On the japanese plains of Colorado, in a county of lower than 6,000 individuals, Lincoln Well being runs the one hospital inside a 75-minute drive. The power struggles financially, given its small dimension and the realm’s tiny inhabitants.
However for over a decade, the Hugo, Colorado-based well being system has remained afloat partially because of a stunning supply: particular taxes on the state’s hospitals.
The taxes Lincoln pays assist cowl the state’s Medicaid prices and — as a result of the federal authorities matches a portion of what states spend on Medicaid — allow Colorado to assert extra federal cash. That usually results in extra {dollars} for the hospital. The tax proceeds even have helped Colorado broaden Medicaid underneath the Inexpensive Care Act to cowl 400,000 extra low-income adults, considerably lowering the variety of individuals exhibiting up at hospital doorways with out insurance coverage.
Final yr, Lincoln paid $500,000 in supplier taxes however netted greater than $3.6 million additional from Medicaid, accounting for about 15% of its price range, stated Lincoln CEO Kevin Stansbury.
“These {dollars} permit me to look after sufferers who’re enrolled in Medicaid and to interrupt even relatively than lose cash,” he stated. “With out them, it might considerably impression our potential to outlive.”
Each state besides Alaska makes use of a minimum of one supplier tax to spice up its federal Medicaid {dollars}.
However Republicans who management Congress are searching for potential cuts within the practically $900 billion Medicaid program to assist fund an extension of President Donald Trump’s tax cuts — and have sought to painting supplier taxes as malicious, typically even deriding them as “cash laundering.” Lawmakers say they could curtail or get rid of supplier taxes as a part of laws to enact Trump’s home agenda.
“It’s infuriating,” Stansbury stated.
Medicaid and the intently associated Youngsters’s Well being Insurance coverage Program collectively cowl roughly 79 million low-income and disabled individuals and are collectively financed by states and the federal authorities.
Federal {dollars} match state funds with no restrict. Whereas the break up varies primarily based on a state’s per capita earnings, the federal match ranges from 50% to 77% for youngsters, pregnant ladies, and folks with disabilities, who make up many of the enrollment.
States began utilizing supplier taxes within the Eighties to assist pay their share and acquire further Medicaid funds from the federal authorities.
Brian Blase, a former Trump well being coverage adviser who leads the conservative Paragon Well being Institute, sees supplier taxes as one of many highest types of waste in Medicaid. States and their hospitals, nursing houses, and different suppliers aren’t held accountable for the way the tax cash is used, lowering incentives for states to manage Medicaid spending, he stated.
“This has been a characteristic of this system for 4 many years, and it’s a characteristic that’s getting worse,” Blase stated.
The Congressional Funds Workplace estimates eliminating supplier taxes would save the federal authorities greater than $600 billion over a decade.
Rep. Brett Guthrie (R-Ky.), who chairs the Home committee that oversees Medicaid, has stated supplier taxes are on the menu for potential cuts.
Different adjustments Republicans are contemplating to chop federal Medicaid spending embody requiring grownup enrollees to show they’re working as a situation of eligibility, in addition to ending increased funds for adults enrolled as a part of the Inexpensive Care Act’s growth of this system.
Since 2014, greater than 20 million nondisabled adults in 40 states and Washington, D.C., have gained protection underneath the growth.
Home Republicans have set a Memorial Day deadline to return to an settlement on spending cuts, which might assist pay for extending about $4 trillion in tax cuts handed throughout Trump’s first administration and set to run out on the finish of this yr.
The Authorities Accountability Workplace and the Medicaid and CHIP Cost and Entry Fee, a congressional advisory board, have raised issues in regards to the supplier taxes, which successfully saddle federal taxpayers with state bills. Republican and Democrat presidents have criticized or proposed curbing using Medicaid supplier taxes — together with Trump in his first time period, Barack Obama, and Joe Biden whereas serving as vice chairman.
However opposition from hospitals, nursing houses, and states snuffed out any transfer to restrict or finish the preparations.
Colorado and different states usually use the cash to keep up or improve funds to suppliers, which are sometimes paid much less by Medicaid than by Medicare, the federal program primarily for individuals 65 or older, or non-public insurers.
States have added supplier taxes to assist generate federal cash to deal with financial downturns and price range constraints.
Hospitals in Idaho final yr started paying a further supplier tax to extend pay to hospitals and home- and community-based suppliers. The tax got here as Idaho’s Republican-controlled legislature sought so as to add many situations that threatened to finish the state’s Medicaid growth — which might additionally get rid of a key supply of elevated federal funding.
Brian Whitlock, president and CEO of the Idaho Hospital Affiliation, stated funding from the hospital tax helps increase Medicaid funds to about 80% of Medicare’s charges as a substitute of 60%.
“We nonetheless lose cash on each Medicare and Medicaid affected person,” he stated. “The state acknowledges that this cash helps offset the losses we take underneath Medicaid reimbursement.”
Whereas hospitals and nursing houses have been the principle beneficiaries of supplier tax proceeds, ambulance companies have additionally paid and benefited from Medicaid taxes. States more and more have additionally accepted Medicaid taxes on non-public insurers that function their Medicaid applications to achieve extra federal funds.
California’s Medicaid managed care tax started in 2009 and is predicted to generate practically $9 billion in web income for the 2024-25 fiscal interval — or about 5% of the state’s Medicaid price range, in line with the California Legislative Analyst’s Workplace.
Lately, California has prolonged full Medicaid protection to immigrants missing everlasting authorized standing. Federal legislation prohibits federal Medicaid {dollars} from getting used to cowl individuals within the nation with out authorization, however states can use their very own cash.
At a presentation to congressional staffers in April, Blase cited California’s technique for instance of supplier tax abuse and claimed the state is successfully laundering federal funds to cowl individuals dwelling within the U.S. with out authorization.
In apply, the tax has been a type of fiscal strain valve usually offsetting state spending. A poll measure that handed in November now requires that a lot of the cash from California’s tax particularly be used to extend Medicaid reimbursement to medical doctors, hospitals, and different suppliers.
Hospital officers and state Medicaid leaders argue the time period “cash laundering” is an inaccurate approach to describe supplier taxes, since they’re allowed by federal legislation. However Blase stated calling the levies a “tax” is deceptive, mentioning that the majority companies don’t usually advocate to pay one.
Jamie Whitney, chief authorized officer for Texas-based Adelanto HealthCare Ventures, a consulting agency, stated that supplier taxes are a politically impartial approach to assist states pay for Medicaid and that curbing their use would hurt all of them. “This isn’t a red-state, blue-state problem,” she stated.
Colorado is one in every of greater than a dozen states which have funded an ACA Medicaid growth utilizing supplier tax cash. Others embody Arkansas, Louisiana, Missouri, North Carolina, Ohio, and Virginia.
Colorado applied its Medicaid supplier tax effort in 2009. Within the 2024 fiscal yr, about $5 billion of the state’s $15 billion Medicaid program was funded by supplier taxes, in line with the state.
The cash helps the state pay increased Medicaid reimbursements to hospitals, which reduces their must cost increased charges to non-public insurers, stated Kim Bimestefer, govt director of the Colorado Division of Well being Care Coverage and Financing, which oversees Medicaid.
A number of the additional funds are depending on hospitals assembly sure high quality and patient-safety metrics, equivalent to lowering readmission charges after sufferers are discharged — a requirement state officers say improves care for everybody.
The supplier taxes additionally fund a program permitting working residents with disabilities to purchase into Medicaid protection even when their earnings is as excessive as 300% of the federal poverty degree, or $46,950 for a person. About 20,000 persons are enrolled in this system.
Amongst them is Alison Sbrana, 31, of Fort Collins, Colorado, who has a kind of power fatigue syndrome and depends on Medicaid to cowl long-term house care.
“It could be devastating if the profit went away,” stated Sbrana, who works as a researcher and activist for these with the identical dysfunction. “I might be compelled to cease working to maintain my earnings low sufficient to qualify.”
The state’s supplier taxes additionally pay for a $60 million fund to assist rural hospitals, serving to them add telehealth companies, recruit surgeons, and rent paramedics, in line with a state report.
Konnie Martin, CEO of San Luis Valley Well being, a two-hospital system primarily based in Alamosa, Colorado, stated her nonprofit paid $5.4 million in supplier taxes final yr and gained about $15 million in advantages from increased Medicaid funds and the agricultural grants.
She stated the cash helps her hospital preserve obstetrical companies, so residents don’t need to drive 120 miles to the closest maternity hospital. With out the birthing heart, your entire area would endure, she stated.
“It additionally would intestine the financial system of the group, as a result of younger individuals will transfer away,” she stated.
KFF Well being Information senior correspondent Bernard Wolfson contributed to this report.
KFF Well being Information is a nationwide newsroom that produces in-depth journalism about well being points and is among the core working applications at KFF—an unbiased supply of well being coverage analysis, polling, and journalism. Be taught extra about KFF.
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