With a fiscal slight of hand, Gov. Dannel P. Malloy proposes to tax Connecticut's 29 acute-care hospitals about $400 million over the next two years, providing about one-fifth of the revenues he needs to close the roughly $2 billion shortfall projected over that period.
That is not shared sacrifice. It is not fair. And it runs counter to Gov. Malloy's assurances to protect the most vulnerable. If hospitals get a fiscal hit that hard, the unprofitable programs - such as community outreach programs and mental health services - will be the first to be cut back or eliminated. The public could also anticipate longer waits in emergency departments and delays in scheduling non-emergency procedures.
When the Malloy administration was trying to address the massive deficit the governor inherited after his November 2010 election it sold the hospital tax as a means of tapping more federal aid without hurting the hospitals. In fiscal year 2011-12 the state's hospitals were collectively charged $350 million under the tax, while the state returned $400 million in subsidies to partially offset the cost of treating uninsured patients. Because that $400 million was ostensibly provided to help pay for uncompensated care, Connecticut could apply for federal aid through the Medicaid program, receiving $200 million in federal aid.
So to recap - the hospitals paid $350 million, but got $400 million back and the state picked up $200 million in federal aid. That federal rules allow such a transparent shell game to begin with is a problem, but be that as it may, hospital executives were assured they would not be hurt by the tax.
But this year came another deficit, not nearly as large as that which confronted Gov. Malloy upon his election, but having to be addressed nonetheless. So this fiscal year, which ends June 30, the hospitals will again pay $350 million in taxes, but get back $323 million, a $26.6 million net loss for them but a revenue gain for the state.
With the state confronting a $2 billion deficit projection over the next two years, Gov. Malloy proposes keeping more of the tax, returning to hospitals $215 million in fiscal-year 2014, and only $81 million in 2015. This will net the state about $403 million from the tax (though the $200 million federal return Connecticut got last year will drop to $40 million in 2015 because the hospital subsidy also shrinks).
Over the next two years both Lawrence + Memorial Hospital in New London and The William W. Backus Hospital in Norwich would lose $13.3 million each under the governor's proposed hospital tax plan.
Ben Barnes, the governor's budget director, points out that state Medicaid revenues to hospitals have increased from $70 million to $373 million over the last four years. The Connecticut Hospital Association (CHA) dismisses this as the "myth of the hospital windfall," and with good reason.
A couple of changes account for those rising Medicaid revenues. The state moved low-income childless adults without insurance from the State Administered General Assistance (SAGA) program into Medicaid for Low-Income Adults (MLIA). Hospitals were only getting a 30-cent return on every $1 of medical services under the old SAGA program, compared to 70 cents on the dollar under the federally subsidized MLIA.
But while it is better to lose 30 cents (Medicaid) on the dollar than 70 cents (SAGA), it is still a net loss. And due to the state's economic problems, and many people losing insurance, that population has grown dramatically, with 86,870 receiving care under Medicaid in 2011, compared to the 33,260 who sought care under SAGA in 2008. Hospitals lost $305 million in 2008 and $479 million in 2011. According to the CHA, Connecticut hospitals are losing $1.6 million a day caring for Medicaid and uninsured patients.
The legislature should drop the governor's idea to turn this into a money maker and instead adopt a break-even formula that returns to the hospitals roughly what they pay out in taxes, accessing federal aid in the process. That will leave the challenge of finding savings or revenue elsewhere, but putting the screws to hospitals is not the way to fix the state's fiscal problems.