KHI News Service

Hospital group is backing tobacco tax increase

KHA is divided on other proposed taxes but is hoping for rollback of Medicaid cuts

By Jim McLean | February 03, 2010

The Kansas Hospital Association will throw its lobbying clout behind a proposed increase in the state tobacco tax to restore a cut in the Medicaid rates paid to providers.

Tom Bell, KHA president, said in an interview with the KHI News Service and State of the State KS, that the 194-member association would back Gov. Mark Parkinson’s call for increasing the tax on cigarettes from 79 cents to $1.34 per pack and also raising levies on other tobacco products.

“We support the increase in the tobacco tax,” Bell said. “We do so as much from a policy perspective as we do a revenue raiser. We think it is good health care policy to discourage tobacco use.”

But restoring the 10 percent cut in Medicaid reimbursement rates that took effect Jan. 1 is the primary reason the association is going to bat for the proposed increase.

Calling the rate cut “bad health policy,” Bell said it could cause more doctors to opt out of the Medicaid program and make it more difficult for low-income Kansans to get health services.

Gov. Parkinson imposed the $22 million cut half way through the current budget year to help avert a projected $400 million budget shortfall. If not restored, the cut would total $77 million in fiscal year 2011 and trigger the loss of approximately $140 million in federal Medicaid matching money.

“By cutting provider’s rates by 10 percent, you’re actually leaving twice that much money on the table in terms of federal funding,” Bell said. “So, for example, if you cut a provider by $3 you’re actually cutting their rates by $10 and seven of those dollars are just federal monies that are left on the table.”

The governor isn’t defending the cut. In remarks recently to the board of the Kansas Health Policy Authority, the state agency that administers Medicaid, Parkinson called the rate reduction “a very bad idea,” but said the severity of the state’s budget problems left him no choice.

“I’ve taken the position that the Medicaid cut is so onerous and so difficult that a minimum accepted budget must include complete restoration of those funds,” Parkinson said.

The proposed tobacco tax increase would generate about $70 million a year, according to state budget officials. That’s about $7 million short of what would be needed to restore the Medicaid rate in fiscal year 2011, assuming that all of the money raised would be put toward that purpose. Even so, Bell said the association wasn’t prepared to support increasing the state sales tax from 5.3 percent to 6.3 percent or repealing sales tax exemptions totaling more than $200 million.

Noting that his members are divided on the other tax increase proposals, Bell said, “It’s difficult for us to weigh in on some of those broader policy areas that go outside the health care area.”

Both Republican and Democratic leaders have said the likeliest tax increase this year would be on tobacco. And several legislators have said restoring the Medicaid cut is a priority.

An attempt to restore the cut in this year’s budget failed in the Senate last week. Instead, senators ratified the governor’s 2010 budget cuts but approved an amendment requiring the health policy authority to report by March 1 on ways its budget could otherwise be trimmed.