Health Premium Tax Takes First Dip
Under the budget deal between Gov. Jennifer Granholm and state legislators, the SBT on health benefits will decrease by 50 percent over the next four years, providing some relief to employers trying to cope with the rising cost of employee health premiums.
"This accomplishment represents a new era of economic development in the state of Michigan," said state Sen. Nancy Cassis, R-Novi.
"The result will make Michigan more competitive, more able to retain and create jobs, and more effective in protecting private health care for Michigan employees," she added.
Last summer Cassis co-sponsored legislation for a five-year phase-out of the SBT on the premiums that employers pay for group health insurance.
In the budget agreement, the SBT on health benefits dropped by 5 percent as of Jan. 1 and will decrease another 15 percent in 2005, 20 percent in 2006, and 5 percent in 2007.
The state indicates that currently the tax generates about $115 million annually through the SBT assessment on health benefits. The revenue is not a large amount until one considers that the governor and legislature have been trying to erase a large budget deficit.
Business advocates consider taxation of premiums to be onerous because, in their view, it penalizes the act of employing people.
Many business leaders for decades have pushed to eliminate the SBT, which is currently due to sunset in 2009.
Double-digit increases in employee health premiums — and proportionate increases in the tax loading on those payments — in the last three years generated the push for a quicker elimination of the SBT on health benefits.
It also has encouraged many employers to shift a share of group health insurance premiums onto employees.
Last summer, manufacturers responding to a Michigan Manufacturers Association survey said rapidly rising health premiums threatened their survival.
Containing health care costs was the top public policy issue for respondents, nearly a quarter of whom trimmed their work force to offset the higher costs of providing health coverage to employees.
Another 19 percent indicated they had scaled back hiring and three-quarters expected to incur another year of double-digit rate increases in 2004.
For 80 percent of members, health care costs are rising between 11 percent and 30 percent annually.
The beginning of reductions in the tax on health premiums helps to remove disincentives for employers to continue providing employee health benefits, said state Sen. Tom George, R-Kalamazoo and a co-sponsor with Cassis of the SBT bills.
"We want to encourage businesses to provide health coverage, not punish them," George said.
"This opens the door for greater health care benefits for working families."
The reduction received overwhelming approval last month in both the state House and Senate. Gov. Granholm signed the SBT bills, as well as other legislation connected to the budget deal, on Dec. 23.
During this year, the SBT reduction will reduce state revenues by $2.2 million.
That reduction will deepen to $9.9 million in 2005, $22.2 million in 2006, $31.2 million in 2007 and $34.1 million in 2008.
What the state hasn't estimated is how much revenue it already has lost thanks to tax-induced layoffs.
Moreover, the state has framed no estimate about whether its revenues will reflect compensating increases in income tax receipts from employees who will remain on payroll thanks to reductions in the tax on health care premiums.