2-3-15 – Health Care Coverage So Nice, Shumlin Wants You To Pay For It Twice

by Chris Campion

(Just barely) Governor Peter Shumlin recently let Vermonters know that he’s aware of how health care costs are shifted from participants in commercial plans to those participants in the current version of single-payer:  Medicaid.  In other words, the private sector subsidizes a single-payer program because single-payer can’t cover its own costs.  Just casually walking past this stark irony seems to not be impossible for a governor who promised single-payer for all because of the urgent need for all Vermonters to have insurance.  A need that seemed to evaporate just after the governor edged out, by a few thousand votes, his competitor in the last election, as the governor subsequently scrapped plans for single-payer implementation that he already knew the state could not possibly afford.

He now wants to fix Medicaid, all the way from a small office in Montpelier, and then the cost-shift is reduced, and voila!  Problem solved.

But once again, those nagging realities – things like cost, and the fact that the states, in general, have become puppets on the strings of federal dollars – come back around to remind us all (except Shumlin) that you can’t have something for nothing.

Shumlin’s new plan is to hike the payroll tax (a tax hike!  Shocking.) by .7%, to generate an expected $90MM in revenue.  The $90MM is matched by the federal government, which is the way it entices states to manage their own Medicare programs, while simultaneously being completely on the hook for them since the matching funds are the only thing keeping the states’ system alive.

Under the plan, we will ask businesses to pay a one seventh of one percent payroll tax (0.7%), which will raise $90 million a year. For the majority of Vermont businesses, this will equal less than $1,000 per year. And since state Medicaid investments are matched by the federal government, we’ll draw down an additional $100 million in federal money to help our efforts.

Now, keep in mind that the federal Medicaid dollars come from somewhere, right?  I’m going to guess “taxes” here, on a lark – so taxpayers are already paying for the matching Medicare dollars that the state collects.  And so are future generations, since the federal government’s unfunded Medicaid liabilities are in the tens of trillions.

This is the “free money” argument that seems to hold so much water in Montpelier – that if it’s federal dollars, it’s “free”, and we should do whatever we can to maximize those dollars.

But Vermonters are paying the taxes to the federal government and Peter’s government, and getting hit by them on both ends.  By increasing a payroll tax, you’ve just added another cost to businesses in Vermont, decreasing profitability, which imperils jobs – all to collect matching funds to offset a cost shift that’s due to underfunded and catastrophically managed federal and state programs.

In other words, commercial rate payers (employees who buy commercial insurance through their employers) pick up all the failures of the federal and state government, and now they’re going to get kicked again.  They’re going to wind up paying more for Vermont products because the costs will be shifted to people buying the products from Vermont companies.  Prices for Vermont goods will go up, making them less competitive.  It is an anti-business solution to an already well-known government failure.

But wait -there’s always more good news:

Of that $190 million, we will dedicate a significant portion of it to shore up Medicaid payments and immediately drive down private insurance rates, resulting in a 5 percent reduction in private insurance costs to individuals and businesses. We’ll invest the rest of the funds in strengthening the overall health care system to ensure better outcomes at a lower cost, meaning businesses providing insurance will benefit financially from lower health care costs.

If the cost-shift is the problem, why aren’t all dollars going to Medicaid?  Aren’t there Vermonters in need of Medicare dollars?  What does the rest of that “investment” look like?  How would money not spent in Medicaid “strengthen” the health care system?  How would that improve outcomes and reduce costs?

It looks to me that this is more window-dressing on a chronic failing of the federal single-payer system, that the states are far too tangled up in now to say “no” to.  So we go, hat in hand to the federal government, showing that we’ve done our due diligence in controlling health care costs by raising the cost of employment so we can claim we’ve “fixed” a cost shift created by the same people now claiming we need to fix the health care system.

As a result, Peter’s closing arguments are less than…convincing:

I know businesses are skeptical of new revenue and worried that this will not return value.  

What businesses?  You mean like the state’s formerly largest business that had to cut a $1.5 billion check to take an asset off its hands?  You mean businesses that rank Vermont near dead-last in business climate surveys?  Those businesses?

I know they are worried that Montpelier will try to use this revenue source for other purposes down the road.

Well, only because the state moves dollars around between the general fund and the education fund like water flows through a tap.  The Governor’s budget shows a $300 million transfer from the General Fund to the Education Fund (p. 23 of the governor’s budget summary).  So you can see where maybe the state’s businesses have some sort of historic basis for skepticism here.

But here is why I think this makes sense. Right now, businesses pay the vast majority of private health care costs and are the ones being overcharged. If we act, businesses will be the ones that will get the greatest relief if we lower private insurance costs by shoring up Medicaid.

But this just means they’re paying it twice.  Shumlin asks Vermonters to pay more to one system to offset their costs in another.

Simply put, we’ll ask businesses to pay in a payroll tax money they would have spent in higher insurance premiums had we not acted to shore up Medicaid.

So how is this a net benefit?  At best, you raise costs on businesses to offset one insurer (Medicaid) from another (commercial).  To put it in layman’s terms, this does not move the needle – it’s simply a transfer of dollars that would have already been spent on insurance, in one form or another.  It’s just raising one tax (payroll) to offset an already-existing cost, in commercial insurance rates.

It seems like the governor’s plan is to raise taxes, one way or another, to pay for a version of single-payer.  This version of it, though, will just look a little bit more like what we have today, which is a blended coverage, and will lack the stigma of the label of single-payer.

What it won’t lack, however, will be the tab, which is ultimately foisted upon the Vermonters Shumlin keeps telling us he represents.  Given the massive budget failures that have occurred and are ongoing, and that Shumlin’s plan will also raise the cost of doing business in Vermont which won’t make it easier for Vermonters to live their lives here, how, exactly, did he manage to squeak past the finish line last November?

{ 1 comment… read it below or add one }

John McClaughry February 8, 2015 at 5:12 pm

Shumlin said: “Under the plan, we will ask businesses to pay a one seventh of one percent payroll tax (0.7%), which will raise $90 million a year”
Uhhh. seven tenths of a percent is not one seventh of a percent..
This blooper is reminiscent of his 9/5/12 statement that “American health care costs are three to four hundred times the spending of other developed countries.” As I pointed out shortly thereafter, even if he’s comparing per person spending, The U.S. spends about two and a half times the average for OECD countries.
With this kind of aggravated innumeracy, it’s no surprise that it took Shumlin three years to figure out that Green Mountain Care was economically impossible, something that Rutland Treasurer Wendy Wilton figured out in about a month , working on her own time.

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