How greedy are Colorado government officials and their special interest partners? With both the Health Care Expansion Fund and the Children’s Basic Health Plan Trust Fund headed into insolvency next year, this legislative session will go a long way towards answering this question.

In particular, the official reaction to State Representative Janak Joshi and State Senator Kevin Lundberg’s attempt to repeal the 2009 Colorado Health Care Affordability Act, HB11-1025, should help separate the sheep from the goats.

If truth in advertising applied to legislation, the Act’s title would have landed someone in jail. It raised health care costs $340.9 million last year by putting new taxes on nursing home and hospital bills. The money went into a slush fund that is split between hospitals that play ball with state health coverage programs and the Department of Health Care Policy and Financing. The Department claims that the new tax reduces state health care costs by increasing federal Medicaid matching funds. But the state pays for only about 12 percent of total Colorado health care spending. In order for state bureaucracies to gain, everyone else’s bills must go up.

Even worse, the tax violates the Colorado Constitution. The coalition that wanted the money knew that the Colorado Constitution requires that new taxes be put to a popular vote. To evade their Constitutional requirements, they called the tax a “fee” in the legislation.

Correspondence between the Department of Health Care Policy and Financing and the Centers for Medicare and Medicaid Services made it clear that officials knew that their “fee” was really a tax. A letter approving the state’s application to make the new tax eligible for federal matching funds approved the form of the “tax on certain inpatient hospital patient days,” discussed the “tax structure” which Colorado will be allowed, and refers to section 1903(w)(3)(C) of the Social Security Act, which discusses the conditions that a tax must fulfill in order to qualify for Medicaid matching funds.

Even the media knew the difference. An April 28, 2010 article on amednews.com discusses the benefits that the Colorado Hospital Association and the Colorado Medical Society will get from the tax. Its headline was “Colorado’s tax on inpatient and outpatient revenue.”

Legally, the Act’s ill-gotten gains are owned by the hospitals. The staff at the Joint Budget Committee has concluded that hospitals must be subsidized even if the state is running a deficit. The Department is said to be “working with” the Hospital Association on statutory changes to “allow” $50 million of the tax to be diverted to the General Fund to support the Medicaid program.

Are state officials greedy enough to let this special interest deal stand? If they are, Colorado taxpayers can expect to pay virtually unlimited property fees, income fees, sales fees, cigarette fees, gas fees, and snack fees in the years to come.

Linda Gorman directs the health care policy center at the Independence Institute. She holds a Ph.D. in economics.

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