If there is anything that unites Republicans, it is our opposition to taxes.  You may not realize it, but as we speak the 2018 General Assembly is considering a new tax — yes, that awful word — on Virginia’s health care.

As the legislature continues its slog through the winter session in Richmond, one of the most prominent and pressing questions centers on whether the Commonwealth will expand Medicaid. A subset of this question?  Who should pay the state’s share of any costs associated with expand access care for low-income and predominantly working childless adults.

Last week, we explored the shoals and shallows of those who want hospitals to foot the bill for any expansion costs Virginia might incur. Advocates of what could very well become a stiff tax increase are already working up an appetite for how to spoon up and swallow that luscious and tempting new money.

As a refresher, here’s why some people think there will be state costs.

1.  Under the Affordable Care Act’s Medicaid expansion plank, Washington initially pledged to cover 100 percent of state costs. Remember that Medicaid is a jointly funded federal-state partnership program. Under the current Medicaid program, Virginia and Washington split the costs 50-50. For the expansion population, Washington pledged to pay 100 percent initially. The law says that amount will gradually decline to a floor of 90 percent in 2020 and beyond, with state’s paying the difference.

2. Besides fundamental concerns about the size and scope of government entitlement programs, the prospect of that 10 percent –and that’s if it stays at 10 percent — funding difference being shouldered by Virginia is one of the concerns conservative legislators have raised about whether we can afford to expand Medicaid. To obviate those concerns, former Democratic Governor Terry McAuliffe in recent years tried to plant what amounts to a poison pill in the state budget. He built in Medicaid expansion, along with a tax on Virginia hospitals to pay for any potential expansion costs as well as other state services unrelated to health care, then dared Republicans to remove the money and make cuts to state services and program. The goal was clear — cast Republicans as heartless and uncaring, and win the media narrative. It was a cute political ploy, but one that was ultimately demonstrated to be hollow because the funny money being counted by The Macker (TM) only existed in theory.

3.  McAuliffe relied on a similar gambit in a parting gift to Virginia on his way out the door — otherwise known as his introduced budget. Once again, he offered up a tax on hospitals to pay for Medicaid expansion.

McAuliffe didn’t call it a tax, of course — but he might as well have put massive blinking lights on the proposal. Instead, he called the proposed tax increase an assessment. Tomayto, tomahto — we all get the drill.

4.  This McAuliffe tax, coupled a built-in eight percent administrative “fee” multiplier, works out to a massive and stealth $932 million tax on hospitals over four years — to be paid in full as health care passes the tax straight to the consumer. Earlier this week, House Speaker Kirk Cox informed Governor Ralph Northam that work requirements are a line in the sand Democrats must accept in order for House Republicans to consider a deal on Medicaid expansion. As for right now, that deal might very well include McAuliffe’s tax on hospitals.

McAuliffe’s tax schematic is problematic for several reasons. First and foremost, it is a new tax, something Republicans have perhaps not contemplated and hospitals will most certainly pass forward to patients rather than absorb.

What’s more, there are serious questions about whether it would be Constitutional as proposed. There’s the matter of past Virginia precedent warning us about the gulf between rhetoric and reality when it comes to how appropriators use resources provided by taxpayers, e.g. the Virginia Lottery and ‘education funding.’

Finally, there’s this little other nit about the fact that the state doesn’t might not even need the money that would be collected from this new hospital tax.  In short, not only is the tax revenue collected as proposed by McAuliffe not even dedicated to health care, there’s a serious question as to whether or not the gap in federal funding is as wide as some suggest.

Asking Virginia’s health care system to pay a $1 billion hospital tax is the equivalent of the prince behaving like the pauper while seeking new means of squeezing revenue from the serfs.

Let’s tackle these in reverse order.  The state’s own estimates project any sort of health care reform under Medicaid will generate more than $400 million in General Fund savings in the first two years, and nearly $1 billion over the first five years. These are savings from the state being reimbursed at a higher ACA rate for things like behavioral health, substance abuse treatment, and prisoner health care. They also exceed the state’s projected share of the cost to expand — and not insignificantly.

When you add up and subtract all the expenses Virginia faces from expansion as well as all the new funding it will receive, the Commonwealth projects it will have a net savings of $131 million through 2022.


Yet despite Virginia’s own projections of millions in net savings, there are some who still want to tax an extra billion dollars from hospitals — just in case.  Through a hospital tax.  Anyone want to wager how wisely government is going to spend that?

A fiscally responsible action might be to invite Virginia’s health care industry to the table and cover costs, rather than imposing a hospital tax and dumping the remainder in to the general fund.  The proposed solution proposed by Terry McAuiliffe is more akin to having your cake (health care reform), eating it too (Medicaid), then taking other people’s cake and scarfing that down for gluttony’s sake (more hospital tax).

Virginia’s health care system might very well accept the former, while making it clear that the latter scenario is both unhealthy and fiscally unwise.  What is more, if the change is indeed made, the tax should be at the minimum amount necessary to fund prescribed health care needs so as to induce minimal cost to patients.  Additionally, any new hospital tax must be created in state law rather than the state budget so as to prevent precisely the fiasco that the Virginia Lottery has become vis a vis education.  Finally, any health care funds should be administered by the private sector — not the government — and with private oversight.

Nothing that McAuliffe proposed in the lame duck budget meets any of these conditions — yet.

Then there is the tricky part about Virginia’s single object provision in the state constitution, which those familiar with 2007’s HB 3202 will be instantly familiar.

Indeed, the Virginia Constitution is clear about the proper form for tax legislation and procedures for passing it. Virginia’s courts have applied that standard in ruling on questionable tax maneuvers orchestrated by the legislature. Former Delegate Bob Marshall’s lawsuit against the tax mechanism in the ultimately nullified 2007 transportation funding law led the Virginia Supreme to conclude:

“We consistently have held that when the primary purpose of an enactment is to raise revenue, the enactment will be considered a tax, regardless of the name attached to the act.”

In short, it doesn’t matter who does the propositioning or how it is concluded: a tax by another name is still a tax. On top that, there’s constitutional language (Article IV, Section 12) stipulating that no law “shall embrace more than one object, which shall be expressed in its title.”

McAuliffe’s lame duck attempt to impose a new tax through the budget bill may very well run afoul of this provision. The budget bill, or appropriations act, is “a bill for all appropriations of the Budget.” Its purpose is to appropriate revenues raised by various mechanisms outlined in the Code of Virginia — most certainly not to raise new taxes.

Lest we forget, we all know what they say about promises and good intentions when it comes to raising new revenue in Virginia. There are plenty of children sitting in aging school buildings in Southside and Southwest Virginia that sure could use some of that Virginia Lottery money (and tobacco money) Virginians were promised would go to education way back in the 1980s.

Putting lipstick on a pig doesn’t make it any less a hog.  Nor does disguising a proposed new tax as something else with a different name doesn’t change the effect it would have.

Republicans have a firm determination not to raise taxes.  The first rule of getting out of any hole is to stop digging; the second rule is to buy a ladder.  Ladders require revenue, and so when forced to do so, two principles apply: (1) that existing revenues be spent wisely, and that (2) future revenues are not penny wise and pound foolish in an effort to minimize the impact.  In short, let’s do it right the first time.

Wise government should take no more than it needs and spend no more than it has. Fair taxes and fair play ought to be hallmarks of how Virginia’s economy works.  When hospitals are the only health care player even being asked to pay state costs and not say insurers, pharmaceuticals, other medical practices, and so on, it puts credence to the old Reagan aphorism:

If it moves, tax it.
If it squirms, regulate it.
If it stops moving, subsidize it. 

Republicans have the opportunity to work with hospitals to arrive at a low-cost and affordable solution that reaches beyond “straight up” Medicaid expansion and recovers the confidence of patients rather than amplify their costs.

Whether it is called an assessment, a hospital tax, or something else, McAuiliffe’s schematic is an idea that by rights ought be rejected — not embraced.