As Vermont grapples with a projected $32-million budget shortfall, Gov. James Douglas and state lawmakers have been forced to consider cuts in several government health programs.
Such cuts are critical, given that Vermont spends more per capita on health care than almost any other state. But yet another round of budget-trimming won’t fix the state’s long-term health cost problem Instead, policymakers must relax their regulatory stranglehold on private insurance and address the state’s miserable medical tort environment. Such reforms, which would improve “health ownership” in the state, would at so enhance the quality of care, With the state budget in shambles, the time is ripe for action.
States with higher levels of health ownership spend significantly less on health care each year than Vermont does, relatively speaking. In the Pacific Research Institute’s annual state-by-state ranking of health ownership, Vermont placed near the bottom for the second year in a row. Lawmakers can start by reforming the system of burdensome benefit mandates.
Today in Vermont, no matter a policyholder’s age, medical condition, or behavior, every insurance policy is required to cover alcoholism, naturopathy, chiropractics, and a host of other extraneous medical procedures and providers. Vermont has 27 of these mandates, and they significantly drive up the cost of insurance, pricing many families out of the market.
States at the top of the health ownership rankings, by contrast, don’t overload private health plans with onerous benefit mandates. Alabama, which has the highest level of health ownership in the country, imposes just 19 of them.
In addition, Vermont health plans are both required to accept all applicants for insurance -without taking their health status into account-and limited in their ability to set prices, thanks to the twin policies of “guaranteed issue” and a form of “community rating.”
That seems fair, but it means that young and healthy individuals opt out, causing a “death spiral” whereby only sick people seek health insurance, and premiums rocket sky high. Imagine if people tried to buy auto insurance after they crashed their car! If lawmakers want to subsidize people who are already sick, they should do it in a more direct way.
Vermont’s insurance premiums are also high because of the state’s abysmal medical tort system, which is among the worst in America. Nationwide, one in every eight doctors gets hit with a medical malpractice suit each year.
In Vermont, the situation is especially friendly for plaintiffs’ lawyers. The state has done little to cap damages or limit attorneys’ fees. Further, Vermont does not impose adequate conditions on the use of expert witnesses in medical-malpractice lawsuits. Without such rules, it’s more likely that a supposed “expert” could give bought-and-paid-for testimony that falls outside mainstream medical standards.
This legal free-for-all drives up costs for patients by increasing the premiums doctors must pay for malpractice insurance. Doctors don’t just eat those increased costs-they’re forced to pass them onto consumers either through reduced service or higher prices.
All told, the monetary burden of excessive health regulations and medical tort costs amounted to $169.1 billion nationally in 2002. Medical tort costs alone accounted for more than $80 billion.
With such deficiencies in mind, it’s no surprise that Vermont has among the highest private insurance premiums in the nation. The average premium for an employer-provided policy in 2006 was well over $4,300-higher than the national average.
Private coverage is prohibitively expensive for many, so the state is forced to cover more than one in every four residents under Medicaid. Families that ordinarily would be able to afford health insurance are simply unable to do so, thanks to all those mandates and regulations.
Vermont’s leaders clearly must rein in health spending if they’re to have any hope of balancing their ledger. But budget cuts are only a temporary fix. That’s why lawmakers should work to improve health ownership. Only by granting Vermonters greater control over their healthcare decisions can policymakers put an end to endless budget crises and improve the quality of medical care in the state.
John R. Graham is Director of Health Care Studies at the Pacific Research Institute. He is also the author of the US. Index of Health Ownership, an annual report published by PRI.-