I am trying to understand the cost of Vermont’s healthcare system, and how that cost could be met from taxes on working people, should Vermont “go it alone” with the so-called “single payer system.”
According to an article posted by vtdigger.org, the total annual Vermont healthcare budget is currently running around $5.2 billion. Of this, 44 percent is hospital budgets and the remainder is primary care, pharmacy, home health, hospice, etc. Hospital budgets represent “gross revenue,” meaning dollars billed out, with the expectation that only a percentage of the gross revenue will be collected as “net revenue,” the difference being “contractual allowance,” or “CA.”
Net revenue is the dollar amount actually needed to operate. CA is the amount billed above a payer’s allowed amount, and in the case of government programs, cannot be billed to other payers or collected from the patient. It becomes a write-off. CA represents a significant amount of hospital billings — somewhere around 33 percent. Medicare and Medicaid do not in themselves pay enough to meet operating costs. In practice, prices are set higher than Medicare and Medicaid will pay so that other payers, and the patient, will make up the difference through the “cost shift.”
Under the current system of paying for healthcare based on billing each individual visit, the failure of government programs to pay system costs is made up for by overbilling those people who use the system — sick people without insurance and those who pay for health insurance, who, through their premiums, indirectly help pay the cost of other insurance beneficiaries. Healthy people without insurance are not contributing to maintaining the system financially. This is why it is important from a system point of view that everybody carry insurance and thus help support operating costs.
Going back to the statewide budget of $5.2 billion. Assume that 33 percent of this is CA — that means operating costs are $3.4 billion. According to the U.S. Census Bureau, in 2012 there were 265,000 non-farm workers employed in Vermont. If we take that $3.4 billion and spread it evenly onto each of the Vermont workers, that comes to $12,800 per worker, per year. Because the current healthcare system is not fully available to all, opening it up to all can reasonably be expected to increase its use. Therefore, system costs will likely be greater.
It is very difficult for me to understand how single payer can provide a healthcare system with no premiums and no job requirement, with healthcare available to all. The demographic trends in Vermont seem to be headed towards an increasing elderly/tetired population, which would have the combined effects of increasing healthcare system load with decreasing job-based revenue. Government programs (Medicare and Medicaid) have tried for years to “control costs” through the heavy-handed mechanism of controlled payment — these are not the same thing. Shutting off payment at a level below operating costs will ultimately have the effect of cutting off service.
Finding a solution to this problem will take more involvement than making the seemingly obvious choice of getting something for nothing.
Steve Reynolds
Cornwall