House Republicans Develop Alternative To Shumlin's Payroll Tax Proposal

Jan 21, 2015

House Republican leaders are rejecting Gov. Peter Shumlin's plan to impose a payroll tax to finance a package of health care initiatives. Instead, they're developing an alternative proposal.

The governor wants to impose a 0.7 percent payroll tax on all Vermont businesses. His plan would raise roughly $90 million on an annual basis and the money would be matched with almost $100 million in federal funds

The governor wants to use part of the money to boost Medicaid reimbursement rates to help reduce the so-called "cost shift." This happens when Medicaid reimburses health care providers at between 40 and 60 percent of the cost of a service and the remaining cost is then "shifted" to private insurance premiums.

House Minority Leader Don Turner says he supports efforts to reduce the cost shift but he says the payroll tax is a terrible idea.

"It seems like a little number, but you've opened the door.” Turner says. “You've increased payroll taxes on businesses that are already struggling, and we don't think that's the right way to approach it."

Instead, Turner wants to drop the state's health care exchange, known as Vermont Health Connect, and sign up for the federal model. He says the state could save at least $20 million with this switch.

One potential wildcard in this plan is that the U.S. Supreme Court will rule this spring if subsidies should be allowed in states that use the federal system. Turner says it's a risk worth taking.

"We understand there may be a potential for Vermonters to lose federal subsidies,” Turner says. “However, 35 other states are in the same boat."  

Lawrence Miller, the chief of health care reform in the Shumlin Administration, says he doesn't see a payroll tax of 0.7 percent as an unreasonable burden for most businesses.

"We're mindful of approaching it at a low level that should be something that businesses can adopt to with this timeframe,” Miller says.

Miller says moving to the federal exchange won't save as much money as the Republicans think, and he says the possibility of losing both state and federal subsidies will make health care much less affordable for many Vermonters.

"Those subsidies [are] being targeted very specifically on people who have a challenge affording anything incremental,” he says.

Miller says the governor's plan will also make it possible for an additional 20,000 Vermonters to be eligible for an expansion of Medicaid. But Rep. Turner says he's not convinced that this expansion is a good idea.