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Vermont's Badly Managed Care

From the January 12, 2004 issue: Dean's health care record as governor is nothing to brag about.

Jan 12, 2004, Vol. 9, No. 17 • By DAVID GRATZER
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One of Dean's first initiatives as governor was to champion Bill 160, sweeping legislation meant to address the health care problems he inherited. But instead of undoing the price regulation that had been slapped on the insurance industry, Bill 160 went further. The legislation aimed to establish state control over hospital budgets, create a statewide insurance pool, and form a new health authority to coordinate it all. Instead of scrapping community rating, the legislation expanded it. Premiums wouldn't be based on age at all, but would be one-size-fits-all. Thus, a 20-year-old worker in perfect health would pay the same premium as a 60-year-old man with heart disease and emphysema. Much of the legislation was eventually dumped, but not community rating. "We fought that tooth and nail," recalls Tory Bunce of the Council for Affordable Health Insurance, an advocacy group for small businesses and insurance carriers. "We predicted that premiums would go through the roof."

They did. And no wonder. If homeowners' insurance were regulated the way Dean regulated health care, residents could insure their houses after they caught fire. As a result, young, healthy people dropped their insurance, numerous insurance carriers left the state, and the percentage of uninsured Vermonters approached 14 percent.

Various ideas were floated in the mid-1990s to cope with the collapsing market for private health insurance. Some Vermont legislators proposed a single-payer plan. In a daring display of political calculation, Dean urged them to vote for such a proposal--which he also promised to veto. The strategy collapsed so spectacularly that the resulting stalemate received a detailed report in the New York Times.

Dean's alternative was simply to expand government programs. In particular, he grew Medicaid, the federal-state program for poor Americans, with Washington footing the majority of the new bill. He expanded eligibility, going so far as to allow children in families with incomes up to $51,000 to be enrolled. (His office even approached the Clinton administration about expanding Medicaid further, but the request was denied.) By the end of Dean's term, the Medicaid rolls had doubled to roughly 20 percent of Vermont's population. Today, Vermont ranks ahead of almost every other state in Medicaid enrollment; neighboring New Hampshire is last.

To pay for it all, Dean hiked taxes, including those on cigarettes and gasoline. He also shifted costs. However, Medicaid's reimbursement to doctors, hospitals, and dentists is low. Consider that a typical Burlington psychiatrist makes $125 an hour from private insurance. Medicaid pays about 75 percent of that. Hospital fees are even stingier, with the state paying 50 cents on the dollar in some cases. Some physicians and dentists stopped taking Medicaid patients altogether. For hospitals and clinics now facing a shortfall, fees for non-Medicaid patients increased.

What does Vermont health care look like today? It's a mixed picture. The percentage of insured citizens is relatively high, but so are Medicaid rolls. It's not clear that Vermonters can sustain the state government's spending. Projections suggest that in Vermont Medicaid will run a $98 million deficit by 2008. And insurance premiums are sky high. "I'm paying a lot and getting little choice," a self-employed Burlington resident told me. He wasn't kidding: To cover his wife and himself, he pays $5,000 a year for a plan with a $1,000 deductible. Because most carriers have left the state, there are only a few insurance companies left in business.

Vermont, though, isn't unique. As much as Dean's supporters suggest his zeal for health reform distinguishes his record, regulating health insurance has become a hobby for activist politicians around the country. Consider: State legislators have passed more than 1,500 mandates that direct health insurance companies to cover specific diseases or procedures. In Vermont, jaw-joint disorders must be covered; New York insists on podiatric care. Add to this mix guaranteed issue and community rating, and it's clear why some small businesses and self-employed individuals find health insurance unaffordable.

Ironically, Dean may end up benefiting from the health insurance debacle he helped create. He promises to do in Washington what he did in Vermont: have government fill the role that private companies once did, another step along the road to single-payer health care. With premiums sky high across the country and many Americans fretting the possibility of losing their insurance, Dean's promise of expanded government programs offers a tempting panacea. Worse yet, Republicans seem lost on the issue.