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N.H. Senate plan would slowly reduce Medicaid Enhancement Tax

Senate president Chuck Morse, seen in this file photo from 2011, says that  Republicans won't oppose a special session to discuss Medicaid expansion. 

(Neil Blake / Monitor file)

Senate president Chuck Morse, seen in this file photo from 2011, says that Republicans won't oppose a special session to discuss Medicaid expansion. (Neil Blake / Monitor file)

A Senate committee approved a plan yesterday to reduce the rate of the Medicaid Enhancement Tax and send a greater share of the revenue back to hospitals, but acknowledged it is just a first step toward finding a workable solution to fix the controversial tax.

This is a significantly different approach from two plans brought before the House Ways and Means Committee yesterday. Lawmakers from both chambers are preparing to go to a committee of conference on the issue, giving them more time to reach a consensus on how best to reform the tax, which was declared unconstitutional by two lower courts.

“I think the more opportunities there are for different elements to be available to the conference committee, the more likely it is we’ll have a satisfactory resolution,” said Rep. Neal Kurk, a Weare Republican and co-sponsor of both House bills.

The recent court decisions could blow a multimillion-dollar hole in the state’s budget, which is counting on $145.9 million in general fund money from the tax this biennium. The state began levying the tax on inpatient and outpatient hospital services in 1991, but through a federal reimbursement program the state could give all of that money back and pocket some for the general fund.

But the federal government tightened the reimbursements in recent years, and in 2011 the Legislature stopped reimbursing the hospitals in full, prompting the hospitals to look closer at the tax and challenge it in court. The state plans to appeal the rulings, but lawmakers are now scrambling to change how the tax is levied and, in Morse’s case, eliminate it entirely.

“The crux of everything is we created a tax of $185 million with very little representation from (hospitals) and they’re making it known,” Morse said. “This is a committee of conference issue . . . but the Senate needs to have a position that the tax needs to go away.”

Morse’s plan lowers the rate of the tax, now at 5.5 percent, by 0.25 percent each year for the next four years. While this lessens the amount of money generated from the tax, it gives more of the total pot back to hospitals through Medicaid and uncompensated care payments and deposits less in the general fund. His plan also stops taxing rehabilitation hospitals and some outpatient services.

Most of the changes become effective July 1, 2015, meaning they would not affect this year’s budget. The amendment only cuts the rate for the next four years, meaning future Legislatures will need to decide whether to keep phasing out the tax.

Under Morse’s plan, by 2019 the state would collect $173 million from the tax. Hospitals would receive about $86 million of that in Medicaid payments and $34 million in uncompensated care payments, significantly more than they get now. Nonhospitals that service Medicaid patients would get $35 million, which is no change from what they receive now.

The biggest change hits the state’s general fund, which would get $17 million in 2019 instead of the $73 million it takes in now. Morse said some of that loss could be offset by an increase in insurance premium taxes and a decrease in uncompensated care payments likely to come from the Medicaid expansion plan.

Morse’s amendment does not specifically address the lawsuits against the state, but he said the lawsuits could possibly go away if lawmakers and hospitals can come to an agreement.

The House plans both center on keeping the tax. One plan doesn’t change who is taxed or the rate of the tax, but instead changes language in state law in an effort to strengthen the reasoning for taxing some health providers and not others.

The second broadens the base to tax more providers and services but lowers the rate, also making it revenue neutral. Right now, New Hampshire taxes only inpatient and outpatient services. This plan would also tax ambulatory surgical center services, therapist services, laboratory and X-ray services in a freestanding lab or emergency ambulance services.

Morse made clear yesterday that he will not support a plan that taxes more people.

Steve Ahnen, president of the New Hampshire Hospital Association, said a main concern of hospitals is finding a more “sustainable” way to finance Medicaid. The reimbursement rate for Medicaid providers here is roughly 50 percent, one of the lowest rates in the country. Morse’s plan seeks to tackle that, in part, by increasing how much money hospitals get back for providing Medicaid services.

Gov. Maggie Hassan has not come out in support of any specific approach, but said in a statement she will continue working with all groups to find a solution and move it through the legislative process “as quickly as possible.”

(Kathleen Ronayne can be reached at 369-3309 or kronayne@cmonitor.com or on Twitter @kronayne.)

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