Can an Oregon Sales Tax Fix Healthcare?

A longtime lobbyist’s run for governor never got off the ground, but will his ideas for healthcare?
The Lund Report
June 16, 2010 -- John DiLorenzo thinks Oregonians should pay a sales tax to pay for basic health insurance. In recent weeks, the well-known Salem lobbyist and Portland attorney announced a possible run for Governor as an independent, and then this week said he’s decided not to run.
 
In press reports of his decision, DiLorenzo said he spoke with Dr. John Kitzhaber and Chris Dudley, the Democratic and Republican gubernatorial candidates respectively.
 
“I told each that, if I decided not to run, I would resolve to continue a campaign of tangible ideas,” DiLorenzo wrote in an email to friends obtained by several media outlets.
 
One of those ideas involves a radical new way of providing all Oregonians basic health insurance paid for through a broad-based sales tax. DiLorenzo presented this idea to a legislative committee in February and wrote an editorial in The Oregonian.
 
DiLorenzo estimates that providing a basic health plan with an essential benefits package and catastrophic coverage for hospitalizations and some surgeries would cost $10 billion per year. He figures a 7 percent sales tax could raise $6 billion, with around $1.2 billion coming from the general fund after employers would no longer be allowed to take a tax deduction for health insurance. The rest would come from largely unspecified revenue savings.
 
Along with this new plan, DiLorenzo envisions the state would no longer need the Oregon Health Plan, and there are savings advantages from universal coverage and job creation.
 
"Mine is only a financing plan," DiLorenzo told The Lund Report after this article was first posted. "My hopes are that with the right leadership ultimately we’ll realize that this is the thing to do especially if we want to find a way to distinguish Oregon as a place to do business."
 
Kitzhaber and Dudley’s campaigns did not immediately respond to interview requests.
 
Tax guru Chuck Sheketoff, executive director of the Oregon Center for Public Policy, said his group hasn’t analyzed the tax plan DiLorenzo is proposing. But on first glance, Sheketoff said his numbers might be a little off as to how much it would raise.
 
“Sales taxes are inherently regressive because they are not based on ability to pay,” Sheketoff said. “The best sales tax has a broad base that picks up a lot of services such as John DiLorenzo’s legal services.”
 
When a sales tax was last proposed in Oregon back in 1993 it included an exemption for low-income Oregonians. DiLorenzo has said he envisions the sales tax to end up as a “wash” for most people because they would be saving on health insurance costs.
 
"One of the best things about it is everyone is paying their fair share," DiLorenzo said. "And the best way to gauge their fare share is their consumption. Some folks think it regressive, but it’s a lot less regressive than a health insurance premium. I think it has a lot of promise."
 
To be sure, there are lots of questions and lots of barriers to making DiLorenzo’s idea happen. “It’s an interesting idea that should be continued to be explored, but it’s a massive change,” Sheketoff said.
 

For a copy of DiLorenzo’s testimony and his Oregonian column, click here.

For a copy of a speech DiLorenzo gave to the Portland Rotary Club about how his plan fits into the national health reform law click here.

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Comments

The "idea" represents a fundamental misunderstanding of the health care crisis...the view that the problem should be fixed by feeding it more money from any source...when the global costs are twice as much as others and in the view of the industry's academics only delivers a tangible medical benefit about half the time. Some might even hold the view that feeding the health care industry more money is likely to worsen the trajectory of costs.

From ChrisL Commenter at 12:54 misconstrues the meaning of this proposal I think. It is a variant of a single payer system that at least might reduce that portion of the "global costs" which derives from the highly inefficient and corrupted billing and claims bureaucracy, both at the insurance companies and at provider facilities, due to system fragmentation and to providers gaming the system in what they charge to different customers. However it is most unclear how "basic" DiLorenzo's basic plan is, and how wide the gap would be between the basic and the catastrophic -- because in fact at present levels of deductibles and co-pays actual treatment called for by primary care diagnosis often is unaffordable even though it does not rise to the level of a bankruptcy threatening catastrophe. It just means that people will continue to wait until their conditions get worse and harder and more expensive to treat with less prospect of success. Presumably in the gap between the "basic" and the catastrophic people would have to buy additional insurance or get it through employers, which might leave the same problems in place. Only with a very high floor on what's "basic" (such as they have in Germany in a payroll contribution based system that is not a formal tax but is administered by the government) would you avoid the treatment equivalent of the "donut hole" in drugs prices under Medicare. Whether such a system were funded by a sales tax or a payroll tax there should also be an employer contribution, tailored to reduce costs and graduated by size of employer and revenue (a la Ron Wyden's chart in his Healthy Americans Act). There are all kinds of complexities about trying to do this at the state level of course, whether in DiLorenzo's version or a different kind of single payer system (e.g. relation to Feds, multiple state insurers, self-funded trusts). However they probably would be less complex than the Rube Goldberg machine we are building under HB 2009.