For years a Virginia business policy group, the Thomas Jefferson Institute, has been pushing a Virginia tax reform proposal that would impose the sales and use tax on services. The sales and use tax covers tangible goods, not (with a few exceptions) services. Looking at the group’s 2015 report on the idea, imposing the sales tax on the broad medical and nursing home industries could generate close to $2 billion per year.
My memory went back to this idea while reading in the Richmond Times-Dispatch this morning that the hospital industry is indeed pushing again for a second “provider assessment” (read: hospital tax) as part of the ongoing budget debate over Medicaid expansion. The House of Delegates has included one new tax on hospital revenue to provide the state share of the cost of expanding Medicaid, and the hospitals want to tack on a second tax to increase their reimbursement rate for services.
The idea resurfaced in the Senate staff presentation Monday and then Senate Finance Committee discussions Tuesday. The committee’s work on the overdue budget has now gone sub rosa for a while so there is no indication this “has legs”, as they say at the Capitol.
The two taxes combined would approach $400 million in 2020. That would be one of the largest tax streams flowing into state coffers, almost half the annual take of the corporate income tax and comparable to the insurance premium and recordation taxes. The House version of the first provider tax is in effect a sum sufficient provision, meaning the tax will adjust up automatically if required to cover the state’s share of expansion (and the federal share will be shrinking.)
The infusion of major new federal revenue from Medicaid expansion to the hospitals now providing uncompensated care to that population may make it possible for them to absorb any new tax. In theory the rest of us will be covering for less of that uncompensated care. And the Thomas Jefferson Institute also helpfully tracks Virginia hospital profits, which grew last year, giving reason to hope customer costs or insurance premiums won’t rise because of the new tax. The hospitals can eat it, right? Have any such assurances been made?
But if this is just like every other tax and eventually somebody, somehow has to pay it, why not spread the burden across the entire health care sector by ending the medical sales tax exemption? The same 1.4 percent tax rate now being proposed might do the trick. New Medicaid patients will be visiting doctors, out-patient clinics, nursing homes and pharmacies and sending tests to labs. Many will be in managed care systems – and we want then taking that approach. If reimbursement rates are to go up, will they go up only for hospitals? Why should only private hospital revenues be taxed?
Or what if we just ended the non-profit status of so many medical facilities and practices and just taxed their property and profits like any other business? What if we doubled Virginia’s famously low tobacco products taxes, raising another $170 million for dealing with the health-care consequences of that poisonous habit?
The “third rail” status of the whole idea among most Republicans – including most Republican legislators – has forced this discussion off a rational plane and into a perpetual posturing zone. A serious tax policy discussion of how to pay for this and what the impact would be on customer costs might or might not end up with these “provider assessments” as the right choice, but there has been no debate.
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