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Possible tax and match changes worry state officials

Pat Wellenbach | AP
Pat Wellenbach | AP
Mary Mayhew, Commissioner of Health and Human Services, outlines further tax cuts as she updates lawmakers on state revenues at a hearing in Augusta on Monday, Oct. 24, 2011.
By Mal Leary, Special to the BDN

AUGUSTA, Maine — For years the state has used a tax on providers of medical services like hospitals and nursing homes to generate some of the cash to match for Medicaid funding. But the congressional super committee looking to reduce the federal deficit is looking at capping or eliminating tax and match.

“If the federal government were to move in that direction it would blow a significant hole in the overall state budget,” said Mary Mayhew, Commissioner of the Department of Health and Human Services. She said many states make use of the mechanism that taxes providers of some agencies that receive Medicaid in order to partially fund the overall Medicaid program in the state.

“Any significant action in that area by the federal government would greatly exacerbate our financial condition,” she said.

Finance Commissioner Sawin Millett shares the concern. He said while it is certain that the state will see a loss of federal funds as the result of the deficit reduction efforts in Congress, no one knows which programs will be cut, or whether some may be eliminated.

“If they either limit the tax and match or eliminate it, we would be in a world of hurt,” he said. “We have a hospital tax and match, a nursing home tax and match and a PNMI [private nonmedical institution] tax and match. We have increased our use of these over the years.”

Millett said the provider tax brings in about $57 million which allows the state to match for over $100 million in federal funds. He said while it is significant, most of the state funds to match for federal money under the Medicaid come from general tax revenues. The total state and federal Medicaid expenditures in Maine are over $2 billion a year.

Members of the legislature’s budget writing Appropriations Committee are also watching the deliberations in Congress with trepidation. The state receives billions of dollars in federal funds for programs and the federal government spends significant sums to purchase products ranging from clothing to warships that bolster the state’s economy.

“We are watching closely because what they cut in Washington will have an impact on what we do here in Maine and this could be very significant,” said Sen. Richard Rosen, R-Bucksport, co-chairman of the committee. He said he has “never been a fan” of the provider tax, but acknowledged it has been used to bring in significant resources to the state and any reduction, let alone elimination of the mechanism will hurt the state finances.

“I think that whatever action Congress takes, the states will be realigning and redoing programs for a long time,” Rosen said.

Rep. Peggy Rotundo, D-Lewiston, is the ranking democrat on the committee. She said any cuts that are made by Congress will have an impact on the state, but that eliminating or limiting tax and match will hurt some states more than others.

“I certainly hope this is not something that the committee recommends,” she said. “This would have a huge impact on Maine and our ability to fund many needed programs.”

No one in the state’s congressional delegation serves on the super committee, but all are concerned about what their recommendations could be.

Under the law congress passed last summer the panel must make a package of recommendations to Congress in November that will reduce the deficit by a least $1.2 trillion over 10 years. If Congress does not pass the package by Christmas week, the law requires across-the-board spending cuts to save that amount.

Sen. Olympia Snowe, R-Maine, has opposed the super committee process but said the deficit has to be reduced. She said everything has to be considered to bring federal spending under control.

“This provider tax assessment is not the best way of financing the Medicaid program,” she said, “As we examine ways to reduce the deficit and optimize both the efficiency and effectiveness of Medicaid, any future changes should also take into consideration the potential destabilizing effects on state budgets.”

First District Congresswoman Chellie Pingree, D-Maine, agreed and said she was concerned about use of tax and match when she was in the state legislature. She said everyone in Congress who is not a member of the super committee is frustrated at the lack of information about what is being considered by the panel.

“If the super committee is to eliminate this, the challenge will be it does not eliminate the need in the states,” she said.

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