The first glimpse of a substantive proposal to finance Vermont’s planned universal health care system came Thursday at a sparsely attended meeting of the Senate Republican Caucus.
The caucus invited Sen. Peter Galbraith, D-Windham, to speak about his proposal, laid out in two separate bills, S.252 and S.254, to pay for Green Mountain Care, the public entity that will administer the state’s single-payer system.
S.252 would create a tax structure to pay for the reformed health care system.
The lion’s share of revenue, $1.45 billion, would be raised through a payroll tax at a rate of 11 percent on employers and 2 percent on employees.
“Unlike any other tax, the payroll tax on employers is a deductible business expense, and therefore the federal government picks up a third of the cost,” Galbraith said.
To foot the rest of the Shumlin administration’s estimated $1.6 billion price tag, Galbraith puts a 10 percent tax on non-wage income to raise $100 million. The IRS defines non-wage income as interest, dividends, alimony, unemployment compensation or self-employment.
Galbraith also proposes to eliminate itemized deductions on Vermont’s income tax to generate an additional $60 million.
A companion bill Galbraith is proposing, S.254, creates a transitional fund from a 1.5 percent payroll tax starting in 2015 that would create a special fund for paying health care claims starting Jan. 1, 2017, the presumed go-live date for single payer.
Otherwise, Galbraith said, businesses would have to pay premiums at the same time they begin paying a higher payroll tax in the last quarter of 2016. After that time, the payroll and other taxes would replace the cost of premiums.
“It is the only thing that I’m aware of that’s in this building by way of a concrete proposal to finance Green Mountain Care,” said Sen. Joseph Benning, R-Caledonia, of Galbraith’s plan.
Shumlin’s proposed timeline for building the funding mechanism, which would delay the decision for another year, is untenable, Galbraith said.
“I think it’s almost impossible to do it on the Jan. 1, 2017, on the schedule that has been proposed by the governor,” he said.
His Republican colleagues agreed, the time to start the conversation is now.
Shumlin’s office did not wish to comment on Galbraith’s proposal, but a spokesman said they will follow the debate as it unfolds in the Legislature.
It is not known at this point just how much a universal health care system will cost. Some estimates have pegged the cost of moving to single-payer at closer to $2.1 billion.
But Galbraith said whether the costs are higher or lower than the administration estimates, the rates in his proposal could be adjusted accordingly.
There is room to debate the specifics, Galbraith said, but he was adamant that lawmakers not dwell on the mechanism, which he said must be a payroll tax.
“Whatever plan we enact will be substantially the same as what is in S.252, not because it’s the product of any genius, but because there is literally no other way to do it,” Galbraith said.
Senate Republicans thanked the junior Democrat from Windham County for giving lawmakers a starting point to discuss how Vermont will pay for what Benning called a “very large piece of social engineering.”
Galbraith compared the implementation of a single-payer system to the launch of Social Security in the U.S. a century ago.
“This is going to be very expensive. In my view the benefit is also an incredible benefit,” he said.
His proposal is predicated on several prerequisites, including whether the state’s plan will meet federal requirements.
In addition, the so-called “Mullin amendment,” enshrined in state statute, requires the reforms have no negative impact on the state’s economy.
The author of that amendment, Sen. Kevin Mullin, R-Rutland, had plenty of questions for Galbraith.
Mullin homed in on Galbraith’s proposal to impose the payroll tax on companies covered by the Employee Retirement and Income Security Act (ERISA), a federal law that sets minimum standards for private health and pension funds offered by large employers.
Global companies like General Electric and IBM, that do business in Vermont and offer a standard benefit package to all employees regardless of location in the United States, are not likely to enroll their employees in Green Mountain Care, Mullin said.
Mullin asked Galbraith if he had considered giving those companies a credit against the payroll tax for employees that Green Mountain Care won’t have to cover.
Galbraith said he thought that would be illegal, because federal law does not allow the government to discriminate in favor of or against ERISA employers. The credit would effectively exclude ERISA companies from participating in Green Mountain Care, and that would undermine the entire system, he added.
Mullin predicted there would be a court challenge to an imposition of the payroll tax on companies that do not benefit from the system.
“The legal argument is going to be that you’re effectively circumventing ERISA law by putting this in place, because you’re trying to force them into the publicly run program,” he said.
Shumlin has also said he would consider exempting ERISA companies from Green Mountain Care.
Galbraith said he wouldn’t vote for any bill that does not impose a payroll tax on ERISA companies.
Afterward, Mullin said he’s concerned that Vermont risks losing major employers if they’re not exempted or given a tax credit for providing their own health care.
However, if the funding mechanism is designed in such a way that the employer and employee tax contributions are lower than the premiums they pay now, Vermont could attract new companies, Mullin said.
Galbraith’s proposal would exempt federal employees and military personnel.
“There’s no way the state of Vermont can impose a payroll tax on the federal government,” Galbraith said. There’s also an economic benefit, as the federal government already pays for three-fourths of their employee’s health care and the full cost for active duty military.
Out-of-staters who work in Vermont would be subject to the 2 percent payroll tax on employees, but would not be eligible to participate in Green Mountain Care.
Vermont employees who work out of state would pay into the system through a “non-wage” tax.