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Report Says Cost Shift Drives Up Health Care Premiums

Toby Talbot

According to a new report, the effort to restrain the growth of health care costs in Vermont is being undermined by the government’s failure to properly reimburse health care providers.

The report, released by the Green Mountain Care Board, shows that health care costs grew in Vermont by just 1.5 percent in 2011 but the cost of health care insurance grew several times that rate.

Anya Rader-Wallack is the chair of the board. She thinks a slow economy in 2011 reduced demand for health care services.

“There are some reasons we think why that low rate of growth was experienced and that it won’t necessarily be sustained,” said Rader-Wallack. “But it’s certainly better than what we had seen in prior years which I believed averaged about 4.7 percent for the three years prior to that.”

So if health care costs went up just 1.5 percent, why did the cost of private health care premiums go up so much more?  Rader-Wallack says the reason is the so-called “cost shift.”

Because the federal and state governments don’t fully reimburse health care providers for the cost of care, these costs are “shifted” over to private premiums and uncompensated care is also part of the equation. Rader-Wallack estimates that almost 20 percent of the price of a private policy is directly due to the cost shift.

“It gets exacerbated with every passing year if the public sector doesn’t keep up with whatever the rate of growth is in health care costs," she said. "Then in our market at least, those costs get shifted over to private ratepayers.”

Rader-Wallack says the Shumlin administration has proposed a 3 percent increase in Medicaid provider rates as a way to help stabilize the current size of the cost shift.

“What we’re trying to focus on and I think the Legislature and the governor have tried to focus on is can we at least make sure we’re not making the problem worse in the near term,” she said.

There’s another factor looming on the horizon. And that’s the full implementation of the Affordable Care Act in 2014. Rader-Wallack says the law is expected to drive up health care costs in the first year by more than 7 percent.

“More people get covered with insurance,” said Rader-Wallack. “And so they assume that there will be the effect of pent up demand where people have insurance for the first time in some time and they use more services as a result.”

The board’s analysis shows that costs are expected to continue to grow at high rate after the first year of the Affordable Care Act. The projections call for a roughly 6 percent growth rate in 2015 and 2016.

Bob Kinzel has been covering the Vermont Statehouse since 1981 — longer than any continuously serving member of the Legislature. With his wealth of institutional knowledge, he answers your questions on our series, "Ask Bob."
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