Hawaii tax reform could increase health care affordability, experts say
The Hawaii Budget and Policy Center (HBPC) is calling for lawmakers to pass tax reform that would address racial and socioeconomic disparities across the state.
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Health care costs in Hawaii are unevenly distributed between low and high wage earners. According to data from the Bureau of Labor Statistics, the bottom 10% of wage earners in the state spend 8.4% of their income on health care, compared to 6.6% of the wealthiest 10%. For spending on social determinants of health such as food and housing, the disparities are even higher.
Devin Thomas, an AmeriCorps VISTA policy analyst and author of the HBPC analysis, wrote that a lack of data on racial and ethnic disparities within the state’s tax structure poses a barrier to economic equity.
“Unfortunately, in Hawaiʻi, there is a glaring absence of ethnically disaggregated tax data for Native Hawaiians, Pacific Islanders, and other people of color. This data is crucial to determining the needs of certain ethnic groups, as well as the amount of government investment required to meet these needs.”
In Hawaii, the inequalities between these costs are exacerbated by the general excise tax (GET), which charges approximately 4.5% on goods and services, including health care. Aside from impacting the general public, GET can also place financial strain on health care providers. Kelley Withy, MD, director of the Hawai’i/Pacific Basin Area Health Education Center, said these taxes especially impact small or private practice doctors.
“Hospitals and medical groups don’t have to pay the 4.5% tax on goods and services in medical care, but the small doctors do. They’re actually paying a double tax, because if you have public insurance, like Medicare or Medicaid, the provider cannot bill you more than the cost of service. They cannot include tax, and so [the provider] must pay that tax.
So not only do they have to pay that tax on everything they purchase, everybody they hire, and everything that costs them anything, but they have to pay the tax on the amount the patient, or the insurance company pays them.”
Withy said previous legislation to excuse small practice providers from GET, or at least allow them to collectively bargain, did not go through. These providers currently rely on the federally funded Hawaii State Loan Repayment Program (HSLRP) to help cover costs.
To help low-income households with health care costs, HBPC suggested expanding the state-level earned income tax credit (EITC). Federal EITC has been in place since 1975, and helped reduce costs for almost a quarter of Hawaii households in 2015 (approximately $230 million in claims). Thomas said the legislature should enact changes to the state-level EITC, which is set to expire at the end of 2022.
“Hawaiʻi’s EITC is nonrefundable, meaning that filers with tax burdens that are lower than the credit do not benefit from it. On the continent, 24 of the 29 U.S. states and the District of Columbia that currently provide a state EITC have made it refundable. Considering its profound impact on poverty, Hawaiʻi lawmakers should prioritize extending the state EITC and making it refundable.”