Taxes and Assessments

Tobacco Taxes
Several states have used tobacco tax increases to fund health care expansions.  Washington, Colorado, Arizona and Oklahoma have done so by ballot initiative, and the Iowa legislature passed a $1 tobacco tax increase in 2007 to help fund a health care expansion.  Vermont also uses a tobacco tax increase to help pay for their new Catamount Health program.  Tobacco tax increases are a good way to expand health care because they also reduce teen smoking, and therefore save lives and reduce health care costs.  

For more information, see:  

• Using Tobacco Taxes to Support Medicaid:  A Win-Win Scenario.  Community Catalyst, November 2003.  Online here.
• Campaign for Tobacco Free Kids at http://tobaccofreekids.org/
• Centers for Disease Control and Prevention at http://www.cdc.gov/tobacco/

Gross Receipts Tax
As part of the Governor’s health reform proposal, Illinois has proposed using a gross receipts tax (GRT) – a low-rate tax on the receipts of all types of businesses – to fund a health care expansion.  The Illinois proposal exempts certain sales, such as food and drugs, as well as the receipts of non-profits and industries such as gaming and insurance that are already covered by other specialized taxes.  While this option may enable a state to significantly raise revenue, it is likely to draw strong opposition from business entities.  

Other broad-based taxes
If a state is creating a large-scale coverage expansion, it may be feasible to fund this with a broad-based tax.  Examples are corporate, income, sales, and estate taxes.  These taxes may draw strong opposition from different interest groups.

However, a state may choose to look for loopholes in corporate taxes, which may not create as much opposition as something such as a sales tax.  
For more information, see:

• Balancing State Budgets.  The Center for Policy Alternatives, online at http://www.stateaction.org/issues/issue.cfm/issue/BalancingStateBudgets.xml
• Tax Facts.  The Center on Budget and Policy Priorities, April 2006.  Online at http://www.cbpp.org/pubs/tax-facts.htm

Other examples of taxes:  

• Broad Retail Sales Tax at a 1% Rate, exempting shelter and groceries;
• Restricted Retail Sales Tax at a 1% rate, exempting shelter, groceries, public transport, health care, education, personal insurance, utilities, gasoline, tobacco products;
• Beer Tax, increase by $1 per barrel; 
• Wine Tax, increase by $0.25 per gallon;
• Medical luxury tax at a rate of 1% on cosmetic surgery not resulting from trauma or medical condition.³⁰

Provider assessments
Assessments on hospitals or other facilities can be used to fund expanded coverage or to enhance coverage.  Sometimes, hospitals may be willing to accept a new fee or tax to help to fund a Medicaid expansion, because as the fee increases the state’s Medicaid spending, the state can draw federal matching dollars.  This expansion can ultimately have positive effects on the hospital, as more patients become insured.  Several states, including Minnesota and Massachusetts, have used provider taxes or assessments to help fund health expansions.  Maryland uses a hospital assessment to fund the state’s high-risk pool.  

Health insurer assessments
A state can charge an insurer a fee for a particular service.  For instance, some states assess all insurers to subsidize premiums for people in a state’s high-risk pool.  A number of states have ended HMO’s exemptions from premium taxes, which was first instituted to allow HMOs time to grow, but is no longer necessary.  Maryland removed this exemption in 2005 and used the proceeds to increase reimbursement rates for doctors who provide Medicaid and SCHIP services, thereby increasing access to health care for lower-income parents and children.

³⁰ Office for Oregon Health Policy and Research.  Oregon Health Policy Commission Road Map for Health Care Reform:  Creating a High-Value, Affordable Health Care System, July 2007.