Bernard J. Wolfson
Republican efforts to limit taxes on hospitals, well being plans, and different suppliers that states use to assist fund their Medicaid applications might strip them of tens of billions of {dollars}. The transfer might shrink entry to well being take care of a few of the nation’s poorest and most susceptible folks, warn analysts, affected person advocates, and Democratic political leaders.
No state has extra to lose than California, whose Medicaid program, known as Medi-Cal, covers almost 15 million residents with low incomes and disabilities. That’s twice as many as New York and 3 times as many as Texas.
A proposed rule by the Centers for Medicare & Medicaid Services, echoed within the Republican House reconciliation bill in addition to a extra drastic Senate invoice, would considerably curtail the federal {dollars} many states attract matching funds from what are referred to as provider taxes. Although it’s unclear how a lot states might lose, the income up for grabs is large. For occasion, California has netted an estimated $8.8 billion this fiscal yr from its tax on managed care plans and took in about $5.9 billion final yr from hospitals.
California Democrats are already going through a $12 billion deficit, and so they have drawn political fireplace for scaling again some key well being care insurance policies, together with full Medi-Cal coverage for immigrants with out everlasting authorized standing. And a lack of supplier tax income might add billions to the present deficit, forcing state lawmakers to make much more unpopular cuts to Medi-Cal advantages.
“If Republicans move this extreme MAGA proposal forward, millions will lose coverage, hospitals will close, and safety nets could collapse under the weight,” Gov. Gavin Newsom, a Democrat, mentioned in a press release, referring to President Donald Trump’s “Make America Great Again” motion.
The proposals are additionally a menace to Proposition 35, a poll initiative California voters accepted final November to make everlasting the tax on managed care organizations, or MCOs, and dedicate a few of its proceeds to lift the pay of medical doctors and different suppliers who deal with Medi-Cal sufferers.
All states besides Alaska have no less than one supplier tax on managed care plans, hospitals, nursing properties, emergency floor transportation, or other types of well being care companies. The federal authorities spends billions of {dollars} a yr matching these taxes, which usually result in more cash for suppliers, serving to them stability decrease Medicaid reimbursement charges whereas permitting states to guard in opposition to financial downturns and funds constraints.
New York, Massachusetts, and Michigan would even be among the many states hit exhausting by Republicans’ drive to cut back supplier taxes, which permit states to spice up their share of Medicaid spending to obtain elevated federal Medicaid funds.
In a May 12 assertion saying its proposed rule, CMS described a “loophole” as “money laundering,” and mentioned California had financed protection for over 1.6 million “illegal immigrants” with the proceeds from its MCO tax. CMS mentioned its proposal would save greater than $30 billion over 5 years.
“This proposed rule stops the shell game and ensures federal Medicaid dollars go where they’re needed most — to pay for health care for vulnerable Americans who rely on this program, not to plug state budget holes or bankroll benefits for noncitizens,” Mehmet Oz, the CMS administrator, mentioned within the assertion.
Medicaid permits protection for noncitizens who’re legally current and have been within the nation for no less than 5 years. And California makes use of state cash to pay for nearly all the Medi-Cal protection for immigrants who are usually not within the nation legally.
California, New York, Michigan, and Massachusetts collectively account for greater than 95% of the “federal taxpayer losses” from the loophole in supplier taxes, CMS mentioned. But almost each state would really feel some impression, particularly below the provisions within the reconciliation invoice, that are extra restrictive than the CMS proposal.
None of it’s a carried out deal. The CMS proposal, revealed May 15, has not been adopted but, whereas the House and Senate payments should be negotiated into one and handed by each chambers of Congress. But the restrictions being contemplated can be far-reaching.
A report by Michigan’s Department of Health and Human Services, ordered by Democratic Gov. Gretchen Whitmer, discovered {that a} discount of income from the state’s hospital tax might “destabilize hospital finances, particularly in rural and safety-net facilities, and increase the risk of service cuts or closures.” Losing income from the state’s MCO tax “would likely require substantial cuts, tax increases, or reductions in coverage and access to care,” it mentioned.
CMS declined to answer questions on its proposed rule.
The Republicans’ House-passed reconciliation invoice, although not the CMS proposal, additionally prohibits any new supplier taxes or will increase to current ones. The Senate model, launched June 16, would progressively scale back the allowable quantity of many supplier taxes.
The American Hospital Association, which represents almost 5,000 hospitals and well being programs nationwide, mentioned the proposed moratorium on new or elevated supplier taxes could force states “to make significant cuts to Medicaid to balance their budgets, including reducing eligibility, eliminating or limiting benefits, and reducing already low payment rates for providers.”
Because supplier taxes draw matching federal {dollars}, Washington has a say in how they’re applied. And the Republicans who run the federal authorities need to spend far fewer of these {dollars}.
In California, the insurers that pay the MCO tax are reimbursed for the portion levied on their Medi-Cal enrollment. That helps clarify why the tax fee on Medi-Cal enrollment is sharply larger than on industrial enrollment. Over 99% of the tax cash the insurers pay comes from their Medi-Cal enterprise, which suggests many of the state’s insurers get again virtually all of the tax they pay.
That imbalance, which CMS describes as a loophole, is among the foremost issues Republicans try to vary. If both the CMS rule or the corresponding provisions within the House reconciliation invoice have been enacted, states can be required to levy supplier taxes equally on Medicaid and industrial enterprise to attract federal {dollars}.
California would possible be unable to lift the industrial charges to the extent of the Medi-Cal ones, as a result of state legislation constrains the legislature’s capability to take action. The solely solution to adjust to the rule can be to decrease the tax fee on Medi-Cal enrollment, which might sharply scale back income.
CMS has warned California and different states for years, together with below the Biden administration, that it was contemplating vital adjustments to MCO and different supplier taxes. Those warnings have been by no means realized. But the danger could also be better this time, some observers say, as a result of the trouble to shrink supplier taxes is embedded in each Republican reconciliation payments and intertwined with a broader Republican technique — and set of proposals — to cut Medicaid spending by $800 billion or extra.
“All of these proposals move in the same direction: fewer people enrolled, less generous Medicaid programs over time,” mentioned Edwin Park, a analysis professor at Georgetown University’s McCourt School of Public Policy.
California’s MCO tax is predicted to internet California $13.9 billion over the subsequent two fiscal years, according to January estimates. The state’s hospital tax is predicted to usher in an estimated $9 billion this yr, up sharply from final yr, in line with the Department of Health Care Services, which runs Medi-Cal.
Losing a major slice of that income on prime of different Medicaid cuts within the House reconciliation invoice “all adds up to be potentially a super serious impact on Medi-Cal and the California state budget overall,” mentioned Kayla Kitson, a senior coverage fellow on the California Budget & Policy Center.
And it’s not solely California that may really feel the ache.
“All states are going to be hurt by this,” Park mentioned.
This article was produced by KFF Health News, which publishes California Healthline, an editorially unbiased service of the California Health Care Foundation.
KFF Health News is a nationwide newsroom that produces in-depth journalism about well being points and is among the core working applications at KFF—an unbiased supply of well being coverage analysis, polling, and journalism. Learn extra about KFF.
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