The story behind the story…
September 2015: Less than two months after signing into law a new state budget that raised taxes and cut spending, a state budget that Governor Dannel Malloy claimed was balanced and would maintain the state’s vital services, came the news that a massive budget deficit was opening up for this fiscal year and would be even bigger in the next fiscal year.
In response, Governor Malloy announced a series of emergency budget cuts, the largest aimed at Connecticut’s hospital. Malloy proposed cutting reimbursements to hospitals by another $240 million over the two year period.
The state funding is provided to help hospitals pay for the care they provide to poor and uninsured patients, including those who use the federal government’s Medicaid program.
In response, the Connecticut Hospital Association wrote;
“We are outraged that the Governor would slash Medicaid funding that is desperately needed to care for the most vulnerable people in our state. With nearly one in five Connecticut residents on Medicaid, withdrawing even more funding from the state’s obligation is outrageous. It puts a tremendous additional strain on healthcare providers, who already provide services with reimbursement that is nowhere near the actual cost of delivering that care.”
“Sweeping cuts to this vital program will hurt patients and their communities, and further cripple our state’s economy.”
December 4, 2015: When the Connecticut General Assembly meets next week to adopt a budget deficit mitigation plan designed to close the projected state budget deficit – a budget deal that remains secret – it is widely expected that a portion of the cuts to Connecticut’s hospitals will be restored.
So what is the real situation about hospital funding in Connecticut?
The story itself provides an extraordinary glimpse about how Governor Malloy and the Connecticut General Assembly have used budget gimmicks to hide tax increases, while making state budgets appear balanced.
In this case the tactic goes back to a new taxing scheme that Governor Dannel Malloy proposed and the legislature adopted in 2012.
At the time, the initiative was designed to maximize the amount of Medicaid funding the State of Connecticut received from the federal government. As part of the plan, a small amount of the extra funding would be used to provide hospitals with additional state aid while the majority of the new federal funds would be used to balance Connecticut’s General Fund budget.
The Hospital Provider Tax:
In summary, a new hospital tax was added to hospital bills in 2012. Called a “provider tax,” hospitals were required to tax their revenue which, in turn, provided the State of Connecticut with about $350 million in new taxes.
The state then reimbursed the hospitals the $350 million along with an additional $50 million to help offset the growing cost of treating poor and uninsured patients.
Since the state of Connecticut could then report to the federal government that it had “increased” it’s overall Medicaid spending for the poor and uninsured by $400 million, the federal government increased its reimbursement to Connecticut by $200 million. [As one of the nation’s wealthier states, Connecticut gets a 50% reimbursement for its Medicaid spending – meaning that for every $100 million Connecticut spends on healthcare for the poor, Washington sends the state a check for $50 million.]
In the first year of the program, the state of Connecticut took the $200 million in additional funding it received from the federal government and used $50 million of that money to pay for the increased aid to hospitals and used the remaining $150 million to balance its General Fund budget.
But by the second year, Malloy and the legislature began to change the program.
Not only did the State of Connecticut start keeping all of the “new” federal reimbursement for itself – to balance the budget – but it also stopped returning an ever larger share of the underlying “tax” money to the hospitals.
In year 2, the hospitals still paid in $350 million to the state of Connecticut, but now they ended up getting back $27 million less than they actually paid in. Malloy and the legislature grabbed a total of $188 million to balance the budget.
The state’s bait and switch got worse as time went on.
|Hospital Tax||State Aid to Hospitals||Hospital Tax Money used to balance state budget|
*Data from the Office of Fiscal Analysis via CT Mirror
As the chart (above) reveals, in addition to keeping any and all of the “extra” federal funding that Connecticut collected, the state continued to skim off more and more of the actual hospital provider tax revenue.
Making the situation even worse, since the state was no longer using the hospital tax money to pay for healthcare for the poor, the amount of federal reimbursement dropped.
The CT Mirror explained;
“But that also meant Connecticut’s take from Washington dropped over the same period – despite rising Medicaid reimbursement rates. The state would have collected an extra $330 million in federal money over the past three years had it not scaled back this arrangement with hospitals.”
In then in September 2015, Malloy announced he was grabbing almost all of the remaining money to balance Connecticut’s growing budget deficit.
In September, Malloy announced plans to rescind three-quarters of the money hospitals were expecting to receive back from the tax this year, as well as three-quarters of the funding for a pool of money for six small, independent hospitals.
Instead of maximizing federal funding and doing a better job compensating hospitals for the care they provide to the poor and uninsured, Malloy and the legislature have created a program that doesn’t maximize federal funds and strips hospitals of the money they need.
And now, every week, we hear more and more bad news about staff being laid off, programs being curtailed and small hospitals being gobbled up by big hospitals.
It is fair to say that no governor (and legislature) have done as much damage to Connecticut’s system of comprehensive hospitals…Hospitals that serve as the health and economic anchor for many communities.
For more details and a list of how individual hospitals were cut see under Malloy’s September 2015 proposal see – http://ctmirror.org/2015/09/18/malloy-orders-emergency-budget-cuts-in-response-to-weak-stock-market/
You can read about the issue via the following Wait, What? posts