AAN Misleads Again, This Time About Taxes In Pennsylvania

October 20, 2010 11:21 am ET

American Action Network delves into Pennsylvania's 2009-2010 budget in order to attack State Rep. and congressional candidate Bryan Lentz (D-PA). In doing so, the Norm Coleman-founded organization misleads about the nature of tax increases included in the budget, fear-mongering specifically about a "new $300 million tax on health care." In reality, the budget Lentz supported avoided increasing Pennsylvania's income and sales taxes. Meanwhile, that "tax on health care" actually replaces an expiring federal tax, and will bring in matching Medicaid funds from the federal government, effectively returning money to the organizations that are subject to the tax.

American Action Network: "Pennsylvania Can't Afford The Pelosi-Lentz Team"

Meet Nancy Pelosi's star pupil: Bryan Lentz. He's learned his lessons well. Pelosi raises taxes in Washington, Lentz raises taxes in Pennsylvania. A new $300 million tax on health care. And nearly two billion in new taxes. Nancy Pelosi says Bryan Lentz is ready to graduate to Washington. Raising taxes? Bryan Lentz has learned by doing. Pennsylvania can't afford the Pelosi-Lentz team. The American Action Network is responsible for the content of this advertising.

"Tax On Health Care" Returns Money To Taxed Organizations Through Medicaid Payments

Revenue From Gross Receipts Tax Will Be Used To Garner $300 Million In Matching Federal Medicaid Funds. According to Pennsylvania's House Committee on Appropriations:

In response to a federal change that took effect October 1, 2009, the Governor's Executive Budget proposed a 2 percent statewide assessment on all managed care organizations as a new funding source for Medical Assistance managed care, replacing the previous assessment which terminated September 20, 2009 in accordance with federal law. As an alternative to the Governor's proposed statewide assessment, House Bill 1531 would institute a state gross receipts tax on managed care organizations (MCOs) that are under contract with the Department of Public Welfare (DPW) and enroll Medical Assistance recipients - these are the same managed care organizations that paid the recently terminated assessment. Revenue from the gross receipts tax will be used to draw down additional federal Medicaid matching funds for the Medical Assistance managed care program. The Commonwealth earns the additional federal match by making supplemental payments to the Medicaid MCSs that equals the gross receipts tax paid by the MCOs and then seeking federal reimbursement for the supplemental payments.

The gross receipts tax on managed care organizations will generate $528.548 million in 2009/10 and $529.459 million in 2010/11. The Commonwealth will, in turn, incur a concomitant expense in the form of the supplemental payments (which will be incorporated in the monthly rate that DPW pays the MCOs). These payments are anticipated to draw additional federal Medicaid matching funds of $316.118 million in 2009/10 and $317.060 million in 2010/11. Consequently, the net revenue gain to the Commonwealth is equal to the federal Medicaid match. [Legis.State.PA.US, 10/7/09, emphasis added]

Funds Collected From MCOs Will Be Returned Through Increased Payments To Providers. According to the Pennsylvania Budget and Policy Center's analysis of Pennsylvania's 2009/10 budget: "The current 2% assessment on Medicaid Managed Care organizations (MMCOs), which was slated to expire on September 30, was replaced with a 5.9% gross receipts tax. This change would draw down an additional $316 million in federal Medicaid dollars for a total of $529 million in 2009-10. All funds collected from the managed care organizations (MCOs) and the federal government are returned to the MCOs in the form of increased capitation payments." [PennBPC.org, 11/6/09; in-text citation deleted for clarity]

  • Capitation Payments Are Fixed Amounts Of Money Paid To Health Care Providers To Fund Health Care Services. According to the American College of Physicians: "Capitation is a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of health care services. The actual amount of money paid is determined by the ranges of services that are provided, the number of patients involved, and the period of time during which the services are provided. Capitation rates are developed using local costs and average utilization of services and therefore can vary from one region of the country to another." [ACPOnline.org, accessed 10/20/10]

Tax Proposed By Gov. Rendell And Altered By Pennsylvania's Legislature "Essentially Replaces" An Expiring Federal Tax. According to the Pittsburgh Post-Gazette: "The governor is also proposing a 2 percent tax on revenue from HMOs and managed-care organizations, to help pay Medicaid expenses. That levy essentially replaces the existing the federal version of the Medicaid managed-care organization assessment, which the federal government us set to discontinue on Oct. 1." [Pittsburgh Post-Gazette, 2/5/09, via Nexis]

Lentz-Supported Budget Avoided Major Taxes, Cut Spending

In claiming that Lentz voted to raise taxes in Pennsylvania, AAN cites his support of Pennsylvania's HB 1531. This legislation corresponded with the state's 2009-10 budget, and adjusted the tax code to meet Pennsylvania's revenue needs.

Pennsylvania's 2009-10 Budget Included No Increase In Income Or Sales Taxes...

Budget "Avoids Hikes In Major Taxes." According to the Morning Call: "The new budget provides $300 million more for kindergarten through 12th-grade education and restores funding to a host of nonprofit and county-operated social service programs that have been relying on loans and reserves to help the ill, the aged and children, among others. It avoids hikes in major taxes, such as the sales and personal income tax, relying for funding instead on increased business and cigarette taxes, a new levy on "little cigars" and a tax on yet-to-be-legalized table games at slot-machine casinos including the Sands Casino Resort Bethlehem." [Morning Call, 10/10/09, via Nexis; emphasis added]

Pennsylvania's 2009-10 Budget Implemented Tax On Cigarettes Instead Of Increasing Income And Sales Taxes. According to the Pittsburgh Tribune Review: "The spending plan avoids increases in income and sales taxes, in part by tapping $755 million from the state's savings account, $100 million from a fund physicians pay into for malpractice insurance and $708 million from the Health Care Provider Retention Account, funded by cigarette taxes to subsidize malpractice premiums in higher-risk medical practices." [Pittsburgh Tribune Review, 10/10/09, via Nexis]

...Cut Spending To Pre-2006 Levels...

Pennsylvania's Budget Cut Spending By Nearly 2% From The Previous Year. According to the Pennsylvania Budget and Policy Center's Analysis of the 2009-2010 budget: "On October 9, 101 days after the start of the fiscal year, Governor Rendell signed the 2009-10 state budget. The General Fund budget totals $27.8 billion, which includes $25.2 billion in state dollars and $2.6 billion in federal stimulus funding. Total spending is down $524 million, or 1.8%, from the amount available in 2008-09. The budget plan uses fewer state dollars than were spent in 2006-07." [PennBPC.org, 11/6/09; in-text citation deleted for clarity]

...And Ended A 101-Day Budget Stalemate

Lentz Voted For The State Budget And Its Corresponding Tax Code Bill, Ending A 101-Day Stalemate. According to the New York Times: "Ending a 101-day stalemate, the longest of any state this year, Pennsylvania lawmakers passed a $27.8 billion state budget and Gov. Edward G. Rendell signed it on Friday. The measure cuts overall spending by more than 1 percent and relies on nearly $500 million in new taxes on sales of cigarettes, little cigars and businesses that pay the capital stock and franchise tax." [New York Times, 10/9/09]