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Malloy's Hospital Cuts Will Hurt

Hartford Courant Editorial

April 18, 2013

Gov. Dannel P. Malloy is commendably intent on creating jobs in Connecticut with grants, tax credits and loans. It's confusing, then, that he would have a different approach to a group of employers — hospitals — that provide great-paying jobs.

He is proposing to renege on a tax deal made with hospitals two years ago.

He should be careful about doing this too often if he wants the state to be seen as open for business.

MIXED MESSAGE

In 2011, hospitals agreed to a new state tax as a roundabout way of bringing in more federal money. By taxing hospitals and then giving them back the money (and a bit more), the state was able to capture federal matching funds.

Now, however, there's a big, nasty hole in the state budget. Suddenly it's hard to let go of all that tax revenue. The governor wants the state to keep most of it. Hospitals are howling.

So are others who have been surprised by similar turnarounds. The governor has proposed extending the corporate surcharge and electric-generation taxes that were supposed to expire this year.

The message is mixed: Generous incentives to some businesses to persuade them to grow in Connecticut, but a switcheroo for others.

Though understandable in this dismal economic climate, changing the rules of the game isn't good practice for a state trying to grow jobs. What confidence will businesses have to invest here if they can't rely on the state's word?

To illustrate one switcheroo: St. Francis Hospital and Medical Center says it will pay $27.6 million in taxes in 2014 and receive $15.5 million back from the state. In 2012, it got $28.6 million back, it says.

The Connecticut Hospital Association puts the loss of the tax revenue to the state's 29 hospitals at $403 million over two years. This is on top of other cuts.

LEAP OF FAITH

The Malloy administration says it isn't cutting hospital subsidies. The state will continue to give the 29 hospitals $1.7 billion a year through 2015.

The governor's office also points out that, starting in 2014, many uninsured patients will get private insurance. Most of the state's 300,000 residents without private coverage will buy it, it's hoped, with federal subsidies, thanks to the Affordable Care Act.

Hospitals will therefore no longer need the tax money, the state argues. (By law, hospitals must treat everyone who walks through the door, regardless of ability to pay.)

At least that's how it works in theory.

The governor is taking a leap of faith that all will go as planned. No one knows how many people will sign up for the new private insurance plans, or how fast patients will sign up.

Voices for Children is warning that thousands of low-income parents may not be able to afford even the low-cost insurance plans. These parents will lose Medicaid coverage but may buy the federally subsidized private insurance — if they can pay the premiums, co-pays and deductibles.

The business community worries that hospitals will make up lost income in the transition by shifting larger fees onto traditional insurance plans, thus driving up the cost to employers.

Hospitals are big economic drivers in their towns. Some are doing well; some smaller hospitals are in the red. Most are predicting layoffs and curtailed services under the governor's proposed budget.

Rather than weaning hospitals so abruptly off state subsidies, is there a gentler way? Can cuts be phased in more gradually to ease the transition into Obamacare?

If promises must be broken to balance the budget, can the state look at other promises it's made? Can it suggest, for one small example, that state employees have the same $75 to $100 co-pay for emergency room services as low-income parents who will be signing up for affordable insurance?