By Lawrence Miller, Chief of Health Care Reform
What’s the biggest state tax Vermonters already pay? It’s not property, income or sales tax. It’s a 15 percent health care tax that Vermont businesses and individuals are paying today. And many don’t even know they are paying it.
In 2012, Vermonters spent $1.886 billion on private health insurance premiums. Total payroll in Vermont in 2012 was $12.3 billion. Do the math: Vermonters paid a combined 15 percent of the total payroll of the state of Vermont to cover private health care premiums in 2012. That is the same as a combined 15 percent payroll tax on every employer and employee in Vermont.
A 2010 Kaiser Family Foundation report dug deeper into these numbers. The findings are startling. In 2010, the median percentage of payroll paid by employers to provide health coverage for their employees was 12.8 percent. Shockingly, a quarter of businesses in 2010 actually paid 18.8 percent or more of payroll to insure their employees. And that doesn’t even take into account the significant contributions of employees to health insurance or the price paid by other individuals to cover private premiums.
What about those employee contributions? According to Kaiser, the average employee in Vermont in 2012 paid 27 percent towards their employer-sponsored health plan. If we assume a health plan that costs $6,000 a year ($500/month) that’s a yearly employee contribution of $1,620. For someone collecting $47,000 in wages per year, that’s the equivalent of an employee payroll tax of 3.5 percent, on top of the double digit payroll tax the employer is already paying directly.
And what about those individuals who don’t receive insurance through their employer? The Affordable Care Act has certainly helped make coverage more affordable by extending more generous federal subsidies. But get this: A Vermonter making $47,000 per year who buys a Silver Plan (the most popular) through Vermont Health Connect pays 10.4 percent of their income for health insurance.
Of course not everyone pays the same for health care, and none of us have an easy time seeing who spends what, and how much health care services cost right now. And that’s precisely the problem. Health care costs are so complicated now that we have a hard time seeing through the current system to a new, more equitable way to pay for health care. The bottom line is this: Health care today is expensive and the way we pay for it is complicated. And if we look at that amount in terms of things we all understand – taxes – it brings into sharp relief just how much we’re currently paying for health care right now and how unfair it can be.
In today’s world, it’s not uncommon for businesses and employees to pay the equivalent of a 15 percent payroll tax for health insurance. And for individuals who don’t receive insurance through their employer, it’s not uncommon for them to pay the equivalent of an income tax of over 10 percent for their health care.
Keep that in kind next time someone tells you that the current system is just fine and that it is too hard to move to a universal, publicly financed system where all Vermonters have access to health care coverage that they can afford.