically, more control over the money.

In June, the governor vetoed a bill that would have created “a new, government-run, taxpayer-financed health care program that would lead Vermont toward a system of fewer choices, fewer benefits, and fewer health care providers,” Douglas said in his veto memo. (See “Vt. Governor Vetoes Single-Payer Plan,” Health Care News, August 2005.)

John McLaughry of Vermont’s Ethan Allen Institute saw little difference between the vetoed proposal and the new statewide managed care arrangement. “This is taxpayer-funded, government-run managed care. I don’t see what the difference is between this and a single-payer system,” he said.

Budget Woes Remain

Even with the federal funds, there will be an $80 million gap next year between the state’s revenues and Medicaid spending. The deficit will be eased by the deal but not eradicated.

“The sticky wicket is how exactly will the state hold down costs,” said McLaughry. “Douglas talks about new benefits and new services for new people. How is he going to save all that money? It’s an enormous budget problem.”

The governor maintains Vermont is held back by federal rules about how Medicaid must be run by states.

“The state has identified a number of cross-departmental initiatives that, together, would enable Vermont to obtain the greatest value from scarce health care dollars,” Douglas’s plan reads. “However, Vermont has limited ability to act on many of these initiatives because of federal restrictions not addressed in the current VHAP waiver.”

Flexibility Permits Initiatives

Douglas’s Global Commitment to Health says, “additional flexibility will enable the state to more effectively manage public resources, provide the state with the tools necessary to make the program fiscally sustainable, and improve the Vermont health care system.”

Although the governor has not yet spelled out the details of reform, his plan states increased flexibility would allow for:

  • streamlining and standardizing eligibility processes across all coverage groups;
  • implementing a statewide system of care that enables Vermonters with or at risk of chronic diseases to lead healthy lives;
  • expanding health insurance options through introduction of market-based coverage alternatives, such as employer-sponsored insurance and health savings accounts;
  • reducing the number of uninsured Vermonters through provision of premium subsidies for individuals with household incomes up to 300 percent of the Federal Poverty Level; and
  • expanding the State Children’s Health Insurance Program to extend coverage to low-income families.

According to the governor’s reform plan statement, Vermont’s Medicaid program is the largest insurer in the state, representing approximately 20 percent of statewide health care spending.

Susan Konig ([email protected]) is managing editor of Health Care News.

For more information …

Vermont Gov. James Douglas’s February 2005 “Global Commitment to Health Concept Paper” is available online at

“Vt. Governor Vetoes Single-Payer Plan,” Health Care News, August 2005, is available online at