Editorial: Finding the Money; Shumlin Looks at the Payroll Tax

Which is less surprising — that Vermont Gov. Peter Shumlin identified the payroll tax as a major source of revenue for the single-payer health care system his administration is designing or that the Vermont Chamber of Commerce immediately expressed its disapproval?

Shumlin’s acknowledgment, which came recently in interviews with the news media, qualifies less as breaking news than a statement of the obvious. It has been estimated that the state will need to raise $1.6 billion to finance the system, and it is all but inconceivable that such a sum could be corralled without resorting to a payroll tax. The 2011 study commissioned by the Vermont Legislature to look at an overhaul of the state’s health insurance system recommended a payroll tax, with employers paying 11 percent and employees paying 3.5 percent.

More to the point, a payroll tax would be the least disruptive avenue for making the transition from the current system and presumably improving it. Under a single-payer system financed with a major contribution from a payroll tax, much of the money now paid by employers and employees to private insurers would instead be collected in the form of a health care tax. The Shumlin administration has argued that such a tax might not affect all employers equally — those who don’t offer insurance to their employees now will certainly face new expenses — but that it would lower overall spending on health care by eliminating the expense of private insurers that now act as middlemen. William Hsiao, the Harvard economics professor who authored the 2011 report, predicted that his proposed payroll-funded plan would cost Vermont employers 3 percent less than what they would otherwise pay and employees 2 percent less.

A fair amount of Vermont’s business community has been skeptical, which is why the opposition of the Vermont Chamber of Commerce is not shocking. The basis of the chamber’s opposition, however, is a bit puzzling.

Chamber President Betsy Bishop told VT Digger that her organization is concerned about continuing to shoulder financial burden of paying for health insurance but surrendering all decision-making authority about how that money is spent.

“What we’re interested in is continuing a system where employers, if they are paying for health care, have some level of control over what they are paying for,” she said.

That ignores a fundamental change that would occur if the Shumlin administration successfully implements a single-payer system. Under such a system, employers would not be “paying for health care”; they would be paying taxes to support a state-run health care system. As constituents, taxpayers and stakeholders, they would have every right to attempt to influence decisions made by elected and appointed officials, but they should have no expectation of exerting direct control — just as they do not with other programs paid for or supported by business taxes.

In fact, if the analysis by the Shumlin administration and other supporters of single-payer insurance systems is accurate, what many businesses can look forward to in return for their loss of direct control is lower overall health expenses — because the cost of administering the health care system would be lowered and because the burden would be more widely distributed once all employers are required to contribute.

To whatever extent the business community remains skeptical about that claim, it is hardly alone. In theory, single-payer should deliver cost savings. But until Vermont employers can compare what they pay in taxes to what they now pay insurance companies and until their employees see what’s deducted from their paychecks, most will remain somewhere between vigilant and doubtful. It’s a big change, and there are a lot of variables.