September 6, 2010

The Tax And Spend Shell Game Hits California’s Nursing Homes

By  Michael D. Shaw

The once golden state of California is looking mighty tarnished these days. In the midst of yet another budget crisis, the state still has no spending plan as it begins the third month of its current fiscal year. Not surprisingly, this legislative incompetence is already affecting community health clinics, and community college students who rely on CalGrants, with more problems cropping up on a regular basis.

You’d think that the elected officials would be working day and night to solve this—but you would be wrong.

In fact, after budget proposals put forth on August 31 failed, state senate President Pro Tem Darrell Steinberg remarked that a budget agreement may not be reached until the election in November. As such, it is quite likely that state contractors—and probably state employees—would be issued IOUs instead of checks.

The situation has provided plenty of fodder for gubernatorial candidate Meg Whitman, as she is campaigning against Jerry Brown, former governor and in the minds of many the architect of the state’s downfall. In the meantime, Gov. Schwarzenegger has drawn a line in the sand terming any proposals that include new taxes as “non-starters.”

Beware, though, of word games. What if a tax already in place were now to apply to formerly exempt entities? Would that be a “new tax”? It certainly would be to those affected! Which brings us to California’s oddly named Quality Assurance Fee (QAF) program—a 5.5% tax on the gross receipts of most intermediate care facilities, enacted in 2005.

As you are probably aware, there are all sorts of federal mandates that promise reimbursement to the states. Thus, the QAF was put in place so that California could qualify for federal dollars, and these would flow back to the state in the form of higher Medicaid reimbursements. These reimbursements would, in turn, go back to the care facilities (nursing homes by another name).

Let’s see. The nursing homes have to pay both state and federal business taxes, and are now hit with an additional 5.5% from the state. But lucky them—especially those facilities with lots of Medicaid recipients. They might just get some of their money back, after it has been filtered through two rapacious taxing agencies, and who knows how many additional bureaucracies.

And, the more the nursing home is already on the dole via Medicaid, the more likely that it would recover most of the QAF. Conversely, smaller homes—especially those with few Medicaid recipients—get shafted.

What about those seniors who are paying their own way in their care facilities? Glad you asked. When the QAF program was introduced, the state made a policy decision to exempt continuing care retirement and multi-level retirement communities. One reason for the exemption is that the QAF would unfairly penalize Californians who had planned in advance how to pay for their own health care needs in retirement.

Now, however, the state proposes to obtain new revenue by rescinding this exemption. While the facilities affected represent only about 15% of nursing homes, they collectively care for over two-thirds of all privately-paying residents. Moreover, this is not a small tax. Estimates peg it at $4,680 per year, as it would apply to each of those residents paying their own way.

You’ve got to love the irony here: A state that can’t live within its means seeks to squeeze more money from old people on fixed incomes who must live within their means. As a result, some of these people will be forced onto Medicaid, thereby increasing the state’s obligations. Plus, an additional tax is levied on the retirement income of self-sufficient seniors, while the state is looking at countless billions in unfunded pension plans of its own.

Is it any wonder that we the people are disgusted with our “leaders”?

The QAF is bad enough. The exemption must be maintained.