If it is a tax, call it a tax

Turning back now to the dueling health care bills pending in the state legislature here in Massachusetts, there is one thing on which the two houses agree:  It is all right to impose new taxes on the industry in the name of decreasing costs.

Huh?

You heard it right.

The language is dense, but here is what I read.  (Apologies in advance if I have gotten any of this wrong.)

The Senate bill establishes the “Health System Benefit Surcharge,” which assesses payors $40,000,000 annually for 5 years.  Half goes to a Prevention and Wellness Trust Fund and half goes to an eHealth Trust Fund.  This annual assessment would expire on July 1, 2017.  (Section 104 of the bill.)

The House bill establishes a one-time assessment on (a) hospitals and ambulatory surgical centers of 0.1% of total medical spending in 2011 and (b) payors at 0.2% of total medical spending in calendar year 2011.  With total medical spending of about $66 billion, the provider assessment is estimated to raise $66,000,000 and the payor assessment $132,000,000.  Providers are prohibited from seeking rate increases, and payors premium increases, to pay for the assessment.  (Section 46 of the bill.)

Is it right to do this?  If the Legislature feels an appropriation is in the public interest, it has a very old and established way to authorize one.  Take the money out of general revenues, using its taxing authority and a progressively collected broad-based tax.  Hiding a tax as a surcharge on the industry is rife with problems of equity and also a problem in that the public is given the impression that it is getting something for nothing.

The House provides "any hospital system with less than $1 billion in total net assets and more than 50% of revenues from public payers shall be exempt from this assessment."  I don't know who that leaves covered and who it leaves exempted.  Shouldn't such a tax be proportional, though, to the highly disparate level of rates collected by the different providers from insurers, rather than being based on some net asset determination?  If the assessment is not collected with that historical pattern in mind, it just aggravates that disparity.

On the payor tax, who can be against assessing insurance companies, especially if the money must be taken out of reserves, which have grown this year?   It is not normally my place to protect insurance companies from confiscation, but I believe that this year's growth in reserves comes mainly from a poor-economy-induced reduction in utilization of health care services, not from a structural change in the population's need for medical treatment.  To the extent that we expect insurance companies to bear actuarial risk, some level of long-term reserves is appropriate.  So, the Legislature would just be skimming off money that would be needed in future years, when the regular cycle of medical usage returns -- and it will return, because that is based on the underlying demographics of the population.

Now, reserves should be reduced if an insurance company has transferred substantial amounts of risk to providers, like in the capitated Alternative Quality Contract.  But even then, let's refund those moneys directly to consumers rather than appropriating them for a legislatively determined use.  Otherwise, we are imposing a non-progressive form of taxation on businesses and individuals.

To be clear, my quarrel is not necessarily with the uses proposed by the legislators for these funds.  My quarrel is inventing collection regimes that are not transparent to the population and that may aggravate over time the financial problems of segments of the industries on whom the taxes will be imposed.  And that will do so in a manner than will tend to exacerbate trends already found to be inimical to a properly functioning system of health care finance.