The state’s health care spending is largely conducted through four Human Services Departments: Vermont Health Access, which administers the core Medicaid coverage programs, the Department of Health, Mental Health and the Department of Disabilities, Aging and Independent Living. The operations of each will be reviewed below.
Vermont Health Access
To understand Vermont’s health care system, a clear understanding of the federal government’s Medicaid program is required. Medicaid provides health care cost subsidies to low income adults, people with disabilities, low-income senior citizens who can’t afford the Medicare co-payments, children and pregnant women.
Medicaid is funded on a formula basis by the federal government and the state government (which will be discussed below). Medicare, which is available to people aged 65 or higher, is 100% funded by the federal government.
Medicaid benefits are based on income thresholds or “Modified Adjusted Gross Income”, which includes wages, investment income and social security benefits. There are basically three types of subsidies, as follows:
- Free Medicaid coverage is available to adults with incomes up to 138% of the Federal Poverty Level (“FPL”), pregnant women up to 208% of the FPL and children up to 312% of FPL. As of September 30, 2016, Vermont had 177,795 Medicaid enrollees, representing 28% of the population.
- Premium Tax Credits, which effectively cap the cost of health insurance premiums, are available from 138% to 400% of FPL, with insurance premium costs capped at 3-4% of income in the 138-150% FPL range to 9.69% of income at the 400% threshold. Premium Tax Credits may be paid in advance or upon filing tax returns. In 2016, 19,575 Vermonters received Premium Tax Credits.
- Cost Reduction Subsidies cap out-of-pocket expenses, such as deductibles and co-payments, and are paid directly to insurance providers. Eligibility begins at 138% of the FPL and goes to 300% of the FPL. Similar to the Premium Tax Credit, the subsidies decline as incomes rise. Vermont has a more generous Cost Reduction plan than the underlying federal Medicaid program. First, they offer higher subsidies in the 200-250% FPL band. Second, they offer subsidies up to 300% FPL while the federal program caps these at 250%. In 2016, 14,893 people in Vermont benefited from Cost Reduction Subsidies. This program was recently eliminated by the current administration in Washington by way of a Presidential Executive Order.
To get a more intuitive feel for how Medicaid works, some key income thresholds are outlined below.
2017 Medicaid Income Thresholds ($)
|Household Size||100% FPL||138% FPL||150% FPL||200% FPL||250% FPL||300% FPL||400% FPL|
Source: Vermont Health Connect, Eligibility Thresholds-2017
Vermont’s Medicaid program is governed by the Global Commitment to Health, a type of contract with the federal government that expires on 12/31/2021.
This document sets out the scope of services available for coverage under Medicaid, which can differ from one state to the next. Vermont has elected a very expansive set of services.
The document also sets out the match-payment arrangements as between state and federal funding. For fiscal year 2016, total Medicaid funding in Vermont was $1.69 billion. The federal government’s share was $1.015 billion, or 60%, and the state government’s share was $670 million, or 40%.
The state funds its $670 million share of Medicaid from a variety of sources. General Funds (state income taxes, sales taxes etc.) provide 45%, or about $300 million.
Taxes assessed on health care providers, which were established as part of the Affordable Care Act, provide 23%, or about $154 million. Cigarette and tobacco taxes together with funds from the tobacco settlement provide a further 16%, or about $107 million. A variety of other sources make up the remaining 16%.
On balance, Vermont has one of the better Medicaid programs in the country. Vermont accepted the Medicaid expansion from 100% to 138% of the FPL available under the Affordable Care Act and enhanced some of the subsidies available on the insurance exchange (many states did neither).
As a result, some 95%-96% of Vermonters now have health coverage, one of the highest rates in the country. Vermont also provides coverage for a very extensive list of health care procedures and services resulting in high health care outcomes.
However, insurance premiums in Vermont rank among the highest in the country. Vermont is one of only two states (New York is the other one) that require pure community insurance rates.
Medicaid allows a 3:1 differential in insurance premiums as between old and young persons. In Vermont, insurance premiums are the same for all ages. So, young persons in Vermont pay higher premiums than they would otherwise have to and older people pay lower premiums. Vermont also has the second oldest population in the country, which drives up medical costs fundamentally and therefore insurance costs.
Vermont is adopting a managed-care model to replace the fee-for-service model that underpins both Medicaid and Medicare.
The fee-for-service model incentivizes health care providers to maximize services to maximize fees. This has resulted in excessive treatments, excessive testing, excessive medication and excessive Medicaid costs.
With a managed care approach, health care providers must assume responsibility for both the quality of care and its cost of delivery. Vermont hopes to bring down aggregate health care costs and thereby reduce insurance premiums over time.
Vermont Health Access, which manages the core Medicaid program, had a budget of $1.136 billion in fiscal year 2016.
Department of Health
An additional $146.9 million was budgeted by the Department of Health. This department provides a variety of administrative and support services, manages the state’s drug and alcohol abuse programs and the public health operations. Public health services include disease prevention, infectious disease control, environmental health control (asbestos, lead, radon etc.) and emergency medical planning and procedures.
Mental Health Services
This department, with budgeted costs $217.2 million in fiscal year 2016, manages adult mental health services, children’s mental health service, emergency mental health services, mental health legal services and system development and planning.
Mental Health is principally funded under the Global Commitment (Medicaid). Most of the mental health clinical services are provided under contract by independent, non-profit agencies.
Over 9,000 adults and 10,000 children receive mental health services in Vermont. A further 6,000 receive emergency services annually.
Disabilities, Aging and Independent Living
This department, with a fiscal year 2016 budget of $256.6 million, funds a variety of programs for vocational rehabilitation, the blind and visually impaired, and both short-term and long-term support for very old or severely disabled individuals.
The department also certifies, inspects and monitors nursing homes, residential care homes and other facilities to assure the best level of care for these vulnerable individuals. This department is largely funded under the Global Commitment (Medicaid).