“Scribblings” An Occasional Newsletter from the Legislature

by Rep. Thomas F. Koch Barre Town

For years, Vermont has been engaged in reforming our health care system. And every time the newest effort proves to be a failure, the cry goes up, “We didn’t go far enough—what we need is more of the same!” Or, to put it in railroad terms, when the train is out of control, let’s add more fuel. It’s time to figure out that if what we have been doing hasn’t been working, we need to try something else, but that’s not what’s happening in Montpelier.

Let’s recall a partial list of our “reform” efforts. To control costs, we required that hospitals and others get a Certificate of Need before offering new services or making major investments in capital assets; but costs continued to go up. To insure more children in low-income families, we created “Dr. Dynosaur,” and we did insure some more children, but there are still about 5,000 children who are eligible for coverage who remain uninsured. In the mid-nineties, we created VHAP and VScript; costs went up, but the “uptake” in coverage among those who were eligible was disappointing, and we drove all but two insurers out of the state with “community rating,” “guaranteed issue,” and numerous mandates in coverage. In the middle of the last decade, we created “Catamount Health,” with a goal of raising the insured population to 96 percent, but the percentage of people insured changed little.

In 2010, Congress passed the Affordable Care Act (“Obamacare”), but that wasn’t enough for Vermont; in 2011, we passed “Act 48: An act relating to a universal and unified health system,” which set up “Green Mountain Care” and established the five-member Green Mountain Care Board to control the entirety of Vermont’s health care system. Where President Obama campaigned for the ACA by promising increased competition, Green Mountain Care expressly limited competition. President Obama promised that “if you like your health care plan, you can keep your health care plan;” Governor Shumlin, however, planned from the beginning to force us to accept wholesale changes in our plans, even if we were satisfied with our plans. While the ACA made the purchase of health insurance through an internet exchange optional, Act 48 made Vermont the only state to make use of the exchange mandatory for individuals and for businesses with 50 or fewer employees, changing to 100 or fewer as of January 1, 2016. And while the ACA has no additional reforms immediately in the works, Act 48 is planning to adopt a “single-payer” system as of January 1, 2017—less than three years from now.

As it turns out, however, the ACA and Act 48 have more in common than appears on the surface. Neither one allows you to keep your health care plan if you like it (with a few exceptions made for political reasons.) Neither one seems to be heartily embraced by the major target group: the “young and invincible” working families for whom health insurance is not the highest priority. Neither one has a web-based exchange that works. And both, for many people, have raised the cost of health insurance and made it unaffordable. But never mind, Vermont will figure it all out just in time for the government to complete its takeover in 2017. Trust us.

On the day the legislature convened this month, Governor Shumlin appeared before the legislative health care committees and announced that despite the glitches (“nothing burgers”?) in the roll out of the health care exchange, he was not discouraged and would press on with implementation of the single-payer system in 2017. Okay, so it’s “damn the torpedoes—full speed ahead.” That might cause one to ask a few questions. How much will this cost? How will we pay for it? After all, with less than three years to go, might one want an answer or two?

We should have had a pretty good answer to those questions by now, because Section 9 of Act 48 reads, in part, as follows:

(a) The secretary of administration or designee shall recommend two plans for sustainable financing to the house committees on health care and on ways and means and the senate committees on health and welfare and on finance no later than January 15, 2013.

(1) One plan shall recommend the amounts and necessary mechanisms to finance any initiatives which must be implemented by January 1, 2014 in order to provide coverage to all Vermonters in the absence of a waiver from certain federal health reform provisions established in [the Affordable Care Act].

(2) The second plan shall recommend the amounts and necessary mechanisms to finance Green Mountain Care and any systems improvements needed to achieve a public-private universal health care system.

Well, the secretary’s “designee” turned out to be some people at the University of Massachusetts, who were given a $300,000 contract to develop these plans, but in the process, the Shumlin administration decided that we didn’t really need all that information so soon, so it reduced the scope of the UMass project, and all we got in February last year (not January 15) was a study that estimated that Vermont would have to raise $1.6 billion (that’s $1,600,000,000!) annually in new taxes in order to bring Green Mountain Care into being. That’s like taking our current state income tax and multiplying it by a factor of 2.5 or 3.0!

While $1.6 billion is a nice guess, and frightening enough by itself, it has been challenged by others as being an underestimate. One such study, conducted by the Avallere Health Group and paid for by Vermont businesses, was released last fall and estimates that the actual costs (and therefore more taxes) are probably between $1.8 and $2.2 billion. One might be tempted to ask, “So what’s half a billion dollars, more or less?” but that might be a bit cynical.

In any event, the Governor has indicated that the legislature needn’t worry about taking action on any new taxes this year. Any decisions on a new tax system to support a new health care system can wait until next year—which just happens, by the way, to be after this year’s elections.

Enter Senator Peter Galbraith. Peter is generally very liberal, and chances are that he supports the idea of a single-payer system. But he has this annoying habit of being honest and wanting to confront problems straight-on. You seldom have to ask Peter what he thinks—he’ll tell you up front, whether you like it or not. And in this case, he thinks it’s nowhere near too soon—indeed high time—to be discussing the potential cost of Green Mountain Care and how to raise the revenues to support a new system that comprises one-fifth of Vermont’s entire economy. So he has introduced a couple of bills.

Let me summarize these two bills briefly, with the understanding that many details need to be omitted due to space limitations, and if not everything adds up, it is likely a result of condensing one six-page bill and another twelve-page bill into a couple of paragraphs.

The first bill is S. 254, which would provide “transitional” financing for Green Mountain Care. Perhaps because of the rocky introduction of the health care exchanges, the bill recognizes that a smooth introduction of a new system requires some preparation and cannot be done all at once. Certain things are simply prudent, such as building a reserve in case expenses exceed estimates. So the bill would raise Vermont income taxes as of January 1, first, by removing the exclusion for the first $5,000 of capital gains, thereby taxing all capital gains, and second, by limiting itemized deductions to the amount of the standard deduction for federal income tax purposes. So people who have substantial capital gains and people who itemize their deductions on their federal returns would bear the brunt of these changes. In addition, the bill would impose a tax of 1.5% of payroll on employers only, not to exceed the maximum amount for each employee that is subject to the Social Security tax. So a small employer who has six employees, each paid $25,000 per year, would have a total payroll of $150,000 and would be subject to a payroll tax of $2,250. The amounts collected would be deposited into a special fund and used to pay transitional and start-up costs of the new system.

The second bill is S. 252 (they got a little out of order when they got numbered.) This bill would provide for permanent financing for Green Mountain Care. First, it would maintain the changes in income tax relating to capital gains and limiting deductions. Second, it would raise the payroll tax substantially; the tax on employers would go from 1.5% to 11.0%, and a new tax would be imposed on employees in the amount of 2% of wages, but again, no wages in excess of the Social Security limit would be taxed. Self-employed people would pay 13.0%. Third, it would also impose a tax on “non-wage income” in order to make sure that income, dividends, and other “non-wage” income was also taxed. This tax would be 10.0% of the non-wage income.

Wow! That is a massive tax hike—designed to raise $1.68 billion in new revenue! It’s important to realize, however, that it’s just a bill, and it hasn’t passed. But Senator Galbraith has done us a favor by giving us a glimpse of the nature and extent of changes that will have to be enacted in order to bring Green Mountain Care on line.

In fairness, the intended trade-off is that Green Mountain Care will then hire a GMC plan administrator—probably one like Blue Cross-Blue Shield that used to be an insurance company—to pay providers for their services, presumably without any premium contributions on the part of Vermonters. Co-pays and deductibles—maybe. So there are those who will argue—in fact, have already argued—that we are already paying all we need to pay for health care, that the money is “already in the system,” and that all we are doing is exchanging one means of payment for another.

But it’s not an even trade. What that argument ignores is that any swap like this will inevitably have winners and losers, and nobody has yet analyzed who’s a winner and who’s a loser. I do suspect that retired people with “non-wage” income, who are already on Medicare, will take a hit. Small businesses are likely to feel the pinch, especially if they have not previously been paying premiums for their employees. And I believe that large, national or international employers like IBM will find it quite objectionable to pay a payroll tax in addition to paying for the employees’ health plan that they already provide.

All of this needs to be analyzed in terms of its ultimate effect on Vermont’s economy. Will senior citizens change their residences to Florida? Will IBM leave Vermont? Will low-income people move to Vermont to get free health care? How will small businesses make out?

Act 48 provides that a thorough economic analysis must be done before Vermont finally decides to go forward with Green Mountain Care, and that the train that is presently hurtling down the tracks be stopped if the economic analysis shows that going ahead will be detrimental to the economy. My problem is that if the same people who are so ideologically committed to a single-payer system are the people who do the economic analysis, there is virtually no chance that they will decide to apply the brakes at the last minute. In my judgment, we’re looking at a train wreck.

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I’d like to follow up on my last “Scribblings,” in which I discussed drug addiction. There are two important points that I should have made, or made more clearly.

First, alcohol is also a drug. In fact, it is the most frequently abused drug in society, and has been for many years. As we discuss opiates and how to deal with them, we cannot ignore alcohol. And as we provide treatment opportunities for opiate addiction, so must we also provide treatment opportunities for alcohol addiction, and encourage people who are addicted to alcohol to take advantage of those opportunities.

Second, as we speak of treatment for drug addiction, nobody is suggesting that law enforcement efforts against drug pushers be relaxed. In fact, Governor Shumlin was quite clear in his State of the State address that we should enhance penalties for those who bring illegal drugs into the state. He also proposed that penalties be enhanced for those who break into homes while possessing weapons. I did mention both of those proposals, and I support them, but in re-reading what I had written, and in listening to people who wrote back to me, I realize that I did not make the law enforcement point clearly enough.