Fee on HMOs could provoke legislative fight

Brandon Larrabee, Morris News Service

October 14, 2008

Efforts to avoid slicing health care for children and other low-income Georgians could test lawmakers' pledges to avoid a tax increase.

A plan to prevent cuts to state-run health-care plans for low-income residents has set the stage for a legislative battle next year, with managed-care corporations vowing to fight what they say is a tax that will ultimately punish consumers.

The proposal from the Department of Community Health would require all commercial managed-care organizations to pay a fee currently charged only to those companies who run the state's Medicaid program for low-income Georgians. The fees are used to create a "state match" for federal Medicaid dollars, after which the money is returned to the companies.

But under the new program, the fees would not be returned to companies who don't participate in the Medicaid program, leading insurers to say they're being hit with a tax increase in the middle of an economic downturn.

"The tax that they are proposing is going to hit individual health insurance consumers and small businesses, and right now, we know that that's the toughest part of the market," said Kirk McGhee, executive director of the Georgia Alliance of Health Plans, an industry trade group. "It's where we're losing people."

State officials counter that many Medicaid patients end up on the state rolls because they can't afford private health-care coverage or get inadequate benefits from the plans they do have -- meaning insurance companies aren't necessarily in a position to complain.

"I don't think it's unreasonable for them to help us," Community Health Commissioner Dr. Rhonda Medows said when the plan was unveiled earlier this year.

Ultimately, the fight is likely to end up in the General Assembly, where leaders have repeatedly pledged not to raise taxes as they deal with a budget deficit that could approach or even surpass $2 billion.

Avoiding a cut

The expansion, which would bring in $112.2 million in the fiscal year that begins July 1, is actually only partly a response to the state's darkening budget outlook. It also flows from a change to federal rules ordering any state charging the fee to apply it to all providers -- not just those handling the Medicaid plan.

McGhee says that change was aimed at cutting back on "a lot of shell games being played in states" like Georgia that were essentially using the money just long enough to get federal funding.

"(Federal officials) were trying to discourage states from using these provider taxes to draw down matches for Medicaid programs. ... They thought that this would be kind of a discouragement to states to continue these provider taxes," McGhee said.

Instead, Georgia officials see it as an opportunity to offset the 5 percent budget reductions ordered by Gov. Sonny Perdue. Trimming a bit of state spending and expanding the fee gives them more than enough to meet Perdue's instructions, which cut Medicaid by less than most other parts of the budget.

The consequences of not charging the fee, state officials and advocates for the poor say, would be to trigger deeper cuts in Medicaid and PeachCare for Kids, which provides health care for children in families who earn too much to qualify for Medicaid but not enough to afford private insurance.

That's because the state would lose the $89.9 million it currently earns from current level of matching funds, the ones currently generated by charging the fees to the Medicaid managed-care organizations. Without the match, the program's deficit would rise from just shy of $92.1 million to almost $182 million.

To make up the shortfall, the state would then have to cut eligibility for PeachCare, cap enrollment in the program, eliminate dental benefits and take an array of other steps -- and would still come up short by tens of millions of dollars.

"It would be a dreadful outcome," said Linda Lowe, a consumer-health advocate who follows Medicaid and PeachCare issues.

Ready to fight

But it's not clear that Perdue, who gets the first crack at the recommendations, or state lawmakers will go along with the plan.

Perdue press secretary Bert Brantley said the governor would review the proposal as he crafts his budget recommendations over the next few months. Brantley said Medows and Perdue have discussed the fee but that the governor has not made up his mind.

"He understands where they're coming from and what a difficult situation it would be to have to replace the federal funds if you were to eliminate the fee," Brantley said.

Perdue will unveil his spending blueprint in January.

It's unclear which aspects of the plan would require legislative approval. Medows' department maintains that the revenues from the new fee only need to be recognized in the budget, which must be approved by the General Assembly. Insurers want to force a vote on separate legislation allowing DCH to charge the fee on all managed-care organizations.

"It's just a bureaucrat deciding that that bureaucrat wants to collect this tax, fundamentally," McGhee said.

Rep. Mickey Channell, R-Greensboro, said he doubts the General Assembly would approve a plan to expand the fee.

"That's the last thing folks need is a tax increase or a fee increase," said Channell, who chairs the House subcommittee that handles Medicaid funding.

Even Channell, though, said it would be difficult to make up for the funding generated by the fee.

"God knows where it would come from right now," he said.

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