- Associated Press - Tuesday, May 6, 2014

CONCORD, N.H. (AP) - A Senate committee on Tuesday proposed phasing out a tax on hospitals that was the subject of two lawsuits, an idea that seeks to solve the dispute and reduce the impact on the state budget.

Senate President Chuck Morse presented the proposal to the Ways and Means Committee, which voted 5-0 to recommend that the Senate pass it next week. Committee members acknowledged the House has different ideas on how to address the problem, making it likely the two chambers will need to negotiate a compromise before the session ends June 5.

Morse’s proposal 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.

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, but Morse and lawmakers hope to find a legislative solution.

The House’s tax-writing committee also met Tuesday to hold a hearing on proposed fixes. One would clarify the existing tax without changing who is taxed or the amounts they pay. Its sponsors argued it would support the state’s position in its appeal. Another would broaden the tax and lower the rate, but not increase the state’s revenue from the tax. Its sponsors offered it as a starting point in discussions to make the tax constitutional.

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 two other categories - nursing homes and intermediate care facilities - under a different law.

Morse, R-Salem, said he will not support broadening the tax.

The tax produces about $185 million annually for Medicaid and other state spending. The state kept $72 million this year for general state spending, used $82 million for payments to health care providers and returned $31 million to the hospitals in aid to help offset the cost of uncompensated care.

Morse’s proposal would reduce the amount the state keeps in 2016 for general state spending to $17 million and increase the amount paid to hospitals for Medicaid.

“You need every hospital to agree to this going forward,” Morse said.

Steve Ahnen, president of the New Hampshire Hospital Association, said raising Medicaid payments is a key. He said some hospitals support keeping the tax as way to produce more money for Medicaid services while others want to eliminate it.

Morse said the state’s tax on insurance premiums could help increase Medicaid payments. The tax’s revenue is expected to grow under the federal Affordable Care Act as more people buy health care privately or with government subsidies.

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 Republican-controlled Legislature cut Medicaid funding to the hospitals by more than $130 million, but retained the tax. That prompted hospitals to sue.

Copyright © 2016 The Washington Times, LLC.

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