Legislators Eye Tobacco Tax Hike for Vermont Health Care Program

Published May 1, 2006

On March 2, the Vermont House of Representatives passed a chronic care management bill, called Health Care Affordability for Vermonters (H.B. 861).

The legislation would establish a program, dubbed Catamount Health, to provide state-subsidized insurance for the uninsured, especially the chronically ill. New tobacco taxes are expected to fund the program.

The bill won preliminary approval in the House by a vote of 81-56, largely along party lines. Democrats in the state hold 83 of the 150 House seats.

At press time, the version of the bill being considered by the Vermont Senate was undergoing changes. The 2007 start date for the program was no longer firm; a stipulation of the bill that hospitals would have to provide free or discounted care to the previously uninsured had been removed; and an assessment against employers who did not offer insurance to employees was uncertain.

Insufficient Funds

Catamount Health will cost, on average, $25 million a year, financed by a 60 cents per pack increase in the state cigarette tax, expected tobacco settlement funds, and Medicaid money supposedly available under the state’s Global Commitment waiver, said John McClaughry, president of the Ethan Allen Institute, a nonpartisan public policy think tank headquartered in Concord.

But cigarette taxes are notoriously unpredictable, said McClaughry, since many smokers will buy their tobacco products (and do more of their other shopping) in adjacent states when taxes rise abruptly.

“[The tobacco tax] is a very dangerous tax because it is so politically correct,” McClaughry said. “Many folks’ knee-jerk reaction is that taxing smokers to pay for health care is a good thing, and to argue otherwise is to defend the evil tobacco industry.

“This is a smokescreen designed to hide the fact that the proposed tax does not cover the long-term cost of the program it is supposedly going to fund,” McClaughry noted.

Moreover, McClaughry questions whether the federal “Global Commitment” will meet projected Medicaid expenses even five years into the future. Finally, the multistate tobacco settlement is currently under serious court challenge as unconstitutional, McClaughry noted, referring to pending litigation involving the 1998 Master Settlement Agreement.

Rep. Tom Koch (R-Barre Town) acknowledged during the House floor debate the bill needed additional revenue streams.

“We will be looking for additional [ways] to finance H. 861,” Koch said. “The Tobacco Settlement Tax expires in 10 years. This bill is not adequately funded, and it is bound to collapse … This bill is going to be a problem for future legislatures.”

Tobacco a Frequent Target

Vermont is not alone in increasing tobacco taxes to pay for government health programs, noted Merrill Matthews, director of the Washington, DC-based Council for Affordable Health Insurance. The Health Maryland Initiative (H.B. 441), introduced in January and currently in hearings in the state House, would expand the Maryland Medical Assistance program, establish a Health Maryland Initiative fund, and create a Small Business Health Care Incentive Program, all to be paid for by revenue from a $1 per pack increase in the tobacco tax.

Legislators who push for new tobacco taxes to fund health care programs do not realize tobacco tax revenue is declining and government health care proposals always exceed their projected costs, Matthews said.

“Perhaps they have not heard of Maine’s subsidized insurance program, DirigoChoice, which has enrolled 1,600 uninsured Mainers–and several thousand previously insured ones, too–at a cost of $40 million,” Matthews said.

Been There Before

This isn’t the first time Vermont has tried to tax its way out of its uninsured problem.

“Last year the House passed a bill creating a government-controlled health care scheme for everybody, called Green Mountain Health,” McClaughry said. “The Senate, realizing that the sweeping House-passed scheme went far beyond what Vermonters would stand for or pay for, stripped it down to a government-run plan for only the uninsured, paid for by a combination of payroll and income taxes.”

Gov. Jim Douglas (R) vetoed Green Mountain Health, calling it “a system of insurance dominated by the government that competes with, and eventually eliminates, private health insurance options.”

In December 2005, the governor unveiled his plan to cover the 10 percent of Vermonters who are uninsured (H. 713). It contained no tax increases and no mandates on business. It would have subsidized premiums for working families buying low-cost, high-deductible policies coupled with tax-free health savings accounts. Persons on the expanded Medicaid plan, called Vermont Health Access Plan, would be required to go back to their employers’ plans if available.

“The legislature discarded this modest proposal on arrival,” McClaughry said.

Scaled-Down Version

In its place, the architects of last year’s Green Mountain Health produced Catamount Health (H. 861). McClaughry said the new bill is a state-run health plan based on all the principles of Green Mountain Health, reprinted verbatim from last year’s bill, but scaled down to serve initially about 10 percent of the state’s population.

Green Mountain Health relied on a tax-financed global budget controlling almost all health expenditures. Catamount Health prescribes cost control in light of the revenues anticipated to be available.

“This is a difference only in scale, not in principle,” McClaughry noted.

The plan has a bias toward new state residents as well.

“Anyone who comes in from out of state, registers for a course at a community college, and promptly drops out, becomes a resident eligible for Catamount Health,” McClaughry warned. “So does an employee who quits his or her job, signs up for the subsidized program, and a day later is rehired.”

Catamount Health will offer a comprehensive benefit plan covering “primary, preventive, hospital, acute episodic care, and chronic care,” including generous substance abuse and mental illness benefits, according to the wording of the bill. Koch pointed out that a single person with an income of $27,000 could get this Cadillac coverage for only $125 a month, with taxpayers paying $319 a month in subsidies.

Common-Sense Alternative

McClaughry said Sen. Jim Leddy’s (D-Chittenden) Health and Welfare Committee has produced a bipartisan “common sense initiatives” bill (S. 310, the Senate version of H.B. 861) with 10 useful provisions, which did not include any costly and controversial provisions for covering the uninsured.

“This may be the most that this legislature and governor can agree on,” McClaughry said. “If so, it will be an important step forward.”

Susan Konig ([email protected]) is assignment editor of Health Care News.