OPINION
DOCTORS' Lounge
tions strongly opposed the tax. Institutional
providers, however, could pass on the ex-
penses to insurers and policy payers. They
also received more of the reimbursement
dollars, with important net gains, especially
in areas with high percentage of Medicaid
recipients. Thus, hospitals lobbied in favor
of these taxes in a majority of states. In Ken-
tucky and other high-Medicaid population
states, this revenue source became essential
for the survival of small rural hospitals and
the patients they served.
Consequently, these differing positions
caused provider taxes for traditional Med-
icaid to evolve along two broad lines, indi-
vidual and institutional. Five of the partici-
pating 49 states (Ky., Fla., Minn., N.M., and
W.Va.) initially taxed individual physicians,
and the tax was opposed by their physi-
cian organizations, including the Kentucky
Medical Association. These organizations
pointed out the strong disincentives for new
physicians to establish practices in their
states, especially in medically underserved
regions. Also, skepticism arose when the
revenue was diverted from health care sup-
port. In Kentucky, funds were diverted to
non-medical state construction projects,
and in Minnesota, general budget short-
falls were covered. Eventually, the physician
provider tax was rescinded in all five states,
and not adopted in the others. In contrast,
all 49 participating states enacted taxes on
institutional providers, with revenues large-
ly coming from hospitals, nursing homes,
managed care organizations and interme-
diate care facilities for the developmentally
disabled, in varying ratios. These institu-
tions are the largest recipients of enhanced
reimbursements from traditional Medicaid,
and they are largely able to pass on the costs.
Expanded Medicaid Under the Afford-
able Care Act and Funding Options Being
Considered
Traditional Medicaid serves the most poor,
and is focused on women, children and the
disabled. The Affordable Care Act created
an expansion of Medicaid to cover persons
making up to 138 percent of the Federal
Poverty Level. This includes many of the
working poor, who are employed part-
time or whose employers offer no health
insurance. Accepting states (about one half)
also took on responsibility for progressively
funding up to about 10 percent of cost in
order to continue receiving the 90 percent
Federal funding. In Kentucky, this will re-
quire about $300 million annually. Although
these costs are more than fully recovered in
the general economy, the annual budgets
still must generate this revenue.
Nationwide, multiple funding solutions
are emerging. Unlike the provider tax of
traditional Medicaid, revenue for Medic-
aid expansion can come from any source.
This could include provider taxes within,
or beyond the previous 19 categories. As
of 2017, eight states (Ark., Ariz., Colo., Ill.,
Ind., La., N.H., and Ohio) reported plans
to use provider taxes for funding expand-
ed Medicaid, but none to date have placed
those taxes on physician services. In Mon-
tana, a proposal to fund expanded Medicaid
from increased tobacco taxes (Proposition
I-185) will be on the ballot this fall. It is sup-
ported by the Montana Medical Association,
Montana Hospital Association, American
Cancer Society, and University of Montana
Bureau of Business and Economic Research.
Indiana funded Expanded Medicaid by a
combination of increased tobacco taxes
and increased hospital provider taxes. In
a September 2016 editorial, the Lexington
Herald Leader suggested that Kentucky do
the same. Other states will surely create ad-
ditional options.
Lessons from Past Experience
Analysis of past experience is instructive for
addressing upcoming challenges. Several
points emerge:
1. The State component of Expanded
Medicaid should be funded, in order
to keep the 9:1 federal match. If lost,
substantial closure risk falls first on
small rural hospitals, with harsh con-
sequences on their employees, the phy-
sicians on their staffs, and the patients
they serve. Subsequently, the harm will
quickly spread to safety-net hospitals
and the entire population.
2. The broadest support base is best, as
articulated by the 1990s provider tax
litigation decisions. All citizens benefit,
and all should contribute to funding
these benefits. This can be by realloca-
tion of general funds, by broadly based
taxation, or by fees passed on broadly
and equitably, such as through insur-
ance premiums.
3. Funding options for Expanded Medic-
aid need not necessarily be kept within
the healthcare economy, nor confined
to the 19 previously defined categories
of providers. Legislative process strat-
egy will influence this consideration.
4. Consideration should be given to tax-
ation of health-harmful behavior, such
as smoking and e-cigarette use. Raising
cigarette taxes to the national average
of $1.72 per pack would nearly cover
the needed funding. This route appeals
to physicians, but strong opposition
should be expected, and options pre-
pared.
5. Physicians should be knowledgeable of
the enormous costs of leaving citizens
uninsured, and be able to so inform
their legislators. In a full fiscal analysis,
the savings returned from Expanded
Medicaid can be shown to more than
justify and recover initial budget costs.
Considerations must include hospital
closings, enormous costs of missed
preventative screening, consequenc-
es of poorly managed chronic condi-
tions and emergency room overuse.
The human toll of mortality, morbidity,
family stress and grief is even more
compelling.
6. A provider tax on physicians is un-
wise. Physicians already pay a hidden
tax in accepting the sub-par Medicaid
payments. The Kentucky Medical As-
sociation (KMA) opposes physician
taxation, and physicians should sup-
port KMA legislative lobbying efforts.
KMA lobbying is informed, skillful,
and member-directed through the
House of Delegates.
Dr. Tobin is a professor at the University of
Louisville School of Medicine, Department of
Surgery, Division of Plastic and Reconstruc-
tive Surgery. He practices with UofL Physi-
cians-Plastic and Reconstructive Surgery.
DECEMBER 2018
33