Ohio Seeks to Revive Tax on Health Companies

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By Michael J. Bologna

Ohio counties and transit agencies will negotiate with state lawmakers and Gov. John Kasich (R) on a long-shot plan to revive a tax on Medicaid providers to generate $200 million per year in local transit funding, sources told Bloomberg BNA Aug. 22.

The decision to pursue a negotiated settlement avoided a scheduled floor vote in the Ohio Senate, where Republican lawmakers were poised Aug. 22 to override Kasich’s veto of a tax on Medicaid managed care organization (MCO) providers. Kasich vetoed the tax June 30, a provision of Ohio’s $65.5 billion budget, warning the scheme would attract scrutiny of Ohio’s Medicaid franchise fee waiver and jeopardize $615 million in fees for the state.

The County Commissioners Association of Ohio (CCAO) said Senate leadership had requested a “two-week hold” on the override vote.

“During the next couple weeks CCAO, representatives from the transit authorities and members of the legislature will meet with the administration to see if an alternative solution can be reached on replacing the foregone county and transit authority MCO sales tax revenue,” the association said in a legislative alert.

Sept. 6 Deadline

But a spokesman for Senate President Larry Obhof (R) said Senate Republicans are prepared to pursue an override vote on Sept. 6 if the talks fail to bear fruit.

“We are allowing negotiations between the administration and the county commissioners association, hoping for an amicable solution with the idea that we could get something instead of potentially nothing from the federal government,” Obhof spokesman John Fortney told Bloomberg BNA. “This is possibly a better solution. If there is no solution between these groups, you can expect to see that back on our agenda Sept. 6.”

The tax on MCO providers, generating more than $200 million for counties and transit agencies annually, has traveled a tortured path in recent years.

In 2014, the U.S. Centers for Medicaid and Medicaid Services (CMS) ordered Ohio to modify the revenue program because it didn’t apply to all similar health providers. The state sought to comply by halting the sales tax and imposing a franchise fee on MCOs. The state received initial federal approval, but transitional funding was only assured through 2019.

Federal Approval

As part of the budget process, the Ohio Legislature drafted a provision imposing the new franchise fee. The plan, however, required Ohio’s Medicaid program to ask CMS for formal approval. As a practical matter, any denial from CMS would have required lawmakers to return to the drawing board and seek a new revenue strategy to generate funding for regional bus services.

The proposal was never presented to CMS because Kasich used his line-item veto authority to strike the MCO providers tax from the budget. Kasich said the proposal jeopardized the Buckeye state’s broader package of franchise fees, estimated at $615 million per year.

Fortney said the Ohio House responded to Kasich’s veto with an override vote of 87-10 on July 6. The MCO franchise fee was one of 11 budget provisions preserved by the House via override. Fortney said the Senate was scheduled to concur with the House on Aug. 22, but the various players agreed to pursue a negotiated resolution.

Kasich issued a statement supporting the negotiations. At the same time, he expressed concern about approaches that raise taxes and risk current franchise fees collected by the state.

“The Senate deserves credit for saying no to efforts that would have risked the future sustainability of Ohio’s health care system in order to seek a 24 percent tax hike on health plans,” Kasich said.

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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