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Michael Cianchette is a Navy reservist who served in Afghanistan. He is in-house counsel to a number of businesses in southern Maine and was a chief counsel to former Gov. Paul LePage.
If it sounds too good to be true, it probably is.
Gov. Janet Mills campaigned against tax increases when she ran for reelection. As numerous headlines have pointed out over the past week, her final budget proposal nevertheless contains several tax proposed hikes.
Two of the more shocking proposals were a brand new 70 cent charge for every prescription filled in Maine and a 6 percent tax on private ambulance service profits, over and above their normal income taxes.
I was surprised. Even in an austere environment, these seemed draconian and strangely targeted. Mills is pretty savvy and it seemed like too much of a blunder. So I dug a little deeper.
The Department of Health and Human Services claims that the federal government allows these types of taxes. The revenue can go back into the MaineCare program. Then the state can increase their reimbursement to pharmacies and ambulance companies to offset the cost, yet benefit from federal matching dollars.
Sound too good to be true?
Let’s do the math.
Right now, the imaginary MedicineCo. charges $20 for a prescription. They keep that $20 to pay for all their expenses.
Under the tax increase contained in the budget, they will need to pay a 70 cent tax. So, if the law is passed, our neighborhood pharmacy will keep $19.30 to use towards expenses and send the new tax to Augusta.
Here’s the financial voodoo.
The Mills Administration claims that, in essence, they will adjust payment rates to net out the tax increase on our imaginary MedicineCo. Let’s assume they increase the MaineCare reimbursement from $20 to $20.70.
But, because Maine is spending 70 cents more for that prescription from the taxpayer-funded health care program, our federal reimbursement rate kicks in. Known as “FMAP” or the Federal Medical Assistance Percentage, Washington picks up 61.29 percent of our Medicaid spending.
So Maine will receive about $1.11 from the Federal Government in new money from this tax increase, while effectively rebating the tax paid by MedicineCo. on MaineCare prescriptions. More money for Augusta, no net tax increase on Maine businesses.
Poof. Magic money. Sounds good, right?
But there are two problems with this scenario.
The first is that FMAP doesn’t come from a money tree. The federal government is $36 trillion in debt and counting. Congress has spent more than it has collected every year since 2001.
At some point, Washington will need to get serious about deficit spending and the national debt. Solving it will almost certainly require some amount of tax revenue. Which means the proposed budget’s pursuit of new FMAP payments would invariably drive future federal tax increases.
The second problem is what is not included. The new prescription tax would apply to all prescriptions, not just those paid for by MaineCare. If a local pharmacy has a GoodRx partnership and offers private payers a $20 script, the pharmacy needs to make their tax payment.
Pharmacies can either eat the cost of the new tax or pass it on to the customer. If they choose the latter, then the proposed budget would have indirectly raised taxes on every Mainer who needs medical care and doesn’t rely on the taxpayer-funded program, because those Mainers would now pay more for prescriptions.
Or, if insurance companies cover the script, then their costs will increase, which pushes up premiums, which lands on taxpayers and businesses alike.
And that doesn’t account for whatever costs Augusta will incur — programming, paperwork, people — to implement this new tax, all paid for with other tax dollars.
The Mills Administration deserves credit for trying to find creative solutions to minimize tax increases in their budget proposal, rather than simply falling back on increases in sales or income tax rates.
But if it sounds too good to be true, it probably is.
