My committee (House Health Care) passed a major bill this week, so this is a bonus week update for those interested in reading a very in-depth report on this multi-piece bill.
We also passed a bill that represents a change in policy and very good news for individuals who have been forced to enroll for health insurance on the dysfunctional Vermont Health Connect system even when they were not applying for subsidies.
The big bill included the sugar-added beverage tax. I received a number of responses to my request for feedback on that issue, and not surprisingly, there were a wide range of opinions. All of them, however, had productive thoughts or insights that helped broaden how the issue might affect Vermonters – whether positively or negatively.
I did not support the bill, but it is also important to know that the context included other parts of the bill and alternatives that were discussed.
The New Spending
First, the bill is focused on $47 million annually in new spending for a list of specific health care initiatives. When combined with federal matching funds, this brings the total budget of new expenditures to $91 million, annualized. The governor’s health care proposal this year was to impose a .7 percent payroll tax for a list of similar initiatives. Our bill includes two revenue sources: the two-cent-per-ounce sugar tax, and a .3 percent payroll tax. In effect, our committee bill substituted part of the payroll tax for the sugar tax.
There are two other changes from the original budget proposal from the governor. The committee bill repeals the current “employer assessment” levied against employers who do not provide health insurance.
Some people have felt that the payroll tax would mean “double dipping” from these employers. This is because, at least in theory, the payroll tax on employers who do currently offer insurance will be returned to them through lower health insurance premiums because Medicaid will be reimbursed at a higher level, reducing the amount private insurance carries part of Medicaid costs (the “cost shift.”) They will be “held harmless” from the impact of the new tax. The payroll tax on employers who do not currently offer insurance will not benefit them through lower insurance rates (since they don’t offer insurance.) Thus, also maintaining the assessment would doubly penalize them for not providing coverage.
Repealing the payroll tax, which would have raised $18.3 million, means that the addition of $47.2 million in new spending over a full year requires raising at least $65.5 million in total revenue to create a balanced package. The new payroll tax would raise $39.7 million, and the beverage tax is projected to raise $30.9 million.
Those are the figures when rolled out for a full year. Since it most pieces would not begin until next January, covering the half year in the upcoming budget requires $29.8 million in new state spending ($56.6 in new initiatives, with the federal funds added.) The tax projections are $17.8 million from the payroll tax and $17.8 from the beverage tax, minus $4.4 million from the elimination of the employee assessment in the fourth quarter.
Moving the Medicaid Cost Increases
The other change from the governor’s original proposal with the .7 percent payroll tax is that our committee bill does not include the cost of the $16 million increase in existing increased Medicaid expenses, which really does belong in the existing budget, not a budget for new initiatives. The administration now agrees with that perspective.
However it is important to realize that this $16 million increases the amount of new revenue or cuts that other committees will have to identify beyond the governor’s proposed cuts and revenues, since it was originally proposed to be funded as part of the payroll tax. The other addition to the gap beyond the governor’s original proposal is the $18 million in revenue shortfall reported in January, thus $34 million in total.
On to the vote:
Our chair allowed for recognizing committee members’ positions on the significant separate issues through straw polls.
We first voted on the policy directions of initiatives in the bill. It further supports the Blueprint for Health costs for coordinating care for chronic health conditions; reduces the price disparities between state payments for health care (Medicaid) and private insurance payments; increases subsidies for low income individuals buying insurance on the Exchange; focuses on specific support for enhancing universal access to primary care; provides the resources for increased oversight responsibilities of the Green Mountain Care Board; and provides an inflationary increase to health care service providers not covered by the Medicaid increase.
Some of these initiatives do not have consensus support, in part because they would help support a future single payer financing structure for health care. They are initiatives that I do support – they are investments in better health care and less spending over time -- and to the question, “if resources were not an issue, how would you vote?” I voted, “yes.”
We then voted on the use of the two-cent-per-ounce sugared beverage tax as a revenue source for the bill. Note that this did not use any of the revenue to fund other programs that have been suggested as linking to the tax purpose, such as making fruits and vegetables more affordable. It also includes no funding for a public education campaign.
I told the committee that I would be ready to seriously consider this tax if it was proposed after first having an aggressive education campaign about the health risks of significant added sugars. It’s what we did, for example, with nicotine – and still do, as a combined education and tax effort. To spring it on consumers without doing that first, I think, is unfair and counterproductive. Given our budget shortfall, I would even support a small beverage tax in order to fund such a campaign. That approach did not receive committee support.
The other issue of particular concern is the impact of any really major tax differential between Vermont and our surrounding states. That is counterproductive to our critical need for economic development – something essential to addressing our structural budget deficit. So I voted “no” on this straw vote.
The same issue rings true if we were to become the first state to impose a state payroll tax, regardless of good motives or policy efforts. We do not stand in isolation, and what might be otherwise argued as good policy is bad policy if it puts us in a significant economic disadvantage compared to other states. I voted no on that component as well, and thus no in the formal vote on the bill as a whole as well.
Many More Steps to Go
Note that this is only a first step in a long process. I think our committee has set itself up to have wasted all of the time we spent in developing this bill, given the realities of our bigger budget picture.
This bill will next travel to the House Ways and Means Committee to assess the tax proposals. Will some survive? There is a question as to whether there is much support there for either the sugar tax or the payroll tax. At the same time, that committee will without doubt be assessing some new revenue sources as a part of the existing $34 million gap (or $112 million, if you do not start by assuming the governor’s revenue proposals will be accepted.)
Ways and Means will also have to look at sustainability. The sugared-beverage tax revenue amount is only a rough estimate, and will raise less over time if it succeeds in its purpose of reducing consumption. So we will have started new programs that will grow in cost, and they will require other, additional sources of new revenue to keep them going in the future.
After Ways and Means, it goes to House Appropriations. That’s the committee already “spilling blood” (in one committee member’s words) in terms of cuts to balance the budget even assuming some new tax revenues.
Will Appropriations embrace the $30 million in additional state budget spending for the half year that would be covered in the fy 2016 budget? (And then a commitment to $47 million to continue in the following year?)
Every penny of that $30 million, along with the existing $34 million gap, must be filled by other, even deeper cuts, or through proposed additional new taxes, or both, just to get through the current year. I think that my committee was irresponsible to even suggest to our colleagues that a $30 million combined spend and tax-to-pay-for-it package be added to the current fiscal crisis.
Whatever the House ultimately passes, all goes to the Senate for scrutiny.
So you have not heard the last word on the spending or the taxes – sugar and otherwise – that left my committee on Friday afternoon.
I referenced some good news at the very start of this update: last week we also passed a bill that will permit individuals to enroll for health insurance directly from the insurance carriers, instead of from the broken “Vermont Health Connect,” as long as they are not applying for subsidies. (Federal law requires that enrollment for subsidies go through the computer exchanges.)
The insurance products will the same as those on the Exchange. This will take effect beginning with the next open enrollment period next fall. This is the same process that we allowed for small business last year, but we were forcing individual purchasers to continue to enroll through the Exchange.
This is a reversal of a policy the state and legislature had insisted upon from the beginning of the Exchange.
Just a few weeks ago, my committee debated this issue. The governor’s office opposed it, insisting the Exchange would be working soon. The three Republicans tried to push back, but the best we could get at that time was agreement to allow direct enrollment for this fall only, and only if the system was still not working by mid-summer.
Under the onslaught of bad publicity and pressure over the ongoing level of dysfunction, the administration had a change of heart, and our committee chair and other committee members immediately followed suit.