Governor's Bipartisan Commission

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On Health Care Availability & Affordability

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Final Report - December 4, 2001

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Table of Contents

Letter of Transmittal
Preface
I. Authority, Scope
II. Introduction
III. Context of the Problems
IV. Problem Statement
V. K-12 Education in Healthy Behaviors, Media Literacy
VI. Utilization
VII. Common Care List; Risk List
VIII. The Incentive Plan for Medicaid
IX. Administrative Cost Control
X. Information Technology
XI. Medicaid Reimbursement
XII. Pharmacy Cost-Control Measures
XIII. Financial Access to Health Care
Letter to Congressional Delegation
Letter from Representative Koch
Letter from Representative Mazur

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Letter of Transmittal

December 4, 2001

Governor Howard Dean, MD
President Pro-Tem of the Senate, Peter Shumlin
Speaker of the House of Representatives, Walter Freed

Gentlemen:

Last January, The Governor's Bipartisan Commission on Health Care Availability and Affordability was created by executive order.

By gubernatorial and legislative appointment, our commission has consisted of Senators Nancy I. Chard and Cheryl P. Rivers; State Representatives Frank M. Mazur and Thomas F. Koch; Human Services Secretary Jane Kitchel; Banking, Insurance, Securities and Health Care Administration (BISHCA) Commissioner Elizabeth Costle; and myself. (Senator Rivers served until her resignation from the Senate in October; please see Footnote 2 of the report.)

We were asked

1. To study data and information relative to increasing health care costs, cost shift, and availability of services.

2. To talk with employers and others concerned with rising health care costs and access to health care.

3. To identify ways we can achieve the dual goals of controlling costs and guaranteeing universal health care access.

4. To report to report back to you on our findings and our recommended approaches to address these problems.

We have now completed our work and we respectfully submit herewith our report.

In pursuing this work, we held 16 regular commission meetings and numerous other hearings and meetings (including some on Vermont Interactive Television) to obtain testimony from care and coverage professionals, from employers, employees and their advocates, from consumers and their advocates, and from the general public.

We have been briefed on numerous occasions by representatives from BISHCA, the Joint Fiscal Office, The Commission on the Public's Health Care Values and Priorities, The Lewin Group, and other organizations.

We have received on-line testimony from more than 180 persons and organizations and have posted extensive excerpts from each on our website. This has created something of a dialogue, as early testimony has often been endorsed or rebutted by subsequent submissions.

We also have posted drafts and revisions of an extensive "problem statement" and of numerous "solution statements" offered by members of the commission and of the public. These documents have been useful in articulating problems, presenting arguments, eliciting further testimony and generally helping us to focus our discussions.

The intelligence and scope of the testimony and solution statements we have received has been extraordinary, and we appreciate the help of the several hundred people involved.

We thank you for the opportunity to serve Vermont. We present this report with the hope that it will be of use to the Legislature in the difficult deliberations that lie ahead.

Sincerely,

Cornelius Hogan
Chair

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Preface

The commission agrees:

A. All Vermonters have a compelling personal interest in having physical and affordable access to the information and preventive care necessary to allow them to lead healthy lives.

B. Because we each can expect to face illness and injury at some point in our lives, all Vermonters have a compelling personal interest in having physical and affordable access to top-quality comprehensive health care.

C. Vermonters who do not get medical care because of physical or financial access problems are more likely

1. To experience less-favorable health outcomes and to die sooner,

2. To become financially unproductive members of their family and society, and

3. To become financial burdens on their friends, family and government.

D. Vermonters, through their government, therefore collectively have a compelling interest in ensuring that everyone is well-informed about health care matters and has ready and affordable access to top-quality comprehensive health care. In addition to and beyond any moral obligation, this collective, compelling interest is practical and financial in nature. ^{SEE NOTE 1}

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I. Authority, Scope

A. On January 24, 2001, Governor Howard Dean issued an executive order establishing a Special Governor's Bipartisan Commission on Health Care Availability and Affordability.

1. The Governor appointed former Human Services Secretary Cornelius Hogan to chair the commission and appointed current Human Services Secretary Jane Kitchel and Commissioner of Banking, Insurance, Securities and Health Care Administration Elizabeth Costle to serve on the commission.

2. The House Speaker subsequently appointed Representatives Thomas F. Koch, R-Barre Town, who is chair of the Health and Welfare Committee, and Frank M. Mazur, R-South Burlington, who is vice-chair of the Appropriations Committee.

3. The Senate Committee on Committees appointed Senators Nancy I. Chard, D-Windham County, who is chair of the Health and Welfare Committee, and Cheryl P. Rivers, D-Windsor County, who was chair of the Finance Committee. ^{SEE NOTE 2}

B. The Governor asked the group

1. To study data and information relative to increasing health care costs, cost shift, and availability of services,

2. To talk with employers and others concerned with rising health care costs and access to health care,

3. To identify ways we can achieve the dual goals of controlling costs and guaranteeing universal health care access; and

4. To report back to him and to the Legislature on our findings and to lay out recommended approaches to address these problems.

C. Early in our deliberations, the commission decided not to address directly the issues involved in Long Term Care, not because we believed them to be any less important than the issues we do address here, but because they are of such magnitude that we could not do justice to them with the time and resources we had available to us. This agreement was not unanimous and was arrived at reluctantly, but was deemed necessary by the majority.

D. We include in this report a letter to the Vermont Congressional Delegation outlining problems with health care availability and affordability that we believe cannot be solved except at the federal level.

E. We also include a letter of concurrence from Representative Koch and a minority report from Representative Mazur.

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II. Introduction

A. Our commission is made up of people who have spent years listening to testimony and otherwise studying the problems of health care availability and affordability. We have differences, some of them passionate differences, in our political philosophies, and it should come as no surprise that we differ on some of the directions reform should take. Although we have taken a substantial amount of new testimony during the past nine months, our real task has been to try to find common recommendations, despite our philosophical differences. ^{SEE NOTE 3}

B. Based on what we have learned, we do agree on this: Health care in Vermont is near a state of crisis -- some of us would say it is already in crisis -- and all health care sectors are on edge. We also note that many of these problems are national or even global in scope and that our abilities to solve them at the state level are limited.

C. Health care costs in Vermont, now exceeding $2 billion a year, are of a sufficient magnitude, however, and are increasing at a sufficient rate to place state government itself in jeopardy, including every program for which it appropriates money. By comparison, Vermonters budgeted $1.8 billion for all state government services in FY 2001 (not including federal funds). ^{SEE NOTE 4}

We are rapidly approaching the point at which these costs will directly conflict with our ability to do such things as to maintain roads and bridges, for example, or to provide cost-effective services to our infants and children, to promote agriculture and tourism, or to provide any other services our citizens have come to expect.

D. We do not have a health care system in Vermont. ^{SEE NOTE 5} That means:

1. No one is in control.

2. No one is responsible for ensuring that high-quality medical care is adequate for the needs of the public.

3. No one ensures that medical charges are appropriate or that they are paid in full. ^{SEE NOTE 6}

4. There is a "disconnect" between the consumer receiving health care and the entity paying the bill. Consumers are shielded from the cost of the service.

5. There is no global budgeting or targeted growth planning for health care in Vermont.

6. There is little in the way of public accountability for the performance of health care institutions, or for their long-term planning.

7. Although administrative costs, including those associated with government paperwork burdens, have reached an unacceptable level, no one has been able to do anything about it.

E. This commission does not recommend the Single Payer option, even though we have been told by The Lewin Group that it could cover all Vermonters, including more than 51,000 currently uninsured, for 5 percent less than what we are collectively paying now. ^{SEE NOTE 7} Some of our opposition is on philosophical grounds, but in practical terms, we reject that option for a variety of reasons, including:

1. Concern over the negative financial impact on small employers and wage effects on employees in terms of reduced wages or lost jobs (assuming that most program costs would come from a payroll tax).

2. Concern over whether, in the American historical political context, it would be possible for government to control costs and utilization.

3. Doubt that program funding would be maintained at an adequate level so as not to place health care institutions at financial risk and cause providers to leave the state.

4. Belief that the political consensus necessary for implementation does not exist.

F. In the alternative, we have proposed a number of initiatives that would collectively address many of the problems of health care availability and affordability. Among our recommendations are measures

1. To promote personal responsibility for health behaviors.

2. To curb excessive administrative costs.

3. To offer health care availability and affordability to more people by extending Vermont Health Access Plan coverage with minimal damage to the commercial insurance market.

4. To strengthen the insurance market and promote the possibility of more insurers offering health insurance.

5. To enhance education and critical thinking about health and related topics.

6. To curb unnecessary health care utilization.

G. We also recommend that the Legislature take greater responsibility for ensuring the availability and affordability of health care in Vermont. ^{SEE NOTE 8}

H. We recognize that many of the availability and affordability problems in Vermont require federal solutions, ^{SEE NOTE 9} and we include with this report a letter to our Congressional Delegation with recommendations for federal action.

I. This commission is united in our belief that decisive action must be taken by the Legislature in the immediate future, and that new and unprecedented ways of approaching the challenge, including those presented here, must be given careful consideration.

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III. Context of the Problems

This outline is presented as a frame of reference for the problems we identify and the recommendations we present elsewhere in this report. We understand that is not a complete treatment of the subject, but we offer it as a guide to understanding the context of our discussions.

A. By conventional measures, the quality of health care in Vermont is considered to be good.

1. As is the case in any state, quality varies significantly by location, by provider sector, and by availability of competent professionals and paraprofessionals.

2. The methods of measuring health care quality in Vermont are limited. Vermont creates and has amassed significant amounts of health care data, but has not yet learned to use these data to drive decision making. Policy makers have inadequate information about

a. Basic system-level outcomes.

b. The relationship between quality and financial incentives offered by vendors, insurers and others doing business in the health care economy.

B. The health care economic sector in Vermont, now exceeding $2 billion, has grown to a size comparable to the size of state government; ^{SEE NOTE 10} unlike state government, however, its spending decisions are not legislated or subject to gubernatorial veto or similar consequences, nor are they subject to public stewardship controls such as the state government's Capital Debt Affordability Advisory Committee.

1. One partial exception is the Public Oversight Commission's review of hospital operations.

a. There has never been any overall assessment, however, of the appropriate range of services to be offered by Vermont's 14 community hospitals.

2. Health care spending is rising far faster than personal income or government revenue. ^{SEE NOTE 11}

3. Like others in the United States, Vermonters pay considerably more per capita for health care than do people anywhere else in the industrially developed world. ^{SEE NOTE 12} As noted above, we now spend more on health care than we do in state revenues to support state government.

4. The current health care financing arrangement employs a combination of public and private funds and direct and third-party payments.

C. Vermont provides government coverage intended to be sufficient to ensure financial access to health care for children, pregnant women, and new mothers.

D. Vermont ranks among the highest in the nation in the percentage of residents who have health care coverage. ^{SEE NOTE 13}

E. Most patients in Vermont aren't directly responsible for the actual costs of their health care.

F. The financial access to health care varies enormously. For some people, there are minimal financial barriers to obtaining necessary care. For others, necessary care is financially inaccessible.

G. With significant exceptions, Vermonters have enough health care facilities and personnel to serve their needs. The chief exceptions are related to shortages of primary care practioners in some rural parts of the state, dentists in some areas, physicians in pediatric subspecialties, nurses and nursing assistants.

H. Generally speaking, Vermont's utilization rate for medical care is below the national average and the national utilization rate is the lowest in the industrial world.

1. Vermont inpatient hospitalization rates are below the national average. Data on outpatient utilization are incomplete. ^{SEE NOTE 14}

2. U.S. hospital utilization rates are the lowest in the industrialized world. ^{SEE NOTE 15}

3. Vermonters on Medicare visit the doctor less frequently than do Medicare recipients in any other state. Data on doctor visits by non-Medicare patients are incomplete. ^{SEE NOTE 16}

4. U.S. citizens in general visit the doctor less often than do people in any other industrialized nation except Britain. ^{SEE NOTE 17}

5. The relationship between higher utilization rates and higher health care and coverage costs is complex. In certain areas of preventive care, for example, curbing utilization does not necessarily curb costs.

6. Of those who seek health care, a very small proportion uses a very high percentage of our health care resources. ^{SEE NOTE 18}

7. Even greatly decreasing utilization rates among the larger portion of the population that is healthy would have limited effect on care and coverage costs, since these are not the people using most of the health care resources.

8. The intensity of care, another aspect of utilization, clearly affects costs. "Intensity" refers to the substitution of a more expensive procedure or treatment for one that is less expensive. MRIs, for example, are more intensive (and more costly) than X-rays, and brand-name drugs tend to be more expensive than generics.

9. While increased costs attributed to utilization can be caused by the increasing use of high technology equipment and procedures, this increasing use can also result in higher quality of care.

10. In general, neither lower nor higher utilization rates are reliable indicators of appropriate care.

I. Vermont adopted community rating in the early 1990s to assure that all small businesses and individual Vermonters have access to health insurance at rates generally available in the marketplace without discrimination based on health status or, within certain parameters, age.

1. Some insurers withdrew from the Vermont market because they did not wish to compete in a community-rated marketplace where they were required to insure all types of risks at similar rates.

2. Community rating has the effect of lowering costs for older people and those with medical conditions while raising them for younger, healthier people. It does not provide incentives to avoid freely chosen risky behaviors.

3. Higher prices for younger people and for businesses with a young, healthy workforce may result in their foregoing insurance entirely, or, in the case of small businesses, in their choosing to self-insure. ^{SEE NOTE 19}

J. Government regulation limits market forces in both health care and health care coverage for certain policy purposes. Limitations are imposed, for example, to make private coverage available for people with medical problems and to spread the cost over the insured population.

1. Vermont ranks about average in the nation with respect to the number and scope of its insurance mandates. ^{SEE NOTE 20}

2. Government regulation has not achieved the goal of satisfactorily controlling costs.

K. Employer-paid health insurance has its origins in efforts by businesses to attract employees during the World War II-era of wage and price controls. It is tax deductible to the employer. Individually purchased health insurance is only partly tax deductible (and only recently) to the individual. Employer-paid (and employer-selected) health insurance is the dominant form of coverage.

L. The Vermont health insurance market for individuals (those buying insurance for themselves rather than receiving it through their employer) is very small, and is characterized by a significant adverse selection factor (sicker people buying policies while healthier people go uninsured). This could result in a destructive progression in which (1) premiums rise in cost and thus become less affordable, (2) only the sickest, who need insurance most, are willing to buy in, and (3) premiums therefore become even more expensive and eventually unaffordable to all but the richest and most desperately sick Vermonters.

M. Insurance, which is intended to protect an insured from excessive cost, is not the same as a pre-paid health plan. They are different, especially in regard to their affordability. The fact that many people fail to distinguish between the two concepts complicates the discussion of health care affordability.

N. Drug coverage above $2,500 per year is not available in the individual insurance market and available only with high-cost policies in the small-group and association markets.

O. Under ERISA, the Employee Retirement Income Security Act of 1974, the health insurance of a significant number of Vermonters is beyond the reach of most State regulations, including reporting requirements. This limits financing options for policy makers and limits other policy making choices.

P. The practice of third-party payment tends to shield both consumers and providers from understanding the cost consequences of their behavior and of the health and medical choices they make.

Q. Although health care providers are increasing their use of expensive, high-tech equipment, cost-benefit information about new technology is generally not measured or is not available to consumers and policy makers.

R. Because most people using health care services do not pay the cost directly, and because cost information is not available in any event, perceived competition or the threat of competition in the health care provider industry often leads to perverse incentives, with providers responding by adding new and expensive services rather than by controlling costs and striving for efficiency.

1. It is not clear, however, that these new investments are in response to consumer demand.

2. Vermont's population is not large enough to support competing providers in most areas of the state. ^{SEE NOTE 21}

S. Providers often don't have access to necessary medical history and other information about the patients they are treating.

T. Providers often don't have access to information about the cost of the diagnostic tests, drugs and treatments they order and prescribe; patients also tend not to have this information.

U. The small size of the potential health insurance market in Vermont has a negative impact on attracting out-of-state insurance companies that might offer competition to existing carriers. ^{SEE NOTE 22}

V. In general, Vermont is too small and too rural to sustain a competitive market among larger health care institutions. With the exception of a few health care sectors in more urban locations, effective competition does not exist. ^{SEE NOTE 23}

W. The state's free clinics and federally qualified health centers play an important role in providing affordable care. Some of these, however, are financially vulnerable and their services limited in scope.

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IV. Problem Statement

A. The cost of health care is causing serious problems in the lives of many Vermonters. ^{SEE NOTE 24} Testimony we have received indicates that a significant number find that

1. Health insurance is financially inaccessible.

2. The health insurance coverage they have is no longer affordable.

3. The health insurance coverage they have is insufficient because of limits, deductibles, and exclusions.

a. Most insureds in the individual, small group and association insurance markets have no protection from catastrophic drug expenses.

4. The increased burden of paying for health insurance and health care is requiring them

a. To delay preventive health care and forego prescribed medicine and treatment.

b. To curtail their normal expenditures for food and other essentials.

c. To take second jobs or postpone retirement.

5. (See specific findings from the 2000 Vermont Family Health Insurance Survey) ^{SEE NOTE 25}

B. Some Vermonters, including many with disabilities, find health care physically inaccessible.

C. Some independent health care providers are experiencing or in danger of experiencing financial difficulties that would jeopardize their ability to care properly for their patients and also jeopardize the economic survival of their institution or practice.

D. Financial incentives offered to health care providers by insurers, vendors and others have an unmeasured negative effect on quality and availability that is likely to be significant. ^{SEE NOTE 26}

E. Some health care providers are experiencing difficulties in hiring qualified health care professionals and paraprofessionals, jeopardizing their ability to care properly for their patients and, in the case of independent providers, potentially jeopardizing the economic survival of their institution or practice.

F. While the current Certificate of Need (CON) and hospital budget process focuses attention on the costs in the hospital sector and may have some effect in holding down costs, the lack of regulatory resources and meaningful sanctions have limited the effectiveness of this process. ^{SEE NOTE 27}

1. The lack of an overall assessment of the appropriate range of services offered by Vermont's 14 community hospitals significantly limits the effectiveness of the CON and budget review process.

G. The current health care coding, authorization and payment process is complex, opaque, outmoded, and prone to error, creating costly and inappropriate administrative burdens and patient accessibility barriers.

1. A material portion of each dollar that could otherwise be spent on necessary health care is being spent instead on unnecessary paperwork and other administrative costs.

2. A significant number of Vermonters defer or abandon their attempts to obtain necessary care because they are unable to comply with complex paperwork requirements.

H. A significant number of Vermont consumers and providers are unable to evaluate the likely costs and benefits of important care and coverage decisions they must make. These include:

1. Providers who cannot make the best medical decisions because they lack access to necessary medical history and other information about the patients they are treating.

2. Providers who cannot order the most cost-effective tests, procedures or medicines because they lack access to relevant and necessary cost information or the time to study such information.

3. Patients who cannot make informed decisions about their medical care options because they lack access to, or understanding of, relevant and necessary information.

4. Patients who cannot make informed choices among medical care providers because they lack access to, or understanding of, relevant and necessary information.

5. Patients who cannot make informed decisions about their medical insurance options because they lack access to, or understanding of, relevant and necessary information.

I. Adverse selection is driving up costs in the market for individual insurance. And the more premium prices go up, the fewer healthy people are likely to buy into what could become a progressively shrinking market, with the result that, as a practical matter, individual coverage could cease to be available because it would be unaffordable. There is no mechanism in Vermont for spreading the risk in this market over a broader population base.

J. Many employed Vermonters find that the only health care coverage available to them is that chosen by their employer without regard to their particular needs or those of their families. As a consequence, some are insufficiently or inappropriately insured.

K. Many Vermont employers are unable to find appropriate coverage for their workers at an affordable price. As a consequence,

1. Some employers are unable to attract and retain workers.

2. Some employers are experiencing financial difficulties that could jeopardize the survival of their businesses.

L. The sheer size of the health care economic sector, together with its unchecked, rapid growth

1. Puts the physical and economic well-being of every family at risk.

2. Endangers the Vermont business community.

3. Jeopardizes the ability of government to fulfill its constitutional duties and to meet the needs of its citizens. ^{SEE NOTE 28}

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V. K-12 Education in Healthy Behaviors, Media Literacy

A. A significant number of today's problems in health care affordability can be attributed directly or indirectly to unhealthy habits, many of which were acquired during childhood in direct response to effective advertising specifically intended to encourage self-destructive choices. We begin, then, at the most important and fundamental level, with the need to improve the education of young Vermonters about health and illness, about nutrition and exercise, about risky habits and behaviors, and about how to recognize the intent and effect of risk-related media messages.

B. Both for reasons of cost containment and for the related and more fundamental goal of improving public health, we recommend that the State embark on an immediate, aggressive and unprecedented effort to improve health education at the K-12 levels. This effort should be supported by state and federal financial support and incentives. These efforts should foster a wide variety of educational initiatives -- not to tell students how to behave, but to assist them in understanding and choosing to adopt healthy behaviors.

C. We recommend that age-appropriate health topics -- including nutrition, physical activity, sexual behavior, disease process, infection control, and tobacco, alcohol and drug use -- be thoroughly integrated into and across curricula and be incorporated into school portfolio and testing programs. Where these programs are already in place, they should be supported; where they are not, they must be developed.

1. Science and math courses, for example, should include the practical application of the analytical skills necessary to assess health risks, the probability and mechanics of exposure and infection, and the arithmetical basis of health insurance claims and premiums.

2. Social studies and related classes should include consideration of issues involving personal responsibility for health care, for example, and should foster an understanding of the roles of physicians, hospitals, and insurance companies.

3. Students must have the opportunity to apply their critical thinking skills to the analyses of newspaper articles about health developments, magazine ads for tobacco products and television promotions for brand-name pharmaceuticals and nutritionally deficient foods.

4. Schools should model health behaviors by ensuring the nutritional quality of food served, by providing daily opportunities for physical education, and by enforcing appropriate policies about such things as substance abuse and conflict resolution.

5. Qualified professionals, specifically trained in the relevant subjects, should be made available to assist each school in implementing integrated programs in such areas as nutrition, sexuality, physical activity and the scientific method. Programs for families and community organizations should be developed to support these classroom experiences, ensuring consistent messages. Collaborations among health and science professionals and K-12 educators should be developed and promoted so that the content of these educational programs meets a high standard and so that educators present the content to students appropriately.

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VI. Utilization

A. We strongly believe that any effort to curb utilization should be within the context of an expressed goal by the State of encouraging all Vermonters to see their doctors on a regular basis.

B. We have received sufficient testimony, however, to conclude tentatively that increased utilization of some procedures and treatments is driving up health care expenditures and insurance claims and premiums. We also understand that doctors often choose among available procedures and treatments without understanding what they cost. Data on these issues are incomplete, and judgments based on historical data are of limited value. Because patterns of utilization are constantly changing, both data and judgments based on them quickly become out of date.

C. We offer two significant initiatives intended to curb unnecessary utilization:

1. The Common Care List and the Risk List (see Section VII, below) are proposals that would cause the State to collect, analyze and disseminate important information, the availability of which would provide citizens, care givers, insurers and health-care policy makers with a frame of reference within which to make more-informed decisions about utilization issues.

a. The Common Care List would be an educational device intended to curb unnecessary utilization and to provide market information that would both allow patients to choose among providers and also tend to make charges for common treatments and procedures more competitive.

i. In this connection, we also recommend that the State place a high priority on continued support of the efforts of the Vermont Program for Quality in Health Care and the Area Health Education Centers in their coordinated work to develop best practice guidelines for chronic disease and to promote those guidelines in the medical community.

b. The Risk List would be an educational device intended to curb utilization in cases where a particular treatment or procedure is likely to worsen or unlikely to improve the patient's health outcomes.

2. The Incentive Plan for Medicaid (see Section VIII, below) proposes a significant test of self-management for recipients of Medicaid. Because Vermont has a high Medicaid participation rate, the pressures of Medicaid costs on the State budget are greater in Vermont than elsewhere. ^{SEE NOTE 29}

a. Recalling the successful experimentation with incentives in the early days of welfare reform, we propose an experiment to determine what would happen if we were to give Vermont Medicaid recipients more freedom and incentive to take charge of their own health care. We believe the experiment would be of significant value both to the State, in administering its Medicaid programs, and to commercial insurance carriers.

b. If the outcomes of this program are favorable, we would urge consideration of further development of the voucher model of paying for health care

c. We believe that making payment of Medicaid expenses a shared obligation should result in appropriate utilization, greater consumer understanding of costs, and increased avoidance of risky behaviors. By avoiding such bureaucratic hurdles as prior authorization requirements, it should increase accessibility and lower overhead.

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VII. The Common Care List; The Risk List

A. We recommend the establishment of a Common Care List, as outlined below.

1. The State shall designate a person or persons (the "designee") to adopt or cause to be created a list of the 50 most common conditions for which Vermonters receive medical treatment.

2. Relying upon scientific findings and considering the recommendations of one or more panels of medical experts, the designee shall, after hearing public comment, identify the appropriate treatment protocols for each of the conditions on the list.

3. These recommended protocols shall be determined by health outcomes alone, without consideration of cost.

4. Careful consideration shall be given to the best practice guidelines for chronic disease developed by the Vermont Program for Quality in Health Care and the Area Health Education Centers.

5. In the first four years of this program, fewer than 50 treatment protocols may be identified if, in the judgment of the designee, an extension of time is needed, provided however that some such treatment protocols are identified each year and that the list of protocols is expanded each year until the work is complete.

6. The designee shall also review financial data and identify the cost of each of the listed treatments and procedures at the major institutions at which Vermonters receive medical care.

7. This information shall be updated once a year and shall be prominently posted on the State's website and widely distributed to consumers, insurers and medical providers.

B. We recommend the establishment of a Risk List, as outlined below.

1. The State shall designate a person or persons (the "designee") to adopt or cause to be created a list that identifies medical care options for which health outcome benefits do not clearly outweigh health outcome risks.

2. At the designee's discretion, this list may be annotated and may include indications of the magnitude by which risks outweigh benefits in certain situations.

3. This information shall be updated once a year and shall be prominently posted on the State's website and widely distributed to consumers, insurers and medical providers.

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VIII. The Incentive Plan for Medicaid

A. The primary responsibility for maintaining wellness and for paying for health care rests with the informed individual and family, not with the government. People differ, however, in their ability to pay for health care. One legitimate role of government is to ameliorate differences in ability to pay for health care, while continuing to recognize the primary role of the individual and the family.

B. Competition in health care and coverage, wherever and to whatever extent it exists, tends to control costs, foster efficiency and maintain affordability. ^{SEE NOTE 30} Therefore, while government has a responsibility to assure that all citizens have financial access to health care, in meeting this responsibility it should seek to choose methods and mechanisms that maximize competition. The opportunity to save or waste money in marketplace transactions is a powerful incentive for consumers to educate themselves about cost effectiveness and risk avoidance. Government should design its programs to maximize these incentives.

C. We recommend the State conduct a 5-year pilot project as follows: ^{SEE NOTE 31}

1. Identify the population for the pilot project as being 7,000 adults who are newly enrolling or are re-enrolling in VHAP, the Vermont Health Access Program. ^{SEE NOTE 32}

2. Issue each person a Preventive Incentive card, similar to a credit card or the current Green Mountain Card, that would be worth a designated dollar amount for health care, above which the normal Medicaid terms and coverage would apply.

3. Direct that the dollar amount of credit may be spent, without prior authorization, for care by the same providers who would otherwise be paid by Medicaid, except that the credit would be worth twice as much in payment for care that is designated by this program as being preventive care.

4. Direct that, at the year's end, one-half of any unspent balance may be applied by the enrollee to any of certain designated purposes such as college tuition, job training, child care, etc. The remainder of the balance would be retained by the State.

5. Direct that program outcomes be measured annually against the rest of the adult Medicaid population in Vermont, including the extent to which this program (a) changes utilization, (b) increases preventive care, (c) decreases risky habits and behaviors, (d) saves or costs money.

D. We recommend that the State apply for any federal waiver necessary for this experiment, and, mindful of the value this could have for Medicaid and other insurance plans across the country, we recommend that the State aggressively seek grant funding to pursue it. ^{SEE NOTE 33}

E. We also note that this proposal and any future voucher program could include a Smart Card feature that would enable participants to carry a card on which credits, debits and balances could be encoded, along with personal health data such as blood type, allergies, immunizations, prescriptions and similar important information. Access to such encoded data could be limited by encryption, allowing different levels of need-to-know access by physicians, pharmacists, emergency medical technicians, etc.

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IX. Administrative Cost Control

A. Context and Magnitude

By conservative estimate, Vermonters spend $400 million a year on health care administration, and that amount is expected to grow by at least 8 percent per year. ^{SEE NOTE 34}

1. An uncalculated but clearly significant portion of this $400 million is spent on complying with paperwork requirements, any one of which may be justifiable in isolation, but which cumulatively comprise an unacceptable diversion of time and talent that could better be spent on direct care. Some of these requirements are mandated by State and federal regulations, but many are not. They must be re-examined, streamlined and scaled back. ^{SEE NOTE 35}

a. Some of this expense is required for professional accreditation, credentialing, quality assurance, and government-imposed mandates. The State should encourage outcome measurement and similar evaluations to understand the relative benefits of these costs.

b. We recommend that the State review the Medicare Advocacy Program to determine its cost-effectiveness and its burden on home health agencies.

2. An uncalculated but clearly significant portion of this $400 million appears to be wasted on the inefficient recording and exchange of information. Our health care providers, insurers and regulators who have not yet done so must immediately computerize, network and integrate their information systems.

3. An uncalculated but clearly significant portion of this $400 million appears to be wasted on dealing with a proliferation of incompatible and idiosyncratic forms, codes, pre-authorization criteria, etc., as well as with hundreds of decentralized claims-processing centers. These must be identified, standardized and consolidated.

a. We recommend that insurers develop a set of 20 standard "additional information" codes covering the 20 most common reasons for returning claims to providers. With each claim sent back, staff would be provided with a code indicating precisely the reason for return.

b. We recommend that health care providers send a simple, detailed, and complete invoice to the patient with the first billing, to inform the patient and thus curb unnecessary utilization and as a check against overcharges and double billing.

4. An uncalculated but clearly significant portion of this $400 million appears to be spent on superfluous administrative functions and practices that are allowed to endure because of a lack of rigor within management and a lack of effective scrutiny by regulators or consumers. These functions and practices must be identified, challenged and modified.

a. We recommend that the Office of Vermont Health Access and private insurers reconsider the use of prior authorization procedures to determine if they are, in fact, cost effective.

5. Government is causing some of these problems, but limited scrutiny by government and by consumers has resulted in a lack of accountability by all parties. Simply put, there are enormous inefficiencies and unjustified paperwork burdens in the administration of health care, but, with notable exceptions, state government cannot see exactly where they are or how to remove them. To a significant degree, we cannot see because we are not looking.

B. Legislative Oversight

1. The Legislature should more closely monitor the expenditure of funds for administration throughout Vermont's health care economy ^{SEE NOTE 36} and take such actions as, in its judgment, may be necessary from time to time

a. To protect the public health and safety.

b. To protect the public from unnecessary expense.

c. To protect the financial integrity of our care and coverage providers.

d. To protect such other public programs as may be put at risk by excessive increases in care and coverage costs.

2. To this end, all major components of the health care economy over which the State has any jurisdiction should be required

a. To adopt common definitions for reporting purposes.

b. To adopt a common "chart of accounts" that allows true financial comparisons. ^{SEE NOTE 37}

c. To subject their annual and long-term administrative budgets to legislative scrutiny. ^{SEE NOTE 38}

C. Study To Identify Administrative Costs

We recommend that the State conduct a grant-funded, year-long, well-staffed study of existing literature and Vermont data on where administrative costs occur in health care, their justification, whether the burden is worth the yield, and how unnecessary administrative costs can be decreased. This study also should identify sectors in Vermont where data are insufficient.

D. Study of Range of Hospital Services

1. We recommend that the Legislature implement a study to review the range of services offered by hospitals serving Vermonters, to evaluate them with respect to quality, availability, affordability and other specified public policy goals, and to report findings within one year.

2. We recommend that the Legislature, after considering these findings, then determine and direct the extent to which the Commissioner of BISHCA and the Public Oversight Commission shall weigh the findings of this report in making decisions on Certificates of Need and hospital budgets. ^{SEE NOTE 39}

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X. Information Technology

A. We recommend that the State, following the models of multi-state cooperation for pharmaceutical purchasing and for the Electronic Benefits Transfer (EBT) card, seek the cooperation of neighboring states in enabling and enhancing the use of new and existing technology to increase the speed and coordination of information exchanges about health care and coverage.

B. This effort should be designed to decrease both the use of paper and the staff time currently required to fill out paper forms, to produce paper correspondence and to make telephone calls related to claims and benefits.

C. It also should have the goal of enhancing the knowledge that care givers have immediately available at the time they are treating patients. This would include access to patient record databases and to clinical decision support applications such as Problem-Knowledge Couplers. ^{SEE NOTE 40}

D. This effort must comply with the Health Insurance Portability Accountability Act (HIPAA) requirements regarding electronic data interchange and should complement other current initiatives and practices that are consistent with these goals.

E. This effort should be aggressive, with the participating states setting out deadlines, incentives, benchmarks and compliance consequences. The investment required to achieve these goals would be significant, and relevant federal waivers and demonstration grants should be aggressively pursued. Unified requests for proposals should be considered, and private sector solutions sought out.

F. Insurance regulations and policy conditions should be immediately reviewed and revised to enable electronic communications and remove any disincentives. Doctors, for example, should be paid for time spent consulting with patients by e-mail, video conferencing and other electronic methods.

G. As part of this effort, a private-sector central electronic clearinghouse should be established that would accept claim, referral, and other transaction data from computer systems around the state, reformat the claims to meet the requirements of the many different insurance carriers, and store the de-identified data (as required by HIPAA guidelines) in a statistical database. Stored data would include claim data for physicians' services, prescriptions, durable medical goods, and lab work. ^{SEE NOTE 41}

1. This clearinghouse should provide a secure method for physicians to submit claims if their practices are not fully computerized and should accept data in non-standard formats from providers that have not yet upgraded their software to meet HIPAA standards.

2. The clearinghouse should also analyze the claim data, using applicable federal rules to determine a claim's validity. The clearinghouse should apply these rules and provide feedback to providers to help them improve the claims they submit in the future.

H. To the extent that some of these efforts are currently under way and some of these services are already available, they should be supported, provided they are compatible with a system that can be planned and executed in a unified manner. Where such efforts do not exist, they should be initiated. The goal should be a ubiquitous and compatible information technology capability throughout Vermont's health care economy.

I. In pursuing the goal of greater computerization, medical records privacy should be strengthened, not weakened. Every person using the health care system should be confident that his or her privacy will be respected, and that all medical records will be used only as necessary and otherwise will remain confidential. Federal rules relating to medical records privacy will take full effect in April 2004, but these rules leave significant gaps in protection, notably in the area of marketing. ^{SEE NOTE 42}

J. We recommend that the Legislature pass a medical records privacy law providing protection broader than that of the federal rules, while being careful not to impose an entirely separate regulatory system on the provider community.

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XI. Medicaid Reimbursement

A. We recognize that inadequate Medicaid reimbursement rates are causing both availability and affordability problems in Vermont, as care givers curtail the number of Medicaid patients they will see and as unreimbursed costs are shifted to commercially insured patients, raising the cost of claims and premiums.

B. Following current legislation, we recommend that the State increase Medicaid reimbursement rates incrementally until they reach Medicare levels. ^{SEE NOTE 43}

C. Because this increase would be intended to cure cost shifting problems, each incremental increase should be predicated on a showing that costs are being "unshifted," and that the harm caused by cost shifting is actually being alleviated by the expenditure of the additional funds.

D. In addition, reimbursement levels should be contingent each year upon compliance ^{SEE NOTE 44} during the previous year

1. With whatever budget restrictions the State has imposed or the providers have agreed to.

2. With whatever administrative cost reduction targets the State has imposed or the providers have agreed to.

3. With whatever representations have been made to the State by providers as part of the certificate-of-need or any other regulatory or permitting process.

E. We recommend that reimbursement increases be entirely dependent upon outcome measurements with no discrimination by type of provider; any provider who achieves the outcomes should get the increase.

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XII. Pharmacy Cost-Control Measures

Acknowledging that much work has been and is being done in this area, we recommend that the State:

A. Continue its aggressive participation in multi-state efforts to establish lower drug prices through collective purchasing power. ^{SEE NOTE 45}

B. Seek changes in regulations and practices that would allow uniform monthly prescription refill anniversaries for individuals and families who have multiple prescriptions.

C. Seek changes in regulations and practices that would allow people to buy larger supplies of drugs and refill prescriptions less often. In no case should the refill limit be lower for a Vermont retail pharmacy than it is for a mail-order pharmacy.

D. Provide free samples of generic drugs to physician practices for distribution to uninsured patients. (Drug representatives currently provide free samples in a largely successful effort to condition patients to request more expensive brands of equivalent drugs, an effort reinforced by media advertising.) ^{SEE NOTE 46}

E. Seek to have public and private insurers increase the co-payments for non-generic drugs in an amount equal to the difference in price. (Since not all generics are exactly equal to brand-name versions, some ability by prescribers to differentiate may be appropriate.)

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XIII. Financial Access to Health Care

A. We offer here several options regarding health insurance and other methods of assuring Vermonters' financial access to health care. We agree that our goal should be to have all Vermonters insured, but we disagree about how that goal should be pursued. These recommendations, then, are not unanimous and some of them are strongly opposed by individual commission members. They are offered here as options worthy of consideration. (The exception is the recommendation in support of safety-net providers, which is supported by all commissioners.)

1. VHAP Buy-in

a. Under this proposal, the Vermont Health Access Plan (VHAP) would be opened to individuals and to employers with 25 or fewer employees (75 percent of whom would have to enroll) at premiums that would equal costs. There would therefore be no additional cost to the State. Provider reimbursement rates would be set at Medicare reimbursement levels for all charges paid under VHAP buy-in coverage. ^{SEE NOTE 47}

b. There would be an income eligibility upper limit of 300 percent of the federal poverty level (for those buying in as individuals), a waiting period of 12 months (except in case of job change or involuntary loss of coverage), an employer payment of half of the premium (for employer participation), a $100/$200 deductible and $10 per visit co-payments.

c. The Lewin Group estimates this would result in a $21 million program that would enroll 7,668 persons, 6,503 of whom would be newly insured. This would decrease the number of uninsured Vermonters by 13 percent and decrease the number of Vermonters in the private insurance market by 9/10ths of a percent. ^{SEE NOTE 48}

d. Concern of some who support this proposal: Without income limits and a waiting period, the VHAP buy-in could evolve into a high risk pool, with premiums becoming unaffordable, defeating the intent of getting more people insured. Another concern is that an open program would undermine the private insurance market ("crowding out").

e. To avoid putting its budget at risk of covering unanticipated shortfalls if claims should exceed premium revenues, the State should either fund a reserve or incorporate a re-insurance or stop-loss element as part of any VHAP buy-in program. While these claims would be factored in when setting the premium amount, with the rapid increase in medical costs, it could prove politically difficult to raise premiums fast enough to make sure the program remained self-sustaining.

f. The cost of doing nothing: We recommend that the costs of treating uninsured Vermonters be quantified, that the sources of payment (including those associated with cost-shifting) be identified, and that these costs be compared to the costs of the existing VHAP.

2. Strengthening the Insurance Market

These options have the secondary goal of attracting insurers to Vermont and the primary goal of not losing those we have.

a. The State should allow all carriers in the individual market to use rating bands (plus or minus 20 percent).

b. The State should allow all carriers in the small group market to use rating bands (plus or minus 20 percent). ^{SEE NOTE 49}

c. The State should develop a reinsurance program for the individual market to spread risk over all commercial payers.

d. The State should develop a high-risk pool, financed by (i) an increased tax on tobacco, (ii) other State revenues, (iii) a surtax on all insurance premiums generally, or (iv) some combination thereof. ^{SEE NOTE 50}

e. The State should offer tax rebates for the purchase of all health insurance. ^{SEE NOTE 51}

f. The State should offer tax rebates for the purchase of catastrophic health insurance. ^{SEE NOTE 52}

3. Support of Safety Net Providers

Vermont's rural health centers and federally qualified health centers should continue to be supported by the Office of Vermont Health Access using a cost-based reimbursement system to ensure that these centers receive adequate payments

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Letter to the Vermont Congressional Delegation

324 Gonyeau Road
Plainfield, VT 05667

December 4, 2001

Senator Patrick Leahy
Senator James Jeffords
Representative Bernard Sanders
United States Congress
Washington, D.C.

Dear Fellow Vermonters:

I enclose for your consideration a copy of the final report of the Governor's Bipartisan Commission on Health Care Availability and Affordability, which I have had the honor of chairing for most of the past year.

As we note in the report, there are important aspects of the problems we see in health care in Vermont that cannot be adequately addressed except at the federal level.

I have collected from my colleagues on the commission a number of recommendations for reform at the federal level. I present these recommendations here with the disclaimer that, while these ideas were put forward by individual commission members, the commission did not review them, deciding instead to focus on recommendations for action at the state level.

Therefore, please consider this letter from me as a compilation of the ideas submitted by different commissioners. It is my strong belief that these recommendations, which call for increased flexibility for states and a streamlining of requirements for states and for providers, would make government and providers alike more responsive to consumers. I also believe that the cumulative effect of these changes would moderate prices and increase access to health care in Vermont.

I hope these recommendations will be of value to you in your own efforts to ensure health care availability and affordability for all Vermonters.

The Employee Retirement Income Security Act of 1974

1. Amend ERISA to allow states to include all employers, whether fully insured or self-insured, in any pool used to spread the risk of individuals who are more difficult to insure.

   ERISA preempts many state laws and makes it more difficult, if not impossible, for states such as Vermont to extend insurance to the uninsured, to control costs, and to regulate their health insurance markets to spread risk. Essentially, this law does not allow states to regulate health benefits that are provided directly by the employer, rather than by an insurer. This preemption allows small employer groups to self-insure when they are good risks (often retaining only a small part of the risk) and then return to the insured marketplace when their experience deteriorates. Thus, employers can avoid state laws, such as community rating or rating bands, that are designed to spread the risk, and, by cherrypicking the good risks, increase the costs of insurance to those employers remaining in the insured market.

   This law also prevents states from placing a surcharge on premiums paid by self-insured employers to fund coverage for individuals buying their own insurance, whether through a high risk pool, a reinsurance mechanism or other means.

   In addition, Vermonters insured through such plans lack access to state law protections, such as independent external review, and to the state complaint resolution process. State officials are powerless to assist consumers who come to them with serious and sometimes critical problems that could readily be resolved under state law. Although the proposed Patients Bill of Rights would improve this situation by providing some rights to these employees, the federal government finds it difficult to handle individual complaints. It is important that federal legislation allow state laws such as those governing external review procedures to remain in place. Legislation should also make it clear that ERISA does not preempt the right of state governments to require insurers to provide consumers access to state external appeals panels and to the important remedies they provide, including restitution.

Pharmacy Costs

2. Provide Medicare coverage of prescription drugs.

3. Extend the 340b Pharmacy Benefit Program, currently available to FQHCs (Federally Qualified Health Centers), to Critical Access Hospitals (limited service hospitals that receive cost-based reimbursement) such as Grace Cottage and Gifford. (I understand that Mt. Ascutney will join the list shortly.)

4. Re-regulate the direct-to-consumer advertising of prescription drugs, restoring it to pre-1995 regulatory status. We have received substantial evidence that this advertising has resulted in improper prescribing practices and unnecessary utilization.

5. Re-examine the patent laws to determine how much protection for a drug developer is "enough." Patent laws properly afford economic protection to those who invest time, talents, and resources in developing products (including prescription drugs) that make our lives better. The existing patent laws, however, lend themselves to game playing, by which pharmaceutical manufacturers can extend patents as they are about to expire, thus keeping generic products off the market and keeping costs high.

6. Re-write the drug re-importation law of 2000 so that it will be able to accomplish its original objective of facilitating the safe re-importation of U.S.-made drugs at reasonable prices. As written, the law has serious problems that will prevent it from ever becoming effective.

7. Request an audit review of the practice of determining expiration dates on drugs, with the goal of identifying any for which the authorized shelf life might be extended without harm. This would allow Vermonters to avoid throwing out usable medicine.

   Medicaid Reforms

8. Eliminate the requirement that when individuals receiving Medicaid waiver services are admitted to a hospital for short stay, they must be dis-enrolled and then re-enrolled in the waiver program, even if the hospitalization is for only a couple of days.

9. Allow states such as Vermont to access their full SCHIP (State Children's Health Insurance Program) allotment. Vermont should not be penalized for having done well by its children.

10. Secure protection for 1115 Waiver states, such as Vermont, and preserve Medicaid expansions by granting permanency to expansion populations by moving them into a state's base for budget neutrality purposes. This would not result in an expansion of current coverage, but would allow Vermont to maximize federal funding for the coverage we already have in place.

11. Repeal the OBRA93 (Omnibus Budget Reconciliation Act of 1993) ban and allow states to experiment again with long-term care (LTC) projects that encourage and reward the procurement of LTC insurance and result in Medicaid savings.

12. Eliminate the institutional bias in Medicaid and create a level playing field for institutional (i.e. nursing homes) and home and community based (RCB) services by permitting states to include RCB services as a regular Medicaid plan coverage.

13. Permit states to address the needs of "dual eligibles" (i.e. persons who are eligible for Medicare and Medicaid benefits) in a holistic fashion.

14. Promote dental-care access by providing an enhanced, 90 percent federal Medicaid match for these services.

15. Eliminate the exclusion of incarcerated individuals from Medicaid coverage. This restriction is discriminatory and does not facilitate people getting necessary services, nor does it facilitate their successful re-entry into their communities upon release.

16. Support patients' return to home- or community-based settings by permitting providers to bill Medicaid for discharge planning and service coordination for a hospitalized individual, including care supports paid for caregivers (i.e. a developmental home provider, foster parents, etc.) so the person's housing situation is not jeopardized. This would avoid uncoordinated treatment between inpatient and outpatient services, poor services upon discharge, and the loss of hard-to-find housing situations.

17. Eliminate the IMD (Institutions for Mental Disease) services exclusion under Medicaid for persons age 22 to 64. This exclusion is discriminatory in that it singles out the only group of people that is categorically not allowed to receive Medicaid reimbursed services (other than people incarcerated, as noted above). The exclusion results in a disincentive for people to receive needed inpatient care, in that such care is funded with state money alone. This situation precludes 1915c Waiver approval, which would provide comprehensive home and community-based care, because there is no Medicaid savings to propose for budget neutrality. (There is no savings to Medicaid, since Medicaid does not pay).

18. Eliminate the requirement that Medicare must be billed first for people who are insured by both Medicare and Medicaid, even when the service provided is not covered by Medicare. This practice results in extremely long delays in payments to the provider and significant duplication of paperwork.

    Medicare Reforms

19. Amend the Medicare reimbursement formula, which unfairly discriminates against Vermont. In 1996, the American Hospital Association calculated a ratio of actual reimbursement to allowed costs for each state. In Vermont, Medicare reimbursement was about 84 percent of the actual cost of providing care, the second lowest in the country. (New Hampshire hospitals were reimbursed at 94 percent of costs, New York and Massachusetts hospitals at 106 percent). Hospitals in states with higher Medicare reimbursement rates can give greater discounts to health plans doing business in those states, with resulting lower costs to employers in those states. Vermont's Medicare reimbursement rate should be raised to the same percentage of cost that is provided by reimbursement formulas in neighboring states.

20. Provide Medicare coverage of basic services needed by people with mental health problems or developmental disabilities. These services include targeted case management, chemotherapy provided by a registered nurse, day treatment, emergency care services, specialized rehabilitation services, residential support, respite, crisis intervention, supported employment, and community support and skills building.

21. Instruct the Centers for Medicare and Medicaid (CMS) to record and report home-care denial rates accurately. With respect to cases that are appealed, denial rates reported should not include initial denials, but only those counted after appeal; they should not include errors made by the fiscal intermediaries, which currently are frequently counted as home care agency denials.

22. Direct CMS to change its home-care agency review policy to one based on risk as defined by government auditing standards. Agencies with a history of compliance (denial rates consistently below 5 percent, for example) and high quality care in recent comprehensive reviews should be identified. To save time and money, routine Medicare audits of these agencies should include reviews of only a small sample of the claims submitted rather than burden the agency and Medicare with extensive reviews. Only if the sample shows problems should Medicare conduct a more extensive audit.

23. Instruct CMS to shorten the OASIS (Outcome and Assessment Information Set) form for home care to include only those questions necessary for reimbursement under the Prospective Payment System (PPS). Eliminate the requirement that OASIS forms be used for non-Medicare patients.

24. Revise the Medicare "homebound" eligibility requirement so that it is based on medical status only, and not on other factors that require interrogation and documentation and lead to wide disparity in eligibility determinations.

25. Eliminate the "chronic but stable" basis for disqualification for Medicare home-care services. Establish Medicare home-care eligibility for disabled persons who are bed bound but who can, with the assistance of others, frequently leave their homes.

I submit these recommendations for your consideration and I thank you for the work you continue to do to promote health care availability and affordability in Vermont.

Sincerely,

Cornelius D. Hogan

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Letter From Rep. Koch

State House
Montpelier. Vermont

November 27, 2001

Cornelius Hogan, Chair
Governor's Bipartisan Commission
On Health Care Availability & Affordability

Dear Con:

I join this report with some serious reservations. In doing so, I recognize the very diverse views held by the seven members of the Commission and the consequent difficulty of securing the agreement of a majority. I thank you for your leadership of this Commission; it has been a privilege to work with you and the other members on issues of such great importance to the citizens of Vermont.

I do join in this report, because it contains a number of recommendations which are worthy of legislative consideration. Where I have major disagreements with portions of the report, they are indicated in the footnotes. Nevertheless, I think it necessary to state separately my greatest reservation concerning our report.

My major concern is not what is in this report, but what has been omitted from it. In April of this year, the legislative Joint Fiscal Office projected a $75 million deficit in the Medicaid/VHAP program by FY2008, even assuming adoption of a 67 cent per pack cigarette tax increase. In November, the Joint Fiscal Office raised that number to $306 million!

The fact is that Vermont, in an effort to provide universal health insurance, has expanded its Medicaid/VHAP system to the point where it is far beyond what is sustainable. This Commission should be sounding that alarm loud and clear, but there is only a hint of warning in this report.

The report does contain several suggestions that may help. Anything that can relieve unnecessary administrative burdens will help. Facilitating greater education and information sharing among consumers and providers will help. The Medicaid Incentive Plan in Section X, which has yet to be fully articulated, may help. But there is little time. FY2008 will begin in less that six years, but the deficits in the Medicaid/VHAP program are projected to begin with a $32 million deficit in FY2003, which is the budget the legislature will be working on in less that two months.

Vermont's present Medicaid/VHAP system is broken beyond repair. It needs to be thoroughly restructured, and in my view, designing a restructured system was the major task of this Commission. It is a task that the Commission did not complete, and I find that to be a major disappointment.

Sincerely,

Thomas F. Koch

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Letter From Rep. Mazur

State House
Montpelier. Vermont

November 25, 2001

Con Hogan, Chair
Governor's Bi-Partisan Commission on Health Care
Availability and Affordability

Dear Con:

Ref: Minority Report

I want to express my appreciation for the opportunity to work with you and the other members of the Commission during the past year. I have been impressed with the knowledge, skills and dedication each member has brought to our critically important work.

I agree with several important sections of the Report. The recommendations designed to reduce wasteful administrative costs, improve consumer education, and establish best treatment protocols are all worth considering. Unfortunately, I am concerned that perhaps in our desire to reach consensus, we have failed to acknowledge some of the underlying reasons for the problems facing Vermont's health care system, and that we have therefore been unable to present real solutions to our problems.

There are two major problems facing Vermont's health care system today:

1. The insurance market is increasingly unaffordable for Vermont businesses and individuals. This is now the third year in a row where policyholders have faced double-digit premium increases.
2. Vermont cannot afford its Medicaid program. The Medicaid financial deficit will be $34.8 million in FY '03 and will grow to $306 million in FY '08 unless substantial changes are made.

Our health care affordability crisis is the direct result of public policies that have: (1) imposed regulatory burdens on the health insurance market without adequate consideration for their effect on the affordability of premiums; and (2) expanded the Medicaid program to over 20% of Vermonters without the application of appropriate cost containment strategies.

We need aggressive and effective responses to correct these mistakes.

Strengthening the health insurance market:

Reforms designed to strengthen the private health insurance market should include:

• Attacking the root cause of the dysfunctional health care economy by empowering consumers to make health care decisions through policies with higher deductibles and cost sharing.
• Modifying community rating laws by allowing reasonable premium differences based on factors such as different lifestyles, smoking status, and health status in the case of the individual market. More affordable rates for healthier consumers will benefit everyone.
• Permitting insurers to offer consumers a choice between comprehensive, "Cadillac" coverage and affordable, basic coverage.
• Establishing a high-risk pool in the individual health insurance market, and a reinsurance mechanism in the small group market, thereby lowering costs by more broadly spreading costs for everyone in each pool.
• Permitting employers more options for purchasing affordable, self-insured health benefit plans for their employees.
• Requiring a cost-benefit analysis before any new health insurance mandates are enacted.
• Creating incentives for consumers to police health care provider billing errors.
• Providing report cards on hospitals and health insurers so that consumers can make informed choices.
• Ensuring that Medicaid reimburses health care providers in a manner that does not result in shifting costs to the commercial health insurance market.
• Transferring health care coverage from Medicaid to the private health insurance market for as many Medicaid beneficiaries as possible.
• Encouraging first dollar coverage to be paid by consumers and insurance cover catastrophic expenses.

Reforming Medicaid:

Substantial reforms must be made to place the Medicaid program on a financially sustainable footing. The goals and principles for Medicaid reform should include the following:

• Vermont's Medicaid program must become financially sustainable. Over the short term, Medicaid should reduce spending by $11.8 million in fiscal year 2003, $27.8 million in fiscal year 2004, and $47.8 million in fiscal year 2005. Over the long term, Medicaid's share of total state spending shall not increase over its share in fiscal year 2002.
• Vermont's Medicaid beneficiaries should be empowered to make cost-effective decisions, and to choose the health care they believe is appropriate for their families.
• Private markets in health care and health insurance must be supported and encouraged. As many Medicaid beneficiaries as possible must be covered under private health benefit plans.
• The Medicaid program must be restructured, using the regulatory flexibility offered by the federal government under the Health Insurance Flexibility and Accountability Demonstration Initiative.
• The Medicaid reform plan must include a comprehensive cost containment strategy, implemented in a manner that preserves the essential purposes of Medicaid. The cost containment strategy should include:

• Changes to the type, duration, amount and scope of Medicaid and VScript benefits.
• Cost sharing requirements that are comparable with cost sharing requirements for Vermonters covered under non-Medicaid health benefit plans, adjusted for the beneficiary's ability to pay.
• Care management procedures, disease management programs, and other cost-effective utilization programs.
• Individual case management programs that seek to reduce the cost of providing appropriate, quality health care for the 10 percent of the population that requires 70 percent of health care expenditures.
• Full implementation of the pharmacy best practices and cost control program authorized by Sec. 123(n) and (o) of Act 63 of the 2001 session.
• Cost-effective provider reimbursement systems, such as awarding contracts to hospitals and health care providers after a competitive bidding process, or establishing reimbursement methodologies similar to those employed by Medicare.
• Empower Medicaid beneficiaries in a competitive heath care marketplace, through demonstration projects testing the cost-effectiveness of health care voucher or medical savings account programs.

Again, thank you for the opportunity to work with you and the other members of the Commission in pursuing our goal of affordable, quality health care for all Vermonters.

Sincerely,

Rep. Frank Mazur

cc: Commission members

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