Congressional Budget Office: Options for Reducing the Deficit MHA/516 By Tammy Sagar 01/29/2018 Instructor Earl Greenia Health—Option 3 Limit States’ Taxes on Health Care Providers A government program that helps provide health care insurance to people with a low income is Medicaid. This federal funded government program, but they do let each state run their programs individually. The funding for these programs comes from both the state and the federal government. The state must pay for the funding for the people that are enrolled but then the federal government will reimburse the state back for the money they spent based on the different kinds of criteria. The remaining part of the money that the state does not get back from the federal government is then collected through taxes that the state receives from physicians. When the program first started out the states were having to tax the providers that accepted Medicare at a much higher rate than then they did other providers. For this reason, the federal government had to mandate that all providers would pay the same tax rate no matter what kind of insurance the providers accepted. So that Congress can reduce the deficit, the Congressional Budget Office has created an option: limiting states taxes on the health care providers. Currently the state is able to tax health care providers total revenue at a rate of 6 percent. Federal law grants a “safe harbor” exception to hold-harmless provisions when a state collects taxes that do not exceed 6 percent of a provider’s net patient revenues. This option would lower the safe-harbor threshold, starting in October 2017, to 5 percent or 4 percent. According to "Congress Of The United States Congressional Budget Office Cbo Options For Reducing The Deficit: 2017 To 2026" (2016), the Congressional Budget Office estimates that capping the threshold at 5 percent would reduce mandatory spending by $16 billion between 2017 and 2026 and that capping it at 4 percent would reduce mandatory spending by $40 billion over that period. With reducing the tax percentage this would allow the amount of spending to be reduced also.
The problem behind this is if the state lowers the amount of money that they are collecting then they would not collect as much. The state would then have to decide if they are going to cut some of the Medicaid spending or if they are going to spend the same about but get the money for this program from somewhere else. This could be done just by reducing the amount of money they spend in different areas. Lowering the safe-harbor threshold would reduce the amount of taxes that states could collect from providers without incurring reductions in federal payments. Under the new limits, states would need to decide whether to continue spending the same amount (and make up the difference out of other revenues) or to cut spending by the difference between the old and new thresholds. The federal government recognizes states’ rights to impose taxes on health care providers and provides federal matching funds for those provider assessments through the Medicaid program. To ensure states are not attempting to circumvent their obligations for paying the non-federal share of the cost of Medicaid, federal law places strict requirements on state provider taxes—they must be broad-based, uniformly imposed, and cannot guarantee a provider will receive provider payments that will offset the amount of taxes paid. Provider taxes serve as an important revenue stream for states, particularly during economic downturns when states experience significant increases in Medicaid enrollment. References: CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE CBO Options for Reducing the Deficit: 2017 to 2026. (2016). Retrieved from https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/52142-budgetoptions2.pdf States and Medicaid Provider Taxes or Fees. (2017). Retrieved from https://www.kff.org/medicaid/fact-sheet/states-and-medicaid-provider-taxes-or-fees/. Fowler, W. (2010). Provider Taxes: A Revenue Source for Health Care. Retrieved from http://knowledgecenter.csg.org/kc/content/provider-taxes-revenue-source-health-care