The Green Mountain Care Board, the chief manager of health care reform efforts in Vermont, sent a strong message to all the players last week that cost containment and affordability for individuals and businesses in the state will play an enhanced role as the process of reform moves forward.
The message came in the form of the board’s approval of rates that Blue Cross and Blue Shield and MVP, the New York-based insurer, can charge small businesses and individuals when they begin to purchase health insurance through the federally-mandated Exchange that will go live on Jan. 1 of 2014.
Both Blue Cross and MVP submitted their proposed rates in March; those rates called for modest increases over current insurance, but the board pared them even further: Blue Cross’s proposed rates got cut 4.3 percent and MVP got trimmed more, 5.3 percent.
Getting accurate to-the-dollar comparisons are virtually impossible, given that all the plan designs are new and hence have no history and because none of the new ones match up closely enough with current offerings in the market. Moreover, there are a large number of plans to be considered, 23 between the two companies, to be precise.
The GMC board did its best to quantify the effect on consumers of its rates decision. A sample rate for a single person with a relatively high-end plan would pay Blue Cross $4,740 per year, down $213 from the requested rate of $4,953. The same basic policy purchased from MVP would cost $4,920, down $275 from the requested rate of $5,196.
These rates are for relatively high-income people. Lower income people would pay considerably less because their premiums would be subsidized by the state and federal governments.
The details on these plans are voluminous. What was clear, however, was the board's determination to get tough on costs. The permitted insurance rates for the Exchange are just the leading edge of that issue. The much more important question will be the way the board manages the annual budgets for the state’s 14 hospitals.
Those budgets arrived in Montpelier a few weeks ago and are now being scrutinized by the board’s financial staff ; the board will study them this summer and render a decision by Oct. 1, thereby set the spending pattern for the health care delivery system for the 2014 fiscal year.
The details on these plans are voluminous. What was clear, however, was the board's determination to get tough on costs.
The significance in the insurance rate decisions lie in the contrast they suggest with the board’s posture last year on the hospital budgets. Last year—the first year in which the board controlled hospital spending—the board established targets that would have generated a system increase of just under four percent from 2012 to 2013. That target was consistent with the legislatively mandated inflation rates of 4.5 percent from 2010 to 2011 and 4.0 percent from 2011 to 2012.
Instead, the 2013 budgets came in at seven percent, nearly three times the underlying rate of inflation in the overall economy.
The board was stunned by the figures, but they ended up approving all the requested increases, a development that posed a threat to their credibility as the guarantor of cost containment and affordability, which everyone understands is the key to serious health care reform.
The rate decisions earlier this month carried a new message: No more Mr. Easy Guy. Three main factors were involved:
- Limits on the size of insurance company reserve funds.
- A conservative estimate of future health care cost increases.
- The view that currently uninsured Vermonters who enter the exchange won’t dramatically increase demand.
The first was the amount of money from premiums that the companies could divert to their reserves—all insurance companies have to have reserves to account for variations in the payout of claims. That was a sort of shot across the bow of insurance companies, because insurance companies often get the reserve contributions their actuaries say are required.
The key elements were the second and third considerations. The second is the expected trend of costs in the health care delivery system. The trend can be based on past experience, or on national estimates, neither of which seem to concern the board.
They in effect demanded that the insurance companies adopt as their trend the board’s cost containment targets for fiscal 2014, which have been set at 3.75 percent, although there are some caveats built into that number. If the board can hold the hospitals to that number, they will achieve a lower inflation rate than any seen since the end of World War II, including the years of reduced demand flowing from the 2008 recession.
In fact, one of the chief reasons that the MVP reduction in its rates was more than 20 percent higher than the Blue Cross cut was that Blue Cross used as a trend line the board’s 3.75 target and MVP used a higher trend line.
If there was any doubt about the board’s intention here, it is the third consideration in the rate decision: an estimate of whether, or how much pent up demand will be experienced when the Exchange begins insuring some 100,000, many of them currently uninsured or underinsured.
The average actuary is going to build in additional money to account for this potential higher demand, but the board significantly pared back that factor, a decision that says in effect that the delivery system—doctors and hospitals—will be held responsible for keeping the volume of care delivered by the system under control.
That’s why the insurance rate decision was noteworthy. The insurance rates depend on how much money is being spent in the system. So, the big question is the system cost. Vermonters are now paying for the 2013 system cost of $2.1 billion. The board target is an increase of around 3.75 percent; at any rate, the budgets need to come in under four percent.
No one will know that outcome until the board approves the budgets, probably sometime in late August or early September. But if any of the hospital CEOs are counting on a compliant GMC board this time around, they may be disappointed.
