Hawaii medical excise tax affecting patient care, physicians say

As Hawaii grapples with a physician shortage, patients struggle to find the care they need, health care officials said.

A Hawaii resident diagnosed with breast cancer could not find a physician to treat her, said Dr. Scott Grosskreutz in written testimony to the Senate Health and Human Services Committee.

"This is over 15 patients that I have seen present with advanced disease because they (couldn't) find a primary care provider in East Hawaii in the last year," said Grosskreutz, a member of the Hawaii Provider Shortage Crisis Task Force.

In addition to a shortage of doctors on the Pacific island chain, the 4% general excise tax puts an additional burden on physicians taking care of Medicare patients. Hawaii is one of only two states that charge a tax on medical services.

"Almost all practices lose money caring for Medicaid patients," Grosskreutz said. "Hawaii is the only American state which taxes Medicare, Medicaid and TriCare medical care, which is half of Hawaii's population. Health care providers have to absorb this tax, which federal Medicare and TriCare policies forbid passing to patients. The GET taxes gross revenues, even when practices lose money providing care, which makes many if not most practices nonprofitable."

Gov. Josh Green said he wants to reduce taxes on food and medicine. Eliminating the tax on medical services should also be included, said Ted Kefalas, director of strategic campaigns for the Grassroot Institute, in written testimony. The nonprofit policy research organization recently released a study on the impact of exempting the GET from medical services.

"This would result in substantial savings for individual practices," Kefalas said. "According to the Grassroot Institute study, the savings from that base 4% GET exemption would be about $5,275 each for the approximately 38,000 full-time workers in the medical industry. That's the equivalent to 6.7% of the average medical service worker's wage and 5.8% of current GET collections."

Several bills have been filed this session that would remove the GET tax either entirely or partly. The Senate Health and Human Services Committee held a hearing on some of those bills last week. The committee deferred some in favor of recommending Senate Bill 1035. The bill is still a work in progress. If passed, it would go into effect in the 2024 tax year. A companion bill in the House of Representatives is assigned to the three committees but has not had a hearing yet.

Ending the GET tax for medical services is not the cure for all that ails Hawaii's health care community, according to a Grassroot Institute policy paper.

"...but it would be an important step in addressing the state's physician shortage and expensive healthcare," wrote policy director Malia Hill. "It would demonstrate that policymakers are listening to the needs of the state's healthcare workers and that they are taking action at the local level to relieve the burdens associated with practicing medicine in our state."

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