November 08, 2024
Editorial

Return of the Sick Tax

Is it possible state government just misses the publicity? Maine was the featured state in a 1995 Governing magazine article called “The End of the Hospital Tax Charade,” in which its $110 million tax-and-match plan was described as “an elaborate procedure designed solely to grab additional federal Medicaid dollars.” The story detailed Maine’s planned painful retreat from the tax, which eventually took several years in financially flush times.

Very few of Maine’s current lawmakers were in Augusta when the original decision, in 1991, was made to draw down this federal money, though the danger of the scheme is well-enough known so that even new lawmakers today should be aware they are re-enacting, in smaller form, one of the major government gimmicks of the ’90s.

The lack of revenue in Augusta and the likely alternative of cutting medical reimbursements may make lawmakers feel as if they have no other choice. That’s understandable. But they should vote knowing the high cost of tax-and-match: Eventually, the federal government will figure out that states are using Medicaid dollars to fill budget holes and it will cut off or severely restrict the funding. Maine may be in good fiscal shape when that happens or it may not. The feds, which have their own deficit problems, are unlikely to care.

Tax-and-match – it came to be called “the sick tax” last time – works by requiring hospitals to pay a small “tax” to the state, which the state then uses to leverage a 3-to-1 match on all or a portion of the tax, sending some back to hospitals and keeping the remainder. This time, because of changes in Medicaid rules, it cannot take quite as much from Washington. But the plan approved by Democrats on the Appropriations Committee this week would collect $16.6 million from the hospitals, keep $12.3 million for state reimbursements, match the remaining $4.3 million with Medicaid money for a total of $14 million, to be sent back to the hospitals, which would then have paid a net tax of about $2.6 million. The hospitals were facing $8 million in state cuts otherwise, so the $2.6 million must seem small by comparison.

Nearly every state has Medicaid trouble and is looking for ways to keep from cutting reimbursements for medical care. In the ’90s, the tax-and-match plan took several years to become popular, and the same pattern is likely to repeat itself this time. The question lawmakers should be asking is whether they and the administration have plans for what happens once the federal government again tightens the rules or whether they are building a system that will always be unaffordable without this or similar forms of funding.


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