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Sunday, Jan 20, 2013 6:30 PM UTC

Arizona to tax hospitals to pay for Medicaid

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Arizona to tax hospitals to pay for MedicaidArizona Gov. Jan Brewer, R, calls for the expansion of Medicaid, Wednesday, Jan. 26, 2013 in Phoenix with healthcare and business leaders at Maricopa Medical Center. An expansion would call for $8 billion in federal assistance for the State over three years. (AP Photo/Matt York)(Credit: AP)

PHOENIX (AP) — Arizona Gov. Jan Brewer has built a political career in standing up to the federal government over everything from immigration to health care. So she surprised almost everyone when she announced last week that she not only plans to push for an expansion of the state’s Medicaid program under the federal health care law — she plans to fund it by raising taxes.

A conservative Republican, Brewer is believed to be the first governor to publicly come up with a way to fund the controversial Medicaid expansion. Not even California Gov. Jerry Brown, a Democrat in a state that largely supports the new federal health plan, has figured out how to pay for a boosted Medicaid plan.

Her proposal to add about 300,000 low-income Arizonans to her state’s Medicaid plan relies on funding from hospitals through a so-called provider tax. The idea is already used to fund some Medicaid plans in 39 states, but none have tapped it to pay for the federal expansion and many have at least some room to expand their hospital taxes.

The Medicaid expansion is intended to cover about half of the 30 million uninsured people expected to eventually gain coverage under President Barack Obama’s health care overhaul. The law expanded Medicaid to cover low-income people making up to 138 percent of the federal poverty level, or about $15,400 a year for a single person. That provision will mainly benefit low-income childless adults, who currently can’t get Medicaid in most states. Separately, the overhaul provides subsidized private insurance for middle-class households.

Washington, D.C., and 17 states have opted to expand their Medicaid rolls, but few have been explicit in how they’ll pay for it, according to the Kaiser Commission on Medicaid and the Uninsured. Some GOP governors, including Rick Perry in Texas, Bobby Jindal in Louisiana, and Nikki Haley in South Carolina, have opted out, citing philosophical differences as well as worries about costs.

Under the federal legislation, Washington would pay the entire cost of the Medicaid expansion for the first three years, gradually phasing down to 90 percent of the cost after that. It’s a far more generous matching rate than the federal government provides for other parts of the Medicaid program that’s designed to get states to sign on.

But Arizona appears to be unique in that it will see large costs immediately because of how its existing plan is arranged. So it needs to come up with new funding by January, while other states don’t.

Brewer is bucking party and philosophical lines and blazing a unique path in the health care debate. Time will tell if others follow her lead.

Under the federal legislation, Washington would pay the entire cost of the Medicaid expansion for the first three years, gradually phasing down to 90 percent of the cost after that. It’s a far more generous matching rate than the federal government provides for other parts of the Medicaid program that’s designed to get states to sign on.

But Arizona appears to be unique in that it will see large costs immediately because of how its existing plan is arranged. So it needs to come up with new funding by January, while other states don’t.

Brewer is already facing opposition from budget hawks in her own party on the issue. Two bills have already been introduced that would essentially block her efforts.

She has found supporters, however, among many Arizona hospital executives and business groups, including the Chamber of Commerce, a leading opponent of raising taxes.

For hospitals stuck with millions of dollars in uncompensated care each year, agreeing to be taxed makes sense. They pay 6 percent of their revenues and get a much larger amount back from Medicaid from the newly insured.

Among the supporters of a tax is Dignity Health, which has three Phoenix-area hospitals, including one of the biggest in the state, St. Joseph’s Hospital. Suzanne Pfister, Dignity’s vice president for external affairs, said St. Joseph’s alone has seen a tidal wave of uncompensated care since 2010, rising from an average of $8 million a month to an “unsustainable” $17 million a month now.

Others, like the Mayo Clinic in Scottsdale, are opposed to the taxes. Mayo argues it provides specialized care for cancers and transplants and shouldn’t have to pay to support general care hospitals with high numbers of indigent patients.

Mayo CEO Dr. Wyatt Decker said it would be extremely difficult if the not-for-profit had to pay the tax, which a 2009 state study estimated at about $38 million for his hospital.

“We do applaud the governor’s commitment to helping provide access to health care for more Arizonans. It’s a good thing,” Decker said Thursday. “But we, in general, do not support provider taxes as a solution because it is ultimately a tax on patients.”

Virtually all states are looking at ways to pay their share of the expansion, said Dr. Daniel Derksen, a University of Arizona public health policy and management professor who helped design New Mexico’s health insurance exchanges in 2011. Many have looked at provider taxes in recent years, he said, and they could again.

Provider taxes aren’t new. Thirty-nine states already use some form of hospital provider taxes to help cover their share of Medicaid costs, according to the Kaiser Commission. And all but Alaska have taxes on nursing homes or other providers to help pay for required state matches to qualify for federal cash.

But Brewer is the first governor to propose a stand-alone hospital tax designed specifically to fund the Medicaid expansion.

The federal government puts a cap of 6 percent of hospital revenues on those taxes, and the 11 states without hospital taxes can put them in place. Most of the 39 already imposing hospital taxes have room to boost them.

California does not. It initiated a hospital provider tax in 2009 that is used to cover uncompensated care. The state might be able to redirect some of the estimated $2 billion in yearly revenues to its Medicaid program, called Medi-Cal, if uncompensated care drops. But shifting the funding is a complicated act, as complex as other aspects of federal health care funding, said Dylan Roby, an assistant professor and researcher at UCLA Center for Health Policy Research.

Such taxes can be compelling to lawmakers because the economics means health care providers are more willing to sign on.

“If the folks that are going to be taxed say, ‘Well, we really need to do this,’ that’s a lot easier lift legislatively than trying to force something on a reluctant group,” Derksen said.

Arizona began covering many low-income childless adults after voters required it in 2000, but Brewer trimmed the ranks covered by the state plan, the Arizona Health Care Cost Containment System, or AHCCCS, when the Great Recession hammered state revenues. She proposes restoring that coverage as part of the expansion.

But there are costs to states, even at first, depending on their current plan. In Arizona, the state expects to be on the hook for $256 million by 2016, when its expansion if fully rolled out.

More By Bob Christie.

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