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States levy tax on hospitals to cover Medicaid expansion costs

October 23, 2016

States are beginning to turn to hospitals to cover the cost of Medicaid expansion once the federal match begins to drop next year.

The Affordable Care Act provides 100% federal financing for those made newly eligible for Medicaid under the law. The federal match rate falls to 95% in 2017, 94% in 2018, 93% in 2019, and then 90% in 2020 and beyond.

State Medicaid spending is projected to jump to 4.4% in 2017 compared to 2.9% in 2016, according to a report by the Kaiser Family Foundation. Total Medicaid spending was $509 billion last year, up from $495 billion in 2014.

Starting next year, eight of the 32 states that have expanded Medicaid planned to use provider taxes or fees to fund all or part of the states’ share of costs, the report said. Those states are Arkansas, Arizona, Colorado, Illinois, Indiana, Louisiana, New Hampshire and Ohio. Other states are expected to rely on general funds.

These states have chosen to implement a new or modify an existing provider assessment specifically for the purpose of covering the costs of expansion. In most cases, hospitals were on board with picking up the tab, with one exception.

The Arkansas Hospital Association does not support a raise in taxes to support a program that has already been determined to pay for itself, said Bo Ryall, CEO of the group. A state analysis found that expansion funneled $757 million into the state budget.

Elsewhere, hospital associations say they’re willing to pick up the tab since they understand expansion would not have had happened otherwise. Hospitals have benefited a great deal in states that have expanded. Federal estimates show that hospital uncompensated care in 2025 will be about $21.7 billion lower than it would have been without the ACA.

In Indiana, hospitals are expected to pay out $959 million in expansion-related taxes by 2021. However hospitals expect to make that back through higher patient volume, said Doug Leonard, president of Indiana Hospital Association. As many as 350,000 people in Indiana are believed to have gained access through expansion.

In Arizona, hospitals expect to pay $10 million.

“Hospitals agreed to pay the assessment because it is the right thing to do and will improve health for Arizonans,” said Shayna Diamond, a spokeswoman for the Arizona Hospital and Healthcare Association.

In Colorado, hospitals have already been paying an assessment since 2009 to cover an earlier coverage expansion that took place in the state. That fee will be modified to make up for the added costs. The state hasn’t informed hospitals exactly how much they’ll be paying, said Cara Welch, a spokeswoman for the Colorado Hospital Association.

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