Lamont continues hospital tax budget scam
Robbers hit certain bank branches repeatedly, but none as regularly as Connecticut has been raiding its hospitals for enormous tax payments, ever since former Gov. Dannel P. Malloy began the practice in 2011.
There was supposed to be tax abatement this year, but, now, Gov. Ned Lamont proposes to continue the raids to close almost half of the 20 billion budget.
You may wonder why the state is taxing hospitals.
The hospitals are actually collateral damage. The real target is the federal treasury via the Medicaid program.
The whole thing is a scam. Here’s how it works. The state taxes hospitals. Then, the state returns to the hospitals much of the tax revenues, which, on the return voyage, are deemed to be “Medicaid supplemental payments.” When the state makes “supplemental payments,” it is entitled to federal matching funds.
The more a state taxes its hospitals and, then, returns the money to the hospitals, the more cash it can extract from the federal treasury. There’s big money in the scheme.
Both Malloy’s and Lamont’s hospital taxes are enormous in scale: 600 million as “supplemental payments.” The state keeps 600 million generate 450 million. Combined with the 750 million on the whole maneuver. That’s equal to half of the entire projected fiscal 2020 budget deficit.
That’s why Malloy taxed hospitals and Lamont is continuing the practice: to close huge continuing state budget deficits.
It is worth considering the impact and ramifications of this scheme.
First, many, if not most, hospitals are non-profit. Why tax non-profits?
Second, hospitals are the primary providers of health care. Why burden them with taxes, which increase their costs?
Health care costs go up every year, right? Why pile taxes on top of the annual increases? There’s no good reason, but that misses the point. The point is that hospital taxes themselves are a major portion of the nation’s health care costs and the annual increases.
Hospital costs are just half of the matter. Federal Medicaid costs are the other. When the federal government sends Connecticut $450 million under the hospital tax scheme, and the state does not send those funds along to hospitals, the cost of the Medicaid program goes up for reasons having nothing to do with health care.
Almost all states tax hospitals. Connecticut is a small state. If other states push the arrangement to the same extreme as Connecticut (that is, keeping virtually the entirety of the federal matching funds), then the scheme drives significant increases in national hospital costs and Medicaid costs.
The Centers for Medicare and Medicaid (CMS) oversees Medicaid, but CMS does not approve or track hospital taxes, unless such taxes exceed 6 percent of hospital revenue. The General Accountability Office was the last federal body to look into hospital taxes in the 50 states. In 2014, the GAO found that 42 states taxed hospitals and concluded that these taxes were having a significant impact on Medicaid costs and urged Congress to take action. Nothing has happened – yet.
Surely, this inaction is negligence, given the likely dollar amounts involved, especially if Connecticut’s behavior is widespread. Looked at another way, Connecticut is quite vulnerable if Congress does investigate and takes action. Why would Congress countenance a state exploiting a federal health care program − not to fund heath care, but rather to close huge continuing budget deficits?
Actually, Connecticut is at risk even if Congress doesn’t take action, but merely conducts hearings into possible abuses in state hospital tax programs. The state’s hospital tax far exceeds the 6 percent level, above which Connecticut must apply to CMS for affirmative approval. Why would CMS keep approving its applications and run the risk of embarrassment in oversight hearings?
Finally, why would Governors Malloy and Lamont and the Democratic majorities in the General Assembly continue to rely so heavily upon such a risky source of tax revenue – and one that raises health care costs for all Connecticut’s citizens?
Red Jahncke (Twitter: @RedJahncke) is president of The Townsend Group Intl, LLC, a Connecticut business consulting firm.