An association representing Connecticut’s hospitals hand-delivered letters to two state agencies Monday asking them to clarify the constitutionality of the hospital tax.
The request for a declaratory ruling on the tax is the first step toward potential legal action against the state.
The Connecticut Hospital Association filed letters with the Departments of Social Services and Revenue Services asking “whether the General Assembly unconstitutionally delegated the setting of the rate and base year of the Hospital’s Tax to the Department of Social Services in violation of the Connecticut Constitution?” It also asked whether the methodology outlined by DSS is enforceable and whether it violates the constitution’s Equal Protection clause. The Associated Press was the first to report the letters.
Like other states, Connecticut enacted a health care related tax on hospitals in order to increase federal matching funds. At first the hospitals were getting back most of what they paid to the state, but as the state’s budget situation worsened the state ended up keeping most of it.
In 2012, the first year of the tax, the revenue it generated, after the federal match, was returned to the hospitals. In subsequent years, however, the hospital payments were reduced drastically, while the tax has remained in place.
In 2015, hospitals paid $349.1 million in tax, but received only $80.6 million in supplemental pool payments and $15.1 million in low cost hospital pool payments.
As recently as September, Gov. Dannel P. Malloy rescinded about $63 million from hospitals supplemental Medicaid payments, which means the actual cut with matching federal funds was closer to $192 million.
Malloy’s administration hasn’t been shy about its decision to increase taxes on hospitals.
Earlier this year, Malloy’s budget director, Ben Barnes, told lawmakers they were increasing the hospital tax because “It’s like why do you rob banks? … It’s where the money is.”
The hospital association argues that no state agency has the power to set a tax rate. They argue that only the General Assembly can set tax rates. When the General Assembly reinstituted the hospital tax in 2012, the association argues that it failed to define a rate.
“It seems that even in an industry that made $916 million last year alone – and one in which there is exorbitant CEO pay – the hospital association is asking Connecticut taxpayers to foot the bill,” David Dearborn, a spokesman for the Department of Social Services, said Tuesday morning. “And all of this comes as state payments to hospitals have increased by nearly a billion dollars over the last decade, even as hospitals see fewer patients without coverage due to Medicaid expansion and the Affordable Care Act.”
The Malloy administration maintains that payments to hospitals, according to records from the Office of Health Care Access, have increased and the salaries of hospital executives have also increase. But hospitals continue to argue they are losing millions of dollars a day.
“The statute vaguely references that the tax rate shall be ‘up to the maximum rate allowed under federal law,’ but does not clearly indicate which agency is responsible for establishing the ambiguous tax rate, let alone set parameters for how the rate should be set,” the Connecticut Hospital Association attorneys wrote in their letter to DSS and the Department of Revenue Services.
The request for a declaratory ruling on the hospital tax comes in the midst of a Connecticut Hospital Association ad campaign, which seeks to restore the $63 million in cuts Malloy made in September. Legislative leaders on both sides of the aisle have indicated they want the hospital cuts restored and are currently negotiating a deficit mitigation package with the governor. It’s unclear how much of the funding will be restored.
In the meantime, the Connecticut Hospital Association is also running an aggressive ad campaign to create public awareness of the issue.