School Boards Leery Of Shumlin Payroll Tax

Feb 12, 2015

Gov. Peter Shumlin says his plan to reduce the Medicaid cost shift would cut health care costs at public schools. But school boards worry Shumlin’s proposal might instead put upward pressure on property taxes.

The Shumlin plan is complicated. But here it is in a nutshell: Raise $90 million with a new payroll tax, use the state revenue to draw down another $100 million in federal money and use the majority of the combined sum to ramp up Medicaid payments to doctors and hospitals.

Shumlin says that since health care providers would be getting more for treating Medicaid patients, they’d reduce the amounts they charge people with private insurance. And the businesses paying the 0.7 percent payroll tax, according to the governor, will get all their money back in the form of health insurance savings.

But the governor’s math isn’t working for everyone.

“There would actually be an increased cost in the first 18 months for school districts, because they would have to pay the payroll tax for those two years before we see … any impact on the cost of coverage,” says Steve Dale, head of the Vermont School Boards Association.

Schools are major employers in the state, and would, collectively, pay on the order of $6.5 million annually as a result of the new payroll tax.

Earlier this week, Gov. Shumlin unveiled a new study that says while schools might have to pony up $6.5 million in new taxes, they’d save close to $10 million in annual health care costs, thanks to Medicaid paying more into the system. That’s $3 million in savings, in year one alone, according to Shumlin.

School boards, however, aren’t ready to bank on it.

“We have serious concerns about the press release that was issued … that said school districts will save $3 million as a result of this policy change,” Dale says. “We’re concerned that to some degree that misrepresents what will happen in the short run, in any case.”

"We have serious concerns about the press release that was issued … that said school districts will save $3 million as a result of this policy change. We're concerned that to some degree that misrepresents what will happen in the short run, in any case." - Steve Dale, head of the Vermont School Boards Association.

Dale says school boards support the policy goal of increasing Medicaid reimbursement rates, since the paltry sums Medicaid pays now forces providers to jack up costs on everyone else in the system in order to cover costs.

But Dale says the rate-setting process used in determining how much schools pay for insurance will happen well before the promised savings from Medicaid materialize. That means that for this year and next, according to Dale, the $6.5 million per year in new taxes will simply increase overall costs for districts. And higher costs, Dale says, means higher property taxes.

“At a time when property taxes are front and center as the big issue, we should be doing everything we can to decrease the property tax pressure this year … We should not be implementing programs that will increase property taxes,” Dale says.

Robin Lunge, director of health reform for the administration, says providers, insurance carriers and state regulators stand ready to work with VEHI – the group that oversees teacher insurance – to make sure schools see their savings.

Once the state delivers those assurances, Shumlin says schools will be able to build $3 million in annual savings into their budgets, and bring some modest but needed relief to property taxpayers.

“Listen, we scrubbed our numbers, we stand by our numbers,” Shumlin says. “This will in our view save both municipalities and school boards money.”

"Listen, we scrubbed our numbers, we stand by our numbers. This will in our view save both municipalities and school boards money." - Gov. Peter Shumlin

The same study that projected net savings for schools also indicated the payroll tax would save municipalities about $900,000 annually in avoided health care costs.

Steve Jeffrey, executive director of the Vermont League of Cities and Towns, says municipalities are with the governor in concept. But he says they want Shumlin to plow the entirety of the $190 million in state and federal money the payroll tax would leverage annually into reducing the Medicaid cost shift.

Shumlin’s plan now uses about $50 million of that money for other health care reform initiatives.

“The problem with the governor’s proposal is that only a smaller fraction of the total proceeds will be applied to the current Medicaid shift,” Jeffrey says.

"We feel it's very important that that Medicaid cost shift be addressed, but it's got to be more than the 1.46 percent reduction in premiums that might result given the governor's current proposal." - Steve Jeffrey, executive director of the Vermont League of Cities and Towns

Jeffrey says the $900,000 projected reduction in municipal health care costs represents less than 1.5 percent of total annual health insurance expenditures for cities and towns.

“We feel it’s very important that that the Medicaid cost shift be addressed, but it’s got to be more than the 1.46 percent reduction in premiums that might result given the governor’s current proposal,” Jeffrey says.

Schools, cities, towns and especially businesses say they’re worried about whether the money Vermont puts into reducing the Medicaid cost shift will yield the premium savings Shumlin has promised. But Shumlin now says he’s willing to issue a guarantee of sorts: either the savings materialize, or the payroll tax disappears.

“If it doesn’t work, the payroll tax should sunset,” Shumlin said this week. “That’s how certain I am that I believe we can get on average the people who pay for private insurance the money back to them they’re paying in the payroll tax.”