What’s on the Health Care Table to Keep $800 Million in Fed Matching Funds in Oregon
By Betsy Earls
Associated Oregon Industries
Oregon’s Largest Business Advocate
The Current Program
There are two distinct revenue streams in Oregon’s current program: a tax on the 25 largest hospitals (those with more than 50 beds), and a tax on the state’s Medicaid Managed Care Organizations (MCOs).
The revenue from these two taxes is then used to draw down federal matching funds for Medicaid. The federal match is significant: Oregon receives approximately $2 federal dollars for each $1 provider tax dollar it raises.
Once the federal matching money is received, the state repays (in the aggregate) the hospital and MCO taxes to providers through an increase in Medicaid payments. In this way, the provider taxes function as a kind of short-term loan to the state, just for the purpose of qualifying for federal Medicaid match.
The rate of taxation on hospitals varies modestly, but is set to be maximized to whatever level the state can repay through increased Medicaid payments. Such repayment has a federal maximum level, known as the Medicare Upper Payment Limit (UPL). This limit essentially says states can’t pay (reimburse) for Medicaid services at levels higher than Medicare would pay for the same service.
The significance of this program for employers is two-fold: federal matching funds allow the state to cover 28,000 people through Medicaid that otherwise contribute to the cost-shift as uncompensated care; and because the provider tax is “repaid” through higher Medicaid rates, there is no increase in provider costs—or cost-shifting—to employers that purchase private health insurance.
Why changes are needed in Oregon’s current tax program
Federal rules governing provider tax programs are changing effective 10/1/2009, and Oregon’s current provider tax sunsets concurrently. While provider tax programs will still be allowed, states will no longer be able to tax only the Medicaid MCOs without applying the same tax to all managed care plans in the state—including commercial plans.
Under current law, provider tax revenues are the only source of funding for the OHP’s coverage of low-income adults through OHP Standard. Those eligible for the plan have incomes below the federal poverty level and are not otherwise eligible for the OHP. State General Fund revenue will not be available to replace the loss of the provider tax revenue–so some sort of new provider tax will need to be crafted if the program is to continue. There are currently two leading proposals:
The Governor’s Proposal
The Governor’s Recommended Budget (GRB) proposes to replace—and significantly expand—the provider tax program. The GRB proposes to increase the hospital tax by 6 times, from its current rate of .63% to 4.0%. This will put the tax at a level that is significantly higher than the state can repay—resulting in a significant cost shift to business and other purchasers of private health insurance. In addition, the GRB contains a new tax on health insurance premiums on fully insured health plans. This is set at 1.5% of total premium, but exempts from taxation all plans that are less than fully insured—self funded plans, labor and Taft-Harley trusts, etc. These exempt plans are estimated to represent about 40% of the health insurance revenue in the state.
The Governor’s proposal would raise approximately $1,484 million in state and federal funds in 2009-11 and would cover 100,000 adults and 80,000 children.
Alternative claims tax proposal
In an attempt to create a broader-based alternative, the Health Care Leadership Task Force developed a claims tax (not a transaction tax) proposal. The tax would be 1% of all health care claims in Oregon, and would apply to commercial insurance, self-funded plans, and Medicaid plans. In addition to this claims tax, hospitals would continue to pay the current .63% (hospitals would pay the 1% claims tax AND the .63% on net patient revenues).
This tax would raise around $782 million in the 2009-11 biennium (state and federal funds combined) and would cover 50,000 adults and 60,000 children.
In meetings with leadership on this proposal, concerns have been raised about ERISA, and about whether money raised through this mechanism would be eligible to draw federal matching funds. A group of attorneys from Regence, the Hospital Association, Department of Justice and Department of Human Services were assigned to look at these issues. Preliminarily, it appears that a claims tax will withstand an ERISA challenge; however, attorneys and agency personnel have not finalized their decisions and recommendations. It also appears that there is no reason such a tax could not be matched by federal dollars.
While the economic climate is not exactly ripe for a tax increase for business, Oregon is not in a position to simply refuse to impose any tax whatsoever. In order for the state to receive all the federal Medicaid stimulus money (more than $800 million), it must maintain the level of coverage in place during July 2008. Thus, we need to find a way to replace at least the funding that will be lost due to the October 2009 sunset.
AOI has been active in the search for solutions acceptable to the business community, and will continue to work with other stakeholders as the process moves forward.