This is an archived article that was published on sltrib.com in 2015, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Gov. Gary Herbert is cobbling together new ways to try to pay for his Healthy Utah plan to provide health insurance to the poorest Utahns including looking to an e-cigarette tax for tens of millions of dollars and asking hospitals to cough up millions more.
Together, the projected $32 million e-cigarette tax and the proposed $25 million hospital assessment would generate most of the projected $78 million annual cost of subsidizing health insurance coverage for 146,000 low-income Utahns.
"As we get further in the process and we find ways to offset the cost to the state, you see the price tag get smaller and smaller and it becomes more and more clear that Healthy Utah is the right plan," said Herbert's spokesman, Marty Carpenter.
But the funding mechanisms are being met with some skepticism in the Legislature.
Hospitals currently provide about $50 million in uncompensated care to those individuals who would get coverage under Healthy Utah meaning hospitals would no longer have to eat those costs.
But the Utah Hospital Association has only expressed a willingness to go along with the $25 million tax increase if doctors and the pharmaceutical industry share some of the pain. And House Majority Leader Jim Dunnigan, R-Taylorsville, said those industries have been unwilling to do that, so far either through increased licensing fees for doctors or changes to Medicaid drug purchasing lists.
The bill to begin taxing e-cigarettes has not even been introduced halfway through the legislative session, and Dunnigan is skeptical about how much it could bring in.
"How in the world that's going to generate $30 million, we'd have to start marketing [e-cigarettes] to the younger folk, I suspect," he said. "So that's a tax that has not passed. If it does pass, how much revenue would it bring in and would it be earmarked for Healthy Utah?"
Carpenter said the governor envisions an e-cigarette tax generating $39 million in total, all but $7 million of which would go to finance Healthy Utah.
Gregory Conley, president of the American Vaping Association, which advocates for small and mid-size vaping businesses, said the thought that Utah could bring in $39 million from an e-cigarette tax is "insanity."
"It's a pipe dream," he said. "They're clearly trying to just fill in a gap in the budget and whoever is making up those numbers is willing to just give the governor whatever he wants to hear."
Rep. Paul Ray, R-Clearfield, is working out details of the proposed tax, but thinks the governor's target may be too high. He said Herbert wants to impose an 87.5 percent tax on the wholesale price on all the vaporizers and nicotine liquids, or e-juice.
"I don't think it's going to be that high," Ray said, before heading into a meeting with Utah Health Department Director David Patton to finalize details of the bill.
Conley said Rhode Island imposed a similar rate on e-cigarette liquids and was estimating a $700,000 increase. Vermont had a higher rate and was estimating $500,000 in new revenue. New Jersey was projecting $35 million, but has about three times the population of Utah and a higher smoking rate.
To bring in that kind of money, Conley said, the tax will be so high "you're going to be shutting down retailers and losing a whole lot of business to online retailers who aren't going to be taxed anyway."
In the Senate, where Healthy Utah is gaining support, Sen. Brian Shiozawa is proposing an option that may make the long-term cost of the program less of a factor.
Shiozawa is calming nerves by agreeing to a two- or three-year sunset of Healthy Utah.
Herbert had sold Healthy Utah as a three-year pilot that could be repealed. Under Shiozawa's proposal, the program would go away after two years, unless the Legislature reauthorized it and approved funding.
"From my standpoint, I think there's enough merit in the program at three or at two [years]. That will get us enough funding back that we can do some good with it at so many levels," Shiozawa said. "If things go bad, then we'll just sunset it and that will be that."
That would leave tens of thousands of people without insurance, but Shiozawa said the Legislature could look at other ways like the competing plan to cover the medically frail to fill the void.
"You have to have fallback plans and we're looking at those carefully," Shiozawa said. "Not just a flat-out repeal, but what if we were to use some other sort of mechanism to help fund this?"
Shutting down the program is not a new idea, said Dunnigan, but it's an expensive one.
"The question is: What do you do with the 60, 70, 80,000 Utahns who have had coverage for two years?" Dunnigan said. Moving them to another program will mean less federal money, and will cost the state $136 million nearly double that of just continuing under Healthy Utah.
Dunnigan likens that exit strategy to "taking off in a plane and the exit strategy is you're jumping out without a parachute." He said in order to be taken seriously, there has to be a realistic fallback plan in place.
Patton said there are lots of fallback options that could be considered, some that would cost much less money. He said talks on Healthy Utah remain a very dynamic process that changes constantly.
Senate President Wayne Niederhauser, R-Sandy, said that, based on the discussion Republican senators had in caucus on Tuesday, he thinks that Shiozawa's bill with a sunset would pass the Senate.
"That's how we kind of read the tea leaves right now," Niederhauser said.
If that's the case, the Legislature doesn't need to tackle the issue of the hospital assessment or the e-cigarette tax, Niederhauser said.
"If it does have a two- or three-year sunset, I would be in favor of not going down the road with a lot of different funding options that are controversial," Niederhauser said. "Let's deal with that in a reauthorization discussion, because the [cost] for the next two or three years is actually going to be pretty low."
Based on consensus projections, Healthy Utah would cost the state $16 million over the next two years, bring in $868 million of federal money, and cover more than 126,000 low-income Utahns. It would cost the state $36 million in the third year and grow to $78 million by 2021.