Vermonters for Health Care Freedom is a 501 (c) (4) organization of individuals and businesses who are deeply concerned about health care reforms being implemented by Governor Shumlin, and seek patient-centered reforms that protect the traditional doctor-patient relationship.

Investigative Report:

Shumlin Administration Studied Payroll, Income Taxes to Pay for Green Mountain Care

Thursday, February 21, 2013

Background:

Act 48 of 2011 set the State of Vermont on the path to Canadian style single payer health care. The Act did not identify how the state would finance the move from premium-based to tax-based health care financing, but it stipulated that the Secretary of Administration would seek stakeholder input and deliver a report recommending revenues necessary to fund the program and provide analysis of how the shift from premiums to the new tax-based system would impact the state’s finances, economy, businesses and taxpayers. The report was to be delivered to the Legislature no later than January 15, 2013[1].

Some members of the General Assembly objected to the two year delay, insisting that the Legislature should address the financing of ‘Green Mountain Care’ single payer (GMC) before beginning implementation of the program. Bills and amendments to bills were introduced in 2011 and 2012 in an attempt to move the report deadline forward, to September 2012, so the voters would be able to see the cost and tax impacts before the November 2012 general elections. All attempts to move the report deadline forward were opposed by the Shumlin Administration and rejected on party-line votes.

In July 2012 the Shumlin Administration signed a $300,000 contract with the University of Massachusetts Medical School to perform the required analysis and prepare the report[2]. The scope of work and required deliverables included all the major analytical tasks required by Act 48. The UMass team worked closely with administration officials throughout the summer and fall to answer the multiple charges of Act 48.

By early Fall the governor and other administration officials began warning the public that the administration would not ask the legislature to consider the financing options in the 2013-2014 biennium. They indicated that the report would be delivered as required by Act 48, but that the administration would not endorse or support the financing recommendations contained therein. They stated that the real financing plan would be delivered to the legislature in January 2015, two years (and one general election) after the statutory deadline.

In early January the administration informed the legislature that the report would not be delivered on January 15th as expected, but would be delayed until January 24th and delivered with the governor’s budget address.

At 4:45 pm on January 24th, the “Health Care Reform Financing Plan” report was released, and the following day administration officials presented the report to committees of the legislature. Comparing the content of the report with the statutory requirements, VHCF identified 14 deficiencies, plus the fact that the report was not delivered by January 15th. Most notably absent were any recommendation for post-2017 tax financing of GMC and the required analyses of impacts. These two elements were at the heart of the legislature’s demand for information.

On January 31st, VHCF joined a bipartisan group of legislators led by House Minority Leader Don Turner and Senate Minority Leader Joe Benning to express displeasure with the failure of the Shumlin Administration to comply with the requirements of Act 48, and call upon Secretary of Administration Jeb Spaulding to produce the missing information within 15 days. On February 6th Spaulding replied, stating that the legislature did not need the information at this time because the opportunity to implement GMC earlier than 2017 had been lost due to the failure of Congress to support a waiver of the 2017 ACA requirement, which would have allowed an earlier transition to GMC. This same explanation for the failure to comply with Act 48 has been repeated by multiple administration officials including Governor Shumlin.

On January 30th VHCF submitted a formal Access to Public Documents Request to Secretary Spaulding seeking documents relating to the contracts with report consultants UMass and Wakely and the required report content. On February 13th VHCF took possession of approximately 1,600 pages of material and has reviewed the documents.

On February 15th, the administration announced a plan to appoint nine individuals to a committee charged with the responsibility to seek public input and recommend a financing system for GMC single payer. Reports indicated that a budget in the vicinity of $50,000 was proposed. The committee was given until late in 2014 to deliver its recommendations to the legislature, so that they could consider the matter in 2015.

Investigation Findings:

1.       The claim by administration officials that circumstances changed when Congress failed to approve the waiver is not supported by the evidence.

In a video interview with Kaiser Health News dated June 7, 2012, Green Mountain Care Board Chair Anya Rader Wallack stated:

“We're pushing for full coverage for everybody in Vermont: universal, affordable coverage.  That's the governor's goal.  He’s actually pushing for public financing for that increment and moving with federal permission — which currently we can't get until 2017 — moving to a fully, publicly-funded system.”

This statement makes clear that the administration assumed an earlier start date was not likely one month before signing the contract with UMass. The contract with UMass, executed on July 3rd does call for the GMC financing plan analysis to begin in 2015, but all documented communications between administration officials and UMass consultants assume GMC will begin in 2017.

Furthermore, statements by administration officials reported by VTDigger.com on October 9, 2012 indicate a continued unwillingness to engage the legislature in a discussion of GMC financing options before 2015, but confirm that the consultant’s report due in January 2013 would include specific financing options with the expected analysis, and predicted a ‘good dialogue’ thereafter.

The contract with UMass includes the following required analyses under tasks 2.4, 2.6 and 2.7: “complete analysis of all revenue sources to be utilized, including federal funds, taxes, fees, assessments, premiums and any cost sharing . . . an analysis of the interaction of the new provisions with Vermont’s current revenue structure, including income, property, sales tax, and recommended possible complementary reforms to the overall tax code . . . complete analysis of sustainability, including long-term revenue forecast and projections of utilization and spending growth . . . take into account likely impacts on overall employers of individual tax liability as a result of the new revenue sources utilized, including any new federal liabilities provided for in the Affordable Care Act . . . include analysis of the distribution and incidence of the revenue impacts compared to the current State of Vermont health care . . . recommended measures to address orderly transition from the current State of Vermont health care financing . . . may include an analysis of the feasibility of reducing or eliminating the state’s provider taxes and employer assessment, and may include an evaluation of performance measured against the Act 48 principles.”

In addition, the UMass contract stipulates under Task 2.5, “Contractor will construct estimates of the effects of the potential financing models on economic growth in the state, input costs and revenues of Vermont firms relative to those in other states, worker wages, overall job supply and the distribution of jobs between health care and other sectors.”

All of these tasks are required deliverables under Act 48, and none of them were contained in the “Health Care Reform Financing Plan Report,” even though they were required under the UMass contract. Furthermore, although the UMass contract was amended at the end of October, none of these tasks or deliverables was altered by that amendment.

2.       The UMass consultants completed or nearly completed the financing analysis tasks. They and administration staff worked to complete all of these tasks until November 26, 2012.

A review of meeting agenda and notes clearly indicates that a decision not to deliver the financing analysis was made sometime between November 16th and November 26th. The agenda for the in-person meeting between consultants and staff on November 16th includes the two items, “Task 2.4 Financing Options” and “Task 2.5 Economic effects of financing models.” But the agenda for the conference call meeting ten days later prepared by the consultant includes the item “Review what we are not doing on financing.”

Furthermore, contractor invoices for October and November indicate that the contractor nearly exhausted their budget for task 2.4, ‘Financing options.’ Billing through the end of November totaled $15,740 out of a total budget of $15,992. Indeed, $5,500 was billed in November alone. For task 2.5, ‘Economic effects of financing models,’ billing through November totaled 68% of the allowed budget. That is $23,800 in billing for task 2.5.

The invoices were all approved for payment by Director of Health Care Reform Robin Lunge, and it appears the decision by the Administration not to amend the scope of work was due to the fact that the consultants were still working to deliver these tasks well into November and completed or nearly completed both of them.

3.       The broad parameters of the tax financing plan were approved for analysis by administration officials in an in-person meeting on October 11, 2012.

A meeting summary of the approved modeling parameters was prepared by the consultants and distributed the following day. Most of the program design features that appear in the final report dealing with GMC coverage and cost analysis are consistent with the decisions contained in the October 12 summary memo, however the first set of modeling assumptions deal with the financing assumptions, absent from the report and described below. A subsequent version of the memo dated November 8th verifies the continued development of the model.

4.       Administration officials directed the consultants to model a payroll tax on employers and an income tax on individuals to fund GMC.

Administration officials approved the following financing structure for modeling of GMC single payer in the meeting with consultants on October 11, 2012, taken directly from the memo:

“Vermont Health Care Financing Plan 2017 – Cost Components for Modeling

Base coverage estimates will be built using the following assumptions:

A.      Financing

1.      Financing packages include:

a.      Employers pay health premium contribution via a payroll tax (consider whether employers can deduct premium contributions from tax)

b.      Individuals pay health premium contribution via income tax (consider whether individuals can deduct premium contributions from the tax; individuals over age 65 and those with disabilities may pay lower rate)

c.       Other revenue sources to be determined(develop several “packages” for consideration)

2.       ACA waiver: state receives annual federal contribution based on what feds would have paid in individual & business subsidies less individual and business penalties, subject to budget neutrality provisions

3.       Medicaid waiver: state receives annual federal contribution based on what feds would have paid in FFP and DSH, subject to budget neutrality provisions

B.    Employer Sponsored Insurance

1.       Employers are not penalized for dropping ESI, not offering ESI

2.       Individuals are enrolled in GMC, even if employer offers affordable ESI

3.       ESI pays first, GMC wraps”

Attendance at the meeting is not shown in the documents; however the distribution list for the memo includes Health Care Reform Director Robin Lunge, DVHA Commissioner Mark Larson, GMC Board Chair Anya Rader Wallack, and DFR Commissioner Steve Kimbell.

The November 8th update of the memo revises the financing section to focus on ‘enrollment effects:’

A.      Financing

1.      Model examines the enrollment effects of:

a.      Employers’ pay health premium contribution

b.      Individuals’ pay health premium contribution (consider whether individuals can deduct premium contributions from the tax; individuals over age 65 and those with disabilities may pay lower rate)

c.       Other revenue sources to be determined (develop several “packages” for consideration)

The meaning (if any) behind the removal of references to payroll and income taxes is not explained.

5.       Documents indicate a high degree of sensitivity to ERISA employer concerns up to and including removal of a key statement from the final report.

ERISA employers are generally assumed to be employers who self-fund their employee health insurance. Under the federal Employee Retirement and Insurance Security Act these employers are protected from regulation by states. Without a special exemption from Congress GMC cannot compel these employers or their employees to participate in GMC. ERISA employers in Vermont include IBM, GE, Aubuchon Hardware and many others.

The draft report contains a section on ‘Considerations for Transition’ including the following:

“3. Contributions transition

The financing of GMC will need to be carefully planned to ensure a smooth transition from the current employer-based financing system to a more centralized single-payer financing model.  Employers and employees currently contribute amounts on a regular basis, such as biweekly, for health care premiums.  As GMC begins, steps should be taken to avoid requiring individuals and employers to pay both private premiums and GMC contributions simultaneously.  How best to mitigate this issue will depend on the financing arrangement selected. For example, if GMC financing is based on tax contributions, employers and individuals might be given a credit for the premiums they pay to private insurers during a transition period.”


Three days before the report’s release there was a series of emails between Director Robin Lunge, report author and UMass consultant Katharine London and Patricia Butler in which Lunge sought to delete the paragraph “because it raises ERISA concerns.” London and Butler pushed back, stating that the paragraph was too important to leave out. In the end, they deleted the last (highlighted here) sentence from the final report as a compromise.

If the plan to use a payroll tax to replace employer premium contributions exempted self-insured employers this sentence would not be problematic, except for the reference to the payment of premiums, which self-insured employers do not generally pay. It is not known whether the sensitivity on this issue is the result of an undisclosed financing assumption or simply a desire to avoid any public or private discussion of the matter.

Investigation Conclusions:

1.       Administration officials fully intended to provide timely answers to the critical financing questions required by Act 48 until sometime around November 26, 2012.

2.       Consultants and administration staff undertook and most likely completed analyses of at least one financing model as described in the summary memo of the meeting on October 11th.

3.       High level administration officials approved the modeling of a combination of an employer payroll tax and individual income tax as a means of financing GMC single payer.

4.       A decision not to release analytical results was communicated to consultants in late November even though the majority of the budget for this work had already been expended.

5.       The reason given by administration officials for the failure to comply with the requirements of Act 48 is not consistent with the public record of administration statements through October 9, 2012, and not consistent with the record of staff and consultant efforts to complete the analysis and prepare the report up to November 26, 2012.

6.       The administration has neither provided nor acknowledged the existence of any work product from the consultants relating to financing options or analyses.

Next Steps:

1.       VHCF has restated our Vermont access to public documents request using more precise language focusing on key meetings with consultants, consultant work products, instructions to consultants pertaining to completion of contract tasks and other items.

2.       VHCF has sent an access to public records request to the University of Massachusetts seeking similar documents directly from the consultants under Commonwealth of Massachusetts law.

3.       VHCF has commissioned an independent analysis of the direct impacts of a combination employer payroll tax and individual income tax to fund GMC. Complete results are not yet available however if the model assumes employers and individuals pay the same proportionate share of health care costs as is currently the case, the employer payroll tax would be between 10 and 12 percent and the individual income tax would require Vermont to more than double personal income tax rates.

4.       The Administration’s proposal to undertake yet another financing planning effort for GMC is clearly a delaying tactic, designed to deny the legislature and the public the information they need to move forward. VHCF and others will use our best efforts to force the public release of the work already completed by the University of Massachusetts at a cost of nearly $40,000 to the taxpayers of Vermont.




[1] The report, titled “Health Care Reform Financing Plan,” was to contain two financing proposals; the first for the period starting in 2014 and covering the expenses associated with the creation and operation of the Health Benefits Exchange as required by the federal Affordable Care Act.  The second report was to cover the financing required by the transition to GMC, which became known as the 2017 report. This Investigation Report focuses principally on the 2017 report.

[2] UMass was contracted to produce both the 2014 ACA and the 2017 GMC reports, however when the reports were delivered UMass had no association with the 2014 document, which was apparently prepared by administration staff and their actuary consultant, Wakely.

"So much of the focus of H 202 and S 57 is centered on controlling the cost of health care, which is a multi-faceted entity. This legislation in its current form will directly affect the manner in which health care providers are reimbursed for their services, rather than address the root issues of the so-called “health care” crisis. Health care is costly due to many factors, including patients who are reluctant to be proactive about their health or who make poor health and lifestyle choices. Before the legislature moves forward with governmental regulation of an entire industry, they should be reminded that they are altering an industry that is responsible for 20% of the state’s economy. In addition, this bill is nothing more than an empty shell as it does not outline benefits, access, or how it will be funded. Take it back to the drawing board before you do permanent damage to the industry and the state."

Andrew Conte of Milton, Vermont
Occupational Health Coordinator

  • Employers pay 40% of the healthcare costs – and were never consulted.
  • An appointed board will determine benefits, coverage, funding, deductibles, co-pays, premiums, technology, provider payments, etc.
  • Under this law, you will not be allowed to purchase insurance outside of the Vermont Health Benefit Exchange.