Is Colorado’s hospital provider fee a tax or not?
The answer will determine not only the future of the fee, but also future spending for education and transportation within the state.
The hospital provider fee, allowed by the Colorado Health Care Affordability Act and overseen by the Department of Health Care Policy and Financing, was enacted in 2009 and is charged to hospitals participating in Medicaid. The fee is based on patient revenue, and the state uses the money to obtain matching funds from the federal government to subsidize provider costs in caring for uninsured patients. The fee has been credited with expanding Medicaid and health care to low-income Coloradans.
According to the Colorado Hospital Association, “from inception of the provider fee in July 2009 through September 2013, Colorado hospitals provided more than $170 million in General Fund relief via the provider fee.”
The problem? The fee triggers Taxpayer’s Bill of Rights revenue caps — which means the state must refund money to the taxpayers, forcing cuts elsewhere in the budget. According to the 2015 economic outlook compiled by Colorado’s Office of State Planning and Budgeting, “… TABOR revenue exceeded the Referendum C cap by $150 million in FY 2014-15. TABOR revenue is projected to exceed the cap by $116.7 million in FY 2015-16, $398 million in FY 2016-17, and $474.5 million in FY 2017-18.”
To avoid having to refund money to the taxpayers — about $50 for every taxpayer — many business leaders want to move the provider fee into an enterprise fund, arguing that it’s not a tax.
Opponents of the idea argue the fee diverts a portion of collections to the state’s general fund to offset Medicaid expenses, and therefore the fee is a general-use tax.
Last week Colorado Senate President Bill Cadman of Colorado Springs presented a ruling by the state’s Office of Legal Services as to whether the Legislature can spin the fee into an enterprise fund. Legal Services determined that would violate TABOR laws.
Dirk Draper, president and CEO of the Colorado Springs Regional Business Alliance, said the RBA supports moving the fee to an enterprise fund.
“We recognize how important an issue this is,” Draper said. “We’ve signed on to a letter sent to members of the Legislature in support of the enterprise fund.”
That’s because the RBA believes more money is needed for transportation and highways.
Draper said transportation funding is necessary to connect markets from northern and southern Colorado, including widening I-25 from Monument to Castle Rock.
The RBA was one of 18 Colorado chambers of commerce that supports the enterprise fund.
“Regardless of our differing political views on the [hospital provider fee], we are all strongly supportive of legislation that places HPF funds in an enterprise fund,” the letter said.
“The original law comingles HPF funds with general state revenue, inaccurately impacting revenue growth and creating significant unintended consequences that limit the state’s ability to meet core infrastructure investment priorities.”
Colorado Springs Forward, a nonprofit community political action group, also joined in signing the letter.
“Colorado Springs Forward, along with the RBA and UCCS, was one of many statewide business organizations that signed a letter last month asking the Colorado General Assembly to disentangle hospital provider fee revenues from the state’s general fund,” said Colorado Springs Forward Chairwoman Lynette Crow-Iverson.
“When the hospital provider fee was created in 2009, Mayor John Suthers — then [state] attorney general — recommended it be set up as an enterprise. He predicted it could create the TABOR conflict we see today. … The revenue coming from HPF has skewed revenue growth used for TABOR calculations. Colorado Springs Forward doesn’t see this as a TABOR issue. We believe the hospital provider fee should have been established as an enterprise from the beginning.”
Ken McConnellogue, vice president for communication for the University of Colorado’s office of the president, said the current budget request calls for a $20 million cut to higher education.
“CU’s portion would be about $4 million,” McConnellogue said. “While it may not sound like much in the big scheme of things, it’s important to note that our operational costs are increasing — health care benefits, utilities, technology — so even modest cuts hurt.”
Welcome to California
Some fiscally conservative state organizations support the status quo, blaming overspending for shortfalls in education and transportation budgets.
TABOR author Douglas Bruce responded in a blog to State Rep. Mike Foote, who said TABOR would negatively impact state funding for education and road maintenance.
“Total state spending costs about $27 billion yearly. That equal [sic] over $20,000 per average family of four. His ‘arbitrary equation’ is inflation plus state population, to maintain the same purchasing value for government on a per-person basis. Revenue has more than doubled since TABOR,” Bruce wrote.
“It includes illegal taxes Mr. Foote’s colleagues imposed without voter approval on candy, soda pop, napkins, car tabs, etc. It includes permanent extension of the ‘temporary’ five-year waiver in 2005, called Referendum C, which alone costs us a billion dollars in tax relief yearly. It’s never enough.”
Tony Gagliardi, director of Colorado’s branch of the National Federation of Independent Business, said the discussion demonstrates a problem that goes beyond health care.
“We don’t have a budget crisis; we have a spending crisis,” Gagliardi said. “When times get lean and the revenue is not there, we need to adjust spending.”
Gagliardi pointed to education as an example of ineffective spending: “Look at the increases in dollars that have gone to education and how that’s affected the number of teachers in classrooms. The number of teachers hasn’t changed, but increases in administrative personnel keep jacking up the costs.”
Is there middle ground between TABOR regulations and an enterprise fund?
“That’s getting into a philosophical argument,” he said. “Has TABOR led to our revenue issues? No. TABOR has prevented us from becoming another California.”