Vermont’s latest healthcare pricing proposal, S.190, has cleared the Senate and is now before the House Health Care Committee, but it deserves far more scrutiny than it’s getting. While S.190 is described as reference-based pricing reform, it actually calls for regulatory price controls rather than the market-based approach used in other states.
True reference-based pricing (RBP) is designed to introduce transparency and competition into healthcare pricing. Insurers (or self-insured employers) set a benchmark price for medical services, typically tied to Medicare or another market-based rate, and patients are responsible for any charges above that amount. This creates a clear incentive for patients to shop for care and for providers to compete on price. Providers are encouraged to meet or beat the benchmark to remain attractive in a more cost-conscious market. In theory, efficiency, transparency, and competition all improve at once, leading to lower prices.
S.190, however, does not follow this framework. Rather than allowing insurers to establish benchmarks that guide negotiations, the bill directs the Green Mountain Care Board (GMCB) to cap what hospitals can charge Qualified Health Plans at 250% of Medicare-adjusted rates. Hospitals would also be prohibited from billing patients above what their insurance covers, creating a price ceiling. The GMCB is further tasked with ensuring that insurance premiums decline as a result.
This structure carries significant risks. The GMCB has estimated that the policy could reduce hospital revenue by $84 million or more in the next year, but hospital stakeholders have testified they may only be able to absorb about $50 million in losses. Hospitals will likely respond in predictable (and rational) ways to offset the losses: Services currently priced below the 250% cap may increase, and some facilities may reduce services or close down if margins become unsustainable.
Because the policy applies only to Qualified Health Plans, which represent roughly a quarter of the healthcare market, it does not guarantee broad downward pressure on healthcare or insurance costs. Instead, there is a real possibility that costs outside those plans could rise as providers seek to recover lost revenue.
Vermont’s healthcare challenges do not stem from a lack of intervention, but a lack of competition. Despite repeated efforts to control healthcare costs through regulation, costs continue to rise, placing pressure on families, employers, and the broader economy.
Today, Vermont’s insurance market is highly concentrated, with just two major carriers, Blue Cross Blue Shield of Vermont and MVP Health Care, dominating the fully insured market. While larger employers often have the resources to self-insure, smaller businesses are left at a disadvantage when it comes to negotiating lower rates.
If Vermont is serious about lowering healthcare costs, it should focus on reducing barriers for new providers and new insurance companies to enter the market, while also making it easier for small businesses to self-insure. Expanding competition and price transparency by removing government barriers is the only durable path forward. Without those pressures, costs are likely to continue rising, regardless of centralized efforts to control them.
