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Prognosis poor on hospital tax

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Also by Corey Sheahan:

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by Corey Sheahan

Monday, November 5, 2007

Newly elected Senate Majority Leader Russ Decker, D-Schofield, announced his intention to swap one bad idea for another last week, proposing to halt the transfer of $200 million from a medical malpractice fund and to impose a $418 million tax on hospitals. Mr. Decker is trying to gain support for the hospital tax by contrasting its merits against the consequences of transferring money out of the malpractice fund, specifically the threat of a lawsuit against the state. Though the hospital tax might appear to be the lesser of two evils, it still represents bad public policy. In fact, it reminds me a lot of a penguin: It might look dignified, but it still can’t fly.

The Wisconsin Medical Society, which represents Wisconsin doctors who pay into the malpractice fund, contends that the transfer of funds to the state is unconstitutional. Last Monday, the WMS followed through with its threat to file a lawsuit against the state and asked a judge to halt the planned transfer of funds.

Mr. Decker, capitalizing on this budgetary and legal roadblock, proposed swapping the transfer of cash from the fund with the reintroduction of a $418 million tax on Wisconsin hospitals.

The newly elected Senate majority leader said the tax on hospitals “makes political sense” because hospitals that treat poor patients will benefit and the threat of a lawsuit from the WMS would be averted. As with many proposals that make political sense, this proposed tax increase makes little, if any, economic sense.

Strangely enough, the proposed tax on hospitals is designed to help the very same hospitals it taxes, specifically those that treat Medicaid patients. The Wisconsin Hospital Association supports the tax increase. When I read this, I immediately became suspicious, and rightfully so.

The Wisconsin Hospital Association supports the tax increase because hospitals stand to benefit significantly from the bill. Hospitals will be able to pass along much of the $418 million they would owe to the state in the form of higher costs for Wisconsinites not covered by Medicaid. For Wisconsin citizens with health care coverage, this will likely result in higher insurance costs and larger co-payments at the hospital and the doctor’s office. For citizens without health insurance who do not qualify for Medicaid, the cost of receiving care will be even greater than it already is.

In addition, the imposition of the tax will bring about $575 million of federal Medicaid dollars into Wisconsin to aid the hospitals in the payment of the tax and to encourage the treatment of Medicaid patients. According to the Milwaukee Journal Sentinel, the planned tax increase will allow hospitals that treat Medicaid patients to come out $284.2 million ahead. The actual benefit to hospitals will most likely be higher than the already large projected figure because of their ability to pass along the costs of the tax to non-Medicaid patients.

Furthermore, this plan represents a typical flaw in the behavior of state legislators. Federal dollars don’t magically fall from the sky, as is too often believed. The money for the federal Medicaid dollars has to come from somewhere, and invariably, the American taxpayer has to foot the bill. In this case, Wisconsin taxpayers will be taxed twice — when they get the bill for the treatment they receive at the hospital and again when they pay federal taxes every two weeks when they collect their paychecks.

The two major beneficiaries of this proposal will be Wisconsin hospitals and Medicaid patients. Certainly, these are two groups worthy of support from the government. I personally believe that every American deserves health care. However, this proposal is not an efficient use of taxpayer dollars. It is little more than legislative sleight of hand designed to coax the federal government into paying for an increase in coverage for Medicaid patients at the expense of Wisconsinites who already pay too much for health care.

The hospital tax proposal reminds me of one of the first — yet unfortunately, least remembered — principles in Econ 101. No matter what the proponents of this proposal want you to believe, there’s no such thing as a free lunch.

Corey Sheahan (csheahan@wisc.edu) is a senior majoring in economics and history

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Anonymous (November 5, 2007 @ 12:21pm):

Decker, you moron, the only thing people don't like about democrats is their perceived "taxiness." Why would you go an propose a tax on the hospitals that everyone uses and relies on at one time or another? Duh!

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