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       For Release

       Wednesday

       January 14, 2015

       Most Vermont residents receive more in health benefits than they pay for directly or through taxes, one finding from a new RAND Corporation report that explores health care spending and funding in the state. The work was done under contract with the Vermont Legislative Joint Fiscal Office.

       The study concludes that spending on health care in Vermont was $5.1 billion in 2012 and should increase to $6.8 billion in 2017, due in part to expanded coverage under the federal Affordable Care Act.

       About 28 percent of health care spending on Vermont residents in 2012 was financed by net inflows from the federal government, with nearly all of the remaining costs paid for by Vermont residents. The share of federal funding is projected to creep up to 30 percent in 2017, mainly a result of subsidies offered under the Affordable Care Act and increased enrollment in the federal Medicaid and Medicare programs.

       The study finds considerable variation in economic groups in how much people pay for health care. For example, nearly one-third of low-income Vermont residents spend less than 5 percent of their income on health care, while at the same time another 21 percent of low-income Vermont residents spend more than 20 percent of their income on health care.

       “Much of the variation we found comes from the fractured nature of the U.S. health insurance system, with many individuals covered through employers, others buying from government-run exchanges and some enrolled in government programs,” said Christine Eibner, lead author of the report and a senior economist at RAND, a nonprofit research organization.

       Researchers say the study is one of the first intended to provide an economic snapshot of health care funding on a statewide basis.

       The RAND study was initiated by Vermont lawmakers who anticipated implementing legislation, Act 48 of 2011, which would have provided universal health care coverage to all Vermont residents beginning in 2017. The RAND report focuses on health spending in Vermont before and after adoption of the federal Affordable Care Act, without considering additional reforms related to Act 48.

       Based on an analysis of a wide variety of state and federal sources regarding health care financing, the RAND report describes who ultimately pays for health care in Vermont by tracing spending back to the original source. For example, spending on public programs such as Medicaid is traced back to the taxes and other funding sources that provide support.

       The report takes the economic position that, in the long term, employers' health care spending is a wage substitute and savings in health care would result in higher wages rather than lower taxes or costs to employers. The report analyzes health spending, accounting for the tax breaks given to employers who provide health insurance to employees.

       “This study provides a unique view about the variation in health care financing and some of the inequality about the U.S. health care system that is not always apparent to the public,” Eibner said.

       The study estimates that on average, individuals with lower incomes tend to pay less for health care than individuals with higher incomes. But low-income individuals often pay a much larger percentage of their total earnings toward health costs.

       For example, a family with income below 139 percent of the federal poverty level (about $35,000 yearly for a family of four) will pay $1,110 to $1,570 for health care in 2017, while a similar family with an annual income of $250,000 will pay more than $20,000. However, low income families are more likely to spend more than 20 percent of their income on health care costs and taxes than higher-income families.

       Researchers found that different tax regimes for people with employer and exchange-based health insurance contribute to inequities in paying for health care. The result is that low-income families that buy coverage through the exchanges often pay a lower proportion of their health care costs than similar families with employer coverage.

       For example, a family of four with $35,000 to $65,000 in compensation (wages plus the cost of employers' contributions to health benefits) would pay about 31 percent of their own health care costs if enrolled on the exchanges, while the same family would pay about 60 percent of their health care expenses if they receive employer-based insurance. These figures include direct payments, as well as tax payments to support health care.

       Thus many low-income workers could be better off with exchange coverage than some levels of employer-sponsored insurance, particularly if employers passed back premium spending in the form of higher wages, according to researchers.

       The report suggests that if Vermont considers further health care reform proposals, legislators might look for opportunities to better align the degree of subsidization available for individuals with similar incomes, regardless of whether they are enrolled on the exchange or in employer coverage.

       Support for the study was provided by the State of Vermont Joint Fiscal Office. The report, “The Economic Incidence of Health Care Spending in Vermont,” is available at www.rand.org. Other authors of the study are Sarah A. Nowak, Jodi L. Liu and Chapin White.

       RAND Health is the nation's largest independent health policy research program, with a broad research portfolio that focuses on health care costs, quality and public health preparedness, among other topics.

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