Vermont Suffers Under Health Insurance Illusion

Published March 1, 2001

Calvin Coolidge once said, “Laws do not make reforms, reforms make laws. We cannot look to government. We must look to ourselves.” He easily could have been talking about health care reform in Vermont.

Health care should be about security—having peace of mind. However, current health care policy in the state of Vermont has resulted in just the opposite: health care that is less accessible and less affordable.

While the U.S. generally operates in a free-market economy, that’s not the case with health care. Individual choice has been supplanted by central planning. As a result, there’s less individuality in the health care system and more bureaucracy. In the process, the cost of health insurance in Vermont alone has increased over 600 percent since 1982, according to the Vermont League of Cities and Towns.

Community Rating

Where does the solution lie? In Vermont, the health care policy vision calls for even more government control by forcing insurers to spread risk indiscriminately. They call this “community rating.”

Community rating means that everyone must be charged the same health insurance premium, regardless of the different risk each individual poses. Such policies aren’t really about insurance, because insurance is about risks.

My son, who lives a healthy life style, is a low health risk. Under a community rating scheme, his insurance payment would be the same as that paid by a person who smokes, drinks, and lives an otherwise high-risk life style.

Community rating is really cost-shifting. In Vermont, only the sick buy insurance now. The healthy do without because premiums are too high. A Pennsylvania family of four would pay $190 a month for a health insurance policy with a $1,000 deductible. In Connecticut, the family would pay $230. In Vermont, that family pays $543 a month!

Vermonters Must Do Without

Constituents have told me they do without health insurance because of the high premium cost. A young grocer told me many of Vermont’s self-employed are not carrying health insurance because of high costs. Consider the self-employed carpenter here: He makes just over $20,000 a year and just purchased catastrophic health insurance for $200 a month. After taxes, he pays more than 15 percent of his income just for health insurance coverage.

The direction health policy has taken in Vermont means about 20 percent of our state’s low-income population can’t afford health insurance. That’s one of the highest uninsured percentages in the country. The state—that is, the state’s taxpayers—insures them, through Medicaid. The cost of providing health insurance to the low-income population is one of the fastest-growing elements in the state budget; Medicaid now accounts for around 20 percent of total state spending.

And now Governor Howard Dean is extending coverage to even more Vermonters. Are we heading towards a single-payer health care system . . . and, ultimately, socialized medicine?

Piling on the Costs

Another problem is emerging with health care in Vermont: Medicaid doesn’t pay health care providers fully for services they render. The current reimbursement level is about 50 percent. Hiking that to 75 percent would cost, at a minimum, another $50 million.

So who pays that price, if not taxpayers?

To stay in business, the health care providers who are underpaid for services rendered to Medicaid patients must increase the prices they charge to patients who are self-insured or covered by some other health insurance plan. In other words, the cost is ultimately borne by those of us who are not enrolled in the Medicaid program, because we pay higher health care costs and higher health insurance premiums.

We also pay the price for unfunded mandates that the state government demands be covered by health insurance policies. During the 2000 legislative session, over 19 mandated benefit bills were introduced, and many were passed into law. Taken individually, these may have seemed valuable and not especially expensive. Taken together, however, these mandates have a dramatic effect. A Blue Cross/Blue Shield study of 13 states found premiums rose as much as 21 percent because of benefit mandates. Other researchers put the premium increase higher still.

Return to Individual Responsibility

The guiding principle of health insurance and health care reform should be to restore individual responsibility.

  • We need to put participants in charge of their own health insurance and let them determine the coverage they need and are willing to pay for. Government should not mandate the type and extent of coverage consumers are allowed to purchase.
  • Government should not use insurance as a vehicle to subsidize some people at the expense of others. Community rating, which removes the essential element of insurance–risk–should be abolished. The prices people pay for health insurance should be based on the risks they wish to have insured, at a price determined by competition in the marketplace.
  • To the extent policymakers decide any group must be subsidized, the expenditure should be made explicit, rather than hidden in the rates that are charged to consumers. Legislation to this effect has been adopted in 36 states.
  • Government should not dictate the rates charged to consumers. Competition, not regulation, is the best way to assure reasonable rates for insurance. To promote competition, the state should eliminate benefit mandates and let Vermonters themselves decide the health coverage they want and can afford.

Insurance has become one of the most publicized and heavily regulated services in Vermont. Across the country, evidence shows government regulations that aim to improve the availability and affordability usually have the opposite effect. That is certainly true in Vermont, where health care reform has resulted in insurance that is less affordable and less available.

The first principle of the Hippocratic Oath is “Do no harm.” This should apply not only to physicians, but to our state regulators as well. They should stop the trend toward centralization and instead unbundle health care, allowing competition to develop again in the state’s insurance market. The more competition we have, the more choice participants will have, and the more effective we’ll be at achieving our goals: to make health care more affordable, accessible, and caring.

State Representative Frank Mazur represents Vermont’s Chittenden 7-8 district.