Healthcare groups fight own tax cut

Believe it or not, some business owners across the country will spend this congressional recess lobbying against the Bush administration’s plan to lower their taxes.

What’s more, these business interests enjoy the support of hundreds of members of Congress.

At the root of this lobbying campaign is the escalating cost of Medicaid, the healthcare program for low-income people that is jointly funded by the federal government and the states.


The Bush administration has tried to tamp down the federal government’s share of spending on the program, which has been rising as cash-strapped states seek ways to finesse the complex formula that establishes how much each side contributes.

Through a regulation that healthcare lobbyists believe could be published in the near future, the administration would seek to limit the “provider taxes” which most states levy against hospitals, nursing homes and other healthcare facilities and practitioners that treat Medicaid patients.

Administration officials have characterized these state programs as schemes designed to pass off responsibility for Medicaid spending to the federal government. Restricting state efforts to manipulate the financing formula would merely be part of the administration’s responsibility as shrewd stewards of taxpayer dollars, they say.

The White House’s fiscal year 2007 budget proposal, released in February, says limiting these taxes would save federal taxpayers $2.1 billion over five years. Current law limits the allowable provider-tax rate to 6 percent, a rate the administration hopes to cut in half.

The provider-tax cut is only one part of a set of administrative and regulatory proposals the administration says would decrease Medicaid and State Children’s Health Insurance Program spending by $12.2 billion over five years.

But the states maintain that without the taxes, they will not be able to sustain their Medicaid programs. Governors such as California’s Arnold Schwarzenegger (R), Missouri’s Matt Blunt (R), Kansas’s Kathleen SebeliusKathleen SebeliusJerry Moran: 'I wouldn't be surprised' if Pompeo ran for Senate in Kansas Mark Halperin inks book deal 2020 Democrats fight to claim Obama's mantle on health care MORE (D) and Pennsylvania’s Ed Rendell (D), along with the National Governors Association, have sent letters to the administration urging it to set aside its plans.


Congress and the administration, with the cooperation of the governors, have instituted some Medicaid reforms since President Bush took office. The Deficit Reduction Act, which the president signed in February, gives the states unprecedented authority to change the benefits they offer and which people they cover.

Although state and federal policymakers agree that this flexibility could help control Medicaid spending in the long term, the states remain staunchly resistant to giving up the federal dollars that they say are needed to keep the program going in the meantime.

The states uses the taxes, along with other financing mechanisms that shift money between state treasuries and healthcare providers, to take advantage of the federal-state financing formula in ways that boost the federal share of their Medicaid expenses.

The businesses that pay those taxes have taken sides with the states.

Because hospitals, nursing homes and others – especially public or not-for-profit providers — depend on Medicaid payments to keep their businesses running, these industries are willing to pay more taxes if it means keeping Medicaid afloat.

“If these dollars went away … they’d be out of business,” said Lynne Fagnani, the senior vice president of the National Association of Public Hospitals.

Deficit reduction is a laudable goal, Fagnani said, but “we don’t believe that Medicaid is over-funded.”

Fagnani said that public hospitals are more vulnerable to shortfalls in Medicaid financing because they tend to treat more Medicaid patients and also tend to have lower average profit margins: 1.3 percent, compared to the 5.2 percent industry average.

Another hospital-industry lobbyist acknowledged that the provider taxes and other financing mechanisms used by states are not the ideal way to underwrite Medicaid.

“These mechanisms are not everyone’s first choice,” said Rick Pollack, executive vice president of the American Hospital Association. But Pollack said that without an alternative policy to address the costs of Medicaid, the current methods should stay in place or states would be forced to cut back on their Medicaid programs.

“This is a temporary fix until broader reforms can be enacted,” said Susan Feeney, a spokeswoman for the American Health Care Association, the nursing-home industry’s largest lobbying organizations.

“In the absence of states being able to use this mechanism, it creates a bigger hole in states’ budgets for a program that serves the poorest of the poor and children,” Pollack said.

The administration’s Medicaid agenda has attracted complaints from many members of Congress, as well. Rep. Jo Ann Emerson (R-Mo.) attached language to the Health and Human Services (HHS) appropriations bill blocking any provider-tax regulation.

Emerson also was among a diverse group of 82 House Republicans who protested the proposals in a letter to HHS Secretary Mike Leavitt in May. The entire House Democratic Caucus sent a similar, but broader letter last month. A bipartisan group of 50 senators sent a letter of their own in June.