The pending proposed amendments to the stalled state budget bill, which almost broke the log jam earlier this week, did indeed include not one but two new provider assessments/fees/taxes (you pick the term) on Virginia private hospitals. When both chambers return next week with their “this time we’ll really do something” promises on the line, the fate of both should be determined.
The payments are interchangeably referred to as taxes, fees or assessments around the country. Virginia already imposes one on intermediate care facilities and only one state, Alaska, has avoided any use of this revenue method for Medicaid.
Based on my short research the federal government allows the states to use these “tax the provider to pay the provider” schemes on the whole range of providers, and most states do also tax nursing homes. Others tap pharmacies and managed care providers. There are good summaries here from the National Conference of State Legislatures and from Kaiser Family Foundation. The federal rules do limit just how much the state can tax and still pledge to recycle the money back, but these proposals stay under that limit.
The existing Virginia provider tax on intermediate care facilities raises about $13 million per year. The two new ones proposed for Virginia private hospitals would raise about $383 million in Fiscal Year 2020, the first full year of implementation.
Right between the two provider taxes in the list of proposed amendments there is another new provision calling on a joint legislative group to take another look at Virginia’s tobacco taxes, to see how to handle the new vape products and to see if changes should be made to the restrictions on local tobacco taxes. There is no reference to a health care funding angle as motivation for that. Perhaps there should be.
The provider tax approach to funding Medicaid has a long history. It was proposed and shot down under Governors Gerald Baliles and Douglas Wilder. During this year’s debate I gave somebody my 26-year-old “No Sick Tax!” lapel pin.
The idea’s attraction is obvious. The hospital or other provider pays the state $1 dollar toward Medicaid expansion and the state uses that to draw down more than $9 from federal matching funds. The second $1 now proposed is collected for payment reimbursement rate increases, but that only draws down $1 additional from Washington’s coffers because that is under the cost share match formula for existing Medicaid programs.
Will those taxes, which appear to exceed 2 percent of gross patient revenue at the 70 hospitals involved, end up coming from individual patients or from their insurance carriers? Hospitals point out correctly that with the federal matching dollars they come out ahead, implying that there would be no need to pass on the cost. Hard guarantees are lacking. Clearly costs are being shifted around, but it seems unlikely they will shrink.
There is an interesting parallel with the proposal related to the Regional Greenhouse Gas Initiative, where people are being told to disregard the carbon tax which the power companies will pay and then get back. Won’t cost us a dime! One difference is the RGGI taxes don’t attract any match. Both ideas have me turning over walnut shells looking for the pea.
In 1992, when Wilder was pushing his own $68 million proposal, the Virginia hospitals led the opposition. “The health care groups say the Medicaid tax inevitably would get passed on to consumers through increased fees and insurance premiums,” was how John Harris of the Washington Post summarized their position. Wilder pushed back citing hospital profits and executive compensation.
The 1992 story also notes that Medicaid had grown from 5 percent to 13 percent of the General Fund budget in just five years. Where it is now and where it is going can be seen in this recent Senate Finance Committee staff slide. Another ten years and it is bumping up against 30 percent.
Call them an assessment or a tax these dollars will not be General Fund dollars and will not change that projection. That is another reason some legislators like the idea. The same Senate Finance Committee staff presentation stated as advantages of this approach: “Eliminates need for GF support” and “Frees up all Medicaid expansion savings for investment in other budget areas.”