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Officials debate penalty for health insurance mandate

Copley Hospital
Copley Hospital in Morrisville. Courtesy photo

After months of study, a work group has come up with preliminary recommendations on how mandatory health insurance should work in Vermont.

But the Individual Mandate Working Group could not agree on what might be the most contentious issue – whether those who don’t buy health insurance should face financial penalties.

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Some members of the group say a penalty – similar to the federal income tax-based penalty in effect for the past several years – is an “appropriate enforcement mechanism” for the state mandate, which takes effect in 2020.

But others instead favor “enhanced outreach and monitoring,” arguing that taking punitive action against the uninsured might do more harm than good. They say a “financial penalty would be costly to administer and may disproportionately impact economically vulnerable Vermonters,” according to the working group’s draft report.

Vermont’s move toward mandatory health insurance was spurred by a change at the federal level. Due to a tax overhaul passed by Congress last year, the financial penalty for the federal individual mandate is scheduled to disappear at the beginning of 2019.

Health care experts say that will spur some people to drop their health insurance, which could drive up premiums for those who retain coverage. That effect is more than theoretical: Both insurers offering plans on Vermont Health Connect have received regulatory approval for 1.6 percent rate hikes tied directly to the forthcoming lapse of the federal penalty.

Vermont’s individual mandate is the product of H.696, which the state Legislature approved on the final day of the 2018 session. Gov. Phil Scott signed the bill in late May.

The statute says any Vermonters not covered by exemptions must have “minimum essential coverage” as of Jan. 1, 2020. But lawmakers left many of the details of administration and enforcement to the working group, which began meeting in June and must issue its final recommendations by Nov. 1.

The group met six times and has produced a draft report; officials are seeking public comment on that report until Oct. 12. Comments can be submitted via email at [email protected], or by phone at 802-828-5322 or 802-828-4871.

The preliminary report features several key recommendations, including keeping the state’s definition of “minimum essential coverage” the same as the definition included in federal law as of Dec. 31, 2017.

The working group also says the state Department of Financial Regulation should have authority to add to that definition in the future “using the criteria established in federal law and guidance.”

Hewing closely to federal definitions will “maintain high standards” for coverage and will “provide consistency” for Vermonters who already have minimum coverage under federal law, group members said.

Similarly, the working group for the most part recommends that the state adopt the federal government’s requirements for who is exempt from mandatory health coverage. There are some slight modifications proposed to tailor the program to Vermont.

But there also were two significant disagreements among group members regarding exemptions.

First, members couldn’t come to consensus on a threshold for an affordability exemption. The Office of the Health Care Advocate recommended that families below 400 percent of the federal poverty level should be exempt from mandatory health insurance, but other proposals set that floor at higher income levels.

Another disagreement came on the topic of health care sharing ministries, which are groups of people united by religious beliefs who share health care costs among themselves.

Such groups are exempt from the federal individual mandate. Ministry advocates made their case to continue that exemption in Vermont, but Blue Cross and Blue Shield of Vermont says sharing ministries shouldn’t be exempt here.

Blue Cross spokesperson Sara Teachout said the insurer doesn’t believe health care sharing ministries should be viewed as insurance. “The product is marketed often as health insurance, but it’s largely unregulated and has limited benefits,” she said.

The biggest disagreement – and the one that likely will have the most impact during next year’s legislative session – centers on whether Vermont should attempt to enforce its health insurance mandate.

The state’s new statute says Vermont’s mandate “should be enforced by means of a financial penalty or other enforcement mechanism” to be enacted by the Legislature in 2019.

Gov. Phil Scott has expressed opposition to a financial penalty. When the governor signed the mandate bill, a spokesperson said an incentive might be a better mechanism because “a penalty may not be the right approach for families that can’t afford to buy insurance.”

Representatives of the Scott administration who served on the Individual Mandate Working Group also opposed a penalty. Instead, the group’s report offers the alternative of enhancing the state’s educational efforts on the benefits of health coverage.

The idea is to “continue to focus on emphasizing the importance of coverage for Vermonters through outreach and continue to closely monitor the (insurance) market for attrition or other trends that could warrant further action.”

Others say that’s not enough. The working group’s report also includes the option for a state income tax penalty for those who don’t buy insurance and don’t have an exemption.

Teachout said a penalty is a “significant component” of the federal individual mandate. She added that “people need an incentive to purchase insurance.”

Mike Fisher, the state’s chief health care advocate, said he’s in favor of both increasing health care subsidies and enacting a financial penalty – though he said it will be up to lawmakers to decide what form that penalty should take.

“We know that the Affordable Care Act with subsidies and a penalty worked on bringing down the uninsured population here in Vermont and nationally,” Fisher said. “It’s very hard for us to parse out how much had to do with the penalty and how much had to do with the subsidies.”

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