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The appeal of corporatism: Lawmakers mull Medicaid fee on big businesses



This week, state lawmakers in the House Finance Committee considered a proposal to penalize businesses whose low-income employees receive Medicaid. On its face, the proposal appears to be a narrow matter of fiscal management. But it also represents something far more significant: the state of Rhode Island’s public morality.

At issue, fundamentally, is the question of who ought to bear the cost of programs that support low-income Rhode Islanders. Medicaid, which provides health coverage to more than 307,000 low-income residents, is one such program. Medicaid spending comprises about a quarter of the state budget. Traditionally, the state—and by extension its taxpayers—have borne much of the program’s cost along with assistance from the federal government. But in many of her budget proposals, Governor Gina Raimondo has sought to shift the state’s costs elsewhere to contain Medicaid spending without making cuts to eligibility or benefits.

In her FY 2020 budget proposal, the governor recommends levying a fee on large for-profit corporations whose employees receive Medicaid. The fee would be equal to 10 percent of the wages of each Medicaid-enrolled worker, up to $1,500 per year per employer. The fee would primarily hit the state’s hospitals, large retailers like CVS and Walmart and large restaurant chains. It would net about $14.5 million in revenue for the state by shifting health coverage costs from taxpayers to employers.

There are two ways of looking at the fee: fiscally and morally. In the House Finance Committee hearing, Acting Secretary of Health and Human Services Lisa Vura-Weis and state Medicaid Director Patrick Tygue made the fiscal case for the proposal by emphasizing the taxpayer savings associated with shifting health spending away from the state. Citing a motive to limit state spending as health care costs rise and the federal individual mandate repeal drives insurance costs upward, Vura-Weis said the governor’s Medicaid proposals are the result of “responsible, painstaking fiscal management.”

The governor, meanwhile, has primarily framed the Medicaid fee in terms of corporate obligation and public morality rather than technocratic fiscal administration. She has emphasized the responsibility of businesses to cover the health costs of their workers: “I hope that they’re embarrassed,” Raimondo said of the corporations who will face the fee.

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The proposal has the backing of House Speaker Nicholas Mattiello (D-15, Cranston), who also primarily frames it in terms of corporate responsibility rather than fiscal management. While Mattiello is generally skeptical of raising taxes to fund public benefit programs, he has said that the Medicaid fee “certainly doesn’t offend” him because “it’s intended to … help the state carry the burden when the employer shifts the burden to the state.”

This particular proposal to limit state Medicaid spending reflects a political equilibrium in Rhode Island. Speaker Mattiello—often considered the most powerful elected official in the state—maintains a deeply-held aversion to raising taxes, even on the well-off, and is concerned with the state’s “tax competitiveness.” The Speaker frequently contends with the interests of labor and and an increasingly organized progressive voter bloc which both push for egalitarian social and economic policy. Governor Raimondo, meanwhile, is comfortable playing the center. She is concerned by income inequality, but has committed to not raising broad-based taxes such as the income tax. She believes the well-off and businesses should pay more toward the costs of health care, education and job training but criticizes Democrats who, in her view, antagonize the rich.

In light of this political equilibrium, an approach that relies on corporations, rather than taxpayers or individuals, to meet social demands like universal health coverage has strong appeal. Such an approach is corporatist, in the sense of the political doctrine that social benefits should be linked to employment and labor force participation. Fully enacted, the corporatist approach to welfare policy provides a modest amount of support to low-income workers with minimal tax revenue.

Corporatism is closely intertwined with the belief that employers—rather than individuals or society at large—have a unique moral responsibility for the wellbeing of their employees. Thus, when Mattiello and Raimondo promote the Medicaid fee, they don’t just highlight its fiscal benefit to the state vis-à-vis other health coverage funding strategies. Both frame the issue in moral terms: employers should be responsible for the health coverage costs of their low-income employees, and delinquent firms that fail to meet this obligation are unfairly forcing taxpayers to pick up the tab. Employers, they posit, should be held legally as well as morally accountable for the wellbeing of employees through measures like the Medicaid fee.

As economist Arin Dube has pointed out, the full cost of corporatist policies is not always borne by high-income business executives. It may be diffused through higher prices for consumers and lower wages for workers such that progressive taxation (the liberal market-based welfare approach) would actually be a more egalitarian and less costly way to pay for social benefits. But that’s not the point: corporatist policies are popular not because they pencil out the best, but because they satisfy the belief—held by both progressives and conservatives—that employers are uniquely morally responsible for their employees’ wellbeing.

Not everyone is bound to be satisfied with the corporatist approach of the Medicaid fee. State Senator Sam Bell (D-5, Providence), for one, has criticized the Raimondo administration for cutting Medicaid spending too aggressively rather than pursuing single-payer coverage. Those who offer criticisms of this sort generally favor, as Bell does, universalist social democratic benefits over employment-linked ones. It’s true that measures tasking corporations with more social responsibility won’t sufficiently support all low-income Rhode Islanders unless they are matched with more universalist policies. But unless and until the state overcomes its aversion to spending and taxation, we can expect the corporatist approach to prevail.

About the Author

Andy Boardman writes about economic policy in Rhode Island.