December 9, 2009
Health Providers, Hospitals Tax Targets for States Seeking Federal Match
Six States Enacted or Expanded Health Provider Taxes Within Past Year; Four States Have Pending Enactments or Expansions
Washington, DC, December 9, 2009 -- A second stimulus plan may soon be on the table, but a new Tax Foundation analysis shows that several states are taking advantage of one provision of the first stimulus bill - increased federal matching rates for Medicaid - at the expense of some health care providers in their own states and taxpayers in others. Twenty-two states have significant health provider or hospital taxes, six of which were enacted or expanded in the last year, and another four enactments or expansions are pending.
"Taxes on health care providers are popular targets for states as they struggle to close budget gaps and meet increased Medicaid demands because the revenue raised from those taxes can be used to obtain a larger amount of federal matching funds," said Tax Foundation Analyst Justin Higginbottom, who authored Tax Foundation Fiscal Fact No. 203, "State Hospital and Medical Provider Taxes: Not What the Doctor Should Order." The Fiscal Fact is available online at http://www.taxfoundation.org/publications/show/25599.html.
"States are turning the federal match into a budget gimmick by shifting Medicaid revenues into their general funds and shifting Medicaid costs to the federal government," Higginbottom said. "As states get more federal funds for Medicaid, the federal government must tax or borrow to pay for this spending increase."
Medicaid is financed at both the federal and state levels, but the federal match varies based on the state's poverty level and unemployment rate. The American Recovery and Reinvestment Act of 2009 increased Medicaid matching rates by an average of 8.7 percent from October 1, 2008 through December 31, 2010, totaling an additional $87 billion in federal funding - and giving states an added incentive to tax hospitals and health care providers.
California, Colorado, Missouri, Ohio, Oregon and Wisconsin enacted or expanded their health provider taxes within the last year. In Wisconsin's case, the 20 percent increase in health provider taxes would result in increased federal matching funds from $635 million to $796 million - more than a third of which ($292 million) is expected to be used for non-Medicaid purposes. New or expanded health provider or hospital taxes are pending in Arkansas, Michigan, Vermont and Washington.
In fiscal year 2009, Mississippi received the highest federal match - $5.10 for every dollar the state spent on Medicaid, and Wyoming received the lowest - $1.28 for every dollar the state spent. California, which receives $1.60 in federal funds for every dollar it spends on Medicaid, raised $2 billion from health provider taxes and received $2.3 billion in federal funds.
"These federal matching funds may seem like a boon for some states, especially those facing the most serious budget problems, but ultimately, health provider taxes are a short-term fix that can harm health care providers and perpetuate the dysfunctional Medicaid fund-matching system," Higginbottom said.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Tax Foundation Fiscal Fact No. 203, "State Hospital and Medical Provider Taxes: Not What the Doctor Should Order," is available online at http://www.taxfoundation.org/publications/show/25599.html. To schedule an interview, please contact Natasha Altamirano, the Tax Foundation's Manager of Media Relations, at (202) 464-5102 or naltamirano@taxfoundation.org.
