Human Services: 5. Vermont’s Healthcare Spending Trends

Human Services

Healthcare spending, principally Medicaid, is the single largest annual expense of the Vermont state government.  In fiscal year 2018, total Medicaid spending was $1.68 billion, which was funded 59% by the federal government and 41% by the state.  Medicaid is the second largest state-funded expenditure, exceeded only by K-12 education.

Given the scale of expenditures and their impact on overall fiscal policies, the management of healthcare expenditures is one of the most important functions of the state government.  This article will take a look at how Vermont has performed over the last several years and review some major new initiatives.

Historical Spending

Most of Vermont’s healthcare spending takes place in three departments.  The largest is Vermont Health Access, which manages the core Medicaid/Affordable Care Act programs. Next is the Department for Disabilities, Aging and Independent Living.  The third is Mental Health.  Actual appropriations for these three departments since 2016 are provided below.

               Vermont Historical Healthcare Expenditures ($ millions)

Department 2016 2017 2018 Change Since 2016
Vermont Health Access 1,209 1,155 1,124 (85)
Disabilities, Aging & Independent Living 247 264 271 24
Mental Health 217 226 240 23
Total 1,673 1,645 1,635 (38)

Source: Vermont Governor’s Executive Budget Recommendation, Fiscal Years 2017, 2018, 2019 and 2020.

Looking at the numbers in isolation, it would appear Vermont is doing a decent job of controlling costs. Core Medicaid costs have been reduced, more than offsetting increases in Disabilities, Aging & Independent Living and Mental Health.

These spending trends seem to be consistent with Vermont’s demographic profile.  The number of people over 65 is growing and the number under 65 is stable to declining. This results a migration away from Medicaid to Medicare, which is 100% funded by the federal government and an increase in long term care expenditures for the aging.

While the downward trend is encouraging for fiscally minded Vermonters, it doesn’t paint the entire picture.  Vermont’s Medicaid expenditures, on a per enrollee basis, remain high relative to the rest of the country. The chart below shows Medicaid Expenditures/Enrollee as of fiscal year 2014, the most recent data available:

                                     Medicaid Expenditures Per Enrollee

Area Medicaid Cost Per Full Benefit Enrollee ($)
USA 6,396
Vermont 8,787
Mass. 8,620
Conn. 8,446
Rhode Island 8,315
Maine 7,507
New Hampshire 7,472

Source: J. Henry Kaiser Family Foundation

As illustrated above, as of FY 2014, Vermont’s Medicaid cost/enrollee was higher than the national average and the highest among the six New England states. The Medicaid program has a set of mandatory healthcare services that all states must provide and a much longer list of optional services.  Vermont’s Medicaid program provides a more expansive group of services than the average state, which is one reason for the higher cost/enrollee.

In 2014, Vermont was one of only 12 states that did not contract with Managed Care Organizations for some portion of its Medicaid program.  Until very recently, Vermont’s Medicaid program was 100% fee-for-service. Fee-for-service payment schemes tend to incentivize healthcare providers to maximize the number of services they provide to a patient, thereby maximizing fees.

Managed Care Organizations can and do operate on a fixed cost per patient basis and assume some risk for providing full patient care within that framework.  Many healthcare policy makers, including those in the Vermont Agency of Human Services, believe that migrating from a fee-for-service model to a managed care model is the most effective way to control costs.

Cost Containment

In 2016, Vermont announced that it had agreed with the federal government to adopt an “All Payer Accountable Care Organization Model”.  The underlying concept is to move from a fee-for-service model to global budgets that reward value over volume. Maryland already has this program underway, and Vermont is the second state to do so. The key features of this program are as follows:

  1. Patients will retain existing coverage, services and choice.
  2. All payers, Medicare, Medicaid and commercial insurers, will adopt the same alternative payment structure.
  3. Vermont’s health care providers are to organize into Accountable Care Organizations (“ACO”) to participate in the alternative payment plan. One Care, led by UVM and Dartmouth Medical, has already done so.
  4. Wide participation is planned. Vermont and the federal government’s intend to have at least 70% of all Vermont residents and 90% of all Vermont Medicare participants attributable to an ACO.
  5. Vermont will limit annualized per capita healthcare expenditure growth for all payers to 3.5%.
  6. Vermont has undertaken to improve healthcare outcomes in three key areas: addiction and substance abuse, suicide and chronic disease.
  7. The implementation period agreed with the federal government runs from January 1, 2017 to December 31, 2022.

There are a number of Managed Care or Accountable Care experiments going on in the country, both in the government and private sector, in an effort to control healthcare costs.  While The Informed Vermonter is not remotely an expert in this complex field, the evidence to date appears to be mixed.  Nonetheless, doing nothing doesn’t look like a very good option.  The small size of Vermont may be an advantage in implementing a program like this.  Lets hope they succeed.

Budgeted Costs

So, we have a recent history of declining healthcare costs and a major new cost containment strategy.  With this as background, you might think Vermont’s budget would reflect continued positive trends. Well, think again.  The table below shows the approved fiscal year 2019 budget and the Governors Recommended fiscal year 2020 budget for the three key healthcare units.

                                 Selected Healthcare Budgets ($ millions)

2018 Actual 2019 Approved Budget 2020 Recommended Budget 2020 Budget over 2018 Actual
Vermont Health Access 1,124 1,177 1,200 76
Disabilities, Aging and Independent Living 271 293 302 31
Mental Health 240 245 267 27
Total 1,635 1,715 1,769 134

Source: Vermont Governor’s Executive budget Recommendation Fiscal Year 2020

Perhaps actual expenditures will come in less than those being budgeted by our elected representatives.

Related Articles and Additional Reading

  1. Human Services: Vermont’s Health Care
  2. Vermont’s Health Care Overview, Joint Fiscal Office




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