Medicaid funding gaps: Hospital taxes may not bring quick relief

Roughly half of all states already have hospital provider taxes or fees in place, according to the Washington, D.C.-based Tax Foundation. However, these taxes have seen renewed interest in recent months as states look for ways to balance the books, and many states are considering enacting or increasing hospital taxes in order to boost the amount of federal matching funds their Medicaid programs can receive. However, the recent experience of one state demonstrates that these taxes might not exactly bring immediate relief to a Medicaid funding crunch. 

In the latest tax salvo, the Connecticut General Assembly's Finance, Revenue and Bonding Committee voted yesterday to institute a temporary hospital tax of 5.5 percent on gross hospital revenues, reports the Hartford Courant. The bill would begin enforcing the tax on May 1, 2010, but end the tax in 2014. The tax would apply to all Connecticut hospitals. However, hospitals would receive refunds based on the amount of uncompensated care that they provide. As is, the bill would realize a net gain of $83.5 million in federal reimbursements for Medicaid, as well as triggering a one-time emergency stimulus payment of $10.8 million, according to the Connecticut Mirror.

However, if the Connecticut tax--or other pending hospital taxes in Georgia, Tennessee and other states--becomes law, the slow-turning wheels of the federal government may delay assistance. Late last week, the Centers for Medicare and Medicaid Services approved plans for Colorado's hospital tax almost one year after state legislators passed the law, reports the Denver Post. Gov. Bill Ritter signed House Bill 1293 on April 21, 2009, authorizing collection of the hospital provider fee.

The Colorado tax is expected to provide Medicaid insurance to an additional 100,000 Colorado residents. The projected $600 million in hospital taxes is expected to generate some $600 million in federal matching funds for a total injection of $1.2 billion, according to the governor's office. General acute-care hospitals will pay the tax on inpatient and outpatient services. Hospitals that have high volumes of Medicaid and indigent patients will pay discounted fees, as will rural hospitals with fewer than 25 beds.

To find out which states had hospital taxes in place as of December 2009:
- visit the Tax Foundation website

To learn more about the proposed Connecticut tax:
- read the Hartford Courant article or the Connecticut Mirror article

- read more about the Colorado tax in the Denver Post article or the Denver governor's press release