Wait, A Second Hospital Tax?

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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17 responses to “Wait, A Second Hospital Tax?”

  1. LarrytheG Avatar

    ” RICHMOND, Va. – Sen. Minority Leader Richard Saslaw said he will resort to a “nuclear” procedural move – one that would wrest the state budget bill from the Senate Finance Committee – if the panel does not send a spending plan to the full Senate before it reconvenes next week.”

    1. djrippert Avatar

      Sometimes people write “lol” in their texts or other internet based messages. It euphemistically implies that what they read made them laugh out loud. I won’t write “lol” as a response here because I actually did laugh out loud.

      Thank God that Dick Saslaw is circling the state budget like a sharp eyed fiscal hawk. I feel much safer now (sarcasm light is not just lit but glowing like the Sun).

      It was, after all, Senator Saslaw who was asleep at the wheel as one of his campaign workers embezzled $653,000 from his campaign contribution war chest –


      A quick trip to VPAP will show you the almost blinding brilliance of this expert con man. He started by writing checks from Saslaw’s accounts to two false operations. The fact that neither had even a pretense of a web site, neither had any understandable connection to Saslaw’s campaign and both shared the same business address never so much as aroused Tricky Dick’s attention. After a while the embezzler just started writing checks to his wife in her name. For 15 months the embezzler and his wife stole from Senator Saslaw using only the flimsiest of cover. Ole Hawk Eye Dick never noticed.

      The RTD summarized Saslaw’s comments on the matter during a speech he gave … “Saslaw told the audience at Christopher Newport University that he had should have paid better attention to the financial statements.”

      Of all the clowns in Clownville, Saslaw is the clowniest.

      I feel so much better knowing Ole Hawkeye Saslaw is watching the budget.

  2. LarrytheG Avatar

    I support the use of an earmarked tax(es) to pay for Virginia’s share of the MedicAid expansion. It’s a fiscally-responsible approach that assures sustainable revenues that avoid pitting it against other items contending for available general revenues at budget time.

    The 90% funding that the Feds provide, in reality, ALSO comes from Virginians who are already paying other Federal earmarked taxes tied to the MedicAid Expansion and that’s why the 90% Fed portion of the funding is guaranteed – as long as Congress does not repeal those earmarked taxes.

    In other words – budget-wise it works more like Medicare Part A which is funded from earmarked FICA taxes – rather than Medicare Part B which is funded from General Revenues that directly impact the overall budget.

    If Congress votes to gut the funding for Obamacare/Medicaid Expansion – then Virginia should pull out of it but as long as Virginians are paying the earmarked taxes that fund it – it would be akin to us rejecting Federal transportation money that is created from Federal gasoline taxes that Virginians pay.

    That’s the really dumb part of the GOPs argument. Any tax that is collected from Virginians by the Feds – and returned to Virginia as it’s share to pay for needs – has always been accepted until now with the MedicAid expansion – which has been rejected on partisan grounds that ignore the reality that Virginians are already paying for the Medicaid Expansion.

  3. Steve Haner Avatar
    Steve Haner

    With Medicaid projected to exceed 25 percent of the state’s GF budget in a few years, concerns over a decision to expand it are hardly dumb. But the big argument over whether we should have Medicaid at all has been settled a long time, and the Congress failed last year to repeal the ACA, so Virginia should now proceed to cover the people caught in a bind because they do have jobs and income, but really cannot afford individual coverage. Yes, we are already paying for much of it in federal taxes.

    Right now hospitals are providing uncompensated care to this population (and billing the rest of us for some of the cost.) With expansion they will start to get paid for these patients, although they complain at only about 70 percent. Well, 70 percent beats zero and I’m a little surprised they are putting the whole effort into greater jeopardy by trying to add on one more tax and boost their reimbursements.

  4. LarrytheG Avatar

    re: ” But the big argument over whether we should have Medicaid at all has been settled a long time, and the Congress failed last year to repeal the ACA, so Virginia should now proceed to cover the people caught in a bind because they do have jobs and income, but really cannot afford individual coverage.”

    You’re conflating two things here Steve.

    These folks have ALWAYS not been covered and been in that “bind” and Virginia had chosen to do nothing about it – nor the Feds. That’s a DIFFERENT thing than the Original Medicaid which has been in effect all along.

    Original MedicAid is NOT funded in the same way that the Expansion is. Original Medicaid is funded from general revenues – discretionary funds while the expansion is funded like Social Security is – with earmarked taxes that are solely dedicated to pay for MedicAid and nothing else.

    Sure, Congress could change that – but that would be akin to changing FICA for Social Security or other earmarked taxes that are dedicated funding versus General Revenue funding.

    Virginians, of course pay the taxes that fund Medicaid but the taxes for the Expansion are different taxes. They are specific taxes on specific things and those taxes, once collected, can only be spent on the Expansion.

    These are, by the way – NEW taxes that did not exist before. They were specifically created to pay for Obamacare and the Expansion.

    Congress could change that – just like they could ANY earmarked taxes and if they do – of course – we should back out – but UNTIL THAT HAPPENS – we are DUMB to not get back taxes that are being paid by Virginians SPECIFICALLY for the expansion.

    It’s DUMB to not take specific earmarked money that you are due back because it was collected from Virginians.

    All along in this blog -this issue has been conflated and confused… misrepresented.

    All I ask is that we tell the truth about it – as is – right now and yes ..acknowledge that it could be changed in the future – but until and unless – then do represent it the way it really is right now.


    1. djrippert Avatar

      Larry, I have a great deal for you. I’ll sell you heroin at a 90% discount for the next three years. The only stipulation is that you have to use the horse yourself. Don’t worry. If I stop offering the discount at the end of 3 years you can just stop using heroin. What could go wrong?

  5. Steve, I agree with your point that, assuming we have to raise new tax revenue, perhaps we should be considering alternatives to a tax on hospital revenues. But why is it necessary to raise taxes at all? I thought that Medicaid expansion paid for itself through reduced state expenditures on prisons, mental health, etc.

  6. Steve Haner Avatar
    Steve Haner

    You probably believe in the tooth fairy and clearly trust the Social Security Trust Fund, Larry. It’s all fungible and when the fit hits the shan and more debt is not possible the feds will find hard currency where ever they can.

    I’m actually arguing that Virginia needs to put its portion of Medicaid on a firmer footing than some un-codified “provider assessment” in a budget bill with an expiration date.

    Jim: YES. Short term, Virginia could expand Medicaid to additional patients without any tax increase, but it is not painless – other things in the budget get pinched. Putting the House and Senate versions side by side illustrates this. But in the long run I think Virginia does need a dedicated revenue source for Medicaid because, as noted, it will continue to suck up existing GF revenue with or without expansion. I’ve thought for years that the next tax hike in VA would be for Medicaid and now we’re there.

  7. LarrytheG Avatar

    Not really Steve. Fungible in the traditional sense means that on a given budget cycle that higher ed or k-12 may not get as much a pot of money as another year.

    But things that are funded by earmarked taxes means whatever is collected will go only for that purpose – and yes – like Social Security or Medicare Part A or Airport trust funds or the Federal Gas Tax. So.. yes they CAN change those things – but the process for changing them is not the same as adding or subtracting funds for something that is funded from general funds.

    On the “paying for itself”… that’s correct also in that money that the State currently does spend for some services like prisons – will be paid for by the MedicAid expensive – 90% worth – so yes… we still have to cover the 10% but in the next years budget – the amount needed for prisons will drop to zero but that’s not acknowledged in the conventional budget process… it just means some item is no longer needed to be funded and that line item goes to zero.

    The GOP opposition was always disingenuous. The “fungible” argument is disingenuous because it’s a lot like saying that the Feds _could_ decide to stop giving Federal transportation money that comes from the gas tax – to Virginia. Yes.. that is sure something that COULD happen but it’s also a lot like saying the Feds will stop collecting gas tax or FICA taxes — it’s certainly possible but it’s not at all like Congress zero funding something and it’s even less conceivable if the Feds would continue to collect gas taxes or FICA but decide to stop using those funds for their intended earmarked purpose.

    We need to say the truth about this guys… It’s FINE to have a different political philosophy about it – but the basic facts should not be in dispute.

  8. TooManyTaxes Avatar

    None other than Senator Janet Howell (D Fairfax) and longtime member of the Senate Finance Committee in responding to my questions about Medicaid expansion said it would save money by: 1) reducing the amount of indigent care funded by the State and 2) reducing the growth in private health insurance premiums due to fewer care losses that have to be recovered elsewhere.

    Virginia’s entire cost for Medicaid expansion should come from 1) a transfer of funds from indigent care and 2), if that’s not enough, taxes on the health care industry. Any other result is pure fraud. Limit the income tax deduction for compensation paid to anyone who works in the health care industry to $250,000 annually.

    1. djrippert Avatar

      “Limit the income tax deduction for compensation paid to anyone who works in the health care industry to $250,000 annually.”

      I hear Knox Singleton’s head actually exploded when he read this.

      What an evil idea, TMT. I love it.

  9. LarrytheG Avatar

    ” Limit the income tax deduction for compensation paid to anyone who works in the health care industry to $250,000 annually.”

    tax deduction for what? People who earn 250K and up don’t pay less in taxes -they pay more.

    And actually this goes to how the MedicAid Expansion – the 90% part is actually funded.

    I’ve yet to hear from anyone in BR – how the Expansion is actually funded… by the way. It’s emblematic of the debate… those opposed don’t use numbers.. just ideology.

  10. Steve Haner Avatar
    Steve Haner

    The corporate income tax rules set a cap on how much of a CEO’s or other highly compensated execs salary can be deducted as a business expense. I assume that is what TMT referred to. Not sure if that means anything to a “non-profit” paying the same high salaries.

    Yes, Larry, we all know that various federal taxes and fees were raised as part of the ACA. I can’t remember which survived this last round of changes. While I am ready for Virginia to take this step, DJ’s point that it will be hard to ever go back is perfectly valid.

    1. LarrytheG Avatar

      Re” hard to go back”. You’re essentially agreeing with the point that there IS a DIFFERENCE between an earmarked tax dedicated to only a specific spending verses things that are funded on a discretionary basis from general revenues.

      But even earmarked taxes can be changed. For instance, a few years back the collection of FICA taxes was reduced as part of a stimulus.

      And we have others who advocate getting rid of FICA and converting SS to a 401K type plan or others getting rid of the Federal gas tax….etc… Right now – there is talk in Congress of getting rid of some of the Obamacare taxes, in fact.

      But the point I was making was that the claim that tax money is “fungible” is not entirely true. It’s true for general revenues – not true for earmarked taxes.

  11. TooManyTaxes Avatar

    So let’s make any compensation paid by a nonprofit to someone working in the health care industry that exceeds $250 K taxable income to the nonprofit at the highest corporate rate.

  12. LarrytheG Avatar

    Unlike others.. I do not believe CEOS in ANY industry should be targeted for punitive tax treatment merely because of how much they earn.

    That’s a very wrong role of tax policy.

    What people earn is between them and their employer – period.

    Just because a company is profitable is no reason to penalize the leaders of that company… the whole thing smacks of some kind of money envy…. where we cannot abide success at managing an enterprise so that they excel at profits!

    Some people are very, very good at what they do in making enterprises more efficient than others in the industry and we do not want to damage the rewards – which drive good management.

  13. TooManyTaxes Avatar

    Larry, I tend to agree with you that the market ought to set compensation even though President Clinton (thank God we only had one) and Congress put limits and conditions on the deductibility of executive compensation.

    But I see a difference when the entity is not really competing in the market, but sucking much of its revenues from taxpayers. Once the health care industry starts lobbying for more taxpayer dollars, it’s not really competing in the free market. It’s looking for guaranteed revenue streams. It’s very different from situations where a private individual or company provides services to government entities. Once a company or industry is looking for a place at the trough and more taxpayer-funded slop, it is open to government economic regulation. I see no reason why the Commonwealth shouldn’t try to get as much of the costs for expanding Medicaid from the service providers who lobbied hard and heavy for the added public expenditures.

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