Much of the business community in Vermont is in a tizzy over the proposal to reform Medicaid and other parts of our health care system with a 0.7 percent payroll tax. Rather than panic, we need to take a closer look at what’s at stake and what’s best for Vermont and Vermonters.

First, we need to understand the status quo. Right now, businesses that provide good health insurance coverage for their employees are also paying for the employees of businesses that do not. This happens because health care providers cover the costs of treating uninsured and underinsured Vermonters by boosting charges to insurance companies.

In turn, the insurance companies raise premiums. Thus, companies that provide good health care are subsidizing “free rider” companies that don’t. The same cost shift occurs to compensate for inadequate Medicaid reimbursement rates. The free rider and Medicaid cost shift are central to the problem of reforming our health care system.

If we commit to raising Medicaid reimbursement rates to Medicare levels, we could get a very substantial match of federal funds. Improving Medicaid reimbursement would bring multiple benefits: It would increase the availability of primary/preventive care by reducing the number of doctors who will not accept Medicaid patients.

This low-income population typically has above-average health problems. Increasing access to preventive care should reduce future high-cost catastrophic care that is a typical result of neglect.

The funds raised by the proposal will also be used to support and extend several successful ongoing efforts to bring down the overall cost of health care: the Blueprint for Health and development of accountable care organizations. The challenge is how to fund all of these initiatives.

A payroll tax has never been the preferred source of funding for Vermont Businesses for Social Responsibility. We believe that health care should not be an employer’s responsibility and that the system be funded from overall tax revenues — that everyone who benefits from the system should contribute.

The advantage of a payroll tax is its simplicity and ease of collection. It also assures a financial contribution from businesses that are not providing this benefit or who are paying wages so low that their employees qualify for Medicaid (which, of course, is paid for by the rest of us — another aspect of the free rider issue).

In Vermont, we tend to think of those businesses being small “mom and pops,” such as village stores. But there are also many large local, national and multinational companies that are relying on Medicaid or not providing health insurance for their employees. Those companies are free riding by shifting the burden of providing decent health care over to the rest of us.

Vermonters have never been sympathetic to those who refuse to pay their share of the common burden. The payroll tax is one way to get the free riders to shoulder their responsibilities — especially the large companies that can easily afford to pay their share. For very small, struggling, true mom-and-pop operations, we can easily devise an exemption to assure that the smallest and weakest businesses are not overburdened by the 0.7 percent tax.

How do we know that the money raised by the tax and used to increase Medicaid reimbursements will actually result in reduced charges for non-Medicaid users? The Green Mountain Care Board has the regulatory authority to enforce this, and it should be strictly required to do so. That said, there are no guarantees that any business now paying health care insurance premiums will see a reduction in those costs equal to the new tax.

However, this proposal is a major step forward to leveling the playing field between those who pay substantial amounts for their employees’ coverage and those who do not. This distortion has become an unsustainable burden to companies that are trying to be good citizens. We have seen no other effort to recognize this fact and do something to ameliorate it. If the critics of this plan have a better idea, they should put it forward.

There is no quick fix to our dysfunctional complex health care system. Every business understands that sometimes you have to make a significant investment up front in order to reap the rewards down the road — and that in the short term you may be out more cash before you can make that up in future profit. That is what we are looking at in this proposal. These are all long-term reforms whose benefits will accrue over many years. And they are long overdue.

Leslie E. Nulty is an independent business consultant, principal of Focal Point Advisory Services and past treasurer and board member of Vermont Businesses for Social Responsibility.