Health Care

Exclusive: Single payer financing likely to start with 8 percent payroll tax

Gov. Peter Shumlin intends to propose a combination of an employer payroll tax and an income-based contribution to finance single payer health care, according to sources with knowledge of the plan.

In the latest version of the proposal presented Nov. 19 to the governor and members of his Business Advisory Council on Health Care, the employer-funded payroll tax was pegged at 8 percent, according to multiple sources who asked to remain anonymous because council members had mutually agreed to keep their deliberations under wraps.

The Shumlin administration declined to comment for this report.

Gov. Peter Shumlin holds up a cell phone to emphasize the viability of the semi-conductor manufacturing business that takes place in Essex Junction. IBM announced Monday it would sell the division to California-based, Abu Dhabi-owned GlobalFoundries. Photo by Hilary Niles/VTDigger

Gov. Peter Shumlin. Photo by Hilary Niles/VTDigger

Shumlin’s 21-member business advisory council includes business leaders who own or work for large and small companies across the state. It was created in April 2013 to offer the governor guidance on health care reform.

Previous iterations of the plan presented to the council pegged the employer payroll tax at levels ranging from 6 percent to 9 percent. The income sensitive health care fee would be capped at the higher end of the income spectrum, the sources said.

The taxes would replace the current system of employer and employee paid insurance premiums.

They did not provide details of how the income sensitive fee or “public premium” would be structured.

Shumlin and other members of the administration have said the single payer proposal to be released on Dec. 29 or Dec. 30 will give lawmakers a range of options. It’s likely those options will involve a higher or lower payroll tax with a corresponding fee or premium.

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It’s also likely that the fee will be reduced for people over 65 who are Medicare eligible and will only use Green Mountain Care, as the publicly funded program is known, for secondary coverage.

An 8 percent payroll tax would generate roughly $936 million, based on a calculation using a Department of Labor figure for gross payroll of $11.7 billion from calendar year 2012.

The state’s gross payroll amount only includes employers that are federally required to report their payroll, explained Sara Teachout of the Legislature’s Joint Fiscal Office.

It does not include employees of religious institutions, farms, medical residents and other categories exempted from reporting, which would increase the amount raised.

Teachout called the figure “a good starting point,” but she said the administration is likely to have adjusted it to account for groups not included in the DOL figure and to project the gross employer payroll in 2017, the earliest Vermont can implement the new program.

Estimates for the cost of single payer in its first year are at least $2 billion. If the payroll tax were to raise about half that amount, the income-based health care fee would need to generate about $1 billion as well.

The outline sketched by sources does not differ greatly from what outgoing Sen. Peter Galbraith, D-Windham, laid out last spring, in what he called the administration’s “notional financing plan.” He attributed that plan to sources within the administration.

At the time, Galbraith said Green Mountain Care would be financed through a premium graduated according to income, which would hit a ceiling of 9 percent for people with incomes of $50,000 or more.

The premium would generate about $1 billion, according a calculation by Galbraith. Combined with an 8 percent payroll tax, that would create revenue streams of close to $2 billion.

At the time, Galbraith said that in addition to a payroll tax, the administration was also considering a tax on gross receipts. Sources with knowledge of the business advisory council meeting did not mention a gross receipts tax in interviews with VTDigger.

The income sensitivity worked into the plan via the health care fee fits with Shumlin’s stated intention of equitable public financing, or people paying according to their ability.

The Benefits

The health benefit for Green Mountain Care is likely to be modeled after the gold plan offered through Vermont Health Connect, according to one of the sources.

There are three components of the benefit the administration has said it will present to the Green Mountain Care Board in the next two weeks. Those are the covered services and the level of cost-sharing — the percentage of medical costs people pay themselves.

All plans sold in the U.S. must provide 10 essential health benefits, and a waiver from the Affordable Care Act won’t exempt Vermont from that basic coverage requirement.

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State law requires the Green Mountain Care Board to consider adding adult vision, dental, hearing and long-term care services and supports, but no additional federal funds would be available to cover those services.

Advocacy groups are likely to push for inclusion of those services and possibly others, such as homeopathic medicine or chiropractic care.

The state must also provide coverage that is at least as affordable as what’s offered by the ACA. The affordability of a health plan is determined by the level of cost sharing.

Green Mountain Care will include some amount of cost sharing at all levels, and that will take the form of co-pays, coinsurance or deductibles. That mix is still unknown.

People who are income eligible to pay at lower sharing levels on the Vermont Health Connect exchange will pay at no more than those levels under Green Mountain Care. The same is true for Medicaid beneficiaries who cannot pay more than they do now or receive less coverage under Green Mountain Care.

A gold plan has an actuarial value of 80 percent, meaning people with that plan pay for 20 percent of the costs associated with its covered services.

An 80 percent actuarial value is the lowest actuarial value state law permits for Green Mountain Care and it advises the board to consider an 87 percent actuarial value.

People on Medicaid will continue to pay for their coverage at a 99 percent actuarial value, meaning they are responsible for 1 percent of the cost. The income threshold for Medicaid this year under the ACA is $16,104 for an individual or $27,310 for a family of three.

Labor unions, including the Vermont State Employees Association, have said the benefit for Green Mountain Care should bring all Vermonters to their level of coverage.

The average actuarial value for state employee plans is 95 percent, according to a recent Pew study, and teachers and school staff have health plans with 94 percent actuarial value.

Those are considered high-value health plans and many will be subject to a 40 percent excise tax as part of the ACA, starting in 2018. The rest will be subject to the tax by 2023.

It’s unlikely Vermont’s ACA waiver would allow it to offer a high value health plan through Green Mountain Care without paying the tax.

That’s because one reason the tax was included in the ACA was to discourage such plans, which arguably insulate people from the cost of care and encourage overuse of health services.

The Process

The Green Mountain Care Board is responsible for approving the benefit package the administration will present them in mid-December. That’s a process that will take “months, not weeks,” board chair Al Gobeille said Thursday.

Lawmakers will weigh in on the benefit package when they are asked to make an appropriation to fund it. They could also pass laws mandating coverage of certain services or place thresholds on cost sharing.

The Legislature must also approve the financing structure for Green Mountain Care, a process that will begin when lawmakers see the governor’s proposal.

The Green Mountain Care Board is also responsible for determining whether the program will meet a set of triggers requiring that residents have coverage that pays at least 80 percent of medical costs; that the program does not have an negative aggregate impact on the economy; that its financing is sustainable; that it will reduce administrative costs; that cost-containment efforts will reduce the rate of growth in health care spending; and that health care providers are reimbursed at levels that allow the state to recruit and retain a high-quality health care workforce.

Finally, the state will need to renew its federal Medicaid waiver in 2017 to ensure that federal money can continue to be used flexibly. Vermont will also need a waiver to the ACA, which can’t be approved until 2017.

Neither Shumlin nor Democratic leaders in the Legislature have said what portion of the steps necessary to implement Green Mountain Care will be undertaken in the upcoming legislative session.

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Morgan True

About Morgan

Morgan True is VTDigger's Burlington bureau chief covering the city and Chittenden County. A Seattle native, he graduated from Boston University with a Bachelor of Science in Journalism before working for several publications in Massachusetts. He came to VTDigger in December 2013 from The Brockton Daily Enterprise, where he covered government, schools and hospitals in a city of about 100,000 people. Before joining The Enterprise, he worked for The Associated Press in Concord, N.H., where he served as a relief reporter in the Statehouse. He previously worked for The Quincy (Mass.) Patriot Ledger and as an intern at the Worcester (Mass.) Telegram & Gazette.

Email: [email protected]

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