Lawmakers continue work on reforming use of Medicaid Enhancement Tax

Last modified: Wednesday, April 30, 2014
Legislative leaders said yesterday that they are working on crafting both long- and short-term solutions in response to budget shortfalls that would come with a potential loss of Medicaid Enhancement Tax revenue.

“I believe that avoiding major disruptions to the state budget is in the state’s best interests and in the hospitals’ best interest. I also believe that responding to the recent court decisions will require changing the MET in the short term and phasing it out in the long term. I remain committed to working with all parties as we reach consensus on how to do that over the next few weeks,” Senate President Chuck Morse, a Salem Republican, said during a hearing before the Senate Ways and Means Committee.

After comments from Morse and Rep. David Hess, a Hooksett Republican, Ways and Means Chairman Bob Odell recessed the hearing until next week, when he said the committee will hopefully have something “more definitive” to work with.

The state could face a multimillion dollar budget shortfall if two superior court rulings that call the tax, known as the MET, unconstitutional are upheld.

The state began taxing hospitals under MET in 1991, but reimbursed them the full amount through federal matching dollars. The practice is sometimes referred to as “Mediscam” because the state deposited some of the federal matching dollars in its general fund while reimbursing the hospitals in full. But in 2011, the state decreased the reimbursement to hospitals, causing the hospitals to more closely examine the tax and file lawsuits alleging it was charging hospitals and other health facilities different taxes to perform the same services. The state budget includes an expected $185 million in revenue from the tax this year alone.

Morse said he believes it is in the state’s best interest to phase out the tax entirely and find other ways to pay for the programs that the tax revenue supports. However, he acknowledged eliminating the tax immediately would “create tremendous uncertainty and turmoil,” and that the first step should be reducing the rate. The recently passed Medicaid expansion plan is expected to decrease uncompensated care payments, which should help soften the blow of reducing the tax rate, Morse said. Lawmakers should also look at putting MET revenue into a dedicated fund so it is used only for the intended purposes, he said.

Hess offered a short-term solution of broadening the tax to include all providers of specific services, which would eliminate the argument that the tax is applied unfairly and also reduce the rate of the tax. There are simple solutions to the problem even though the reaction is “bordering on hysteria,” Hess said. In advance of today’s House casino vote, supporters of expanded gambling, which Hess is strongly opposed to, used the MET ruling earlier this week as more evidence that the state desperately needs casino revenue.

Both Gov. Maggie Hassan and the New Hampshire Hospital Association said in statements that they are interested in hearing more about Morse’s ideas and remain committed to working with all stakeholders to solve the problem.

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