Shumlin seeks 3.1 percent boost in FY2017 budget, expansion of provider assessment

MONTPELIER — Gov. Peter Shumlin is looking to address a deficit in the state’s Medicaid program by expanding a tax on health care providers in the $1.537 billion 2017 fiscal year budget proposal he revealed Thursday.

Gov. Peter Shumlin delivers the final budget address of his governorship inside the House chamber. (Times Argus/Jeb Wallace-Brodeur)

Gov. Peter Shumlin delivers the final budget address of his governorship inside the House chamber. (Times Argus/Jeb Wallace-Brodeur)

Shumlin, a Democrat who is not seeking re-election, delivered the final budget proposal of his tenure to lawmakers Thursday. His proposal, outlined in his 30-minute address inside the House Chamber, would boost spending by 3.1 percent over the current fiscal year — after mid-year adjustments are put in place.

Shumlin touted his budget as responsible and necessary, noting he closed a projected $68 million gap between anticipated revenues and spending without the use of one-time funding for ongoing expenses for the first time since before the Great Recession. The 3.1 percent spending increase matches projected revenues, he said.

Shumlin defended his administration’s handling of state finances in the wake of the Great Recession when “revenues were in a free-fall,” saying he sought deep cuts in spending alongside new revenue. The state has weathered that crisis and the proposed 2017 budget fully funds state pensions, does not tap reserve funds and meets the state’s debt service, he said.

“Despite what you may hear or may have heard from those who practice revisionist history, five years later our fiscal responsibility has paid off. The state’s revenues have grown every year, employers continue to add jobs, our unemployment rate remains low, and personal income growth outpaces the national average,” Shumlin said.

He also called the administration of former Republican Gov. James Douglas for failing to achieve the budget savings it sought. Shumlin said he “discontinued the prior administration’s phantom savings of $23 million from the failed Challenges for Change program that had been booked but never realized.”

The governor’s proposed budget includes $38 million in spending reductions and $30 million in revenue. The biggest chunk of new revenue, under Shumlin’s proposal, would be raised by expanding an existing provider assessment to independent doctors who operate outside the umbrella of a hospital and to dentists. Shumlin also decried the loss of Vermont’s independent doctors.

Currently, only hospitals and the doctors they employ and nursing homes are subject to the 6 percent assessment. Shumlin’s plan expands the assessment to the additional health care providers at a lesser rate of 2.35 percent. The $17 million in new revenue would be matched by $20 million in federal funds.

That money will be used to help offset a $55 million shortfall in the Medicaid program. The state-federal program is in the red after it was expanded under the federal Affordable Care Act. About 200,000 Vermonters — one-third of the state — are now on some form of Medicaid.

“While we’re eager to expand Medicaid to families that had been making horrid choices without it, we have refused to summon the courage to pay for it,” the governor said. “Vermont should not be the state that signs people up for Medicaid just to turn our backs on them. Vermont should be the state who begs our doctors and nurses to do the right thing and take care of folks on Medicaid just to turn their backs on them. That’s not leadership. That’s not good government.”

Shumlin proposed a 0.7 percent payroll tax to help fund Medicaid last year but lawmakers refused to embrace it.

“Had that proposal become law, this year’s budget discussion would be very, very different. The $55 million shortfall we face in Medicaid would be virtually non-existent.”

Along with the proposed expansion of the provider assessment, Shumlin called for increasing the fee for registering mutual funds in Vermont from $600 to $1,200, raising $13.2 million. Vermont, Shumlin said, charges financial institutions less than other New England states to register mutual funds and would still charge half of the rate in Massachusetts if it is doubled.

The additional revenue would be used to cover the state’s Medicaid costs and boost Medicaid payments to providers. The program currently pays out roughly 60 cents on the dollar to providers. Shumlin is seeking to raise that amount, but still not to Medicare levels, which cover about 80 percent of costs.

The proposed budget fully covers the $10.3 million bill for Medicaid costs that were not accounted for in the 2016 budget. Every so often the calendar creates an extra week of Medicaid payments. That occurs in the current 2016 fiscal year but was not funded.

Shumlin is also proposing an additional $300,000 for the Green Mountain Care Board, the state’s health care regulatory body, as it continues to work on reforming the way health care is paid for in Vermont. Shumlin is seeking a switch from the current fee-for-service model to a so-called all-payer model, under which health care providers would be paid based on health outcomes and work under a global budget that caps total payments.

Shumlin deviated widely from his prepared remarks to tell a personal tale about his father seeking medical attention years ago. The lengthy story — which featured the governor asking lawmakers seated in the House to guess how much his father’s hospital amounted to — was intended to drive home the point about the need to abandon the fee-for-service model that incentivizes doctors to perform medical procedures — whether they are necessary or not.

The governor provided the most forceful defense and explanation, so far, of the all-payer model he is seeking.

“Let me be clear about what the all-payer model will mean for Vermonters; you will get to choose your provider and see the doctor whom you trust, your doctor will get paid to keep you healthy, meaning they will get to spend the time they need with you and you will have a relationship that is more than a yearly 15-minute physical, and for those on Medicare, your benefits will not change. Your benefits will no change,” Shumlin said, repeating himself at the end for emphasis.

The relationships between Vermonters and their doctors has “eroded under our current money-gobbling, fee-for-service, managed care system,” he said.

Some, the governor said, will want to stick with the system in place because “change is scary.”

“You know we cannot afford it,” he said. “We must do better. We can do better. Let’s do it.”

The administration and the Green Mountain Care Board have been negotiating with the federal government for some time to secure required waivers to implement an all-payer model. Shumlin promised to outline what the administration is seeking next week.

The $30 million in new spending includes just under $1 million for a college savings plan the governor outlined two weeks ago in his State of the State address. It will provide all Vermont-born children with a $250 college fund start and $500 for low-income children. A new drug treatment center will also be opened in northwestern Vermont, although a location has not yet been selected.

Other new spending includes:

— $9.9 million to fund new positions to better protect children
— $2 million in security and safety features for state workers
— Doubling suicide prevent funding to about $200,000
— $1 million for the governor’s new Step Up program, which provides a semester of college for those needing help completing their education

The $38 million in spending reductions includes $1.8 million from the Department of Corrections. The administration is looking to eliminate a work camp at the St. Johnsbury prison and cut $700,000 from the community high school program for inmates.

The administration is also booking $4.7 million in savings by providing immediate access to long-acting reversible contraception under Medicaid. Private insurance provides it immediately upon request, but the state’s Medicaid program makes those who request it to return a second time. Many women do not return, according to state officials, and there are many unintended pregnancies as a result.

Another $3.4 million will be cut after completing the verification of those on Medicaid to ensure they qualify. Ongoing technological problems meant the state did not verify eligibility during 2015.

Finally, the administration expects to save $5 million by changing the practices surrounding involuntary medicating mental health patients. Shortening the period of time it takes for the state to medicate a patient will result in savings.

Perhaps the most difficult sell to lawmakers will be Shumlin’s plan to change Medicaid eligibility for pregnant woman. The administration wants to save $4.9 million by raising the income-level for eligibility from 138 percent of the federal poverty level to 213 percent. Those who would be bumped off of Medicaid would be eligible for plans on the state’s insurance exchange with state and federal subsidies.

Lawrence Miller, Shumlin’s chief of health care reform, acknowledged that would raise the cost of insurance for pregnant women in that income bracket but said it would be “aligning their coverage with everybody else’s.” It would also ensure continuity of care by helping those women maintain health insurance after they are not longer pregnant. Under the current system they would lose Medicaid coverage after their pregnancy.

“They can afford to pay a little more,” Miller said. “Just because they happen to be pregnant doesn’t make them any more deserving of Medicaid than anyone else.”

Shumlin said the final budget proposal of his governorship reflects the values of the state.

“The budget I present today closes the general fund budget gap of $68 million by trimming the projected growth rate by $38 million and raising $30 million from the mutual fund fee and expansion of the existing provider assessment. But we all know a budget is about more than an accounting of numbers or a collection of line-items,” Shumlin said. “It is a document that puts into action our values, priorities, and hopes for a Vermont that is more secure for all who call this state home. Creating jobs and an economy that works for every Vermonter. Ensuring everyone has access to an education that will set them up to make a good living. Pursuing a rational criminal justice system. Improving a health care system that delivers on the promise of universal access at an affordable cost. Confronting addiction that threatens Vermont’s quality of life.”


Read Gov. Peter Shumlin’s budget address, as prepared for delivery:


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