Editor’s note: This op-ed, which first appeared on Vermont Tiger, is by Cairn Cross, managing director of Fresh Tracks Capital.
Dear ______,
As I am sure you are aware, the Hsaio report proposes that workers earning up to 180 percent of the Federal Poverty Level FPL, would be exempt from paying the 3.6 percent employee portion of the tax. Also, earnings above $120,000 by any one worker would be exempt from the tax. Employers would be exempt from paying the 10.9 percent payroll tax in these instances also. FPL is a calculated by factoring in family size and all household earnings which adds some complexity but in any event the 2011 FPL can be found at www.coverageforall.org and for a single person is $10,830. One hundred eighty percent of $10,830 is a bit more than $19,000 which would suggest a full time wage of a bit more than $9.00 per hour.
After mulling this over for a bit the light bulb went on. Single payer financed by a payroll tax will encourage the formation of lower-paying jobs in Vermont and the migration of higher-paying jobs out of Vermont.
The reason for this is simple. Health care coverage has a “value” established state by state based on state insurance laws. At present the value in Vermont, in my estimation, is between $5,000 and $8,000 per year. If I look at the cost of health plans for individual employees offered by our various Vermont portfolio companies that is a reasonable price range. In all cases the employee pays some share of the plan and the employer pays some share of the plan.
Under the Hsiao plan, wages above approximately $19,000 and up to $120,000 will be subject to 14.5 percent tax combination between employee and employer. So an employee who is making a wage of $120,000 per year is paying (between the employer contribution and the employee contribution) approximately $17,400 for coverage that has a “value” in today’s market of between $5,000 and $8,000. At $30,000 an employee is paying (between the employer and employee contribution) approximately $4,350 for coverage valued in today’s market of between $5,000 and $8,000.
With the plan in place, Vermont will be a great deal for lower-wage employers but as the average wage in a business increases, Vermont will become less and less attractive. Imagine, for instance, an environmental engineering firm which has an average wage of say $75,000 per year for its firm. Under Hsiao’s scheme, this firm will be paying $10,875 per employee (the combination of employer and employee contribution) for insurance with a value of $8,000.
For companies with a combination of high-wage jobs and low-wage jobs, then, why not move the high wage jobs out of state thereby reducing the cost of health insurance for the high-wage employees? Even better, leave the low wage jobs in Vermont and receive subsidized cheap health insurance. The sound bite I’d use in attracting companies to Vermont in the future would be “Move your sweat shops here, where you can provide free or subsidized insurance for your employees but leave your highly paid management and technical staff across the border where it is cheaper.”
Examples of businesses for which Vermont will be attractive in the future: Call centers, light assembly, warehousing, unskilled manufacturing, cut and sew operations, basic food processing. Examples of businesses which won’t be attractive: Software development , Captive Insurance Management (leave the low-paid, entry-level folks in Vermont and move the mangers and actuaries to existing corporate offices in other states), most professional services firms (financial asset management, CPA firms, law firms). Again many of these firms can perform their work from anywhere and they have high-average wages so they will be paying considerably more per high-wage employee for health care under the Vermont single player plan than they would in other states. Many already have non-Vermont offices, headquarters, or branches so it should be relatively easy to move employees around.
I plan to make a study of the businesses I am involved in at present — EatingWell Media Group, Vermont Teddy Bear, eCorp English (they just have begun to build their workforce here), NativeEnergy and NEHP, Inc — which collectively employ about 450 Vermonters to determine how a single payer law will affect each of them.
I appreciate the chance to share my view point with you.
