Shumlin’s “Elegant Plan”

Shumlin's elegant planThis morning in my Twitter feed I saw a retweet from Darcie L. Johnson which linked to an article about Governor Peter Shumlin’s proposed new 0.7% payroll tax that will be used to increase reimbursement rates to doctors accepting Medicaid patients. While there is a lot in the article that I don’t know enough to really comment about, such as the claim that insurance rates for business will drop enough so that the tax actually saves them money (which I don’t think will happen), there is something that jumped out at me as…odd.

Medicaid is a program run by the states and partially funded by the federal government which provides health insurance for those earning below the poverty line. Part of Obamacare was an expansion of this program via raising the level of income with which someone qualifies to be enrolled. Originally the new law intended to tie all Medicaid funds to the states expanding their coverage, but this was struck down as unconstitutional by the Supreme Court on the grounds it equaled compelling the states to participate. So the federal government is simply offers additional money to those states which expand their coverage and in fact authorized higher levels of reimbursement for the first two years the law was in effect to make the expansion more palatable.

Those extra funds expired at the end of 2014, with predictable results for states, such as Vermont which expanded their coverage. As the Burlington Free Press article reports:

That changed on New Year’s Day, when Medicaid reimbursement rates in Vermont dropped by about 20 percent for primary care doctors as federal funds expired.

The fact that thousands of additional people are now on the Medicaid roles, including some who have income far above the supposed threshold, and the extra funds used to entice states to participate have gone away has left Vermont struggling to find $140 million to address the gap in reimbursement rates. This gap between what private insurers pay providers and what Medicaid pays is causing more and more doctors to no longer accept Medicaid patients.

Enter what Governor Shumlin calls his “elegant plan,”

In order to keep the reimbursement levels to Medicaid providers high and maintain access to care, Governor Shumlin has proposed a 0.7% payroll tax that will be assessed on all Vermont employers, including government and schools.

The state would use the estimated $90 million in annual payroll tax revenue to find about $100 million in matching federal money, then use the whole amount for a suite of health care proposals, including a plan to address the differences between Medicaid and commercial rates.

(I have written before of the ignorance of basic economics involved with in the idea that there is some magical difference between money at various levels of government. No matter what title you give it, it is all tax payer money.)

So Shumlin’s elegant plan to cover a problem caused, at least in part, but the disappearance of federal funds is to rely, in large part, on more federal funds. And this knowing, at least he should know because it is part of the Obamacare law, that the amount of money that the states receive to cover the costs of the Medicaid expansion will drop 10% by 2020. This will leave yet another hole that will need to be filled by, probably, another tax. Vermont already ranks near the bottom (5th worst) in terms of business friendliness, a rating a new payroll tax is not going to help.

This is of course why many states refused to take part in the Medicaid expansion, because their governors saw that doing so would result in increasing pressure on their already strapped state budgets.

Vermont is showing just how right these other governors were.

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