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"Amendment 3 would only result in a big tax increase for smokers, a windfall for doctors and hospitals, and little or no increase in Medicaid coverage for the poor. The more voters know, the more they'll vote 'no' on Amendment 3." The Case Against Amendment 3 (The Tobacco Tax Hike on the November 7 Ballot) It's Dishonest, Deceptive and Misleading
Introduction The proposal to increase cigarette taxes by 470 percent, which will be on the November 7 ballot as "Constitutional Amendment No. 3," is incredibly unfair, deceptive and misleading. Voters should be aware it has more to do with providing a windfall for doctors and hospitals than providing increased healthcare for Missouri citizens in need. A great many hospitals and healthcare organizations – most of whom pay no taxes and are subsidized by taxpayers – are contributing many millions of dollars for the misleading campaign to get voter approval of Amendment No. 3. If successful, they would take in a couple of hundred million dollars every year and not necessarily be required to provide additional services. The lengthy 3350-word amendment (five pages of small type) is perhaps the most convoluted to ever be proposed for the Missouri Constitution. There are so many questions how it would work that it has to be questioned if it would actually lead to better healthcare for Medicaid beneficiaries and low-income Missourians. Voters will not get the full story by reading the ballot language for Amendment 3. Even voters reading the amendment text would still not understand its implications and potential cost for taxpayers. The purpose of this report is to provide a better understanding of Amendment 3. The more voters know about the proposal, the more likely they will understand how they are being deceived and that the tobacco tax is not worthy of support. Taxes imposed – amount to be raised – how distributed – Amendment No. 3 would impose an additional tax of 80¢ per pack ($8.00 per carton), for a total of 97¢ per pack ($9.70 per carton). This is a 470% increase. Other tobacco products would be taxed an additional 20%, for a total of 30%. This is a 200% increase. These are in addition to the $3.90 per carton federal tax and cigarette taxes that local governments impose. For example, St. Louis (70 cents a carton) and St. Louis County (50 cents a carton) both have cigarettes taxes as do dozens of cities in Missouri. Local and state sales taxes are also added. If Amendment 3 is approved, the total taxes on a carton of cigarettes – federal, state and local – would be around $15.00 for many Missouri consumers. According to the fiscal note prepared by the state Auditor, the tax is estimated to yield $351 million to $499 million annually. An averaged estimate would put the annual revenue from the tax at about $425 million. That figure that will be used in this report. The amendment would establish a "Healthy Future Trust Fund" and would have two separate accounts within the fund. Appropriations from the accounts would be made by the General Assembly. Of the estimated $425 million the new taxes would raise annually, 17.5% (about $75 million) would go to a "Tobacco Use Prevention, Education and Cessation Account" and be divided up several ways: § at least 15% (about $11.25 million) would be for mass media public education and counter-marketing programs; § at least 15% (about $11.25 million) would be for community programs to reduce tobacco use; § at least 5% (about $3.75 million) for surveillance and evaluation relating to all expenditures and uses of the fund; § at least 15% (about $11.25 million) but not more than 30% (about $22.5 million) for "cessation programs including any funds appropriated for tobacco use cessation programs for Missouri Medicaid beneficiaries." The minimal amounts listed would likely be greater as funded tobacco control programs are to be consistent with the Center for Disease Control and Prevention's best practices. If followed, the CDC practices would cause larger percentages to be allocated for some of the categories. Of the estimated $425 million the new taxes would raise annually, 82.5% (about $350 million annually) would go to a "Health Care Access and Treatment Account" and be divided up several ways: § 35.25% (about $125 million) for providing medically necessary health care services to individuals with incomes that are 200% or less of the federal poverty guidelines, including services provided through the Medicaid or State Children's Health Insurance Programs"; § 35.25% (about $125 million) for providing supplementary payments for primary care and specialist physician services rendered to Medicaid beneficiaries; § 13% (about $45 million) for providing supplementary payments to "safety net clinics," ("safety net clinics" are defined in the definitions of the amendment) § 15.25% (about $55 million) for providing supplemental payments to trauma centers and hospital emergency departments for facility and physicians services rendered to Missouri Medicaid beneficiaries and uninsured Missourians; 55% (about $30 million) of this 15.25% is "for payments to compensate Level I designated trauma centers for their unreimbursed costs of treating Missouri Medicaid beneficiaries and uninsured Missourians" (there are only 10 Level I trauma centers in Missouri); § 1.25% (about $4 million) for providing supplemental payments for emergency ambulance services provide to Missouri Medicaid beneficiaries. No more than 2% (about $8.5 million) of all funds collected can go for actual costs incurred in collecting the funds. The tax increases would go into effect on January 1, 2007. The programs created by the amendment are to be implemented no later than July 1, 2007. The state auditor would be required to perform annual audits, which is to include an evaluation of whether pre-existing funding for programs or initiatives have been reduced because of the new funding. Every three years, the state Auditor must prepare a comprehensive report assessing the work and progress of the programs established. An oversight committee of unspecified size would be established with members appointed by the governor and approved by the Senate. The committee would "assist the department of health and senior services, the department of public safety, and the department of mental health in developing, implementing, and maintaining a strategic plan, in monitoring the use of funds, and in assessing the efficacy of programs funded through the Tobacco Use Prevention, Education, and Cessation Account." The oversight committee "shall annually provide a publicly available report on tobacco use and its related harm and costs in the state, the allocation of the Tobacco Use Prevention, Education, and Cessation Account Funds, and related surveillance and evaluation finding to the general assembly and the governor." Amendment 3 would generate no small amount of paperwork: reports, strategic plans, audits, assessments, evaluations, etc., that would require a lot of time and effort from state employees. The ballot language – The ballot language for Constitutional Amendment No. 3 would not even begin to tell voters what the proposal is about. This is the language: SAMPLE BALLOT STATE OF MISSOURI CONSITITUTIONAL AMENDMENT NO. 3 Proposed by Initiative Petition Shall the Missouri Constitution be amended to create A Healthy Future Trust Fund which will:
1. be used to reduce and prevent tobacco use, to increase funding for healthcare access and treatment for eligible low-income individuals and Medicaid recipients, and to cover administrative cost;
2. be funded by a tax of four cents per cigarette and twenty percent on other tobacco products; and
3. be kept separate from general revenue and annually audited?
Additional taxes of four cents per cigarette and twenty percent of the manufacturer's invoice price on other tobacco products generates an estimated $351-$499 million annually for tobacco control programs, healthcare for low income Missourians, and payments for services provided to Missouri Medicaid beneficiaries and uninsured Missourians. Local government fiscal impact in unknown. Not only does the ballot language not inform voters as to what the proposed amendment is about, it isn't entirely impartial. The name of the fund, Healthy Futures Trust Fund, is prejudicial as there is no guarantee the trust fund would provide a healthy future for the people of Missouri. In the first section, it says the fund would "be used to reduce and prevent tobacco use . . ." However, there is no assurance it would achieve these results. In addition, the fiscal note is prejudicial and does not mention that "payment for services" could actually mean paying higher fees to doctors and hospitals for services currently being provided – not increased services or coverage. The fiscal note also does not mention all the additional potential costs of Amendment 3 or that some of them might not be covered by revenue generated by the proposal. Hospitals and doctors would receive a lot of the funding Of the estimated $425 million raised each year by Amendment 3, about $350 million is supposed to go for health care access and treatment. Of this $350 million, about $230 million would go directly for hospitals, hospital emergency departments, physicians, specialist physician services, Level I trauma centers, trauma centers and safety net clinics, in the form of "supplemental payments" – which does not mean expanded health care services. In subsection 8 of the proposed amendment, it gives five purposes for which funds can be spent from the Health Care Access and Treatment Account. Four of the five are for providing "supplemental payments." Supplemental payments do not mean increased healthcare. There isn't a word about expanded coverage. Of the approximately $425 million raised by Amendment 3, only about $125 million is planned to go for increased health care services for Medicaid recipients and low-income Missourians who would be eligible for services.
The proposed amendment suggests that physician fees for services provided through the program be paid for from a Medicare fee schedule rather than a Medicaid fee schedule: "The department of social services shall establish, to the extent funds are available, a Medicaid physicians fee schedule that is comparable to the Medicare physician fee." According to the state auditor's fiscal note summary, this would cost $268 million if implemented. There are no guidelines for what constitutes when "funds are available." If this goes into effect, it could also mean more funding for doctors and less for health care services. Tobacco cessation, education programs would get $75 million annually – shouldn't the $1 billion in tobacco settlement funds be covering this? Amendment 3 would mandate that 17.5% of the approximate $425 million raised by the proposal be spent for tobacco cessation, prevention, and education. This would come to about $75 million annually. But what about the $1 billion that the state of Missouri has collected for these programs? Almost none has gone for programs to stop smoking. According to the state audit released this year, about 70 percent of the funds were used to cover state budget shortfalls. Most of the funds, about $227 million, were spent for Medicaid. Though the tobacco companies write the checks, the funding really comes from the pockets of smokers. The settlement is funded by a big boost in cigarette prices. So smokers are already funding Medicaid through the tobacco settlement funds. The audit said that for the first 25 years of the settlement, which goes on in perpetuity, the state of Missouri will collect an incredible $4.6 billion. A large part will no doubt be going to fund Medicaid. The state received about $145 million of tobacco settlement funds in 2005. Not a cent was spent for smoking and tobacco cessation efforts.
In Subsection 8(1), in stating how some funds from the "Health Care Access and Treatment Account" are to be appropriated, the language is as follows: 8. Moneys deposited in the Health Care Access and Treatment Account shall be appropriated by the general assembly solely to provide additional funds for the purpose of:
(1) providing medically necessary health care services for individuals with incomes that are 200% or less of the federal poverty guidelines . . . (emphasis added) The implication of just that one definition – "individuals with incomes that are 200% or less of the federal poverty guidelines" – is considerable. It could lead to a cost of billions of dollars for taxpayers. Eligibility for most social programs is based on household income. That is even the requirement for another provision in Amendment 3. After the 2005 changes in Medicaid, some eligibility was reduced to 22 percent of the federal poverty level (FPL) from 75 percent for some beneficiaries, but not all. Others are at various levels depending on category: disabled, blind, pregnant women, aged, etc. But how could the eligibility for health service as mandated in Amendment 3 exist along with the current eligibility? Presumably, under Amendment 3 guidelines, if a family of four had one spouse with a $100,000 income and the other spouse with no income, and two young children with no incomes, everyone in the family except the spouse with the $100,000 income would be eligible for healthcare services funded by taxpayers. In the first tobacco tax initiative petition circulated last year by the Committee for A Healthy Future, it likewise gave household income as an eligibility requirement. That initiative was stopped and another one was drafted in conjunction with another group. However the new petition, which eventually became Amendment 3, gives eligibility for health care services based on individual incomes. Why would the eligibility be changed in the second initiative? Why are so many people included for coverage in the proposed amendment when the revenue doesn't come anywhere near being able to cover them? Why wasn't it just limited to providing additional funding for Medicaid instead of trying to enact a lengthy and complicated amendment? These are questions for which supporters have provided no answers.
A big problem with Amendment 3 is that it isn't known what implications it would have for healthcare coverage because it isn't known for sure which funding scheme would eventually be used. Here are some possibilities: ▪ Possibility No. 1 – Funding works as outlined If Amendment 3 works as outlined in the amendment, it would mean that only about $125 million of the estimated $425 million annually raised by Amendment 3 would go toward additional health care services for Medicaid beneficiaries and others eligible for coverage. A lot of eligible people would be excluded from coverage. ▪ Possibility No. 2 – Current funding is diverted It could happen that Amendment 3 does not increase funding for Medicaid as the "new revenue" from Amendment 3 would come in and the currently appropriated money is diverted elsewhere. As many remember, this is what happened with the lottery money. The drafters of the tobacco tax amendment sought to prevent this. They included a provision in the proposed amendment that mandates that revenue from the tax can not be used to replace existing funding. This obviously seeks to avoid a constitutional restriction on initiatives. The proposed amendment states in Subsection 11: The net proceeds from the tax imposed by this section shall constitute new and additional funding for the initiatives and programs described in this section and shall not be used to replace existing funding as of July 1, 2006 for the same or similar initiatives and programs. Article III; section 51 of the Missouri Constitution states: The initiative shall not be used for the appropriation of money other than of new revenues created and provided for thereby, or for any other purpose prohibited by this constitution. What the amendment seeks to do is tell the Legislature it can not appropriate less funds for the same purposes the tobacco tax revenue would be appropriated. As these funds are not part of the new revenue raised by the tobacco tax, this attempt to circumvent the constitution would likely fail. There is no assurance for voters that what is being claimed as the main purpose of Amendment 3 – restoring Medicaid coverage for more people – would actually happen. ▪ Possibility No. 3 – Amendment 3 leads to $1.2 billion annual cost Should the proposed tobacco tax be approved by voters and go into effect, it will clearly not provide enough funding to provide coverage for everyone in Missouri with incomes up to 200% of federal poverty levels. What about those who qualify but for whom no coverage is provided because of lack of funds? Would they not be able to claim they deserve equal treatment? This is from the fiscal note summary prepared for the tobacco tax initiative by the state auditor's office Officials from the DSS – Division of Medical Services (DMS) indicated that no additional funding for staff would be needed to administer a smoking cessation program.They also indicated that in order to provide healthcare for Missourians with incomes less than two hundred percent of federal poverty level, it is anticipated that the additional cost would exceed $1.2 billion. This $1.2 billion cost refers to the total cost to cover all Missourians with incomes less than 200% of federal poverty level. The actual level of spending will reflect the revenue realized through the increase in the tobacco tax. (emphasis added) If would not be difficult to imagine a class-action lawsuit filed against the state on behalf of those who are excluded from coverage. If it was successful, then the cost of Amendment 3 could go to $1.2 billion a year. The auditor's summary also says the "actual level of spending will reflect the revenue realized through the increase in the tobacco case." That would happen with "Possibility No. 1." But it isn't known for sure what will actually happen. Amendment 3 could increase caseload by 56,392; 231 additional workers required at $10.2 million cost – According to the state auditor's fiscal note summary, the eligibility requirements of the proposed amendment for health care services would cause an additional 56,392 caseloads for the Department of Social Services, if fully implemented. (A caseload can be either an individual or a family.) This would require an additional 231 workers: 180 caseworkers, 18 supervisors and 33 clerical workers. The annual cost would be $10.2 million to $10.4 million annually in the first years. According to the fiscal note summary, the Department of Social Services (DSS) assumes these costs would be covered by revenue from the tobacco tax revenue. That does not appear to be the case. The definition of "Net proceeds" only allows funds to be for specific purposes that are given in subsection 5. Providing caseworkers and supporting staff is not mentioned. Education funding could be affected – Section 5 (3) of proposed Amendment 3 also allows for the Director of Revenue to determine whether the taxes imposed by the amendment would cause a reduction in amounts collected for the Fair Share Fund, the Health Initiatives Fund or the State School Moneys Fund. The 17-cent per pack cigarette tax support these funds from the $100 million raised by the tax. The amounts paid for any shortfalls could not exceed 3% (about $12.75 million) of the amount collected from the new tobacco tax. If cigarette sales decrease as the result of the tax hike, the revenue for these funds could decrease. (Decreased tobacco tax collections do not necessarily mean a decrease in smoking.) Of the $100 million annually yielded by the cigarette tax, about $24 million goes to the Fair Share Fund, which is distributed to school districts based on average daily attendance. About $24 million goes to the Health Initiatives Fund, which provides funding for various health care programs such as the C-STAR substance abuse program run by the Department of Mental Health. About $52 million goes to the State School Moneys Fund, the primary source from which state aide is distributed to local school districts. Would the tobacco taxes result is less revenue for these funds? Some predict it will, some predict it won't. If considerable cigarette sales are lost to bordering states due to the higher Missouri tax on cigarettes, the funds could be affected. How could it be determined that these funds are being reduced by the new tobacco taxes? There is no criteria given. The state Auditor raises questions about this in the fiscal note: Section 5 (3) requires Taxation to make a monthly comparison to determine if the tax increase caused a reduction in the amount of moneys collected and deposited into the fair share fund, school fund, and health initiatives fund. It is unclear how the comparison is to be made. Is the amount compared to the prior year, the prior month, or the year to date totals? What proof is to be used in order to justify our figures? What is the due date of the report? How are amended reports, for prior periods, accounted for? This is another example of how Amendment 3 is unpredictable, unnecessarily complicated and how its workability can be questioned. The potential for litigation in this area would be considerable. Does the definition of "Uninsured Missourian" lack a needed limitation? Amendment 3 gives the definition of "Uninsured Missourian" as a citizen "who does not have health coverage through any private insurer, employer-sponsored self-insured plan, government health care program such as Medicaid, Medicare, or similar programs, or any other source." What isn't mentioned is whether health coverage is available. So even if someone can get health insurance for a reasonable amount from an employer, it would seem they would still be eligible for coverage. Fiscal summary: potential costs of Amendment 3 – This is a listing of various potential costs for Amendment 3 from the state auditor's fiscal note summary: ■ $1.2 billion annually in medical assistance payments to cover health care costs for all Missourians whose individual income is 200% or less of federal poverty guidelines. Amendment 3 would only provide about $425 million annually, so taxes would have to be increased or state services severely cut back if this cost has to be met.
■ $268 million annually if doctor fees for Medicaid are increased to the same as Medicare fees.
■ $10.2 million to $10.4 million annually as Amendment 3 would cause an additional 56,392 caseloads for health services. This would require 231 additional workers: 180 caseworkers, 18 supervisors and 33 clerical workers. This cost would not seem to be covered by the revenue raised by the tobacco taxes imposed by Amendment 3.
■ $173,000 one-time cost for 2 contract programmers for the Department of Revenue, related to tobacco cessation programs.
■ $2,490 one-time cost to mail 5,000 to 6,0000 letters of notification to tobacco retailers throughout the state.
■ $2 million a year or less needed for an additional 20 agents and five clerical workers to help implement the enforcement components for the tobacco cessation efforts.
■ $1.2 million for administrative costs – some are one-time – to administer the tobacco prevention and cessation effort. This would require 13 employees and costs to for computers, office equipment and costs for travel, communication, rent, utilities, network, software and office supplies.
■ $1.5 million a year for salaries and equipment needed for administrative work associated with violation reports that are part of the smoking cessation effort.
■ Unknown additional costs may be incurred to make changes to the Department of Medical Services billing/ payment services.
■ Unknown additional costs for staff additions to the Department of Social Services for each program to seek to qualify for federal payments. Funding for an actuarial study is also needed. This would probably not be covered by Amendment 3 revenue.
■ Unknown additional costs for the Department of Revenue in collecting the tax. It isn't known how the cost of collecting the current tobacco taxes can be separated from the cost of the new tobacco taxes.
■ $12,000 annually for the state auditor to perform an annual audit.
■ $32,000 every three years for the state auditor to assess the work and progress of the programs. Bad policy and bad timing to put the amendment in the Constitution – Putting a 3350-word amendment in the Missouri constitution, which imposes cigarette and tobacco taxes and then gives myriad details on how and for whom the revenue would be expended, is bad public policy. The timing also couldn't be worse. The Medicaid program is in a state of flux in Missouri. Changes are no doubt in store for next year's legislative session. There are many states – Massachusetts, Michigan and about 20 others – that are looking at new ways to provide both health coverage and health insurance. The timing couldn't be worse for putting such a bureaucratic, convoluted proposal in the Missouri Constitution. Adding Amendment 3 to the constitution would not allow much flexibility with the state's effort to provide healthcare to the people of Missouri. Once an amendment to the constitution is approved, it can not be easily changed. Another vote would be required. There is a strong belief among the people of Missouri that the state should provide healthcare for those in need: the poor, the blind, the disabled. However, Amendment 3 is not the way to go about. If it is defeated, perhaps a better proposal can be drafted – one that is fair and equitable and would enjoy the support of people throughout the state. [END]
September 28, 2006 ATTACHMENTS Missourians Against Unfair Taxes The Case Against Amendment 3 September 28, 2006
● Text of the Initiative Petition that became Amendment 3
● Fiscal Note Summary for the Initiative Petition
● State audit of the Tobacco Settlement Funds
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PAID
FOR BY MISSOURIANS AGAINST UNFAIR TAXES, ROBERT WARD, TREASURER |