Health tax hike raises concern

February 07, 2014

Times Argus Online

MONTPELIER — A Shumlin administration proposal to double the tax on health care claims will add significant costs to businesses and individuals already struggling to pay for health care, opponents of the plan told the House tax-writing committee Wednesday.

Meanwhile, members of the House Ways and Means Committee signaled they will seek alternative ways to plug holes in health care budgets.

Laura Soares, president and CEO of the Vermont School Boards Insurance Trust, told the committee that Vermont schools are facing a $1.9 million additional burden in health care costs if Gov. Peter Shumlin’s proposal to double the health care claims tax — from 0.8 percent to 1.6 percent — is approved.

“That’s a $1.9 million increase that would be borne by schools, and therefore the property tax,” she said.

Consumers are currently footing the bill for the 0.8 percent tax on all processed health insurance claims. The tax bills are sent to insurance companies, but they recoup the costs by building the expense into insurance premiums.

The Shumlin administration is proposing doubling the tax for the second year in a row to raise an additional $14 million in fiscal 2015. Last year lawmakers rejected the proposal.

The revenue generated by the tax is funneled into the Health Care Resources Fund, a massive trust fund that pays for much of the state’s health care spending. Administration officials say the fund has a $14 million shortfall.

The fund, of which only a fraction is supported by the health care claims tax, covers the state’s Medicaid program, state-level premium subsidies for Vermont Health Connect insurance plans, operating costs of the health exchange beginning in 2015, and other programs run by the Department of Vermont Health Access.

Kevin Goddard, vice president of external affairs for insurer Blue Cross Blue Shield, asked the committee “to consider the assessment in the context of its implications on business and individuals who purchase insurance.”

He said fees and assessments associated with health care reform, mostly at the federal level, have already combined to add about 4 percent to insurance premiums for 2015. Shumlin’s proposed doubling of the health claims tax would add another $8 million to $9 million onto BCBS customers, he said.

“It’s worth noting, I think, that generally what happens when we take out increases to our customers and members is they struggle to afford health care costs,” Goddard said. “They generally respond by looking for products that are less expensive.”

Those products, according to Goddard, are typically high-deductible plans that have lower premiums but increased out-of-pocket costs.

Shumlin’s proposal would raise the tax beginning July 1 to coincide with the start of the 2015 fiscal year. Insurance rates have already been set for 2014, however, Goddard said. That means BCBS and other insurers would have to absorb the cost until rates are set for 2015, he said.

A doubling of the tax, along with other reform-related costs, would add nearly 5 percent to premiums in 2015, according to Goddard.

“What many folks are seeing is the expense side but not yet the benefit,” he said of health care reform efforts at the state and federal levels.

MVP Health Care, which has fewer Vermont customers than BCBS, would see a $1 million impact if the tax were doubled, according to Susan Gretkowski, the company’s senior government affairs strategist. She said the tax essentially charges those with private insurance to help plug holes in the budget for Medicaid.

“It’s just another cost shift. It’s actually increasing the cost shift,” she said.

Businesses are opposed to doubling the tax, too, said Betsy Bishop, president of the Vermont Chamber of Commerce. She said a key tenet of health care reform is cost containment but that Shumlin’s proposal is adding more costs for consumers.

“This type of proposal doesn’t help us get to keeping those costs low at all,” Bishop said. “Increasing health care costs to decrease health care costs just doesn’t make any kind of common sense to us.”

Rep. Carolyn Branagan, a Georgia Republican and the committee’s vice chairwoman, told those who testified Wednesday the committee will consider other revenue sources.

“We do have some other plans in the works that may or may not pan out. Yeah, we hear you,” Branagan said.

After the hearing, Branagan declined to discuss the other options under consideration but said the committee will review them in the next few weeks.

“None of them are attractive,” she said. “Vermonters are pretty well taxed out. The thing is, this health care thing is a plan that many of our constituents want, so we have to look out there and see how we could pay for it. As far as specifics of where that money could come from, I’m not really prepared to give them to you because none of them are really fleshed out.”

Shumlin administration officials said Wednesday that lawmakers would have to propose their own plan to raise the needed money if they again reject the administration’s proposal.