Corker wants end to hospital 'bed tax' that states use for Medicaid funds

photo Sen. Bob Corker

TENNESSEE'S TAXESU.S. Sen. Bob Corker, R-Tenn., is proposing to phase out state taxes and fees used in 47 states to secure additional federal money for state Medicaid programs such as TennCare.• Tennessee levies a 4.53 percent assessment on hospitals' net patient revenues that raises $449.8 million. A nursing home bed tax raises $97.3 million. A 5.5 percent tax on health maintenance organizations raises $290.7 million. The total is just less than $838 million, which is more than one third of the $2.93 billion in state funds spent on TennCare.• The federal government chips in 65 cents for every 35 cents of state support for TennCare. Under the formula, TennCare would lose $1.55 billion in federal support if the provider taxes are eliminated.• The TennCare budget this year is $9.27 billion, of which $6.34 billion is federal money.Source: TennCare Bureau

NASHVILLE - U.S. Sen. Bob Corker wants an end to what he calls a "massive 'bed tax' gimmick" that he says states use to "bilk the federal government" to fund their Medicaid programs.

But critics warn the move would wreck programs in Tennessee and many of the other 46 states that use health-provider taxes to draw federal matching dollars for indigent care.

Tennessee's taxes on nursing homes and health maintenance organizations and a 4.53 percent assessment on hospitals' net patient revenues raise $837.8 million for TennCare, the state's Medicaid program.

Under the 65 percent federal matching formula, that money draws down an estimated $1.55 billion to help fund TennCare. The program provides health care to an estimated 1.2 million low-income children, pregnant women and disabled Tennesseans.

The Tennessee Republican and former Chattanooga mayor marched into the health provider tax issue in a recent op/ed piece about his overall plan to put the nation, as he described it, on "firmer financial footing."

He said last week he is filing legislation offering a "dollar-for-dollar" reduction in spending on Social Security, Medicare and Medicaid in exchange for raising the nation's debt ceiling. He also calls for changing how inflation is calculated for Social Security increases and raising Medicare eligibility from 65 to 67.

The total package comes to about $1 trillion, which Corker said will start to "vanquish our long-term deficit" and avoid the nation's looming "fiscal cliff" of automatic, across-the-board cuts and expiring tax reductions Jan. 1.

Corker spokeswoman Laura Herzog said in an email that as former Tennessee finance commissioner, "Sen. Corker understands why states and hospitals like this tax, especially given rising costs and the Medicaid expansion in the new health care law."

But she said "the bed tax scheme adds to the federal government's fiscal problems and is something both parties agree is poor public policy."

States rely on the taxes because Medicaid is a "broken system," she said. Corker's plan would phase out bed taxes over 10 years and give states "more flexibility to manage their Medicaid programs, saving them and the federal government more money," she said.

Not so fast

Representatives for health care advocates and institutions said they're concerned about Corker's proposal.

Ending provider taxes "would clearly have such a devastating effect on TennCare," said Gordon Bonnyman, executive director of the Tennessee Justice Center, a public interest law and advocacy group.

Bonnyman said it's ironic that as Tennessee finance commissioner from 1995 to 1996, Corker himself relied on one such tax, on nursing home beds, to help balance the state budget.

"The old saying is where you stand depends on where you sit seems to apply," Bonnyman observed.

Tennessee Hospital Association President Craig Becker flinched at Corker's use of the word "gimmick" for the 4.52 percent assessment on hospitals' net patient revenues.

"I think the senator was a little harsh in his use of words," Becker said. "I don't think it's a sham. I think it is a way of keeping the state whole and keeping ... services for the citizens of Tennessee. I know of no other way to do it."

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The assessment was proposed by hospitals and passed in 2010 when then-Gov. Phil Bredesen proposed limiting hospital services during the recession. Hospitals said they were going to have to eat the costs for uncompensated care under Bredesen's planned cuts.

It is projected to raise $450 million this year, according to TennCare Bureau figures. Supporters insist it is not a tax because hospitals sought it and the revenues go to hospitals rather than the state's general fund.

"It seems to be a shame to take [it] away," Becker said, though he added that he appreciates the proposed 10-year phase-out over an immediate end.

Becker noted that the Obama administration also has talked about curbing provider taxes. In his fiscal 2012 budget, President Barack Obama proposed cutting allowable state taxes from 6 percent to 3 percent to save some $19 billion over 10 years, according to the nonpartisan Kaiser Commission on Medicaid and the Uninsured.

The 2010 National Commission on Fiscal Responsibility and Reform, better known as the Bowles-Simpson commission, recommended reducing state provider levies $49 billion from 2012 to 2020.

Other voices

Robert Greenstein, president of the liberal Center on Budget and Policy Priorities, defended the health provider taxes in a recent published statement, saying federal laws enacted in 1991 and 2006 "reined in the manipulative practices" by states.

"Restricting or ending states' ability to use these revenues almost certainly would have serious consequences on low-income people and likely cause several million poor people to remain uninsured," he warned. "That's why the Obama administration, which once proposed restrictions in this area, no longer supports them."

Mark Emkes, Tennessee finance commissioner, said of Corker's proposal, "I think I'm all for anything that eventually helps us get our federal debt under control."

He said the proposed 10-year phase-out "is probably something the state could manage."

Emkes said "everybody has to make a sacrifice" on the federal deficit and long-term debt.

"What we can't pretend to do is, hey, let everybody else make a sacrifice and we don't. This problem will never get solved."

Republican Senate Speaker Ron Ramsey said it will take "drastic measures" to control federal deficits.

"Do I think it's bad that we as responsible states will in the end be punished? Probably," Ramsey said.

"But it's also hard to criticize and step back and say we want this cut and that cut, we want to reform entitlements and everything else. And then say don't touch the states."