October 12, 2009
While Congress looks at surtaxes on high-income individuals and at taxes on “Cadillac” health plans as a means to help pay for healthcare coverage for the uninsured and underinsured, a number of States have already implemented or considered “provider taxes.”
Provider taxes are simple levies on business revenues that apply to anesthesiologists, other physicians and/or healthcare facilities. States use provider taxes or “fees” or “assessments” as a mechanism to generate new in-state funds that will be matched with additional federal Medicaid dollars. Typically, the cost of the tax, which may be as much as 5.5 percent of revenues through September 2011, is refunded to providers through an increase in the Medicaid reimbursement rate.
More than 46 states and the District of Columbia have at least one Medicaid provider tax. Hospitals and nursing homes are the most commonly taxed categories of provider. Florida was the first state to establish a provider tax program in 1984, assessing hospitals 1.5% of annual net operating revenues. In 2009 alone, Arkansas, Colorado, Iowa, Oregon and West Virginia enacted new laws establishing or expanding provider taxes and fees.
Although taxes on physicians’ professional revenues are rare, West Virginia has levied such taxes for more than nine years, and this year expanded the definition of physicians' services to mean those services furnished by a physician within the scope of the practice of medicine or osteopathy, whether furnished in the physician's office, the recipient's home, a hospital, a skilled nursing facility or any other location.
The Michigan legislature is currently considering imposing a 3 percent provider tax on more than 15,000 physicians who practice in the state in order to mitigate a $2.8 million budget deficit for fiscal 2010. A tax on hospitals, HMOs and community mental health providers known as a “Quality Assurance Assessment Program” (QAAP) fee is already in place. A physician QAAP was first proposed in 2005; the state medical society’s opposition has been effective thus far. Despite having received an estimated $464,364,309 in temporary additional federal allocations for Medicaid costs under the American Recovery and Reinvestment Act (ARRA) of 2009 for the period October 1, 2008 through March 31, 2009), Michigan is looking at eight to twelve percent in Medicaid cuts next year. Only 64 percent of physicians in the state now participate in Medicaid. The proposed QAAP would generate an additional $525 million in additional federal Medicaid matching funds to the state and increase physician payments by about 76 percent.
Other Taxes to Pay for Increased Coverage
One of the most contentious features of the healthcare legislation that the Senate Finance Committee will be attempting to pass tomorrow, October 13, is the excise tax on employer-paid insurance. The bill would impose a 40% excise tax on insurance companies for plans whose cost exceeds $8,000 for individuals and $21,000 for families. This new source of revenue, combined with cost savings measures, would allow for coverage of 94 percent of legal residents without increasing the federal deficit, according to the CBO, satisfying a requirement for President Obama’s approval.
Health economists have long argued for eliminating the tax exemption for employer-paid insurance, since it is another form of compensation. Lobbying efforts by labor unions, in particular, forced the Senate to scale back the concept so that only so-called “Cadillac” plans, i.e., those costing more than $8,000 for an individual, would be subject to the excise tax.
The threshold costs above which the excise tax would apply don’t necessarily represent Cadillac care in parts of the country where health insurance premiums are relatively high. Within a few years $21,000 for family coverage would not be extreme: a recent study by the Commonwealth Fund projected that the average premium for family coverage in 2015 would be nearly $20,000 in high-cost states. The tax on Cadillac plans could affect as many as 15 million households, according to the Congressional Budget Office.
Many anesthesiologists live and practice in high-cost states. If groups offer generous health insurance coverage to their physicians and other employees, they could be affected by the excise tax, which insurance plans would undoubtedly pass on in the form of premium increases.
Continuing opposition by labor and other interests may doom the excise tax in the House of Representatives, even if it passes in the Senate. Meanwhile, the House is working on legislation that would fund expanded access to health care through a surtax on high-income taxpayers. The key Ways and Means Committee would impose an additional tax of up to 5.4% on individuals who earn more than $280,000 and on couples making more than $350,000 annually. Speaker of the House Nancy Pelosi has been persuaded to support higher thresholds of $500,000/$1,000,000. The Senate is as averse to income tax increases as the House is to taxing health benefits or plans, however. The bills being debated in Committee will change before they reach the floor of either chamber, and then they will change again in the “reconciliation” process.
The future of the two tax proposal is still anyone’s guess. What seems quite possible – probable, even -- is that anesthesiologists will see some decrease in their net incomes, through higher taxes if not through fee schedule cuts – and the 21 percent SGR cut is not yet entirely off the table.
President Kennedy had a solution to an analogous problem. In a memoir entitled The Pleasure of His Company, Paul Fay, a close friend of the late President, wrote of a dinner in 1959 where Joseph Kennedy chastised his children for spending too much money. JFK – then 42 years old – broke the ensuing silence with the statement, “We’ve come to the conclusion that the only solution is to have Dad work harder.”
We all know that many anesthesiologists, nurse anesthetists and practice administrators are working harder, often past the time when they had hoped to retire. Please let us know if we can help you in analyzing and selecting among your options.
With best wishes,
Tony Mira
President and CEO
