The House Health Care Committee is poised to vote on a comprehensive budget bill this week that will address two critical issues facing lawmakers: the fate of low-income health insurance subsidies and a menu of taxes.
The tax revenue options on the table include: a sugar-sweetened beverage tax, an employer assessment and a claims assessment on health insurers.
The tax ideas before the panel are part of a debate that has erupted over how to fund health insurance subsidies for low-income Vermonters. The changes to the subsidies for Vermonters currently eligible for Catamount Health Care and the Vermont Health Access Program are the result of the state’s new health care exchange under the federal Affordable Care Act.
Rep. Mike Fisher, D-Lincoln, chair of House Health Care, says lawmakers are considering the beverage tax as a way to reduce or eliminate other taxes — not as a way to address a significant drop in state health insurance subsidies, as some health advocates have proposed.
The Shumlin administration and key members of the Vermont Legislature say that there is not enough money in this year’s budget to protect low-income Vermonters from spikes in the cost of health care.
Jeb Spaulding, secretary of the Agency of Adminstration, says the administration has no alternative. “It is what it is,” Spaulding said. “This is what we have. The proposal we have was really generated from a policy perspective, not a budget perspective. Where we got to be … is a budgetary issue because we have a certain amount of money.”
“There has to be a line drawn somewhere and I think this is an appropriate line,” House Speaker Shap Smith said. “It all has to be balanced somewhere and it means we’re not going to be able to completely hold people harmless.”
In 2014, the state’s health care exchange will become the sole source of insurance for 110,000 Vermonters. At that point, the state’s subsidized health insurance programs, VHAP and Catamount, will end. Thousands of VHAP beneficiaries who have incomes at 100 percent to 133 percent of the federal poverty level will move into the Medicaid program.
The other 20,000 individuals enrolled in the programs must use the exchange to buy health insurance and will face sharp cost increases without state aid.
Gov. Peter Shumlin proposed a $10.3 million subsidy program to help cushion these cost hikes in his fiscal year 2014 budget.
Under that proposal, $6.5 million would have gone to help pay premiums for Vermonters earning up to 300 percent of the federal poverty line and $3.8 million would have reduced out-of-pocket costs for income earners up to 350 percent of the poverty line.
The proposal relied heavily on federal funds; the administration hoped to pay 45 percent of the programs’ cost and have the the feds foot the other 55 percent. But the federal government told the administration that it was unwilling to fund the state’s proposed cost-sharing program.
As a result, the administration slashed its proposal for fiscal year 2014 to $7 million. Of that total, roughly $4.5 million, or 45 percent of the original $10.3 million, is slated to come from state funds.
The cut comes as groups that represent the chronically ill — such as the American Cancer Society and the American Heart Association — were already pleading with the Legislature to match the subsidy levels under Catamount or VHAP.
House Speaker Shap Smith backs the governor’s proposal of $4.5 million in state funding for the health care subsidy.
“There has to be a line drawn somewhere and I think this is an appropriate line,” Smith said. “It all has to be balanced somewhere and it means we’re not going to be able to completely hold people harmless.”
Rep. Paul Poirier, I-Barre, has proposed an additional $6 million solution to protect low-income Vermonters from the cost hikes, but neither the administration nor his fellow committee members appear to support it.
Robin Lunge, the administration’s director of Health Care Reform, panned Poirier’s proposal because it isn’t tied to a revenue source. The health care committee voted 7-3 in a straw poll to hold state support for subsidies at $4.5 million.
Fisher said he’d like to direct most of those funds toward premiums rather than cost-sharing for Vermonters with high out-of-pocket maximums, like chronically ill patients with cancer or heart complications.
“If you don’t cover the front end, people don’t even know they have cancer,” Fisher said. “Premiums buy access in the front end, and I want to provide more cost-sharing subsidies than we have the money for.”
There is also another factor at work: The state gets federal dollars for premiums, not for cost-sharing.
Sugar-sweetened beverage tax, claims assessment and tax on employers
The Health Care Committee is looking at three main revenue sources: a sugar-sweetened beverage tax, a claims assessment on health insurers and a tax on employers who don’t provide health insurance coverage to employees.
A proposed excise tax of a penny per ounce on sugar-sweetened beverages is expected to raise $27 million in the first year. While it’s unpopular among lobbying groups, including the Beverage Association of Vermont and the Vermont Grocers’ Association, medical providers like Fletcher Allen Health Care support it.
Of the three revenue sources, this tax is the only one that is considered to be regressive because lobbyists say it could hit low-income Vermonters harder, though advocates for the poor, including the Vermont Low Income Advocacy Council support the tax. The penny per ounce assessment is meant to lessen consumption of sodas and other sugar laden drinks, but if the tax curbs consumption, it will generate less revenue for the state.
Though the tax didn’t attract much legislative support and was adamantly opposed by the Shumlin administration in the last biennium, many representatives have come out in support of the bill this session.
If the beverage tax passes, Fisher said it could lower a tax hike on claims for health insurers.
Right now, insurers pay an assessment of 0.8 percent of all health insurance claims in a fiscal year. That tax is slated to go up in fiscal years 2015 and 2016. Fisher said revenues from a sugar-sweetened beverage tax could keep down an increase on claims taxes.
In FY 2012, the claims assessment raised $12.6 million for the “State Health Care Resources Fund,” which helps pay for a range of Medicaid programs as well as Catamount.
Other revenues flowing into the state health care resources fund come from tobacco taxes, provider taxes, prescription taxes and the employer assessment that the committee is considering repealing or decreasing.
Fisher said that a sugar-sweetened beverage tax might be used in lieu of this assessment, which is unpopular among employers.
The employer assessment tax
Vermont’s leading business groups are asking legislators to repeal the assessment on employers that the Shumlin administration says is crucial for funding low-income health insurance subsidies.
A bill sponsored by more than 40 Vermont Representatives would do just that.
Many representatives and business groups, including the Vermont Chamber of Commerce and the Vermont Grocers Association, say that since the “health care fund contribution assessment” is meant to finance the Catamount health insurance program for low-income Vermonters, it should end when the program does in 2014.
The assessment currently charges employers (with four or more employees) for every employee not covered under a company plan. In FY 2013, the state projects that the assessment will raise $11.8 million for the fund, which is expected to total $273 million.
They also argue that the administration is sending businesses mixed messages by penalizing employers for following the governor’s requests.
Poirier spearheaded the legislation that would repeal the assessment. “In the bill that is being proposed by the governor, it says to delete and repeal the Catamount program,” Poirier said. “But he leaves the Catamount funding in the bill.”
The administration points out that Catamount does not meet federal regulations, and therefore the program must end. Lunge, Shumlin’s director of health care reform administration, said that extending the assessment on employers is necessary to fund the new health insurance program for low-income Vermonters.
“The only way that we would be able to afford that, given the current budget circumstances, would be to continue existing revenue sources, including the employer assessment,” she said. “We feel like that’s fair because that assessment does contribute to low and middle-income insurance affordability today, and that’s what we’d be using it for tomorrow.”
In fiscal year (FY) 2012, the assessment raised $11.2 million for the health care resources fund, which totaled $256 million. The assessment currently charges employers (with four or more employees) for every employee not covered under a company plan. In FY 2013, the state projects that the assessment will raise $11.8 million for the fund, which is expected to total $273 million.
Mark Larson, commissioner of the Department of Vermont Health Access, said that without dollars generated by the assessment, the state would also have difficulty raising Medicaid reimbursement rates to providers by 3 percent — in addition to funding new health insurance subsidies.
“It would substantially undermine our ability to support the programs we have or provide the expanded coverage in the governor’s budget, in terms of both the premium assistance and cost-sharing subsidies for those purchasing plans through the exchange, as well as the provider reimbursement increases proposed,” he said.
Businesses leaders, however, say that the administration isn’t being entirely forthright about funding these proposals.
In 2014 under Obamacare, businesses with 50 or fewer employees — many of whom currently purchase health insurance through the local Chambers of Commerce — will be legally required to end their business plans and send their employees onto the exchange.
Under the Affordable Care Act, the feds limit the amount that individuals and families earning up to 400 percent of the federal poverty line would have to pay for premiums and up to 250 percent of that line for out-of-pocket costs.
But if employers pay for their employees’ coverage, their employees won’t have access to these federal subsidies.
Lunge says that this is a net-positive for many employers and employees: Employers will pay less for the assessment than they currently do for employee health insurance, and employees earning up to 400 percent of the federal poverty line will have access to new subsidies.
But groups like the Vermont Chamber of Commerce say that businesses across the state will be penalized for doing exactly what the Shumlin administration has encouraged them to do for the past two years, which is not to fund employees’ health insurance when the exchange takes effect.
Betsy Bishop, director of the Vermont Chamber of Commerce, wants the administration to provide a clearer plan for funding various facets of the exchange, including the proposed low-income subsidy program.
“If part of (the administration’s) plan is to assess employers that are not offering (insurance) because the state is encouraging them not to offer it, we don’t think it makes a strong case for financing of the system because the program is designed to drop health insurance,” she said.
“We support the repeal of that assessment, but also understand the revenue would be needed. The programs (will) go away and we think we ought to be looking at a transparent and true cost of the overall health care exchange.”
Daniel Barlow, public policy director for Vermont Businesses for Social Responsibility, pointed out the conflict to Vermont Press Bureau’s Pete Hirschfeld.
“On one hand, they are now asking businesses with 50 or fewer employees to drop coverage for their employees to try to draw down federal tax credits,” he said. “But then there’s this penalty if you actually do it. It seems like kind of a disconnect.”
Poirier, who wants to start from a clean slate to figure out how to fund a new low-income health insurance program, also raises the issue of the administration’s messaging.
“How many times have we heard the governor say we should be getting away from an employer-based health care system? But under his system, if the employer does what he wants them to do, he would place a penalty on them,” Poirier said.
Clarification: The House Health Care Committee is set to vote on these items this week.