Saddled with hundreds of millions of dollars in uncompensated care costs, hospitals receive approximately 40% of DRP revenue in the form of reimbursements for emergency medical services provided to Texans in need.[i] Uncompensated care costs are a tremendous strain on Texas hospitals and taxpayers, and lawmakers are right to look for ways to defray some of those costs. But for all the reasons stated above – and especially in light of the even greater public costs arising from accidents among uninsured drivers – the failed Driver Responsibility Program is not the solution to that problem.
In 2012, Texas trauma hospitals incurred a total of $234 million in uncompensated care costs[ii] but received only $55 million in reimbursements from the state in the form of DRP surcharge revenue.[iii] In each of the past five fiscal years, the DRP has covered between 23% and 33% of hospitals’ uncompensated care costs, amounting to 30.6% of total uncompensated care costs between fiscal years 2008 to 2012.[iv] Because statute designates roughly half of DRP surcharges for the General Revenue (GR) fund, the DRP has also generated approximately $85 million per year for general purpose use by the state. While the DRP provides a modicum of relief for Texas hospitals, their funding gap is much bigger than the DRP can fill.
Compounding the situation for Texas hospitals, hundreds of millions of dollars in collected surcharges have never been distributed to those trauma centers, instead building up in the state treasury for use in balancing the state’s biennial budget. As of August 31, 2012, the “Designated Trauma Facility & Emergency Medical Services Account” had a balance of $371,554,005.[v] The long-standing practice in Texas of allowing fee revenue (collected for statutorily designated purposes) to accumulate in GR-dedicated accounts for use in balancing the budget runs counter to the principles of budget transparency and has been heavily criticized by conservatives and liberals alike.[vi]
Given the multiple failures of the Driver Responsibility Program, Texas must seek out better ways to fund trauma centers. We strongly recommend that the Legislature repeal the failed DRP and replace hospital revenue with a fairer and more robust funding stream. Below are a few options that lawmakers could consider.
Moderately Increase the Cigarette Tax
When the Legislature created the DRP in 2003, part of the rationale for using driver’s license surcharge revenue to fund Texas hospitals was that automobile accidents are responsible for a significant share of emergency room costs. The same is true for smoking. Increasing the cigarette tax would be a smarter way to fund Texas trauma centers, since smoking adds substantially to public healthcare costs in Texas.[vii]
- The Legislature could raise the cigarette tax by approximately $0.15 per pack, for example, and generate sufficient revenue to replace most of the funds that hospitals currently receive from the DRP.[viii]
- The Legislature could also close a loophole to ensure that all cigarette manufacturers pay fees to the State of Texas for the sale of their product in Texas.
Increase Alcohol Tax Collections
Just like smoking, consumption of alcohol imposes substantial medical costs on society.[ix] The current tax rate of $0.11 per six-pack ($6.00 per barrel) has been in place since 1984.
- The Legislature could increase the beer tax by approximately $0.06 per six-pack (to a $0.164 total rate per six-pack) and generate sufficient revenue to replace most of the funds that hospitals currently receive from the DRP.[x]
- The Legislature could also expand the hours or days during which alcohol may be sold in Texas to generate additional revenue for trauma centers.
Levy a Modest Junk Food Tax
Food and drinks with high sugar content contribute to obesity, which in turn leads to increased healthcare costs associated with diabetes and heart disease. Texas could join 19 other states by taxing carbonated soft drinks, and use the revenue generated to replace hospital funds lost to a repeal of the DRP.
- The Legislature could levy an approximate 1% tax on carbonated soft drinks and generate sufficient revenue to replace most of the funds that hospitals currently receive from the DRP.[xi]
Draw Down the “Designated Trauma Facility & Emergency Medical Services Account” Balance
As mentioned above, a significant portion of the surcharge and other revenue deposited in the “Designated Trauma Facilities & Emergency Medical Services Account” has never been distributed to Texas hospitals.[xii] Instead, the funds have been allowed to accrue for use in certifying the state budget. With increasing calls to improve transparency in the state budget process, those funds should be used for the purpose for which they were collected. If the Driver Responsibility Program was abolished by the Legislature without creating a new funding mechanism for Texas trauma centers, the $370 million fund balance could be drawn down gradually over the next few budget cycles, giving legislators additional time to identify a new funding source for Texas trauma centers.
- The Legislature could draw down the existing fund balance in the “Designated Trauma Facility & Emergency Medical Services Account,” which contains sufficient funds to maintain disbursements to trauma hospitals at their current levels through 2019.
In summary, while Texas trauma centers deserve additional revenue to help cover uncompensated care costs, there are better ways to help hospitals recover those costs than with a program that decreases public safety, distorts the Texas court system, and generates even greater costs to the public.
[i] Figure derived from “Designated Trauma Facility and Emergency Medical Service Account: FY05-FY12 Disbursements,” prepared by the Texas Department of State Health Services and “Allocation of Driver Responsibility Revenues: FY04-FY12” prepared by the Comptroller of Public Accounts. Data available upon request.
[ii] “Calculated Uncompensated Trauma Care Costs Reported in DSHS Uncompensated Trauma Care Funding Application (2004 – 2012),” prepared by the Texas Department of State Health Services. Data available upon request.
[iii] “Designated Trauma Facility and Emergency Medical Service Account: FY05 – FY12 Disbursements,” prepared by the Texas Department of State Health Services. Data available upon request.
[iv] Figure derived from data referenced in notes 40 and 41.
[v] “State of Texas Annual Cash Report, Revenues and Expenditures of State Funds for the Year Ended August 31,2012,” prepared by the Texas Comptroller of Public Accounts. Online at: http://www.window.state.tx.us/finances/pubs/cashrpt/
[vi] Texas Public Policy Foundation, “TPPF Commends Speaker Straus for Shining Spotlight on GR-Dedicated Accounts,” news release, October 9, 2012. Online at: http://www.texaspolicy.com/press/tppf-commends-speaker-straus-shining-spotlight-general-revenue-dedicated-accounts. See also remarks by Dick Lavine, Center for Public Policy Priorities, before the House Committee on General Revenue Dedicated Accounts, Nov. 7, 2012. Online at: http://www.house.state.tx.us/video-audio/committee-broadcasts/committee-archives/player/?session=82&committee=283&ram=12110713283
[vii] According to a recent proposal to ban smoking in public venues in Texas, smoking adds $30 million in annual Medicaid costs and $200 million per year in overall healthcare costs and lost productivity in Texas. See Bill Analysis for HB 670 (2011). Online at: http://www.legis.state.tx.us/tlodocs/82R/analysis/pdf/HB00670H.pdf#navpanes=0
[viii] Figure estimated based on the fiscal note for HB1810 (2011). Online at: http://www.legis.state.tx.us/tlodocs/82R/fiscalnotes/pdf/HB01810I.pdf#navpanes=0. Note that the suggested cigarette tax increase would not replace revenue lost to the General Revenue Fund if the DRP were abolished.
[ix] According to the National Institute on Alcohol Abuse and Alcoholism, medical costs associated with alcohol abuse in the United States totaled $26 billion in 1998. Adjusting for inflation, that’s $36 billion in 2011 dollars. See “10th Special Report to the U.S. Congress on Alcohol and Health,” prepared by the National Institute on Alcohol Abuse and Alcoholism, June 2000. Online at: http://pubs.niaaa.nih.gov/publications/10report/intro.pdf
[x] “Taxing Sin,” Center for Public Policy Priorities, January 14, 2009. Online at: http://library.cppp.org/files/7/SinTaxes.pdf. Based on the Comptroller’s estimate for 2012 beer consumption in Texas, raising the beer tax by $3.50 per barrel (or 16.4 cents per six-pack) would generate approximately $66 million in revenues. Data available upon request.
[xi] According Beverage Digest, national carbonated soft drink sales totaled $75.7 billion in 2011. Assuming roughly equal per capita consumption, Texas consumption in that year was approximately $6.3 billion. So a 1% tax on soda sales would generate approximately $63 million per year. See “Soda Consumption Down Again, Revenues Up,” United Press International, April 2, 2012. Online at: http://www.upi.com/Business_News/2012/04/02/Soda-consumption-down-again-revenues-up/UPI-32701333344089/
[xii] In addition to DRP surcharge revenue, 32% of the State Traffic Fine is allocated to Account 5111 as well. Online at: http://www.lbb.state.tx.us/Interim_Budget_Docs/GRDFunds/5111%20-%20Trauma%20Fund.pdf