Is Tennessee Hospital Charge a Tax or a Fee?

April 27, 2011

The Tennessee Hospital Association last year pushed through a new 3.52% assessment on themselves. Sound odd that they are agreeing to tax themselves to fund hospital services? At first glance, it’s unusual for someone to demand the government put a tax on them, although it happens.

What’s really going on here is that the revenue from the assessment is used to leverage federal Medicaid matching funds on a 2 to 1 basis. Those funds are then used to increase doctor and hospital reimbursements (leaving them whole), with the rest made available to Tennessee legislators to use as they wish. States’ use of this mechanism is a big reason why the federal Medicaid program is going bust.

A minor debate has arisen over whether this charge is a tax or a fee. As we’ve noted, the key distinction between a tax and fee is the use of the revenue. Fees provide a benefit particularly to the person who pays the charge. Taxes are used to pay for government services not limited to those who pay the charge. In that sense, it is a fee, since the money goes right back to the hospital – essentially hospitals paying a charge that is then returned to them. But they also get revenue that is spent on other things. Quite a mixed bag. Tax or fee, it’s a shell game.

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