Bacon's Rebellion

by Dick Hall-Sizemore

There are many provisions of the reconciliation bill now being considered by the U.S. Senate that would affect Virginia. One issue that would have a great impact is the proposed crackdown on health-related taxes or assessments used by states.

The federal Medicaid statutes authorize states to levy taxes, or assessments as they are sometimes called, on health-care facilities that serve Medicaid patients and then use the revenue from those assessments for the state’s share of Medicaid expenditures. (This article will use the term “assessment” from now on, primarily because that is the term Virginia uses.) In other words, in addition to its revenue from the General Fund, a state can use any revenue from a provider assessment for its share of Medicaid funding.

The details of the authorizing provision are complex, but there are three principal requirements:

1. Broad based. The assessment must be imposed on all the non-governmental health care entities within a specified class. For example, all hospitals must be subject to the assessment, not just those that treat a high proportion of Medicaid patients.
2. Uniform. The assessment must be consistent in amount and scope to the services to which it applies. For example, the rate cannot be higher on Medicaid revenue than it is on non-Medicaid revenue.
3. Hold harmless. Taxpayers, i.e. hospitals, cannot be guaranteed that they will recoup their entire assessment from increased Medicaid revenue.

Forty-nine states and the District of Columbia use at least one type of assessment to help finance Medicaid. The federal Medicaid law establishes minimum levels of eligibility, service provision, and payment rates for participant states. States may exceed those minimums, but they must pay their share of the increased costs. (Virginia’s share of Medicaid costs is about 40 percent.) However, they can use revenue from the health-care assessments to pay all or a portion of the state share. The result is that the number of people served, services provided, or payment rates are increased, with the increased costs being borne by the hospitals, nursing homes, etc. and the federal government. The health care facilities benefit because their overall Medicaid revenue increases, usually more than offsetting the amount of the assessments. Those facilities that have a higher Medicaid caseload benefit the most. There is no question that these assessment programs are expensive for the federal government. The Congressional Budget Office estimates that eliminating the authorization for the assessments would save the Medicaid program $612 billion over a nine-year period.