Gov. Ned Lamont has asked legislators to scale back a $375 million hospital tax increase in the next state budget after industry officials raised concerns Tuesday morning.
This creates a technical challenge for legislators who entered Tuesday halfway through their formal adoption of a $55.8 billion budget for the next two fiscal years. The House approved that plan minutes after midnight, but the Senate hadn’t begun its debate by early Tuesday afternoon.
Lamont’s budget spokesman, Chris Collibee, said shortly before noon that the administration now wants to impose a $285 million tax hike on hospitals in the 2026-27 fiscal year, $90 million less the hike lawmakers and the administration had negotiated last week.
Even though the budget calls for a $375 million tax hike on hospitals in the 2026-27 fiscal year, legislators could revise that number without altering the budget bill pending before the Senate or sending that measure back to the House for reconsideration.
“We are trying to reassure them that we absolutely want to help everybody,” Lamont’s budget director, Office of Policy and Management Secretary Jeffrey Beckham, said earlier Tuesday shortly after the governor had met with representatives of the Connecticut Hospital Association. “We want there to be net winners here.”
Though Lamont initiated talks of a hospital tax hike back in February, he sought to increase resources both for the state and the industry,
Since 2011, Connecticut has levied a provider tax that collects hundreds of millions annually from hospitals then redistributes those funds, plus more, back to the industry. Those return payments technically count as public health care spending and help Connecticut qualify for federal Medicaid grants, ensuring the state comes out ahead as well.
This unusual back-and-forth arrangement is employed by most states and has been encouraged by federal policymakers for years. But its future is uncertain now that Congress is seeking to make unprecedented federal budget cuts, hoping to slash $880 billion over the next 10 years, with most of those reductions coming from Medicaid.
Still, Connecticut officials said the wisest course was to seek one more increase before Washington potentially caps this program or orders reductions.
But industry officials discussed a different problem Tuesday with the governor.
Would federal Medicaid officials, who must sign off on all state provider tax arrangements, nix a $375 million tax hike even if Congress doesn’t alter the program? The hospital association said it fears the increase built into the new state budget would push the overall level permitted by the U.S. Centers for Medicare and Medicaid Services.
“We appreciate the administration’s commitment to adjusting the level of the tax when considering these federal payment limitations,” the association wrote in a statement.
Hospital officials remain somewhat wary about the provider tax because of its history.
Though it began in 2011 as a tax in name only, designed chiefly to secure more aid from Washington, it evolved between 2012 and 2017 into something else.
Then-Gov. Dannel P. Malloy and the legislature steadily altered it, requiring hospitals to pay more while sending fewer dollars back to the industry. By 2015, hospitals, which were losing hundreds of millions of dollars, sued the state in federal court, charging it was violating Medicaid rules.
Lamont settled that lawsuit when his administration began in January 2019 and agreed on a plan to gradually restore the provider tax to its original purpose.
Still, Republican legislators said this week that Lamont and his fellow Democrats in the House and Senate majority have been sloppy in crafting a new state budget that spends excessively. House GOP leader Vincent J. Candelora of North Branford said Tuesday the latest hospital tax conflict is further evidence of this.
“That is pretty troubling, that we have a substantial partner in the state of Connecticut providing health care, and they are scurrying to the Capitol to try to protect their industry because the budget was passed without their input,” he said.
State officials had negotiated the tax hike with the industry. But the association noted early Monday that they never were showed details on how the tax hike would impact specific hospitals.
Still, even if legislators agree to scale back the hospital tax, that doesn’t necessarily trigger a deficit in the new state budget.
The Lamont administration and legislative leaders were intentionally conservative in their revenue projections. Even when they boosted the hospital tax increase from $140 million to $375 million, they didn’t raise their projections for additional Medicaid revenues from Washington, keeping them at the $94 million Lamont offered back in February.
“The [estimate] that’s laid out in the budget is kind of a placeholder,” Beckham said.
House Speaker Matt Ritter, D-Hartford, said Tuesday he was optimistic that all sides would strike a compromise before the legislative session closes Wednesday at midnight.
The speaker said there still are bills that would be called that could carry a hospital tax-related amendment.
“We’ll talk about it with the governor,” he said.
CT Mirror reporter Katy Golvala contributed to this story.