The Forgotten Health Care Tax

The Tax Foundation highlights a disturbing trend among states – new taxes on health care providers. Significant taxes on health providers and hospital taxes are on the books in 22 states, six of those being recently enacted. While Pennsylvania doesn’t tax hospitals, legislators did create a new on tax the coverage Managed Care Organization (MCOs) provide to Medicaid patients.

The federal government matches state funds spent on Medicaid, so by increasing taxes on the health care of Medicaid patients the state rakes in more federal subsidies. Then the state reimburses health care providers, approximately by the cost of the cost of the tax. The result is higher Medicaid reimbursement rates with extra funds going into state coffers.  Essentially states are taxing those who receive the same funds, simply in order to obtain more federal funding.

This system is just another wealth redistribution scheme to the detriment of federal taxpayers. The stimulus bill speeds up the eventual demise of the unsustainable system by increasing the federal matches by 9%.

The Tax Foundation has put together a listing of all the health provider taxes in the states.  Deloitte and Reed Smith have more on Pennsylvania’s MCO tax.

For more on reforming Medicaid check our recommendations.