New report makes case for exempting medical services from Hawaii's GET

A Grassroot Institute of Hawaii policy brief contends removing the tax would lower medical costs and help alleviate the state's doctor shortage

News Release from Grassroot Institute, Jan 30, 2023

HONOLULU, Jan. 30, 2023 >> The Grassroot Institute of Hawaii today released a policy brief explaining why medical services should be exempted from the state’s general excise tax.   

The new publication, written by Institute Policy Director Malia Hill, outlines how such an exemption would both lower medical costs for patients and help alleviate the state’s critical doctor shortage.

Keli‘i Akina, Institute president and CEO, said the new brief is intended to help state lawmakers understand why exempting medical services from the GET is practical and worth achieving.

“I know there are a half-dozen bills in the 2023 Legislature already that propose such an exemption, whether wholly or in part.” Akina said, “But for any legislators still sitting on the fence about this issue, I hope this information will move them to fully support this reasonable and needed proposal.”

The Institute’s new brief, “The case for exempting medical services from Hawaii’s general excise tax,” explains that not-for-profit facilities such as hospitals are already exempt from the state’s GET, but that private practice physicians must pay the the state’s base 4% GET, plus any county surcharges, which currently are capped at 0.5%. 

The report says that because the GET is a gross receipts tax, “it becomes a significant overhead expense for private practice physicians, making it extremely difficult to be profitable — especially for new doctors who are just starting out and still paying their student loans.”

The Hawaii Physician Workforce Assessment Project recently estimated that Hawaii is short 776 full-time-equivalent physicians. The greatest need is in primary care, but Hawaii also desperately needs specialists –– especially on the neighbor islands, where getting specialized care is more difficult and often necessitates flying to Oahu for treatment. 

Based on prior Institute research, Hill states that a medical services exemption from the state GET would reduce state tax revenues by estimated $222 million a year. However, “since the state has a $2.6 billion surplus for fiscal year 2023, and is expecting a surplus of about $10 billion over the next four years, it is in an excellent position to afford such a tax exemption.” 

Hill adds: “To the extent that the exemption would help resolve Hawaii’s doctor shortage, the $222 million could be considered money well spent.”

To read or download the new Grassroot Institute policy brief, go here.