When Connecticut faced a budget shortfall of $2.2 billion, or 11%, this year, it helped close the gap by almost doubling its tax on hospitals, to $900 million. Taxing hospitals sounds strange, especially since most are nonprofits. It also would seem to increase their costs and, thus, the cost of care—much of which, thanks to Medicaid, is borne by the state that levies the tax.
Yet 42 states tax hospitals. Why? One answer is the perverse incentives built into the Medicaid law. When a state returns tax money to hospitals through…
Why Tax Hospitals? It’s a Medicaid Shell Game