Editor’s note: This commentary is by John Franco, a Burlington attorney who has been active in health care reform for over 25 years.
The new “consensus” that the 2017 cost of Green Mountain Care will be about $2 billion has placed front and center the question of how we finance it.
The choices are clear.
Employers currently pay about three-quarters of the cost of private health insurance that GMC will replace, so if we are going to keep this “maintenance of effort” they will have to contribute $1.5 billion to GMC. There are only two revenue sources with the horsepower to raise that kind of money: either a payroll tax on employers or a premium-based system.
If the benefits of tax financing were clear-cut and the engineering easy, the financing plan would have long been out and there would be dancing in the streets. They are not, and so the prom keeps getting postponed.
The paradox of tax financing of single payer is that it will actually implicate more employers than are currently involved in financing the current premium-based system. One traditional selling point is that a tax-financed system will “divorce” coverage from employment. This is proving not to be the case. Any such “divorce” will result in the aforementioned $1.5 billion “alimony” payment from employers, which means a 12 percent employer payroll tax. And that is assuming that we tax all employers with no exemptions. Such a tax-financed system would implicate the 10,000 small businesses, non-profits, and farmers who do not now offer coverage and need not do so under the Affordable Care Act.
If we exempted the payrolls of currently non-offering employers, the payroll tax rate on the remainder would jump to 15 percent to 20 percent. And that rate would have to be graduated. Among offering firms, private employer-sponsored insurance is provided by the “commanding heights” of the Vermont economy. Three percent of all firms provide two-thirds of the private insurance coverage, in part because two-earner households tend to get their insurance from the larger of their respective employers. Moreover, the levels of employer contribution vary so greatly even among employers of a given size that standardizing their levels of contribution risks creating a significant – and politically unacceptable – number of losers, most of them the aforementioned small businesses and non-profits, no matter how the payroll tax rate is engineered.
If the benefits of tax financing were clear-cut and the engineering easy, the financing plan would have long been out and there would be dancing in the streets. They are not, and so the prom keeps getting postponed.
Each alternative has its strengths and weaknesses which the administration legitimately needs to evaluate, especially under the so-called “Mullin triggers” of Act 48. It frankly would have been much more transparent and better politics if the administration had simply told the public that these two funding sources are indeed the two likely finalists and began to engage the Legislature and the public in that evaluation.
