Scioto County may be facing a loss of an estimated $2.1 million in revenue, and commissioners are fighting to save or replace these funds.
“We are facing a 2.1 million dollar sales tax drain on our budget in 2018. This has been big news all year and something we are fighting against in Columbus. It would be catastrophic for us over time. Hopefully a fix will be found,” Commissioner Bryan Davis stated. “The commissioners have worked very hard to lobby for a permanent fix to the MCO Tax issue in Columbus. The loss of revenue would be very hard on Scioto County. We have been in contact with State Rep Dr. Terry Johnson, State Senator Joe Uecker, as well as other county commissioners nearby and across the state. Commissioner Mike Crabtree sits on the County Commissioners Association of Ohio (CCAO) Executive Board and has been working for a fix since the issue arose last year. We remain optimistic and 11th hour solution can and will be found.”
Counties across Ohio are facing the elimination of the sales tax on Medicaid managed care organizations (MCOs) as a result of changes in the executive state budget. In 2016, the funding sources provided $1,972,699 in revenue to Scioto County. The CCAO reported this month that counties are working with the state to find a solution to the issue.
The current law states that effective Oct. 1, 2009 “all transactions by which health care services are paid for, reimbursed, provided, delivered, arranged for, or otherwise made available by a Medicaid health insuring corporation pursuant to the corporation’s contract with the state” is subject to both state and local sales and use taxes collected by the Department of Taxation. For purposes of collecting the tax, the MCO is considered the consumer of the service. The state and local sales taxes are collected by the state and the local portion is remitted to the county or transit authority. For purposes of applying local sales taxes, the state credits the local sales tax to the county of residence of the MCO enrollee.
Federal law permits states to impose taxes on a number of classes of health care items and services without affecting federal Medicaid matching funding. Ohio currently administers a 2.7 percent hospital franchise fee, 5.5 percent nursing facility franchise fee, and a 1 percent health insuring corporation (HIC) tax, each of which is permissible according to the federal government. Significant events leading up to the present situation include several factors. From 2005 to 2009, Ohio collected a 5.5 percent Medicaid MCO franchise tax in addition to the 1.0 percent HIC tax. The federal Deficit Reduction Act of 2005 broadened the federal definition of permissible classes to include all MCO’s, not just Medicaid MCO’s. The Medicaid MCO franchise tax was determined to be an impermissible tax which the state needed to replace with another funding mechanism.
Ohio repealed the Medicaid MCO franchise tax in September 2009, and replaced the lost revenue by applying the 5.5 percent state sales tax and local sales taxes to services purchased by Medicaid MCO’s. The state projected a significant increase in local sales tax revenue due to the application of local sales taxes to Medicaid MCO transactions. The SFY 10 – 11 budget (HB 1) “carved out” the MCO pharmacy program to increase Medicaid drug rebate revenue and thus these transactions were not subject to the sales tax.
With the adoption of SFY 2012 – 2013 state budget (HB 153), Medicaid pharmacy benefits were incorporated within the scope of services subject to state and local sales taxes. This sales tax base broadening would increase state and local sales tax revenue. The Executive version of SFY 2014 – 2015 state budget (HB 59) originally included provisions expanding Medicaid under the Affordable Care Act. This provision was removed by the legislature, but the Controlling Board approved expansion of the Medicaid program utilizing provisions of the federal Affordable Care Act effective January 1, 2014. The additional sales tax base broadening was to increase again state and local sales tax revenue.
The Center for Medicare and Medicaid Services (CMS) has voiced concerns for some time about the use of these types of taxes to boost Medicaid drawdown and in 2014 sent a letter asserting that because of changes made in the Deficit Reduction Act of 2005, states who apply sales tax to MCOs, but not to other health maintenance organizations are violating federal rules. CMS advised Ohio to “make any changes necessary to achieve compliance as soon as feasible, but no later than the end of their next regular legislative session.” Further conversations have deduced that the timeline to either fix the tax or turn it off should happen by the end of the next state budget cycle, which would be July 2017.
The Department of Taxation and the Office of Budget and Management have calculated the level of reliance of counties and transit authorities on the Medicaid MCO sales tax at approximately $145,000,000 for counties and $35,000,000 for transit authorities in SFY 2015 (July 2014 to June 30, 2015). The proposed Executive budget recommended that the state move from a sales tax on Medicaid MCO’s to levying a tiered franchise fee on Medicaid and non-Medicaid Health
Insuring Corporations (HIC’s). However, the proposed franchise fee rates only addressed the state’s foregone revenue and do not remedy the loss of revenue for counties and transits on a long-term basis. Current proposals include resetting the proposed HIC franchise fee rate to generate revenue to address the foregone sales tax revenue for the state, counties and transits; and expanding the current application of the sales tax on the Medicaid MCO’s to include the non-Medicaid MCO’s, coupled with some tax relief to the non-Medicaid MCO’s in order to reflect the tiered approach the administration’s proposed franchise fee would apply to non-Medicaid MCO’s.
According to the CCAO, the proposal would do the following:
- In new language for the bill, instruct the Administration to work with CMS in seeking approval to allow for the proposed state franchise fee to be reset at a rate to generate approximately $207 million for SFY 19. Counties and transits would receive approximately the amount of revenue generated in calendar year.
- 2016 for a six-year period with no inflationary growth, and they would be subject to the same volatility that the state also could experience with the franchise fee should performance drop.
- Assuming federal approval is granted, start the new franchise fee rate on July 1, 2018. The county and transit fee revenue would be distributed to those entities.
“We would recommend those agencies being partially funded by the general fund without a mandate to contact their legislators in Columbus and encourage them to find a permanent solution,” Davis stated. “The commissioners have worked very hard to lobby for a permanent fix to the MCO Tax issue in Columbus. The loss of revenue would be very hard on Scioto County. We have been in contact with State Rep Dr. Terry Johnson, State Senator Joe Uecker, as well as other county commissioners nearby and across the state. Commissioner Mike Crabtree sits on the County Commissioners Association of Ohio (CCAO) Executive Board and has been working for a fix since the issue arose last year. We remain optimistic and 11th hour solution can and will be found.”
Additionally, Davis reported that sales tax revenue is used to pay salaries, utilities and other forms administrative fees to a multitude of offices.
“[I]f you take last years (2016) total revenue of nearly 19.7 million, $12.5 was sales tax. $1.972 mil was MCO tax,” Davis explained. “This years estimate could be $2.1 million. There is no 100% way of knowing since we work off a conservative “estimated” tax revenue for 2017. It’s a large amount. Roughly 17% of “projected” or estimated overall sales tax revenue.”
In addition to urging the state not to cut the funding, Davis explained that the Scioto County Commissioners have also been looking to other funding sources.
“To be pro-active, in December of 2016, the commissioners reduced the 2017 fourth quarter budget by $414,000.00 in preparation for the full impact the loss of revenue could possibly have in 2018,” Davis confirmed. “Office holders have been reminded of the possibility of the loss of revenue and the need to prepare for adjustments now, not later. The bottom line is this, we can never allow ourselves to go back into fiscal emergency. We will remain steadfast in our insistence that county government makes the necessary adjustments to stay fiscally healthy. Working together office holders and department heads will find ways to trim. Somehow, someway. We will take care of the departments required by law and do our best to help elsewhere if possible.”
Reach Nikki Blankenship at 740-353-3101 ext. 1931.