TABOR and the Magic of the Hospital Provider Fee

Legislators often say they can’t wave a magic wand and make money appear.

Savvy budget experts, though, know that Colorado legislators do have the policy equivalent of a magic wand. A $600 million magic wand.

It’s called the Hospital Provider Fee. Making a change to the fee will be harder than merely chanting “abracadabra,” but it would go a long way toward solving Colorado’s impending budget problems.

First, let’s take a moment to review what the Hospital Provider Fee does. It was enacted in 2009 to help finance an expansion of the Medicaid and Child Health Plan Plus (CHP+) public insurance programs. (This was a pre-Affordable Care Act expansion.)

Hospitals pay a fee based on their occupied beds and outpatient charges, and the money is kept briefly in a state account. There, it attracts matching funds from the federal government – doubling in the process.

Most of the money, plus the federal match, goes back to hospitals. Some of it is used to pay for the expanded Medicaid and CHP+ eligibility. Most hospitals love it because they recoup more than they put in. The fee also helps people who previously had not qualified for public insurance.

Just one problem: Revenue collected from the fee counts toward the limit established by the Taxpayer’s Bill of Rights (TABOR).

TABOR restricts the growth of state revenue to a formula based on inflation and population growth. Anything in excess of the limit must be refunded to taxpayers.

Revenue from the fee counts toward the TABOR limit, even though most of the money goes straight back to the hospitals. TABOR refunds have to be paid through the state’s general fund. So while hospitals and Medicaid enrollees benefit from the provider fee, other general fund priorities, like education and human services, have less money when a TABOR refund is required.

There are other fees that create the same situation, but the Hospital Provider Fee is by far the largest – at least $600 million a year. How much is that? It’s so much that without the fee, there would be no TABOR refunds through 2030, according to a projection by the Colorado Futures Center, a respected fiscal institute at Colorado State University.

Here’s where the magic wand could come in handy.

Not all state revenue is subject to TABOR. Colleges, for example, are considered “enterprises” – state programs that are funded mostly through their own revenue and not taxes – and their tuition money does not count toward the TABOR limit.

If legislators decided to designate the Hospital Provider Fee as an enterprise, then TABOR refunds would not be needed this year or for the foreseeable future. When the Hospital Provider Fee was enacted in 2009, Colorado was in the depths of the Great Recession, and the state was far below the TABOR limit. So no one bothered to try to give enterprise status to the fee.

Legislators have other options short of granting enterprise status to the provider fee. They could reduce the amount of the fee or redirect some of the revenue. All of these ideas come with trade-offs, and they leave some groups worse off – hospitals, state health agencies or taxpayers in general.

To some lawmakers, this seems less like magic and more like hocus pocus. Republican leaders have pledged to make sure refunds are issued as called for by TABOR.

But if the legislature doesn’t do anything about it this year, it doesn’t take psychic powers to predict that future debates about TABOR are going to hover around the Hospital Provider Fee.

Joe is Manager of Public Policy Outreach at CHI.