This year in the state Legislature, there are roughly two dozen House bills and another two dozen Senate bills targeting the general excise tax, many of which request exemptions.
The GET started as a 1.5% tax on nearly all business transactions and purchases. It has been increased over the years and is now 4.712% in Hawaii County.
Businesses and other entities are not required to pass the tax along to consumers, but nearly all do.
The proposed exemptions in the bills are for food, medicine, maintenance, farming, housing, hygiene products and other goods and services, but many of the proposed measures focus on an exemption for medical services.
“The GET on medical services has undoubtedly contributed to the state’s overall physician shortage, fostering an unviable business environment for smaller practices with narrow margins,” said Sen. Dru Mamo Kanuha of Kailua-Kona, who introduced Senate Bill 761, which would exempt all medical services by health care providers.
The federal government has designated Hawaii County a health professional shortage area, with the Big Island having the third worst primary care provider shortage out of 3,000 counties in the U.S.
“Recent studies have shown that a GET exemption for the for-profit medical sector’s approximately 38,000 full-time workers would translate to about $5,725 in savings per year, per worker,” Kanuha said, noting the benefits could increase incentives for physicians to practice in Hawaii.
“I am confident that the influx of health care providers and staff to the state will generate sufficient economic activity to offset any loss in GET collections,” he said.
Physicians and providers who see Medicare, Medicaid, and TRICARE patients are subject to the GET, with Hawaii being the only state in the nation to tax these patients, which make up roughly 50% of all patients in the state.
“Providers oftentimes pass on the GET for services rendered to the patient in order to maintain profit,” said Kanuha, who also is co-introducer of Senate Bill 1128, which would exempt physicians and advanced practice registered nurses acting as primary care providers. “An exemption as prescribed by SB 1128 would translate to big savings for patients, as well.”
With hospitals and subsidized nonprofit medical clinics exempt from the GET, private practice providers bear the brunt of the tax, resulting in decisions by physicians to retire, close or move elsewhere. In 2020, 110 doctors retired in Hawaii County, 139 moved, and another 120 opted to work shorter hours.
“The reality is, if something is not done, and done rapidly, you are not going to have any physicians left in the community other than the ones that work for the hospitals,” said Dr. Fred Nitta of the Hawaii County Medical Society. “It used to be around 90% of the physicians were in private practice, now my guess, as far as this side of the island, it’s 10% or maybe less.”
SB 1128 also notes if the GET were imposed on hospitals, it would “result in nearly all hospitals having negative margins, essentially taxing the institutions out of business and significantly impairing patient access to health care.”
A previous attempt at GET exemptions for medical services occurred in 2020, and while the bill passed the Senate, it failed to get through the House, with many citing the novel coronavirus pandemic as a reason behind the failure.
Hawaii County Mayor Mitch Roth has voiced support for the exemptions on medical services.
“This is taking away one more barrier that will help us recruit doctors and maintain doctors that we have here in Hawaii Island,” he said. “We want to make sure that we’re taking care of our doctors so they can take care of us.”
Gov. John Green, a physician, campaigned on supporting GET exemptions for food and medicine, but has quieted down on the subject, not mentioning the GET at all during his first State of the State address on Monday.
In a recent interview with Hawaii News Now, Green said he favored a tax credit for those making below $60,000 annually as a potential alternative.
Four key bills seeking medical service exemptions have passed a first reading and will move on to a committee hearing. If eventually approved, the bills would take effect Jan. 1, 2024.
“With the support of our mayor’s office, our local lawmakers taking the lead on health care legislation, a physician governor, well-documented health care provider shortages, and billion dollar budget surpluses, this would seem to be the most opportune time to pass GET reform,” said Scott Grosskreutz, head of the Hawaii Provider Shortage Crisis Task Force. “If GET reform does not pass, then the number of remaining providers in private practice will continue to decrease at an accelerated pace.”
A 2021 Hawaii Physician Workforce Assessment reported Hawaii County was short 287 physicians, and with no immediate action, Grosskreutz estimates the decline could result in a health care disaster.
“In a few short years, the GET income from taxing private practice medical services will fall precipitously,” he said, if private practices continue to close.
“That would be the worst of all possible worlds — a health care disaster and loss of revenues from not only the GET, but income and corporate taxes from Hawaii losing more health care providers.”
Email Grant Phillips at gphillips@hawaiitribune-herald.com.
