Hospital mad cash cow's days are numbered; maybe

From health care provider to piggy bank

Connecticut’s been milking the hospitals to balance its budget; now that’s supposedly going to end. Full Greenwich Time article at the link, but here are excerpts:

For good or ill, state officials relied on aggressive increases in hospital taxes to keep Connecticut’s finances in balance during an extremely sluggish recovery from the last recession. Between 2013 and this year, hospitals pumped more than $1 billion into the state’s coffers, funds that otherwise might be raised by income tax hikes, municipal aid reductions, program cuts or all of the above.

Lawmakers and Gov. Dannel P. Malloy created the hospital levy in 2011 as a tax in name only. The industry paid $350 million to the state, which responded by redistributing all of those funds, plus another $50 million, back to hospitals.

Connecticut didn’t lose out because these supplemental payments helped the state to leverage hundreds of millions of dollars annually in federal Medicaid reimbursements — a back-and-forth arrangement encouraged by Washington and employed by most states.

But as Connecticut’s recovery from the last recession plodded along far slower than officials anticipated, Malloy and lawmakers gradually increased the tax, scaled back the supplemental payments — and forfeited huge federal dollars in the process.

Hospitals, who paid a total of nearly $2 billion more than they received between 2013 and 2019 collectively, sued four years ago on grounds that this system abused the process allowed under Medicaid.

Facing an industry claiming roughly $4 billion in damages, Connecticut agreed to pay $1.8 billion to hospitals over the next seven years — with just over half being covered by federal Medicaid reimbursement payments.

And while that deal also came with a pledge to modestly trim hospital tax rates — and avoid any hikes — through 2026, lawmakers were happy to remove a multi-billion-dollar risk. “I think that was enough, alone, for most people” to back the deal, Fonfara said.

“But the discipline part, cleaning up our finances, I don’t know if people are realizing we’re going to have to bite the bullet,” he added.

The war and bullet-biting Fonfara and Walker fear is possible despite overwhelming bipartisan support for the settlement, largely because there’s little-to-no agreement on what Connecticut can tap as an alternative cash cow.

Many of Walker’s fellow Democrats in the House and Senate majorities are wary of further cuts in spending on social services and local aid.

If there’s no other acceptable alternative, progressive Democrats say the answer should center on raising income taxes on Connecticut’s wealthiest residents. Though the state’s largest revenue engine is fairly progressive at the lower end — households earning less than $35,000 per year usually have no tax liability — that progressiveness flattens out quickly.

Many middle-class and rich households all pay an effective tax rate that ranges between 5 percent and 6.5 percent. [The highest earners, singles making more than $500,000 per year and couples topping $1 million, pay 6.99 percent.]

But while hospitals were forced to adjust over the past decade, Fonfara said, it will be state government’s turn to make even harder choices in the years to come.

And though there’s no consensus on what to do if or when the reserves run dry, the Hartford lawmaker said he’s optimistic legislators will turn to a more sustainable solution the next time one is needed.

“I think we’ve learned the hard way when we’re not disciplined how much it hurts us,” he said. “That’s what people are fed up with.”

Using history as a guide, it’s a fair guess that we’ll see those higher taxes on the middle class and the rich, and no fiscal discipline.