Opinion: Connecticut is bleeding its hospitals dry

The Day – Thursday, July 17, 2025
By State Sen. Heather Somers

State Sen. Heather Somers is a Republican serving the 18th District, representing Griswold, Groton, North Stonington, Stonington, Preston, Plainfield, Sterling and Voluntown.

This year, as in many years before, debate at the State Capitol revolved around Medicaid funding, hospital finances and the cost of health care for Connecticut residents. While the recently passed biennium budget includes another increase in Medicaid reimbursement rates and claims to set the stage for long-term insurance savings, something remains fundamentally off-kilter in the state’s healthcare framework.

What’s troubling is how familiar this feels — reminiscent of the early 2010s under Gov. Dannel Malloy, when Connecticut began using a hospital tax to balance the state budget rather than support hospitals and patient care as intended.

Here’s how the tax is supposed to work: hospitals pay the state a provider tax, which the state uses to draw down federal Medicaid matching dollars. That combined revenue should then be reinvested in Medicaid services, including payments back to hospitals. Most states do this in a way that produces a net gain for hospitals. In Connecticut, we’ve done the opposite. If we are not maximizing our returns on a federal match, we are losing out on invaluable dollars for our health care system, which will inevitably cause impediments to affordable and accessible health care.

For years, Connecticut used hospital tax revenue as a budget mechanism — drawing down federal dollars, then diverting the funds elsewhere. The result: consistent net losses for hospitals, which eventually led to a lawsuit and a 7-year settlement that expires in 2026. That settlement offered hospitals some stability, including a freeze on tax increases and consistent supplemental payments that were just enough to break even. But with the new biennium budget, that hard-fought stability is at risk.

The budget passed in June 2025 increases the hospital tax from $820 million to $1.195 billion in Fiscal Year 2027 — a $375 million spike. Every year after that, it will rise by another $25 million. Supplemental payments to hospitals, by contrast, will only increase by $140 million in FY 2027, and a matching ratio of $25 million each year thereafter. It’s a simple mismatch — hospitals are being taxed more than they’re getting back.

Why the increase? State leaders have pointed to federal budget discussions that could freeze states’ ability to raise hospital taxes. In response, Connecticut is front-loading its tax increase now — essentially building a “slush fund” it claims will be used to benefit hospitals later. But there’s no codified guarantee. When hospitals asked the state to lower the increase from $375 million to $285 million, they received only verbal assurances — no line item, no law, just talk.

Further, the budget eliminates the option for hospitals to request payment extensions, just as their tax burden is rising. While there has always been discussion of exploring a federal 1115 waiver, which could offer flexibility in Medicaid funding and program design, nothing concrete has been proposed of late.

Supporters of the budget rightly point out that Medicaid reimbursement rates for providers were increased this year — a major win for patients and frontline health professionals. But this does not translate into better reimbursement for hospitals. The core issue remains unresolved: hospital tax collections vastly outpacing what hospitals receive back.

The danger is clear. When hospitals are strained financially, services shrink, staffing is cut and patients (especially in rural and underserved areas) lose access to care. Without firm protections or clarity on future reimbursement, this budget sets up another round of fiscal instability for institutions that cannot afford to operate on hope and verbal commitments.

With the settlement expiring in 2026, the time to address this imbalance is now. We need a long-term, transparent solution — not temporary fixes or budget stunts. Connecticut must recommit to treating hospitals as partners in care, not as tools for revenue.

The General Assembly deserves credit for protecting many parts of the health care system this session. But unless hospitals are included in that protection, we are inviting a new crisis. This can’t be how we fund care in Connecticut. It’s time to break the cycle.

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