Lots of state budget talk has focused on the proposed cigarette tax to help fund Medicaid. Examples: “The tax will be paid by a population that increases health care costs for everybody.” Or: “Any tax at this time would be regressive and therefore untenable.”
But it isn’t just about imposing a new tax. It’s about providing health care to our most vulnerable citizens and ensuring that everyone has access to health care.
The proposed budget lowers Medicaid hospital inpatient payment rates from 75 per cent of cost to 70 per cent of cost. Without the proposed cigarette tax, which in essence would be “saving” hospitals an additional cut, the payment rate could drop to 50 per cent of cost. So in 2010, if the proposed budget cuts to 70 per cent of cost go through and the cigarette tax does not pass, the state would “save” $282 million by not paying hospitals that amount.
And if that weren’t enough, Medicaid is a joint federal-state program, which means the federal government pays a percentage match to what the state puts into the program. In Virginia, the match is 50-50. So every dollar Virginia cuts from Medicaid funding, it is an additional dollar lost from the federal match. If Virginia “saves” $282 million in spending, it will cost hospitals $564 million in payments.
Ouch!
But wait. There is something called “the hidden health care tax” that everyone knows about. That’s where hospitals shift costs not covered by Medicaid- or Medicare or the uninsured, both of which are stories for another time- onto paying patients, or the fortunate insureds and the employers who cover them. However, in a down economy, where more and more people are being laid off or having their health benefits reduced, how and where do you shift $564 million?
At some point, you can’t.
Virginia’s hospitals and health systems have not been immune to the current economic downturn. There already are reports around the state of increases in uninsured and Medicaid patients, delays in capital improvement projects, and, in several cases, hiring freezes and staff reductions.
Despite these economic pressures, hospitals continue to play a critical role in their communities and the state. They fill a community need when a loved one is sick, a child is born, or in hundreds of other emergency scenarios. And they effect their communities in other ways.
In 2007, Virginia’s hospitals had a $28.4 billion impact on the state’s economy. That includes $12.6 billion in direct spending that generated an additional $15.8 billion in indirect spending by other businesses and individuals. Virginia’s nonprofit hospitals also provided over $727 million in community health benefits and services, while $111 million in taxes was paid for by profit and nonprofit hospitals.
Typically, hospitals are one of the top three employers, if not the top employer, in their communities. Virginia’s hospitals and health systems employ more than 98,000 people around the state, nearly nine per cent of all Virginia employment. Due to the multiplier effect, these 98,000 positions create another 78,000 jobs elsewhere in the state.
So, back to the point.
The Governor’s proposed budget will drop hospital inpatient payments to 70 per cent of actual costs. That’s the lowest rate in more than ten years. On top of that, if the cigarette tax is not passed, the payments could drop to 50 per cent of cost. Hospitals don’t think that they should be immune to state budget cuts in lean economic times, however, these cuts are too substantial and cannot be absorbed. (Remember, for every dollar the state doesn’t fund, hospitals lose $2 because of the federal match.) And they didn’t ask for the tax increase- it was put upon them with no alternate source of funding available.
These cuts, to say the least, will have a direct impact on health care for all of us.
The largest impact will be on expensive services that cost money but communities need. For example, in 2002, hospital inpatient Medicaid reimbursement rates were lowered to 72 per cent of cost. At that time, hospitals were forced to eliminate jobs, close senior care services, OB units, psychiatric services, family practices and other essential community services.
The proposed 2009 cuts go even further than they did in 2002, to 70 per cent of costs, and that’s WITH the cigarette tax increase. Without it, who knows what will happen? Cuts of this magnitude could cripple health care access in communities for all of us.
Laurens Sartoris is President of the Virginia Hospital and Healthcare Association
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