Community Forum: Payrol tax wil benefit companies by lowering heath insurance costs

This week’s writer is Lawrence Miller, chief of Health Care Reform for Vermont.
As someone who for the past 25 years has owned, advised or worked closely with a Vermont business, I know firsthand how confusing our healthcare system is for employers. But here’s the most confusing aspect of all: Over the past three years, hospital budget growth has been kept at 3 percent, the lowest rate in 40 years. However, many private insurance premiums have risen way beyond that rate over that same time period. How can that be? The answer is the cost shift.
Here’s how the cost shift works. When someone on Medicaid goes into a doctor’s office, Medicaid reimburses that doctor at about 40 to 60 cents on a dollar of cost. In order to make up for that low reimbursement rate, doctors and hospitals are forced to charge those with private insurance higher rates for the same services, artificially inflating private insurance rates. That’s the Medicaid cost shift, and in Vermont it accounts for $150 million in additional premium costs each year for businesses and others with private insurance. Put another way, if the Medicaid cost shift did not exist, Vermont businesses and those with private insurance would save $150 million per year on their insurance premiums. 
The underfunding of Medicaid is not only unfair to Vermont businesses, it’s penny wise and pound foolish because the federal government matches every dollar of state investment in Medicaid with $1.10 in federal money. So not only does failure to invest in Medicaid cost businesses hundreds of millions of dollars in increased insurance rates, it also leaves that much and more in federal money on the table.
Simply put: Increasing Medicaid reimbursement rates makes good sense because it will leverage federal money to reduce the rate of growth in private insurance premiums paid by businesses and individuals. The question then becomes how to raise the money.
What we’ve proposed is a seven-tenths of one percent (0.7 percent) payroll tax on Vermont businesses. This will raise $90.4 million each year in state funds, which will be matched with an additional $99.5 million in federal dollars. Using this approach we can both address the Medicaid cost shift to reduce private premiums and put funding into critical health care initiatives that have been proven to contain costs for everyone.
We propose to start this in January 2016, at the same time new insurance rates go into effect so that new funds applied to reduce the cost shift will have an immediate offsetting impact on premiums. This will raise $41.4 million in state funds in fiscal year 2016 and, using additional federal matching dollars, we are proposing to apply $55 million to the cost shift to reduce private insurance premiums for businesses and individuals.
While the 0.7 percent payroll tax is relatively small, it is significant for businesses. But because we’re able to more than double the amount raised from Vermont businesses with the federal matching funds, overall businesses that sponsor insurance will get back in reduced insurance rates more than what they pay in the payroll tax.
To ensure that the money is used to reduce rates, we will do two things. First, the money will go into a dedicated Health Care Resources Fund, much like the proceeds from the lottery go to the Education Fund. This will prevent the money from being used for purposes other than the intended ones. Second, we will put into statute that the amount raised from the payroll tax must be returned to Vermont businesses through lower rates. The Green Mountain Care Board will work with Vermont’s hospitals and insurers to do this, and has the authority to require it so that we can be assured we will get our value back.
As we move forward with reforming health care in Vermont, our goal will continue to be to reduce costs for all Vermonters. This is a key step in doing that, and one businesses, providers, insurers and all Vermonters should support.

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