Time for Honesty in Health Care Programs

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The most troubling part of Governor Howard Dean¿s farewell State of the State message was his proposal to once again expand government health care. The goal, as always, is to keep Vermont on the road toward what the Governor likes to call ¿universal health insurance¿.

Small businesses that don¿t offer health insurance to their employees would be allowed to ¿buy in¿ to Vermont¿s expanded Medicaid program, known as VHAP. The employer would pay to the state at least 50% of the cost of the VHAP health care rendered to the employees; the employees would pay the remainder. The number of uninsured would decrease, and taxpayers would pay nothing.

Why should this be attractive to small businesses? Because getting health care through VHAP is a lot cheaper than buying real insurance in Vermont¿s noncompetitive market. That¿s because VHAP drastically underpays the health care providers.

Medicare, the federal program for seniors, pays well below the actual cost of services. VHAP pays 88% of what Medicare pays for hospital inpatient treatment, and 70% of what Medicare pays to doctors. Because these government programs underpay, providers have to charge privately insured patients more than cost ¿ 23% more in the case of hospital inpatient charges. This is the notorious ¿cost shift¿.

Sucking more people into Medicaid/VHAP by an offer of cut-rate health care benefits allows politicians seeking higher office to crow about ¿the high rate of insurance coverage¿ at ¿no expense to taxpayers.¿ VHAP simply shifts much of the real costs of those benefits to the providers – doctors, dentists, hospitals, and nursing homes.

Suppose we played the same ethically questionable game with food stamps. Then food stamp recipients would be able to force groceries to give them a 30% discount on their food purchases, at the groceries¿ expense. Groceries, of course, could say no to such a deal. Health care providers, especially hospitals, can¿t say no.

So the message of Gov. Dean¿s address comes down to this: we¿re out of money to pay for all of the government we have accumulated over the past decade. We don¿t dare raise tax rates. We can¿t borrow for current expenses. The governor understandably doesn¿t want to be responsible for dipping into the rainy day funds. Existing programs will have to be cut back and in fact, the governor¿s subsequent budget message proposed very significant cutbacks in spending centered on the state¿s Medicaid program. But, that message concludes, we should now expand that same Medicaid program by bringing thousands more people into it.

Who will make up the difference between the Medicaid reimbursement levels and the real costs of services provided? Here it comes: hospitals may be able to shift the cost to privately insured patients, thus once again driving up premium rates. Doctors, dentists, and nursing homes will have to absorb the costs themselves.

It would be better for Vermont¿s reputation for integrity if lawmakers faced up to this, and called a halt.

This is John McClaughry ¿ thanks for listening.

–John McClaughry is President of the Ethan Allen Institute, a Vermont policy research and education organization.

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