State Officials: Dirigo Tax Repeal Could Send Taxes Even Higher

Published September 1, 2008

The debate surrounding the funding mechanism for Dirigo Care, the Maine state government’s attempt at providing “universal” health care, is not a new one.

Before the new law imposed taxes on health insurance claims and on goods such as beer, soda, wine, and tobacco (see “Maine Residents Angered by Expansion of Dirigo Health Care Subsidy,” page 1), “offset payments” were used to fund the program. The complicated system was just as controversial as the new one.

Trish Riley, chief health policy advisor to Gov. John Baldacci (D), cautioned supporters of the tax repeal effort to “be careful what they wish for.” She said the current “savings offset payment” (SOP) system could force all citizens to pay up to 4 percent more to the state on top of their current premiums to help fund Dirigo. That might prove worse than the tax rates set this July by the state legislature.

The taxes approved to replace the SOP include a $4 per gallon tax on syrup used by restaurants to make soft drinks, 42 cents a gallon on bottled drinks, and a doubling of the current tax on beer and wine, including store-bought alcohol for consumption elsewhere, raising the beer tax from 25 cents to 54 cents a gallon and the toll on wine from 30 cents to 65 cents a gallon.

The funding package also includes a 1.8 percent tax on all paid health insurance claims, which is similar to the current SOP except, as Victoria Wallack wrote in the Times-Record newspaper on June 12, “the tax would not have to be approved through the past series of courtroom-like hearings that cost the state an estimated $1 million to prepare for and defend each year.”

The SOP for the current fiscal year is set at $32.8 million, or 1.7 percent of paid claims. Two years ago, it was $43.7 million, or 2.4 percent of paid claims.

The money helps pay the premiums and out-of-pocket costs for DirigoChoice enrollees who qualify for help based on income, and it also pays the state’s share of Medicare costs.

The new tax law was set to go into effect in mid-July. Now that the repeal effort has successfully made it past the signature stage, the SOP mechanism will be used to fund Dirigo Care until voters make a final decision in November.

Aricka Flowers ([email protected]) writes from Michigan.