HB 6864, An Act Concerning The State Budget For The Biennium Ending June 30, 2027, And Making Appropriations Therefor (DSS)

TESTIMONY OF THE CONNECTICUT HOSPITAL ASSOCIATION
SUBMITTED TO THE APPROPRIATIONS COMMITTEE

Friday, February 28, 2025

The Connecticut Hospital Association (CHA) appreciates this opportunity to submit testimony concerning HB 6864, An Act Concerning The State Budget For The Biennium Ending June 30, 2027, And Making Appropriations Therefor. CHA opposes provisions of the budget dealing with the hospital tax and Medicaid supplemental payments.

Connecticut hospitals and health systems care for patients, strengthen the state’s economy, and support vulnerable communities across the state. Every day, they work to improve healthcare access, affordability, and health equity. Even as they face ongoing challenges, hospitals provide world-class care to everyone who walks through their doors, regardless of their ability to pay. Hospitals also support an exemplary workforce as the largest collective employer in the state, contribute significantly to the state’s economy, and invest in their communities addressing social drivers of health.

The Governor’s budget calls for two policies to be implemented by the Department of Social Services (DSS) that affect the hospital tax and Medicaid supplemental payments.

• Policy 1: Calls for rebasing the hospital tax to generate an additional $140 million in tax payments by hospitals, a portion of which will fund a corresponding increase in supplemental payments to hospitals. The state will net $94 million of the tax revenue to fund the state share of other Medicaid services
• Policy 2: Requires DSS to make supplemental payments to hospitals in the amount of $110 million to offset $100 million in reductions the comptroller is required to negotiate for hospital care provided to state employees. The policy would generate a net benefit of $74 million for the General Fund

Should these policies be implemented, the net benefit to hospitals would be $10 million while the net benefit to the state would be $168 million. These policies are unsound and will cause irreparable harm to hospitals, patients, employers, and the insured as follows:

• Increased Medicaid shortfall: Does not continue the annual reimbursement increases established under the hospital tax settlement and does not address the accelerating growth in Medicaid underpayment, which in 2023 was a staggering $1.4 billion
• Unpredictability and instability: Grants the state unchecked authority to modify supplemental payments to individual hospitals, thereby upending seven years of financial predictability and stability enabled by the settlement. Places supplemental payments for all hospitals at risk if payments exceed the Medicaid upper payment limit or a hospital is unable to pay the tax, and eliminates tax payment extensions in cases of financial hardship
• Diminished access: Jeopardizes access to care for patients resulting from limitations in hospitals’ ability to maintain services for low income, uninsured, and under-insured patients
• Reduced affordability: Increases the burden of hospital underpayment that must be borne by employers and their employees, driving an increase in the cost of coverage and undermining our shared interest in promoting affordability
• Failure to promote Medicaid health program goals: Misses an opportunity to use the tax to advance the public policy goals set forth in Section 17, PA 23-171 to improve the long-term health and well-being of individuals enrolled in the Medicaid program and affordability for all

There is a better way to use Connecticut’s hospital tax program, as detailed in the following, that could benefit the state, taxpayers, patients, and the Medicaid providers on whom they depend for care. This would require the state to reconsider the role of the proposed tax and discount programs, the chief aims of which should be to strengthen the care delivery system and drive the achievement of health, quality, access, and affordability goals. That is the role healthcare taxes play in the vast majority of states across the nation. Unfortunately, this bill adopts the narrow aim of using the hospital tax to balance the state budget.

Reduce the Medicaid Shortfall

Today, Connecticut’s healthcare system comprises a complex network of hospital, professional, behavioral health, home care, pharmacy, transportation, and nursing home services that meet the healthcare needs of Medicaid, Medicare, and commercially insured individuals alike. All payers must contribute their fair share of the cost of our care delivery system, and today, Medicaid is not fulfilling that requirement.

Hospitals are reimbursed less than 60 cents on the dollar for the services provided to Medicaid beneficiaries after accounting for the taxes they pay to fund the state share of Medicaid services.

Despite the modest annual rate increases required by the settlement agreement and discontinued in this bill, the hospital operating shortfall has grown sharply in recent years, reaching $1.4 billion in FY 2023, partly as a result of unprecedented inflation. Because of the role commercial insurance plays in cross-subsidizing governmental underpayment, these losses put significant pressure on negotiations with commercial health insurance companies.

Recommendation: Changes to the hospital tax, in combination with the proposed state employee hospital discount program, should be used to substantially reduce or eliminate Medicaid hospital underpayment, and provide for annual updates that keep pace with the rising cost of care.

Assure Predictability and Stability

Health systems require protection from volatility and unpredictability in order to effectively forecast revenue and expenses in a rapidly changing healthcare market and public health environment. The demands associated with the pandemic and post-pandemic challenges in patient severity, workforce costs and availability, supply chain costs, advancements in medical technology, and the escalating abusive administrative practices of private payers continue to strain hospital finances.

Recommendation: Foremost, the distribution methods for supplemental payments resulting from the tax program and state employee plan discounts should be established for a period of no less than five years and codified in statute. This will better enable hospitals to plan for the future and avoid the uncertainties that will otherwise result in limitations on access and greater reliance on commercial reimbursement as a means to protect against such uncertainties.

Protecting and Promoting Medicaid Program Goals

As we noted, there is a better way to use Connecticut’s hospital tax program as an opportunity to address Medicaid underpayment, strengthen the care delivery system, and drive the achievement of health, quality, access, and affordability goals consistent with those established for the Medicaid program in Section 17 of Public Act 23-171. We have outlined our ideas in our comments on Section 17 to the Department of Social Services (DSS) noting the need to:

• Address Medicaid hospital underpayment
• Engage multi-sector partnerships
• Create a regional investment and accountability model

We believe that the hospital tax and proposed state employee hospital discount program could serve as one of several sources of funds necessary to carry out these recommendations. By advancing the hospital tax and discount policies proposed in the Governor’s budget, we will lose the opportunity to make long-term, meaningful improvements to the Medicaid program.

CHA welcomes the opportunity to engage further on a comprehensive solution that will better support the cost of care delivery, recognize improvements in near-term clinical and long-term prevention outcomes, and improve affordability for all.

Thank you for your consideration of our position. For additional information, contact CHA Government Relations at (203) 294-7301.