February 12, 2008 Times Argus
By Judy Tarr
To help pay for its Medicaid program, Vermont taxes hospitals.
What?
Yes, it’s true. Under federal law, states are allowed to tax hospitals to help pay for their Medicaid programs. These tax dollars are in turn used to qualify for significant federal matching Medicaid funds. This “tax and match” game is legal and used by many states in the U.S. as a way to leverage federal funds to pay for the care of low income patients. As such, the hospital provider tax program has become a very popular way for financially strapped state governments to stretch their ability to fund their Medicaid programs and balance their budgets.
Here is a very simplified explanation about how the hospital tax formula works: a hospital pays $1 tax to the state, the state uses this dollar to qualify for or “match” $2 from the feds. Through a separate federal mechanism, approximately $1 is returned to the hospital and the state keeps the remaining $2 dollars for its Medicaid program. Not a bad deal for Vermont.
The national “tax and match” program started in 1987. It became wildly popular because states quickly figured out how to generate federal dollars for lots more than just Medicaid. Once the federal government realized the “loopholes” in federal Medicaid law, they closed them. Vermont’s “tax and match” program has survived these changes in federal law and up until recently was a stable, progressive way to direct needed Medicaid dollars back to the communities that cared for low-income patients.
Vermont hospitals have quietly and peacefully supported the “tax and match” game because the tax was kept in balance with the “match” payments.
If the Governor has his way, that balance is about to collapse. The Governor’s administration has set the tax $16 million above the allowable “match” payments, creating a $16 million dollar shortfall for Vermont’s hospitals for fiscal year 09. For Central Vermont Medical Center (CVMC), the shortfall would be $1.2 million dollars.
Central Vermont Medical Center had a tough financial year in fiscal year 2007. We lost $6.1 million dollars from operations last year. Our employees sacrificed their pay increases, we’ve eliminated 20 jobs, cut non-salary expenses and renegotiated contracts to help turn the corner on our financial performance.
Our efforts are beginning to pay off. We’re back on budget year-to-date in fiscal year 2008, revenues are up and expenses are down. We are on the road to recovery and working very hard to assure that our employees receive the wage increases they deserve next year.
If the Governor’s budget passes, CVMC will find itself in the hole again financially, and all the hard work and effort that has gone into our financial recovery this year will have been for naught.
As if this unwelcome potential expense isn’t financial stress enough, it also sets a dangerous precedent for the future. What about next year, or the year after that? In order to finance the growing Medicaid program, the state will likely continue taxing hospitals well above the “match” payments year after year. We can’t work together to improve our health care system if we have to worry about getting the financial rug pulled out from under us year after year.
In the final analysis, who would really pay this tax if the Governor’s proposal goes through? All of us. This hidden tax would put upward pressure on our prices, so the people ultimately footing the tax bill are those people who use and pay for our services – our patients, our local businesses and our communities. This “tax and match” program is nothing more than a “sick tax”, a complicated Medicaid funding loophole that provides lottery-like winnings to the state to balance their Medicaid budget. Up to now, this game has been played fairly by all involved. Unfortunately, if left up to the Governor, his new version of this game will now leave our hospitals and communities holding the bag.
As far as CVMC is concerned, this game is over.
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