It was recently announced the Democratic Governor of Kansas, and the Republican leader of the Kansas Senate reached a deal on Medicaid expansion. Kansas is going to use a hospital tax to fund the 10% state share of Medicaid expansion – just like Governor Cooper and Democrats want to do here in North Carolina. Hospitals in Kansas and other states have gone along with a tax on their industry to fund the state share of Medicaid expansion. Hospitals in North Carolina are in favor of a similar tax included in the Governor’s proposal. 

However, one question that does not receive enough attention is, why would an industry support a tax on themselves and be willing to incorporate a new layer of costs? Kansas Hospital Association CEO Tom Bell made it very clear in an interview with Modern Healthcare

MH: How do your members feel about the per-enrollee hospital surcharge, capped at $35 million, to pay for the expansion?

Bell: That wasn’t our first choice. But our members felt we’d be penny-wise and pound-foolish not to put up a little money to get substantial money back in return.

John Locke Foundation readers will likely recall that my colleague Joe Colletti and I wrote about this hospital tax back in March for the Daily Signal. The hospital tax amounts to nothing more than a scheme to draw down more federal dollars for the hospitals: 

Supporters argue that expanding Medicaid is virtually “free” to the state, since the federal government pays 90 percent and the provider tax would cover the remainder. This was Cooper’s proposal each of the past two years and is how a Republican-sponsored alternative, “Carolina Cares,” would have been financed.

Strangely, providers have been eager to support the tax and thus incorporate new costs into the state budget. The reason is simple: It would be a windfall for them. As the Council of State Governments explained: “Most, but not all, providers will receive more in increased Medicaid payments than they paid in taxes, depending upon the amount of Medicaid services provided.”

Compared to the 66 percent federal match for traditional Medicaid, the more generous 90 percent match for expansion would net providers many times more in Medicaid payments than they pay in taxes.

This hospital tax is one of the ways Medicaid’s flawed financing structure can be gamed to draw down more money from the federal government in matching dollars than a state otherwise would. Hospital taxes allow the state to pass off costs of its program to the federal government, which funds Obamacare through deficit spending.