Self-funded insurance complicates single-payer

February 25, 2013

Rutland Herald

At a news conference Wednesday, opponents of single-payer health care accused the Shumlin administration of covering up a politically toxic financing plan that would be used to fund the new system.

The evidence was entirely circumstantial, and while the allegations will play well with the base, they’re unlikely to move the mainstream.

But the more significant finding in the “investigative report” produced by Vermonters for Health Care Freedom may have less to do with what tax is used to support single-payer, and more to do with who can and cannot be forced to pay it.

Companies large enough to support their own self-funded insurance pools are one of the enduring conundrums associated with Gov. Peter Shumlin’s push for single-payer. Self-insured companies (IBM is a popular example) aren’t subject to state insurance regulations. Any attempt to impose state authority on self-funded plans, regulated by federal law called ERISA, would no doubt be met with a legal challenge. And that means Vermont can’t force the more than 100,000 residents getting insurance through ERISA plans into the single-payer system.

It’s a problem that, at first blush, would seem to thwart a proposal that relies financially on universal buy-in. But lawmakers and the administration have floated a solution: Subject companies like IBM to whatever tax is used to pay for single-payer, whether their employees are using the system or not.

The people who Vermont paid $300,000 to perform a single-payer report published last month, however, aren’t so sure that approach will fly.

One of the emails obtained in the public records request filed by Vermonters for Health Care Freedom contains an excerpt from a draft version of the single-payer report that addresses the ERISA dilemma. In it, the UMass team writes that “steps should be taken to ensure that individuals and employers do not pay both private premiums and (single-payer) contributions simultaneously for a period.”

In an email to UMass sent four days before the final report was issued to lawmakers, Robin Lunge, director of health care reform for the Shumlin administration, asks UMass to strike the language from the report.

In a reply, Katharine London, one of the lead researchers at UMass, consented to the revision. But she continued to express concerns about the issue of forcing “double payment.” She even offers a solution, saying “providing a tax credit to individuals for the premiums they pay for employer-sponsored coverage could avoid a preemption challenge.”

She goes on to say that she assumes the final report will include “a list of transitional issues and recommendations, and the issue of avoiding double payment is one of those transitional issues.” The red flag, though, wasn’t raised in the report provided to the Legislature.

The consequences of not being able to include self-insuring companies in a single-payer financing mechanism would presumably be severe. Those companies are among the more stable sources of revenue paying into the existing system, and they hold a considerable slice of the state’s overall wealth. That makes them an essential component, financially at least, of any viable single-payer plan.

Lunge said ERISA is complex, and that it would have been misleading to include a black-and-white interpretation in an arena where there’s so much legal gray area. She said that’s why she wanted to leave London’s original language out of the final report.

“What I was suggesting to her is if she wanted to talk about that (ERISA) issue, then we needed to have a complete ERISA analysis,” Lunge said last week.

Lacking the time to conduct one, Lunge said, it made sense to leave the issue out of the report altogether.

“You can’t make a general statement about it one way or another and have it be accurate,” she said. “So what I was trying to suggest is I didn’t want her to be inaccurate.”

Lunge said she thinks the concerns raised by UMass are more political than legal anyway. Lunge, a lawyer, thinks Vermont is probably well within its authority to impose single-payer taxes on self-insured companies, even if those companies didn’t want to avail themselves of the coverage the new system offers.

She said it’s true that “people are going to be upset if you tax them” for health insurance they’re already paying for.

“It’s obviously an issue we need to take seriously and study and figure out the right way to do it,” Lunge said.

Legally, though, she said the problem arises when Vermont treats self-insured companies differently than the businesses over whose insurance plans it does wield regulatory authority. She said that means that if Vermont uses a payroll or other employer-based tax in the single-payer financing mix, the state would most likely risk federal violations only if it exempts ERISA companies from paying it.

“The general advice to date is taxes are OK because states have a constitutional ability to tax and spend,” Lunge said. “But it puts you between a rock and a hard place, because what you may want to do to ensure people are treated fairly may conflict with federal law.”