Vermonters for Health Care Freedom is a 501 (c) (4) organization of individuals and businesses who are deeply concerned about health care reforms being implemented by Governor Shumlin, and seek patient-centered reforms that protect the traditional doctor-patient relationship.

Vermonters For Health Care Freedom Health Care Reform Newsletter #44

Vermonters For Health Care Freedom is a reliable source of health care news, information and commentary that is simply not available elsewhere. Through research and our own network of experts, VHCF regularly produces insightful commentaries and rebuttals of any false or misleading claims about health care reform.
No other Vermont organization is dedicated solely to this work.

VHCF is the number-one organization sought out by the mainstream media to critique Vermont’s proposed health care reform policies. We are proud to have played a pivotal role in exposing the pitfalls of a single payer health care system over the past three years.

In 2015, we will focus on the impacts of Vermont’s continued push for a government-run health care system, and the state’s latest health care reform efforts. Our reports will continue to keep our readers informed about the facts that even the Shumlin administration would prefer to hide.

Single Payer, Voodoo Economics and Budget Deficits, Oh My!

In This Issue:

• Shumlin’s Proposed $90M Health Care Payroll Tax: Not What It Seems
• More Taxes on Vermonters: Farmers, LIHEAP and Income Taxes
• Keep An Eye On H.24 - Legislator Proposes to Further Increase State’s Premium Subsidies

Quotes of the Week:

“It’s easy to see, should one be curious enough to look, on page 21 of the Executive Budget booklet that the actual year-over-year general fund increase was not 1.8 percent or even 3 percent, but 4.4 percent”

-Tom Pelham, Former Finance and Management and Tax Commissioner, commenting on Governor Shumlin’s statement that the 2016 general fund increase is only 1.8%.

“I gave you (the legislature) a budget outlook that predicted a $60-$70 million dollar gap last year. The only thing we couldn’t predict was the lower income tax revenue”

-Joint Fiscal Committee Chief Steve Klein, in response to Senator Michael Sorokin’s question, “How much of the (2016) $94m budget gap was predictable?”

“It could be the camel’s nose under the tent”

-Dr. Deb Richter, staunch single payer advocate, on the $90m payroll tax increase as a future vehicle to fund single payer

“We continue to be trying to do too much for too many for too long with too little.”

-Senator Joe Benning, R-Caledonia County

Shumlin’s Proposed $90M Health Care Payroll Tax: Not What It Seems

In his 2016 budget address, Peter Shumlin said he (finally) recognizes that Vermont faces a “structural” state budget gap, the result of a state outspending its revenues year after year. Vermont’s spending has outpaced state revenues for the past 8 years. That was not news. And yet it was against this very backdrop that the Governor was willing to foist an 11.5% payroll tax and up to a 9.5% additional personal income tax on Vermonters up until two months ago.

Now, just when we thought we were safe from the crippling payroll tax required to fund single payer, along comes Shumlin with another surprise health care payroll tax. The new proposed payroll tax on Vermont businesses would ostensibly raise over $90m annually, but there is a little voodoo in the economics, as George Herbert Walker Bush was so fond of saying.

The Math:

Shumlin’s 2016 budget proposes a .07% payroll tax, ostensibly to help defray the “cost-shift” resulting from Medicaid/Medicare’s lower provider reimbursements. The theory is that Medicaid underpays providers (60% of charges or a “silver level” plan) and Medicare pays at about 80% of charges (a “gold level” plan), and that providers overbill those with private insurance to make up the shortfall, thereby increasing commercial insurance rates. In 2012, the “cost shift” was valued at about $150m between the two government plans ($100m for Medicaid and $50m for Medicare).

However, a recent report on health care spending in Vermont by the Rand Corporation questions the existence of the cost shift and suggests that prices negotiated between hospitals and insurers have more to do with market dynamics than cost shift. The study states, on Page 65, “Cost shifting is often cited by providers to justify large gaps between prices paid by private and public plans. But there is a significant debate in the health economics literature regarding the extent to which cost shifting actually occurs.” 

What Is Really Going On?

This is voodoo economics in more ways than one. What the tax is really for is to continue financing the Medicaid expansion after Federal funding runs out in 2017. A few years ago Vermont accepted time-limited federal incentive payments to greatly expand Medicaid. Vermont’s politicians accepted the additional Federal funds without a financial plan in place for the time when the Federal dollars ran out. Now the cost shift for the expanded Medicaid payments will fall directly on the backs of Vermonters and Vermont businesses, if this tax is allowed to pass. With 30% of Vermonters on Medicaid, this is a heavy lift for working Vermonters and Vermont businesses. And how many Vermonters knew that their elected representatives agreed to the expansion in the first place?

Although Shumlin said that the payroll tax would apply to “all” Vermont businesses, that is not true either. VHCF has learned the following:

  • Tax on VT employers
  • No cap on first dollar
  • Self-employed are excluded
  • Federal employees are excluded
  • Tax will generate $41m in Year 1
  • $92m starting in 2017
  • No other state has a payroll tax
  • Only 6 cities do, which are larger than VT

No thinking person really believes that this payroll tax won’t increase. It is the proverbial camel’s nose under the tent. Readers may have seen articles about some states wrestling with whether or not to accept the Federal funds to expand Medicaid. Some states did not. This is exactly the reason why.

To help coerce legislators into accepting this payroll tax, the Governor says that when Medicaid payments are increased though this new payroll tax, the “cost-shift”, (if it exists), will lessen, and private health insurance companies will decrease their premium rates. Has that ever happened in the history of the world? This is the same administration that stated that when single payer came into being, employers would automatically raise salaries because they no longer had to pay for health care, even though they would be paying an 11.5% payroll tax! Is that Peter Pan or Peter Shumlin speaking?

The new payroll tax would be effective January 1, 2016. According to Shumlin, “The tax would generate six months of revenue in the 2016 fiscal year, a total of $41.4 million. Vermont can use that money to draw down a federal Medicaid match worth $44.5 million”. Of the $85.9m, Shumlin wants to put $55m toward increasing Medicaid payments, and another $27.8m toward other health care endeavors, such as increasing subsidies for out-of- pocket costs for those who purchase on the Exchange and increasing the Green Mountain Care Board’s budget.

The first question is how the administration expects to get a federal drawdown for the entire sum. If the Feds are only going to match the portion that goes toward Medicaid payments, and if only $41.5m is generated for that purpose through the payroll tax, the Feds are not going to match the money used for other purposes. Thus begin the voodoo economics.

Shumlin stated in his budget address, “Every dollar of this increased payment in Medicaid reimbursement rates will be used to reduce the cost shift and bring down private insurance rates.” Notice he didn’t say, “every dollar of the payroll tax.” You really have to listen carefully.

In typical rah-rah fashion, Shumlin stated, “Current Medicaid reimbursement rates drive up private insurance costs for businesses and individuals, acting as a hidden tax….(that) amounts of an astonishing $150 million in private insurance premium inflation every single year”.

Mike Davis, GMCB Finance Director, testified before the House Ways and Means Committee on 1/21/15 that the Medicaid shortfall accounts for $135m, not $150m every year, and the payroll tax will do nothing to address the $166.1m shortfall from Medicare payments, nor will there be any federal match for those. That means Vermont businesses can expect this $.07 payroll tax to escalate as soon as it is implemented. 

Health Care Premium Reductions: Not Likely

Shumlin’s claim that the Medicaid subsidies from the payroll tax will lower health plan premiums for private payers fails the litmus test too. The Green Mountain Care Board starts rate reviews in February. Tax bills are the last to be passed by the legislature, probably in early May, which means that the rates will be set before this tax bill ever passes, if it does, and certainly before any tax revenues are collected. Vermonters will not see premium relief in 2016, if ever.

The Governor also says that “the Green Mountain Care Board, with insurers and hospitals will recover the savings created by these increased payments, reducing premiums by up to 5 percent from what they would have been.

The fact is that the subsidies raised by a .07% payroll tax are only a very small percentage of total premiums paid by private payers. The payroll tax would have a very minor impact on insurance premiums, if any.

Lieutenant Governor Phil Scott, among others, expressed reservations about a payroll tax: ”…while I agree that we have a structural problem with the Medicaid cost shift, I am hesitant to fund the “fix” through a payroll tax. Opening the door to even a small increase will, in my opinion, lead us to further tax growth. Once that seed is planted, we have a tendency in this building to over-fertilize, and I fear there will be further proposals to increase taxes on Vermonters and small Vermont businesses, who are already struggling to make ends meet.” 

To sum it up: The Vermont legislature should pass a payroll tax on not all, but some Vermont businesses – who are already strapped as it is – to generate money - so the administration can pay higher Medicaid payments – and draw down matching Federal funds – which may or may not continue – to lower premium rates for Vermonters - which may or may not ever occur – by up to 5% - from what they would have been. Got that?? 

The Impact: Small Businesses

The Governor touts his proposed payroll tax as being at least cost-neutral to employers who provide health insurance to their employees. Whether that is true or not, the tax will be an additional burden on Vermont’s small businesses.

For small businesses, which are 96% of businesses in the state, the tax would increase the cost of doing business without offering any relief. But Shumlin says that Vermont would be “fiscally irresponsible” not to pass the tax to draw down the federal match. So it’s okay to burden small businesses even further to avoid being “fiscally irresponsible”? Would that not be fiscally irresponsible itself?

The National Federation of Independent Business (NFIB/VT) has come out in strong opposition to this payroll tax. They released a statement which reads in part:

“…NFIB/VT was hoping to hear the promotion of visionary plans from Governor Shumlin for how he would address affordability in Vermont. Rather, we heard more of the same: tax increases on businesses, an over-reliance on federal dollars to expand programs, and financial incentives for certain sectors of our economy in hopes of minimizing public criticism”.

“Access to affordable high quality health care remains NFIB/VT’s top priority. Governor Shumlin promised to remove the burden of health care from Vermont employers; rather he shifts more and more of the burden to small business. We find an increase payroll tax an insult to our intelligence.”

“Small businesses already pay an employer assessment to fund Vermont Health Connect (formerly Catamount Health Plan) to the tune of $18 million per year. Now, Governor Shumlin proposes an additional $90 million increase.”

“Small businesses in Vermont represent 96% of all businesses; while we see some green shoots in our economy, most are struggling under the high costs of owning and operating their businesses in Vermont. Overall, the outlook Governor Shumlin laid out today will not help small businesses to grow and prosper in our state”.

On the other hand, Progressive Rep. Chris Pearson, long-time single payer advocate breezily opined, “It’s a small tax. It’s not going to bankrupt any businesses”. Who would better understand the impact, Rep. Pearson or the small businesses themselves? It may not bankrupt them, but they don’t need a higher tax burden that will certainly increase in future years. 

Teachers, Municipals and State Employee Health Plans

Based on payroll figures, K-12 schools will pay a whopping $5.8 million in payroll taxes per year. The pressure on school districts to come up with the payroll tax will certainly be passed along to Vermonters in higher property taxes across the state.

In addition, the state will have to tax itself for the payroll tax for state employees. A payroll tax of .07% would require a $2.8 million payroll tax payment. The tax on local governments would be $2.1m, and colleges and universities would have to pay $2.3m. All in all, a total of $13m that must come directly from taxpayers or higher tuition payments.

A Foot in the Door For Single Payer Advocates

Proving that Lt. Governor Phil Scott is right to be alarmed, Deb Richter, long-time single payer advocate, sees the payroll tax as a vehicle for single payer in the future. “It could be the camel’s nose under the tent,” she stated. “I think we can go much further this session than just what the Governor proposed.” She wants to use the payroll tax to support a publicly funded primary care plan for all Vermonters. Here we go again. 

More Taxes on Vermonters: Income Taxes, Farmers, and LIHEAP Recipients

Although the Governor has “emphasized” that Vermonters’ tax burden is already “high enough”, that didn’t stop him from proposing tax hikes on some of Vermont’s most vulnerable. He proposes to:

  • Eliminate the deduction for state and local taxes paid the prior year for tax filers who itemize their deductions. Currently, your Federal taxable income is used as the base for calculating state income taxes. The Federal base Is reduced by state income taxes and property taxes if you itemize deductions. Most homeowners are likely to claim both of these reductions. Shumlin calls them a “loophole” and proposes to eliminate them. The result would be a higher base on which your state income taxes would be calculated, resulting in higher state taxes for many Vermonters.
  • Reduce the allowable property tax relief on farm buildings from 100% to 70% to collect $1.6m in revenues. Vermont farmers are struggling hard enough as it is to survive. This hits below the belt.
  • Eliminate the state’s $6 million contribution to the Low Income Heating Assistance Program (LIHEAP). Lower fuel prices are supposed to make this cut less painful for low-income Vermonters, who are already struggling to pay their heating bills.

Make no mistake, any time the government increases the cost of something that Vermonters have to pay for, it is a tax increase, pure and simple. The Governor can call his plan what he wants, but it still costs Vermonters more and reduces their spendable income.

Keep An Eye On H.24

“An act relating to increasing subsidies in the Vermont Health Benefit Exchange and establishing a sugar sweetened beverage tax.”

This is another proposed tax on Vermonters, to be used to increase premium and cost sharing subsidies of plans purchased through Vermont Health Connect, for individuals and families with incomes between 300% and 400% of the federal poverty level (FPL). It would raise the benefit levels from 73% and 77%, to an actuarial value of 87% for households with incomes between 150% and 400% of FPL. This is a better benefit level than many working Vermonters have.

The bill imposes an excise tax of $.0.02 per ounce upon distributors of sugar-sweetened beverages in the state, which will be passed along to consumers. In a nice bit of social engineering, the revenue would be split 50/50 between the ”Vermont Healthy Weight Initiative Fund” and the “State Health Care Resources Fund”. The latter is the fund used to provide cost share subsidies.

Government always exceeds its useful function. It grows and goes far beyond our means to support it.

"Any person who believes that they have the fundamental right to determine what is best for them in their life...what healthcare to receive, what medications to take, what immunizations to have, what food to eat, what behavior and thoughts to express.... should reject this attempt by the State of Vermont to regulate their bodies and minds. Vermont's "Healthcare Reform" is legislation about power and control based on the unconstitutional and immoral assumption that the state knows what is best for the people that it rules."

Edward Pomicter, MD
Diplomate, American Board of Anesthesiology

  • Employers pay 40% of the healthcare costs – and were never consulted.
  • An appointed board will determine benefits, coverage, funding, deductibles, co-pays, premiums, technology, provider payments, etc.
  • Under this law, you will not be allowed to purchase insurance outside of the Vermont Health Benefit Exchange.