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N.H. Senate OKs Medicaid Tax Fix

Concord — New Hampshire’s Senate on Thursday approved a plan to address a court ruling that found the state’s tax on hospitals unconstitutional by slicing into the tax over the next five years.

The Republican-led Senate approved the measure in a party line vote a day after the House passed a rival plan, setting the stage for negotiations over a compromise.

The Senate plan would reduce the tax from 5.5 percent next year to 4.5 percent by 2019. It also would clarify and narrow what is taxed and eliminate the tax on the state’s two rehabilitation hospitals.

The House plan clarifies existing law while broadening the tax and lowering the rate.

Senate President Chuck Morse, R-Salem, acknowledged Thursday’s vote was only a step toward untangling the fiscal and legal questions surrounding the Medicaid Enhancement Tax that has been found unconstitutional by two state judges. It’s unclear if the measures approved by either chamber will sufficiently address the legal issues involved in the tax, which generates about $185 million a year for the state.

“I think we all know the MET can’t be eliminated overnight,” he said.

Before the vote on Thursday, Republicans rejected an alternative from state Sen. Lou D’Allesandro, D-Manchester, that would have slowed the rate of tax reduction.

The Republican plan concedes a revenue loss of some $112 million over the next two years, a budget hole that D’Allesandro called “untenable.” His amendment would have resulted in about a $48 million revenue drop over the same period.

The federal government allows states to apply their hospital taxes to 19 categories. New Hampshire applies the tax to two categories: inpatient and outpatient hospital net revenues. The state also taxes nursing homes and intermediate care facilities under a different law.

One alternative under the House plan would expand the tax to ambulatory surgical center services, therapist services, laboratory and X-ray services in a free-standing lab or X-ray facility and emergency ambulance services. It would lower the tax rate to 5 percent.

In 1991, hospitals began paying the tax so the state could gain matching Medicaid funds to pay for health care for the poor. For many years, they got all their taxes refunded dollar-for-dollar. In 2011, the federal government said states could no longer refund all the money and, instead, had to apply a formula that reimbursed the funds according to hospitals’ Medicaid costs.

Three years ago, the Legislature cut Medicaid funding to the hospitals by more than $130 million, but kept the tax. That prompted hospitals to sue. Last month, a judge ruled the tax on hospitals unconstitutional. The state lost a separate lawsuit over applying the tax to rehabilitation hospitals. The state is appealing the rulings.