Maine mishandles taxation for health care

by Tony Novak, CPA, MBA, MT
published 6/25/2003 revised 11/30/2011

The legislators in Maine made a notable error with a new law designed to provide health insurance coverage to uninsured individuals. The new law, signed by Governor John E. Baldacci this week, will be funded primarily by adding a tax to the health insurance premiums of those individuals and businesses that buy health insurance. Those who do choose to pay the cost of health insurance will pay extra to cover those who do not choose to pay for this coverage. The logic fails in two major ways.

First, since health insurance is a voluntary purchase typically provided by reputable businesses as a benefit to their employees, this new law amounts to a tax on those businesses that choose to provide such benefits. An extra increase in health insurance premiums on top of this year’s already sky-high premium rate increases will cause more individuals and employers to drop their health insurance plans - especially now that they know that they will have access to the new subsidized public assistance program. The new law obviously will have the net effect of increasing the number of people not covered by regular health insurance plans.

Secondly, surveys of uninsured individuals consistently indicate that the vast majority of these people are not the stereotypical chronically poor that we imagine. It is important to remember that this program is not targeted for the chronically poor - medical assistance programs already cover the lowest income group. The new Maine health welfare program will focus on individuals we typically classify as middle-income. We know from a number of government and private surveys that about two thirds of people without health insurance are employable middle-income people just like you or me who are going through a period of life transition. In fact, an average adult will go through at least three separate periods without health insurance during his or her working career.

The largest portion of those without health insurance fall into one of the following categories:

• recent high school or college graduates
• part-time or seasonal workers
• those in-between jobs due to layoffs or other
• self-employed people who have recently started a business
• employees of very small businesses

These are not groups of people that we, as a society, usually want to target as the beneficiary of new public assistance programs.

I do not think that this action in Maine is likely to be repeated in other states because there is little public desire to provide expanded welfare benefits to middle income people through additional taxes on employers and working class individuals.