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N.H. officials, hospital executives to study possible Medicaid Enhancement Tax reforms

Lawmakers don’t know yet if New Hampshire’s Medicaid Enhancement Tax should be tweaked, overhauled or even replaced.

But as a study commission began its work yesterday, there was agreement on one thing: The Medicaid tax, which has generated about $2.4 billion for the state government’s general fund since its creation in 1991, needs to be fixed.

“The Legislature sees that there are some serious issues with it,” said Rep. Mary Jane Wallner, a Concord Democrat and chairwoman of the House Finance Committee, who is also chairing the study commission. “Things have changed since it was put into place, and the commission is here to study what’s happening with it and to try to look at how we might make it work better.”

The group will complete its work in about two months, and the Legislature could act on its recommendations next year.

There’s a lot of money at stake. Under the budget that took effect July 1, New Hampshire’s hospitals are expected to pay $375.1 million in Medicaid tax over the next two years, with $145.9 million going straight into the general fund.

‘A legal scam’

Legislators embraced the Medicaid tax in June 1991 as a way to close a gaping hole in the state budget without resorting to some combination of deep spending cuts, borrowing or new business taxes.

In short, the state taxed hospital revenue, then sent half the money back to the hospital — and the federal government matched that payment under a program intended to help hospitals cover the cost of charity care for low-income patients.

At the time, then-state senator Jeanne Shaheen called it “a silver bailout,” and then-state representative Doug Hall called it “a legal scam.” But what some branded “Mediscam” worked, bringing in much-needed revenue for the state while leaving hospitals content because the uncompensated-care payments they received matched what they had paid under the tax.

Over the next two decades, the program was tweaked in various ways. The biggest change came in 2011, when lawmakers diverted Medicaid tax revenue to help balance the state budget, including to help cover the state’s reimbursement payments to Medicaid providers, and in the process sent less money back to hospitals in the form of uncompensated care payments.

The hospitals were upset because they were now paying more under the tax than they were getting back — and, in some cases, they got nothing back at all. For the state, as hospitals in recent years became careful about how they calculated Medicaid tax payments, collections declined and became less predictable.

The general fund’s take from the Medicaid tax fell from $93.3 million in fiscal 2011 to $74.8 million in fiscal 2012. In fiscal 2013, which ended June 30, the general fund took in $76.3 million, according to unaudited figures — up from 2012, but still $28.5 million below initial projections.

The two-year state budget that took effect July 1 relies on lower estimates for the Medicaid tax than did Gov. Maggie Hassan’s initial budget proposal, and chips in $20 million from the general fund for uncompensated care payments to hospitals.

But the Medicaid tax is still a big part of the state’s revenue picture, expected to generate a total of $375.1 million over the next two years. About $57.2 million will go to uncompensated care payments and about $172 million will go to reimburse Medicaid providers, leaving $145.9 million for the general fund.

The budget also, in effect, acknowledged that the tax needed to be reformed. It included a provision creating a commission to study the tax and recommend changes, with a report due Nov. 1 — in time for legislation to be filed next year.

Repair or replace?

The 11-member commission — which includes Republicans and Democrats, senators and representatives, state officials and hospital executives — met for the first time yesterday.

Its charge is broad: find ways to make the tax simpler, more consistent and more predictable, while ensuring state law complies with federal law and studying similar taxes in other states.

One big issue is how to tighten how state law defines a hospital’s “net patient services revenue,” which the Medicaid tax hits at a rate of 5.5 percent, said Rep. Susan Almy, a Lebanon Democrat and chairwoman of the House Ways and Means Committee.

“We’re working with a definition which is way too vague for anything,” she said.

That, Almy added, can put budget writers in a tough spot, since shifting calculations from year to year make it harder to estimate revenue from the tax each biennium.

“If it’s going up and down all the time, we’re going to estimate towards the bottom,” she said. “And if it’s normally towards the middle,” each two-year state budget will have “a gap between what we could fund and what we do fund.”

Sen. Chuck Morse, a Salem Republican and chairman of the Senate Finance Committee, said the commission should also study how the implementation of the 2010 federal health-care reform law, including potential expansion of New Hampshire’s Medicaid program, will affect revenues both for hospitals and the state government.

“How we do that, I think, will lead to another subject that I think we need to deal with: Are there alternatives? It’d be nice to hear from the departments, do they think there are alternatives to this tax? ... There may be a better way to do this,” Morse said.

Commission members said yesterday they plan to seek input from representatives of small, large and specialty hospitals as well as from the Department of Health and Human Services, the Department of Revenue Administration and other state agencies.

“Once we understand all these issues, then maybe we can fix them,” said Rep. Norman Major, a Plaistow Republican.

The commission will next meet Sept. 4. Wallner said she hopes it will complete its work by mid-October.

(Ben Leubsdorf can be reached at 369-3307 or bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)

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