Wisconsin Senate OKs $15.2 Billion Payroll Tax Increase

Published September 1, 2007

A controversial health insurance mandate passed the Wisconsin Senate 18-15 on June 26, less than 24 hours after its introduction.

The bill requires everyone in the state to have health insurance. For those unable to afford a private plan, the state would offer subsidized plans funded by a payroll tax of 10.5 percent from all employers and 4 percent from all employees. The only exceptions to the mandate would be people already enrolled in government plans, such as those in military service or Medicare and Medicaid recipients.

The legislation is a monumental change not properly analyzed, said Mike Prentiss, spokesperson for Senate Minority Leader Scott Fitzgerald (R-Juneau), who voted against the bill.

“It’s bad policy that has been poorly executed and sprung on the people of Wisconsin at the last minute,” Prentiss said, “and we think it will be disastrous for the economy and for jobs in Wisconsin, and also for health care coverage and the health care system.”

At press time, the bill was pending in a conference committee. Prentiss said he could not predict its odds of passing.

Unelected Board Oversight

A 16-member board independent from the legislature would manage the money, explained Sen. Kathleen Vinehout (D-Alma), who helped write the bill. Groups such as unions, manufacturers, and small businesses would propose both employee and employer board members, and the governor would appoint them over staggered terms, she said. They would be held accountable through independently conducted audits that would be public record.

The bill’s eleventh-hour introduction raised eyebrows, and its provisions raised concerns.

Though advocates say the bill saves residents money, provides choices, and promotes competition, Greg Scandlen, president of Consumers for Health Care Choices–a free-market group based in Hagerstown, Maryland–said it is “a flagrant violation” of the national Employee Retirement Income Security Act (ERISA), which prohibits states from enacting any law relating to employee benefit plans.

“The Wisconsin program simply cannot survive in court,” Scandlen said.

Vinehout said that’s untrue because the bill does not require businesses to carry a specific set of benefits, but allows people to pick their health plan based on where they live instead of on their job–benefiting small businesses and the self-employed.

Unprecedented Tax Hike

The bill raises taxes significantly. Prentiss said Senate Democrats estimated the program would cost about $15.2 billion each year, funded entirely through the proposed payroll tax, making it the largest tax increase ever proposed by any state.

Vinehout said taxpayers must acknowledge the money they’d pay in taxes would be a substitute for what they pay now for health care. In actuality, she said, they’d save money, and the cash collected would be managed by fellow residents on the board.

“The money isn’t going into the state budget,” Vinehout said. “We wanted the people whose money it was to be in charge of the plan.”

Giving money to an unelected, unaccountable board isn’t the same as letting citizens keep the money and choose whether to spend it on health care or something else, critics point out. George Lightbourne, a senior fellow with the Wisconsin Policy Research Institute, said the board’s unbridled authority means it could independently raise taxes without requiring permission from the legislature or the governor.

“There are some subtleties built into this,” Lightbourne said. “People say the devil’s in the details, and these are substantive.”

Huge Power Grab

Vinehout said the board is an apolitical method of managing the money.

Scandlen disagreed vehemently, calling the bill “the biggest political power grab in American history.”

The legislature would determine the validity of providers, services, and cost, Scandlen noted, and special providers such as chiropractors and midwives would lobby lawmakers to include them in the state plans–thereby raising costs through more coverage mandates.

“I have this image of millions [in] tax money pouring into the state legislature to try to persuade legislators to include a specific service,” Scandlen said. “The power of the legislature would be like nothing anyone in America has ever seen. It would put the legislature in charge of the entire health care system in the state.”

Furthermore, Scandlen said, legislators would decide whether to cover controversial practices such as sex changes, abortions, or in vitro fertilization.

“Everything would end up becoming a political decision,” Scandlen predicted.

Invisible Crisis

Vinehout said the board would have the leverage to make informed decisions that benefit Wisconsin residents. She said the bill would decrease the cost of health care because a streamlined administration would allow the state to buy prescription drugs in bulk. Moreover, she noted, it would emphasize primary care and competition between plans.

Vinehout cited a study conducted by the Lewin Group in June, funded by the American Association of Retired Persons. The study concluded the bill would save $614 million in insurance administration costs and an additional $407 million in hospital and physician administrative costs.

Lightbourn, however, said, “I’m not exactly sure what problems we’re solving,” because Wisconsin’s uninsurance rate–11 percent, according to the state Department of Health and Family Services–is one of the lowest nationwide, and the state’s quality of care is good.

Prentiss said the plan won’t provide less-expensive health care but will destroy one of the best systems in the country if it becomes law.

“They want to throw every health care plan into chaos and uncertainty,” Prentiss said.

Hasty Passage

All these qualms are heightened by the bill’s hasty introduction.

Scandlen said 18 politicians pushed the legislation through without time for deliberation or debate.

“They had like, 15 minutes to read the legislation before they had to vote about it,” Scandlen said. “On a personal level, I am just shocked. I have never seen a group of politicians be this irresponsible–never, and I’ve been kicking around for a long time.”

Neither the primary sponsor, Sen. Jon Erpenbach (D-Middleton), nor Senate Majority Leader Judy Robson (D-Benoit) could be reached for comment.

Vinehout said the bill was introduced late because it combined three other plans and because it had to go through the budget process and the committee process, and legislators realized they needed to act quickly to make good on their promises to improve health care.

“We were in about the fourth inning of a six-inning game,” Vinehout said.

Prentiss disagreed.

“Despite rumors,” Prentiss said, “there were never any details.”

Jillian Melchior ([email protected]) writes from Washington, DC.

For more information …

2007 Wisconsin Senate Bill 51, http://www.legis.state.wi.us/2007/data/SB-51.pdf

“Healthy Wisconsin–Your Choice, Your Plan: Cost and Coverage Impacts,” by The Lewin Group, released on June 19, 2007 by AARP Wisconsin, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #21717.