H.524 Financing – Summary

• Employers who spend more than 3% of payroll to provide health benefits will pay no tax
• Small employers (under $50,000 payroll) who spend more than 1% of payroll to provide health benefits will pay no tax
• Insured individuals will pay no tax

Employer Health Effort Tax

• 1% tax on the first $50,000 of payroll
• 3% tax on payroll above $50,000
• Reduced by health care spending, but no less than $0

Individual Health Effort Tax

• If health coverage for 9 of previous 12 months, no tax
• Otherwise, tax is 1% of adjusted gross income

Examples – Employer Health Effort Tax

1) A very small employer with a total payroll of $25,000 who provides no health benefits.  Because the payroll is less than $50,000, the effort is 1% of payroll, or $250.  This amount is compared to health spending of $0, so the employer owes $250.

2) An employer with a payroll of $100,000 who spends $4,000 on health benefits for her employees.  The effort would be $2,000 (1% of the first $50,000 and 3% of the remaining $50,000).  Since this is less than the $4,000 the employer actually spends, she owes no tax.

3) An employer with a total payroll of $350,000 who provides no health benefits.  The effort would be $9,500 (1% of the first $50,000 and 3% of the remaining $300,000).  Since this employer provides no coverage, he owes $9,500.

4) A large employer with a payroll of $5,000,000, who spends $600,000 on health benefits.  The effort would be $149,000 (1% of the first $50,000 and 3% of the remaining $4,950,000).  Since this is less than the employer actually spends, she owes no tax.

Examples – Individual Health Effort Tax

1) An uninsured individual with an adjusted gross income (AGI) of $45,000 would owe $450.

2) A family with an AGI of $45,000, all of whom were covered last year would owe nothing.

3) A family with an AGI of $75,000 none of whom had health coverage last year would owe $750.

4) An individual who makes $75,000, who was covered last year would owe nothing

H.524 – Sources of Revenue

Green Mountain Health is funded from two sources – an employer health effort tax and an individual health effort tax.  Both taxes become effective April 1, 2006.  Each revenue source is described below, along with an estimate of how much revenue it would produce.

Employer Health Effort Tax

Each employer would compute an initial effort, based on payroll.  The first $50,000 of each employer’s payroll would be computed at a rate of 1%, and payroll above $50,000 would be computed at 3%. 

This number would then be compared to what the employer spends to provide health care coverage to employees, either in the form of the employer’s share of premiums and other health benefits or for self-insured employers, payments for care net of any employee contribution.  If this amount is equal to or more than the effort, the employer will owe no tax.  If the amount actually spent is less than the effort, the employer will pay the difference.  No employer will pay more than 3% of payroll, and most employers who offer coverage will owe nothing.

Individual Health Effort Tax

As part of their annual tax returns, Vermonters will be asked to indicate whether or not they had insurance coverage for nine or more months of the year for which they are filing their return.  If the individual had coverage, he or she will owe no health effort tax.  Otherwise, the individual will owe 1% of their adjusted gross income.  For joint filers, both filers will be required to have coverage.