Shumlin, a second-term Democrat, wants to launch a universal, publicly financed health care system known as Green Mountain Care in 2017. He has repeatedly told lawmakers that the financing plan to support the system, which his administration has estimated will cost $1.6 billion in its first year, will be revealed next January.
But Sen. Peter Galbraith, a Democrat from Windham County, says the governor’s date is too late. He’s introduced two bills outlining how to finance the system, hoping to jump-start the conversation now. The Senate Finance Committee began delving into the bills Friday.
Galbraith’s financing bill, S.252, seeks an 11 percent payroll tax on employers and a 2 percent payroll tax on workers. The revenues from those two taxes, in addition to a 10 percent tax on nonwage earnings including capital gains, will raise the necessary $1.6 billion, he said.
Others have estimated the cost of Shumlin’s proposed health care system to be as high as $2.2 billion in the first year. Galbraith said his plan is flexible because payroll tax rates can be adjusted up or down depending on the system’s true cost.
He touted the use of the payroll tax because unlike other forms of taxation, it is a deductible business expense for companies. That means the federal government will cover some of the cost, he said.
And the funding scheme laid out in his legislation “at least mimics the present system,” according to Galbraith. Currently, most employers are covering the majority of health care premiums, while employees pick up the remaining costs.
“For those companies, it’s a cost transfer,” he said. “That is to say they no longer pay the premiums but they pay the payroll tax.”
Meanwhile, working with the Joint Fiscal Office, he has determined that funding Shumlin’s plan through an income tax would require the low end of a progressive tax to be 15.5 percent with a top rate of 24.5 percent.
“I don’t think that that’s doable,” he said.
Generating enough money through a sales tax would require eliminating the current exemptions for food and clothing, adding the sales tax to professional services and raising the sales tax 19.5 percent, up from the current 6 percent.
“That’s why I say the only practical way to do this is with a payroll tax,” Galbraith said.
“I realize that it’s going to be a tough road,” he added. “Whatever we do pass, if we pass something, it will look substantially like this — not because I’m a smart guy, but because there really is no other way to do it.”
Not true, said Michael Costa, a tax expert and deputy directory of health care reform in the Shumlin administration. The governor has tasked Costa with crunching all the numbers and developing the financing plan lawmakers are set to receive in about a year.
Friday’s hearing was forced to move from the committee’s small room to a larger hearing room, as lobbyists, journalists and other interested parties gathered to hear from Costa.
While not directly engaging in a free exchange of ideas with the Finance Committee Friday, Costa did hint that Shumlin’s plan will look beyond using just a payroll tax.
“The payroll tax is a reasonable place to start because many people receive their insurance coverage from their employer right now and pay, or have monies paid on their behalf, through the payroll system,” Costa said. “But it’s not the only way.”
Robin Lunge, the administration’s director of health care reform, said top administration officials are happy to engage in the financing discussion with lawmakers. But details are likely to remain vague in the near future.
“I think the purpose of getting the discussion going is terrific,” she said. “With that said, I think we are putting the cart before the horse.”
For now, Lunge said, the administration wants to ensure that lawmakers and the public understand the current health care system. She said the administration will take time to explain who is paying for health now and how they are paying for it.
Lunge also said the administration is working with the Joint Fiscal Office on a “consensus” estimate for the proposed health care system. And the administration has been studying single-payer models in European countries, many of which had cross-border issues that opponents have argued will derail Vermont’s efforts.
“There are models that we can look at and we have looked at to address the myriad issues,” Lunge said.
Costa, noting Shumlin’s promise to lawmakers earlier this year, said he plans to come back to the committee with financing “concepts.”
“This is a great first step,” he said. “This is a conversation the governor clearly wants to have. It’s a little ahead of where we are.”
Galbraith’s second bill, S.254, would create a transitional financing system to raise money ahead of a 2017 single-payer system launch. He said the state could see a cash-flow problem if the taxation system begins at the same time the health care system launches.
The bill calls for a 1.5 percent payroll tax beginning in 2015.
“My view is, you build up a kitty slowly,” Galbraith said.
He argued that the state cannot apply for federal waivers needed to implement Shumlin’s plan until a financing plan is in place.
Lunge said that is not the case, however. She said the administration is already in discussions with the federal government about waivers. A waiver application can be submitted but will not be approved until the financing question is settled, she said.
Lunge also said raising money ahead of the system’s launch is not necessary because there is a claims “tail,” in which claims are usually paid in the fiscal quarter after they are made. That means the state will have collected tax revenue to fund claims before they must be paid.