Wednesday, April 25, 2007

Medicaid Bills and the Gross Receipts Tax

This Month Governor Blagojevich missed the chance to pay 650 Million dollars in Medicaid bills that the State owes to health care providers, on April 4 the Illinois Comptroller office sent a letter to the head of Department of Healthcare and Family Services indicating that they would pay the bill if the DHF would forward them the invoice, DHF not only did not send them the invoice, but it did not respond at all to the letter from the Comptrollers office. What this all means is that health care providers in Illinois will not be paid on time again and this along with the Illinois history of not paying its Medicaid bills in a timely fashion or completely means that health care providers will have yet another reason not to accept patients on Illinois Medicaid. Several months ago to major health care providers in the Midwest announced that they will no longer accept Illinois Medicaid patients or people in the Governor’s All Kids program and this will just give more incentive for others to follow. There are some rumors that the reason for this is that Governor Blagojevich is trying to put the squeeze on the health care providers in order to try and black mail them into support his new taxes and health care programs. Essential it would seem what he is saying to health care providers is back my health care and associate tax increase or else no one is going to get paid. The other question is if Illinois can not pay it Medicaid bills on time as it is and the system is badly mismanaged, as most people would agree, why in the world would we want to add another expensive health care program to the state rolls?

Fred Giertz a professor of economics at the University of Illinois called Governor Blagojevich’s proposed Gross Receipts Tax an overreaction and stated that it would have cascading effect, tax good multiple times as they move through the economy. This cascading effect means that the actual amount that would be paid to the State through the Gross Receipts Tax would be fair higher the stated rate of 1.95% on service and .85% on manufactured goods. For example if you had a good that went goes through 5 production stage before being sold to the consumer you have something like this for a manufactured good.

Stage Price Tax

1 $10 $.09

2 $15 $.13

3 $17 $.15

4 $20 $.17

5 $25 $.21

So in the end the tax paid would $.75 or 3% of the goods final cost, while 75 cents seems small, when you multiple this through million of goods and services sold each year in the state, the amount ended up much larger. This assumes that none of the cost of the tax is passed on but lets see what happens if 50 percent is passed on with the same set.

Stage Price Tax

1 $10 $.9

2 $15.04 $.13

3 $17.10 $.15

4 $20.17 $.17

5 $25.25 $.22

So with 50 percent of the tax being passed on we see that the amount that the State takes in increased slight and the price paid by the consumer rise be 25 cents or 1 percent. This is small for a good like this you have to remember on a 20,000 dollars care this would lead to increase of 200 dollars. When you multiple this effect through all of the goods and service in the Illinois economy you’re talking about billion dollars. The amount of money that would be lost to the consumer in aggregate would be about equal to the amount that State takes in through the tax.

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