Payroll tax eyed to fund health care

September 20, 2014

Valley News

By Rick Jurgens
Valley News Staff Writer

Stowe, Vt. — A roomful of hospital executives listened raptly Friday as a pair of Shumlin administration officials shared their thoughts, but few details, about how the state could raise $2 billion to pay for a universal health insurance program that could take effect in 2017.

A comprehensive plan spelling out how much revenue would come from a payroll tax or other sources won’t surface until January, while details of what benefits the administration proposes to cover will not be forthcoming until December, they said.

That fell short of expectations for Bea Grause, president of the Vermont Association of Hospitals and Health Systems, who a day earlier had opened her organization’s annual meeting at a resort here by proclaiming that participants were “writing the next chapter of health care reform for Vermont today.”

After Friday’s presentation, she issued a release noting “a clear consensus around the core principles of reform — lower cost, universal access and patient rights, but growing concern about the many questions that have not yet been answered.”

The insurance plan architects had some tidbits to dispense. Robin Lunge, Vermont’s director of health care reform, said that benefits offered by the state plan would need to meet the requirements spelled out in the federal Affordable Care Act. Covered individuals and families would still be expected to bear a portion of the costs through co-payments, deductibles or some other form of out-of-pocket payments.

Michael Costa, deputy director of health care reform, said that the financial and economic impact of various revenue proposals were being assessed with models developed by Massachusetts Institute of Technology professor Jonathan Gruber. Gruber co-authored a 2011 report that recommended “a public-private single payer system” that would be financed from savings in health care expenditures and with a 12.5 percent payroll tax.

On Friday, Costa said that a payroll tax would be simple and not require businesses to tabulate employees to assess their liabilities. He also said that a tax should be applied to small businesses — “We want everybody in” — but that small businesses should get some relief, probably by getting more time to prepare to pay the tax. He said that the challenges of unfolding an “orderly economic transition” make it more difficult to envision the first year or two of implementation than to envision the new tax structure four to seven years out.

Lunge said that a proposal for what benefits would be covered would be ready in December for consideration by the Green Mountain Care Board. One month later, Costa said, the administration would have a more comprehensive plan to take to the Legislature. That plan would include details of the state’s current spending for health insurance, the benefits that would be covered by the new plan, how much that coverage would cost, “how will we pay for it,” and the impact of the plan on the state’s economy.

Some at the event were visibly impatient with the administration’s progress toward designing a financial framework that Act 48, which was enacted in 2011, had made due by January 2013. “We’re three years in and many unanswered questions” remain, said John Goodrich, vice president for operations at Weidmann Electrical Technologies Inc., which employs 300 people in St. Johnsbury, Vt. The costs of the new plan would hurt in a state that already has an aging population and a high rate of emigration of young people, he said: “We’re making ourselves less competitive.”

But Bram Kleppner, chief executive officer of Danforth Pewter of Middlebury, which employs 50 people, said that medical costs now consume 15 percent of his company’s payroll expenses, so a 12 percent payroll tax, as projected in the 2011 study, would be a relief. Besides, he said, the current system produced its own inequities: “Those businesses that are not providing insurance are getting subsidies from other companies.”

Costa said that in 2012, Vermont employers and employees paid $1.89 billion in health insurance premiums, while individuals and families paid $716 million in out-of-pocket expenses. New taxes and revenue would be collected instead of, rather than in addition to, that spending, he said. “Green Mountain Care will feature a new funding source, not new funding,” Costa said.

Costa said that the state was still calculating just how many businesses would see their bottom lines hurt or helped by the move to universal insurance, but that it was clear that most large businesses that already provide health insurance to their employees would come out ahead, while small businesses that don’t currently provide health insurance would be worse off.

Judith Monroe, deputy director of the federal Centers for Disease Control, had some sympathetic words for the executives seeking to shepherd Vermont’s $2 billion-a-year hospital industry through changes wrought by health care reform. Managing complex change is “not rocket science,” she said. “It’s actually harder.”
Reform isn’t the only challenge facing health care executives. Several at the conference noted that shortcomings in the state’s mental health care system also strained their institutions and their ability to deliver quality health care.

Jeff Rothenberg is chief executive officer of the Vermont Psychiatric Care Hospital in Berlin, which opened in July as a replacement for the aging 54-bed Vermont State Hospital in Waterbury, which was destroyed by Tropical Storm Irene in 2011. Rothenberg said that 21 of the new facility’s 25 beds were now filled or available to patients. “The crisis (in state mental health services) is close to ending,” he said.

But more remains to be done. Tom Huebner, chief executive of Rutland Regional Medical Center, said that as he spoke on Thursday, there were eight mentally ill patients at his hospital waiting for psychiatric beds to become available.

“I don’t see the mental health system with enough resources,” said Claudio Fort, chief executive of North Country Hospital in Newport.

Rothenberg acknowledged that the new psychiatric hospital was only one piece of the puzzle in a mental health care system that was slated for a makeover by Act 79, a comprehensive reform law enacted in 2012. The new psychiatric facility’s “success is tied to community mental health services’ success and mental health success is tied to the health care system,” Rothenberg said.

Better coordination was a common theme of a Friday panel of executives from small rural hospitals and clinics. “We health care providers have got to get into communications with social services agencies,” said Patrick Flood, chief executive of North Counties Health Care Inc. in St. Johnsbury.

That jibed with a day-earlier call from Agency of Human Services Secretary Harry Chen: “We need to integrate what you do in your hospitals and health systems with what we do in our schools, work places and homes.”

But providing financial incentives that reward coordination or organizations that find ways to improve health without providing additional billable services remains a challenge. The state has to “start creating the right incentives for medical providers to work with social service providers,” Flood said.

Rick Jurgens can be reached at or 603-727-3229.