Sunday, February 7, 2010

Tax us, please!

If you ever wonder why the government keeps growing when most people want it to shrink, look no further than Tennessee's Medicaid program, "TennCare."  Tennessee is facing a budget short fall, and the usual reaction would be to cut back spending.  In fact, the Governor has proposed steep cuts in funding, which would cut revenue to the state's hospitals who provide services to TennCare patients. 

The state hospitals have come up with a clever alternate plan.  Instead of cutting back TennCare spending, they want to increase it, financed by a tax on the state's hospitals.

Because the Federal government matches spending (with $2 for every dollar spent on TennCare), the taxes paid by the hospitals would be more than offset with increased revenue coming to TennCare from the federal government:
Hospital representatives would also want guarantees that the tax would be used to maintain TennCare payments to hospitals.
"They would favor it if they could be sure that it would translate into a multiple of three times" as much money in federal aid, said Nashville Rep. Gary Odom, the House Democratic leader. 

Note also that the state tax solves the "free rider" problem among hospitals.

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