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COST OF HEALTH REFORM ESTIMATED AT 11.4 PERCENT OF PAYROLL, ACCORDING TO WYATT MODEL; COSTS COULD VARY WIDELY BY STATE

 WASHINGTON, Aug. 16 /PRNewswire/ -- If health care reform were financed by a payroll tax, the average rate necessary to pay for a typical benefit package for all Americans would be 11.4 percent, according to a computer model developed by The Wyatt Company.
 The analysis also found that payroll taxes (or "wage-based premiums") would vary widely -- from 6.3 percent of payroll in Rhode Island to 15.8 percent in Florida -- if they were determined at the state level and there were no cross-subsidies.
 Twelve states, including such large ones as California, Pennsylvania and Michigan, would see payroll tax rates above 12 percent. Among the low-cost states (9.5 percent or less) would be Minnesota, Texas and Virginia, as well as each of the New England states.
 The estimated rates assume no new sources of revenue to pay for health reform, such as so-called sin taxes or new taxes on health care providers and that only payroll up to the Social Security wage limit would be considered.
 Based on recent reports from Clinton Administration officials, it is expected that consumers would be organized into large purchasing groups, known as health alliances, under the president's health reform plan. States would be responsible for organizing and managing the health alliances and for financing coverage.
 Among the financing options discussed are a payroll tax or a flat, per-person premium. Even under the flat premium scenario, however, it is likely that the employer contribution would be limited to some percentage of payroll. Under either scenario, it is likely that employers would contribute most of the tax or premium due (perhaps 80 percent), while employees would pick up the rest (20 percent).
 "An 11.4 percent payroll tax or the equivalent premium amount is probably not politically feasible, and 16 percent is out of the question," said Sylvester Schieber, Ph.D., director of Wyatt's research and information center in Washington. "That's why we are hearing more and more about capping costs at some percentage of payroll, especially for small businesses."
 But that only means additional revenue must be raised elsewhere, Schieber said. "For example, there's a lot of talk about sin taxes, new taxes on health care providers, even of a special tax on employers who save dollars right from the start under health reform."
 Even if costs are reduced because of other revenue sources, Schieber sees problems with the possible variation in rates across state lines.
 "Such wide cost differences might prompt the Clinton administration to attempt to subsidize coverage in some states, effectively raising payroll taxes or premium levels in some states to reduce costs in others," he said. "But it might be difficult to convince workers in Maine to shoulder higher rates for the benefit of people living in California. In addition, imposing subsidies or a single cost structure across the country would be at odds with the aim of encouraging states to take responsibility for their health care budgets."
 Wide cost disparities would hold significant implications for businesses and individuals, he said. "Even cost differences equal to 1 or 2 percent of payroll would prompt employers to think twice about locating a facility in a particular state," said Schieber. "In high- cost states, health care bills would likely depress wage growth and job formation."
 The tax rate estimates are based on a computer model developed for the Business Council on National Health Policy, a group of large companies organized by Wyatt to evaluate the impact of health care reform on businesses and their workers. The model combines data from the Bureau of Labor Statistics with Wyatt's own information on employer- sponsored health plans.
 Among the model's key assumptions: the health reform plan will provide benefits of equivalent value to what the average large U.S. employer now offers; some portion of unearned income for those not working would be taxed; and funds now earmarked for Medicaid would be redirected to finance health reform.
 According to Schieber, the payroll tax rate would vary among states for a variety of reasons, including:
 -- wage base: Other things being equal, states with lower wage
 rates or levels of worker participation would require higher
 payroll tax rates.
 -- geographic factors: It costs more to provide health benefits in
 some areas of the country than others. For example, capital and
 labor costs, two important elements in the provision of health
 care, tend to be higher in metropolitan areas than in less
 densely populated regions.
 -- demographics: Expected consumption of health services vary
 widely by the sex and age of the individuals covered.
 An international consulting firm, The Wyatt Company helps clients optimize the return on their investments in people and manage the financing of their risks. Headquartered in Washington, Wyatt has 3,400 associates in 68 cities worldwide. The firm is a privately held corporation owned by its active employees.
 HIGHEST AND LOWEST COSTS IF HEALTH REFORM
 IS FINANCED BY A STATE-BASED PAYROLL TAX
 Lowest-cost states Tax as a percentage of payroll
 Rhode Island 6.3 percent
 Vermont 7.7
 Connecticut 8.0
 South Carolina 8.1
 New Hampshire 8.3
 Highest-cost states Tax as a percentage of payroll
 Florida 15.8 percent
 Michigan 14.8
 California 14.5
 Mississippi 13.7
 Pennsylvania 13.7
 Source: The Wyatt Company. Estimates reflect the average payroll tax rate necessary to provide health benefits of equivalent value to what the average large U.S. employer now provides. Assumes that some portion of unearned income for those not working would be taxed, that the payroll tax would apply only up to the Social Security wage base, and that funds now earmarked for Medicaid would be redirected to finance the health reform plan.
 -0- 8/16/93
 /CONTACT: Doug Russell, 202-508-4842, or Bob McKee, 202-508-4848, both of The Wyatt Company/


CO: The Wyatt Company ST: District of Columbia IN: HEA SU:

DC-TW -- DC002 -- 2926 08/16/93 09:25 EDT
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Date:Aug 16, 1993
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