Hospital Tax Debate Crucial, If Not Flashy, In 2014 Legislative Session

Jun 6, 2014

This week All Things Considered has been looking back at some of the major legislative debates this session at the New Hampshire statehouse. 

Credit Jo Naylor via Flickr CC

The Medicaid Enhancement Tax usually flies under the radar in New Hampshire: it’s complicated, boring on the surface and, as far as taxes go, pretty narrowly applied.

But the MET, as it's called, has major implications for the state budget and the state’s 26 hospitals. And debate over how to fix the MET gained plenty of attention this year, becoming one of the biggest policy issues lawmakers took on in 2014. 

The MET has long been a big revenue producer for the state: back in the early 90's, it was set up as a way to bring in federal money. Hospitals would pay the tax, the feds would match whatever was collected, and the state would immediately turn around and wire the money back to the hospitals. Critics called the cycle "MediScam."

But the state changed course on the tax several years ago. Hospitals were no longer getting back all the money they were paying - meaning the MET became a real tax, to the tune of hundreds of millions of dollars. That led to real lawsuits from hospitals - one over Medicaid reimbursement rates, the other questioning the constitutionality of the MET - that could have cost the state over $300 million.

Two lower courts earlier this year sided with the hospitals on the second question, and that forced lawmakers to figure out a solution.

The bill passed this week lowers the tax rate hospitals pay, though only by a fraction. The bigger news is that the hospitals will be receiving a lot more money from the state for what’s called uncompensated care: the money hospitals spend treating patients without insurance.  The last big piece is that all the money the state collects through the MET now has to be spent on health care, rather than it being used to plug up other budget holes.

In exchange, the hospitals agree to drop their lawsuits. But one hospital, St. Joseph in Nashua, has refused to settle, because it doesn't do as much charity care as other hospitals, and therefore doesn’t stand to gain as much under this agreement. That means the lawsuits still could move forward, although there is a clause in the settlement that says the other 25 hospitals will continue to pay the Medicaid enhancement tax even if the state Supreme Court rules it unconstitutional.

Politically, Governor Maggie Hassan is characterizing the MET agreement as a big win. Her administration was at the negotiating table with the hospitals behind the scenes, and she announced the deal herself during a committee hearing last month. Some Republicans, meanwhile, have complained the deal puts the state on the hook for up to $95 million in the next budget - and that money will have to come from somewhere. Senate President Chuck Morse was successful in lowering the tax rate, which he'd made a priority.

But as key as the MET agreement is to the hospitals and stage budget writers, don’t expect this to become a campaign issue this fall: being important doesn't necessarily make this debate any flashier.