Health insurance penalty on businesses questioned
MONTPELIER — Gov. Peter Shumlin wants small businesses to drop their company-wide health plans next year and send workers into a new online insurance marketplace.
So why is he proposing a new tax on companies that follow his lead?
That’s the question being asked by business leaders across the state as they begin to ponder dramatic changes on the health care horizon, and the impacts on their bottom lines.
The federally mandated “health benefits exchange” set to go into effect in 2014 will present small businesses here with an array of new insurance options. The Shumlin administration hopes the shifting insurance landscape will compel many companies to get out of the health care game altogether.
The rationale is twofold. Administration officials say federal assistance available to individuals in the exchange will provide coverage at rates far below what a business could ever hope to negotiate. And since the federal contribution to Vermont’s future single-payer system will be based on the dollar value of the federal aid flowing into the state, the administration is keen on getting as many individuals as possible into the exchange.
But companies that do drop their coverage will be hit with a $476-per-year fine for each employee to whom they no longer provide insurance. And business leaders say it creates a disincentive to move in the direction being urged by Shumlin.
“On one hand, they are now asking businesses with 50 or fewer employees to drop coverage for their employees to try to draw down federal tax credits,” says Daniel Barlow, public policy director for Vermont Businesses for Social Responsibility. “But then there’s this penalty if you actually do it. It seems like kind of a disconnect.”
The penalty would come in the form of a “health care fund contribution,” better known in Montpelier as the “Catamount assessment.” Created in 2006 as a means of funding health insurance subsidies for low- and middle-income Vermonters, the assessment extracts revenue from businesses that don’t offer their employees health coverage.
The assessment is projected to generate about $11.2 million in the current fiscal year, rising to $11.8 million in fiscal year 2014.
Betsy Bishop, executive director of the Vermont Chamber of Commerce, says it’s confusing for the administration to impose a $500-per-employee fine on companies that do what’s being asked of them.
“It provides a disincentive in the system if the goal is getting more people into the exchange,” Bishop says.
Administration Secretary Jeb Spaulding says the financial benefits to businesses that drop coverage will far exceed whatever charge is imposed as a result of the assessment. At businesses that do drop health coverage, the administration is suggesting they replace it with a cash stipend to cover employees’ costs in the exchange.
“And they’re going to end up saving a lot of money, even paying the penalty, compared to what they’d pay if they maintain an employer-based insurance program,” Spaulding says.
Catamount Health, the insurance subsidy funded by the assessment, will disappear when the exchange goes into effect next year. Rep. Paul Poirier, a Barre City independent, says the assessment should disappear with it. He’s introduced legislation to repeal the assessment; the legislation has been co-sponsored by a majority of the House Committee on Health Care.
“If the program you’re raising money for is going away, then you can’t just continue the funding mechanism and use the money for something else,” Poirier says. “I’m not against raising the revenue, but let’s be up front about it and come up with a new revenue proposal and get support for it in the Legislature.”
Robin Lunge, director of health care reform for the Shumlin administration, says the revenue will be used to pay for precisely the same service next year as it does today. The $11.8 million has been earmarked largely for assistance for low- and middle-income residents buying their insurance in the exchange.
“We think our premium assistance cost-sharing proposal … helps the same group of people, even a slightly broader group of people, that the employer assessment was designed to help,” Lunge says.
Rep. Mike Fisher, a Lincoln Democrat and chairman of the House Committee on Health Care, says he “has concerns” about the continuation of the assessment. Fisher says savings in the exchange may outweigh the cost of the penalty, “but the assessment is part of the calculation employees will be using, and it’s going to play into their decision making process.”
Fisher says he believes Vermont needs the revenue being raised by the Catamount assessment.
“But the question of what’s the best way to raise those dollars,” Fisher says, “is something we need to look at.”MORE IN This Just In
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