A couple of items relevant to public health and the health insurance industry are in the mix as lawmakers seek a tax plan that will allow them to end the 2015 session.
Kansas legislators need to locate between $400 million and $500 million in new revenue to fund the budget for the fiscal year that begins July 1. As the House and Senate move toward the 90th day of the legislative session, most debate has focused on how much of that new revenue should come from rolling back income tax cuts passed in 2012 and how much should come from new sales taxes.
But lawmakers also are discussing what role cigarette taxes and an increased fee on health maintenance organizations (HMOs) should play.
Public health advocates have strongly supported increasing the cigarette tax by $1.50 per pack since Gov. Sam Brownback proposed it in January.
But the plan ran into resistance from the tobacco industry and convenience stores, as well legislators from border counties who feared losing business to low-tax Missouri.
Tax packages under consideration this week in the House Taxation Committee called instead for a 75-cent per-pack hike. The Senate Committee on Assessment and Taxation is considering 50-cent and $1 increases.
Reagan Cussimanio, a lobbyist for the American Cancer Society’s Cancer Action Network, said the lower amounts would dull the deterrent effect of the tax increase.
“We’ve always looked to get the greatest health impact for the tax amount, so that’s why we’ve always looked at $1.50,” she said. “You know that at that level you get that health impact piece. We’ll continue to focus our efforts on making sure we get the greatest health impact out of policy that’s pushed forward.”
Cigarette smuggling concerns
A higher tax increase on cigarettes, however, seems unlikely.
When Rep. Marvin Kleeb, a Republican from Overland Park who chairs the House tax committee, asked Monday if anyone on the committee wanted to look at more than 75 cents per pack for the health benefits, he was met with silence.
Rep. Brandon Whipple, a Democrat from Wichita, broke the silence by referencing a presentation by former federal agent Rich Marianos about cigarette smuggling from low-tax states to high-tax states. Marianos now works as a consultant for Altria, the nation’s largest tobacco company.
“Where does this tax on cigarettes put us as far as a regional perspective?” Whipple asked. “Are there still reasons to be concerned as far as what the investigator told us?”
A 75-cent increase would put the Kansas cigarette tax at $1.54 per pack. That would be higher than cigarette taxes in all neighboring states: Oklahoma at $1.03, Colorado at 84 cents, Nebraska at 64 cents and Missouri at 17 cents, the lowest in the nation.
Advocates of the tobacco tax have said that cross-border cigarette smuggling, while it occurs, does not involve large enough amounts to offset gains in tax revenue or wipe out the deterrent effect of the higher tax.
Minnesota raised its cigarette tax by $1.60 per pack in 2013. That lifted the state tax to $2.83 per pack as compared to neighboring North Dakota, which taxes cigarettes at only 44 cents per pack.
Officials from Minnesota’s revenue department have reported an increase in smuggling since then and requested an extra $1 million this year to hire 11 new inspectors to clamp down on it.
But Minnesota’s tax increase has brought more than $200 million in new revenue to the state, and the state’s smoking rate declined from 16.1 percent in 2010 to 14.4 percent last year.
Rep. Gene Suellentrop, a Republican from Wichita who brought forth the 75-cent proposal, said it was an attempt to thread the needle between deterring smoking and not encouraging smuggling.
“We tried to balance this out between curbing youth smoking and not having a larger problem with (smuggling) than we have," he said.
Rep. Les Mason, a Republican from McPherson, said he was concerned that relying on a tobacco tax would leave the state facing more budget shortfalls in the future as people quit smoking.
“I think there’s a point of diminishing returns on cigarette tax,” Mason said.
A researcher who has studied state cigarette tax increases over several years told legislators earlier this session that a $1.50-per-pack increase would bring in $72 million of additional revenue next year, although that amount would decline to $45 million by the fifth year as people quit smoking.
The state still would be receiving more revenue than if it had not enacted the tax, he said, while realizing budget savings from decreased medical costs for smoking-related illnesses.
HMO fee
The fee on HMOs originally was proposed by the Brownback administration as an increase on the three managed care organizations that administer Medicaid.
The governor’s office proposed raising the “MCO privilege fee” from 1 percent to 5.5 percent. The plan was to use the $80 million generated to replace state general fund payments to Medicaid, while using federal matching funds to pay back the three MCOs: Amerigroup, Sunflower State Health Plan (a division of Centene) and United Healthcare.
But the state cannot raise the privilege fee on only the three HMO plans with which it has contracts for Medicaid services. Private-sector plans would be subject to the same tax increase, but without the reimbursement from the federal matching funds.
Aetna — the largest of the eight HMOs affected — shared its concerns with lawmakers, saying the proposal would cost the company $12 million.
House and Senate health committees have been tasked with coming together on a smaller rate increase.
Rep. Dan Hawkins, a Republican from Wichita who chairs the House Health and Human Services Committee, said Tuesday he has found a figure acceptable to the parties involved.
“I’ve got everybody on board at $60 million,” Hawkins said. “It’s all done. All we’ve got to do is get a senator to come to conference.”
Hawkins said his proposal would raise the privilege fee by 2.21 percentage points to a total of 3.21 percent, and HMOs have agreed to back off their resistance at that level.
Hawkins said his counterpart on the Senate Public Health and Welfare Committee, Shawnee Republican Sen. Mary Pilcher-Cook, has refused to finalize the deal he has worked for eight weeks to forge.
“I call a conference committee, she cancels,” Hawkins said. “So we’re working through that situation right now.”
Pilcher-Cook said Tuesday her concerns are not with the proposal’s effects on HMOs but rather with giving in to the increasing costs of Medicaid.
“There is a lot I want to review on it,” she said. “It’s really important that we capture some of the cost that the federal government is putting on the state to provide Medicaid. That’s what this is all about. It’s not about balancing the budget.”
Meanwhile, Aetna’s acquiescence to 3.21 percent appears tenuous, at best.
“Aetna remains extremely concerned about this proposal because it disproportionately impacts one company and is retroactive,” Rohan Hutchings, the company’s communications director, said in an emailed statement. “Aetna is committed to offering HMO plans that are affordable for the people of Kansas.”
Uncertainty about the fate of the $60 million deal has the House tax committee including the revenue in some tax proposals and excluding it in others — sometimes within minutes of each other.
“We’ll move forward assuming that $60 million is going to happen, and I think those discussions are under way,” Kleeb said Tuesday. “If it does not happen, then we’ll have to figure something out either way.”
Andy Marso is a reporter for KHI News Service in Topeka, a partner in the Heartland Health Monitor team.
