Provider Tax is Settled for Good

After weeks of anticipation, legislators agree to tax hospitals and insurers

May 28, 2009 -- Uninsured Oregonians can rejoice. Legislative leaders reached agreement on a hospital and health insurance tax to cover 140,000 Oregonians.  Together their dollars will result in $2 billion in federal matching funds over the next four years and create an estimated 3,600 new healthcare jobs.

The income raised from the state’s 25 urban hospitals will pay for 60,000 low-income adults (25,000 of whom are already on the Oregon Health Plan), while a 1 percent premium tax on insurers will cover 80,000 low-income children.
Higher caseload projections mean that another 70-80,000 families will join the Oregon Health Plan during the next two years. Those costs also will be absorbed by the hospital tax. 
Neither the hospitals nor the insurers will feel any pain. The insurers made it quite clear – they intend to recover the tax by raising premiums. Also, children whose families earn between 200-300 percent of the Federal Poverty Level ($44,100 to $66,150 annual income for a family of four) will be under their wing.
Before signing off on the deal, insurers flattened legislation that would have limited excessive premium increases and required stringent rate review oversight. (Read the commentary by OSPIRG lobbyist Laura Etherton.)
Hospitals won’t suffer either. Every single dollar they spend on the tax will bounce back into their bank accounts – either through increased reimbursement or new patients. Using a model from Michigan, the federal dollars will flow back to the Department of Human Resources, and end up with the Medicaid managed care plans, which will act as transfer agents.
“It’s a great deal for hospitals,” said Tom Burns, a consultant to Rep. Mitch Greenlick (D-Portland) who wrote House Bill 2009, the major health reform bill.
Insisting hospital margins (profitability) are very low, Kevin Earls told legislators the tax is only a partial victory because another 450,000 Oregonians will remain uninsured. “We’re pleased with the success but want to make equally clear that this isn’t a long term solution.”  
The insurance tax drew critics at a hearing before the House Revenue Committee on May 28 who insisted it will fall on the backs of small businesses, according to Jenna Kaluza, who represents NFIB. “It will result in fewer employers being able to afford health coverage.”
AOI also showed its disapproval. Insisting they were not part of the deliberations, its lobbyist, Betsy Earls, said the insurance tax will lead to higher premiums for businesses and increase the number of uninsured. “This tax is not sustainable. It’s not equitable and is entirely counterproductive.” 
Two Republican legislators tried unsuccessfully to remove the insurance tax from the bill (House Bill 2006). “We need to slow this down a hair,” said Rep. Scott Bruun who was joined in opposition by Rep. Vicki Berger. They both felt the tax would hurt small business. 

Dental Plans Evade Tax

Dental insurers won’t be paying the tax. Mike Shirtcliff, CEO of Advantage Dental, tried to convince his competitors but they balked after learning their commercial insurance didn’t qualify for federal matching funds. Realizing he couldn't gain the support of the other commercial dental insurers, Shirtcliff gave up the fight. “I believe we should be good citizens and step up to the plate. Dentistry should do its share.”
The legislature has cut $4.5 million from dental coverage in 2009-2011, which represents $11.6 in total funds. Pregnant women and children under 21 will receive full coverage. But the other 175,000 family members on the Oregon Health Plan Plus will only have diagnosis and prevention services, along with basic restoration, fillings and partial dentures. They won’t receive any advanced restorative services, have to wait five years for a denture and not qualify for crowns, permanent partials, molar root canals or periodontal surgery. Those on OPH Standard – adults without children – will only have emergency extractions.

For a flow chart of where the provider tax will go, click here.