Texas has not considered the practice and provision of medical care and health care services to be taxable. According to the Texas Occupations Code §151.002, billing for treatment performed is part of the practice of medicine.
Background. In response to a 2002 inquiry regarding medical billing, the Texas comptroller’s office determined that merely completing a form for the insured is not claim processing. The agency stated claim processing does not begin until an insurance company receives the claim. Thus, it concluded, medical billing services that occur before claim submission are not taxable.
In November 2019, however, the agency revised its interpretation of the tax code related to medical billing services, effective Oct. 1, 2021 (originally Jan. 1, 2020). The comptroller noted that no specific laws or rules address whether medical billing is taxable and that the timing – before or after the claim – does not matter. It said in “non-medical scenarios,” services involving an insurance claim are taxable, and only in medical billing does the comptroller distinguish between services performed before or after the insurer receives the claim.
Additionally, it said, the tax code’s definition of insurance claims adjustment or claims processing is “any activities to supervise, handle, investigate, pay, settle, or adjust claims or losses.” “Preparation of a claim [prior to claim submission] is an inherent part of the insurance claim process,” the comptroller said. “Medical billing services to prepare a medical insurance claim for filing constitute insurance claims adjustment or claims processing. Thus, medical billing services are insurance services.”
Consequences of the Nov. 19 interpretation. The current tax on insurance services is 6.25% – and local entities may tack up to 2% on top of that. Medical billing companies undoubtedly would pass on the 6.25% tax to their physician clients, who then may pass that cost on to … no one. Physicians and health care providers generally cannot change the contracted payments made by insurance companies and patients to make up for the tax because the contracted rates with insurers, many of which are extrapolated from federal Medicare fee standards, are set in stone. A medical billing tax will result in:
- Increased overall health care costs, especially for smaller practices;
- Increased administrative burdens and costs for medical practices;
- Market consolidation/less competition as smaller medical practices bear an outsized financial impact; and
- A disproportionate impact on rural physicians, many of whom outsource complicated coding to keep their doors open.
Texas should not tax medical billing. The following entities recognize that medical claim adjustment or medical claim processing is a post-claim activity performed by an insurer:
- Texas and federal courts,
- Texas Health and Human Services Commission,
- Texas Department of Insurance, and
- Centers for Medicare & Medicaid Services.
TMA is working with a coalition of more than 40 organizations and companies that successfully asked the comptroller’s office to delay taxation of billing services until after the legislative session. The coalition has drafted language that amends §151.0039(b) of the Texas Tax Code to ensure pre-claim work by medical or health care billing companies is not considered taxable as insurance.
TMA’s Legislative Recommendations
- Amend existing statute to clarify that medical/health care billing is not the practice of insurance.
- Prevent taxation on health care services.