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Taxes on smokes, Cokes and booze might save AHCCCS

Alcohol, tobacco and soft drinks have been targeted for tax increases as a group representing hospitals and health care providers searches for a revenue source that will pass muster with voters while generating enough money to maintain Arizona’s Medicaid program.

Due to soaring costs in the Arizona Health Care Cost Containment System, Gov. Jan Brewer and some lawmakers have proposed cutting back eligibility for Arizona’s Medicaid coverage, which is among the most expansive in the United States. The Arizona Hospital and Healthcare Association, meanwhile, is looking for new ways to raise enough money to keep AHCCCS eligibility unchanged and allow people who are enrolled in the program to continue receiving benefits.

There is no way to generate enough money to save AHCCCS – at least the way it’s set up now – without raising taxes, said John Rivers, the association’s president. New taxes on alcohol, tobacco and soft drinks seem to be the most viable options.

“We’re looking at every conceivable revenue source to support the AHCCCS program. Our goal would be to find enough revenue to basically eliminate the current level of general fund responsibility,” Rivers said. “We don’t want to come forward with anything that doesn’t stand up in the court of public opinion.”

During the past two weeks, the association has conducted polling to find out which taxes voters would be willing to raise in order to preserve AHCCCS eligibility. Rivers said the group expects to have an outline of its plans by mid-March, though a “full-blown proposal” will take a bit longer, he said.

Rivers said voter approval for higher income taxes and property taxes is unlikely. He said voters might be more willing to tax unhealthy things that have a direct impact on higher health care costs.

“They tend to support taxes that are going to be paid by somebody else. They tend to support taxes where they see a direct link between the tax and how it is going to be used,” he said. “I think if we had taxed tobacco to build highways in Arizona, I think that initiative would’ve failed. But our tobacco initiatives have been designed to improve access to health care and strengthen anti-tobacco education programs. And that makes intuitive sense to the public.”

In 2000, for example, voters approved Proposition 204, which expanded AHCCCS eligibility with revenue from tobacco taxes and the state’s court settlement with tobacco companies. The ballot measure expanded AHCCCS to include all adults who earn up to 100 percent of the federal poverty level, which is about $22,050 a year for a family of four.

Prior to Prop. 204, AHCCCS covered parents who earned up to 33 percent of the poverty level.

Since then, however, the program has become a massive drain on the state’s general fund because the tobacco money covered only a portion of the cost to expand coverage.

The Governor’s Office estimates that rolling back AHCCCS eligibility to pre-Prop. 204 levels would save the state about $900 million a year, meaning the Arizona Hospital and Healthcare Association needs to aim high when it settles on a specific funding source for AHCCCS. It also would mean about 310,000 Arizona residents who are enrolled in AHCCCS would lose health care coverage.

The bottom line is that it’s going to take more than just a tax on soft drinks to raise enough money to maintain AHCCCS eligibility levels.

Rep. David Bradley, a Tucson Democrat, said he once proposed raising the sales tax on soft drinks, and legislative budget staff determined that an additional 1 cent tax on every 12-ounce can of soda would bring in about $25 million a year. A 2009 study by the Center on Budget and Policy Priorities, a Washington, D.C. think tank, determined that a similar tax in the federal level would generate about $10 billion annually.

Bradley wants to see AHCCCS eligibility maintained, but doesn’t think a soft drink tax would get the job done.

“I think you’re better off with (a tax on) the beer, wine and spirits,” said Bradley.

According to the Joint Legislative Budget Committee, a 10 percent increase in the luxury tax on alcohol would generate about $6.4 million per year. But Rep. Matt Heinz, a Tucson Democrat, said a 10- cent-per-drink tax on alcoholic beverages could raise hundreds of millions. And unlike with tobacco, he said, alcohol tax revenues will remain high because people won’t quit drinking.

“Alcohol is not going away,” he said. “People are going to drink that forever.”

Former AHCCCS Director Tony Rodgers was skeptical as to whether any of the taxes being considered by the Arizona Hospital and Healthcare Association could bring in enough money to prevent massive cuts to AHCCCS. But even if they would, he said, higher taxes on alcohol would likely face fierce resistance from the industry.

“The reason why alcohol has not been tapped for this is that industry really comes out against that when someone tries to do that,” said Rodgers, who served as AHCCCS director from 2003 to 2009.

And some, such as Bradley, wonder whether there’s much left to be gained from additional tobacco taxes. At $2 a pack, Arizona’s cigarette taxes are tied for the 10th highest in the U.S., and cigarette use has declined in many states as taxes have driven up prices. Right now, state and federal taxes on tobacco total $3.01 per pack of cigarettes.

A February report by the anti-tobacco group Campaign for Tobacco-Free Kids estimated that Arizona could generate $67.5 million per year from an additional $1 per-pack increase in cigarette taxes.

“I don’t know if we’ve beat that puppy to death or not,” Bradley said.

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