By Chris Powell
Long ago a Sunday installment of the newspaper comic strip “B.C.” depicted a caveman mischievously watching a sleeping dinosaur from behind a boulder. The caveman pulled a thorn off a bush, crept up to the dinosaur, jammed the thorn into its foot, and rushed back behind the boulder. The dinosaur awakened in terrible pain and hopped around on its other feet. Whereupon the caveman reappeared, calmed the dinosaur, and removed the thorn, earning the dinosaur’s everlasting gratitude and devotion.
Another caveman, watching from behind another boulder, called out: “My boy, you’re ready for politics.”
That comic strip should have been Exhibit A at last week’s hearing of the state Insurance Department on the application of two medical insurance companies to raise rates by about 20%.
Politicians denounced the increases as unfair and unaffordable, as if nearly everything isn’t exploding in price and as if the real inflation rate isn’t at least twice the heavily doctored official rate of 9% amid the U.S. government’s wildly excessive money creation.
The inflation irony is even bigger with medical insurance in Connecticut. That’s because for 10 years state government has imposed on hospitals a tax that has extracted from them hundreds of millions of dollars more than state government has reimbursed them for care of the indigent. The extra hospital tax revenue has been used for state government’s general purposes.
To recover the losses imposed by state government, hospitals have raised prices to paying patients, most of whose bills are paid by insurers, which in turn have raised their premiums.
Unlike the state’s sales tax, the hospital tax never shows up on patient or insurance bills. People wrongly assume that all the money they pay goes to those awful hospitals and insurance companies. The tax burden is hidden in prices.
That is, state government has used the hospital tax to divert to hospitals and insurance companies the political blame for government’s own costs, the same way state government long has used its “gross receipts tax” on oil products. While state and federal taxes on the retail sale of gasoline are known and publicized, the “gross receipts tax” is not. People have no idea it’s there and wrongly assume that the awful big oil companies are getting all the money they spend at the pump apart from the retail tax. Again, the “gross receipts tax” is hidden in prices.
To Governor Lamont’s credit, to settle a potentially expensive lawsuit by the hospitals, two years ago state government acknowledged that its hospital tax racket had gone too far, and the state began reducing the tax and increasing hospital reimbursements for welfare patients, just as this year state government temporarily cut retail gasoline taxes when gas prices took off.
But state government is still using the hospital tax to raise money for general purposes — estimated this year at $49 million more than state reimbursements to hospitals for indigent patients — and thus to divert to hospitals and insurers the blame for government’s own costs.
Though most Connecticut hospitals are nonprofit, they remain a big source of state tax revenue. Recently Yale-New Haven Hospital has claimed to be the state’s largest taxpayer. But it is a fair question whether nonprofit hospitals should be taxed at all, except for the ease of hiding the tax burden there.
Connecticut’s hospitals have another financial complaint against state government. It is that their reimbursements for welfare patients — people on Medicaid — are only about half of what Medicare pays and much less than the actual cost of treatment. The hospitals estimate that the underpayment for Medicaid patients last year was more than $900 million. This underpayment is essentially another hidden tax, eventually paid largely by medical insurers.
Yes, insurance company and hospital executives are often extravagantly paid. But when they are, they pay high income taxes, and the extravagance of their salaries is small compared to state government’s hidden taxes on hospitals and medical insurers.
State government’s shifting to hospitals what should be its own costs should be part of the discussion of medical insurance rates, even if the insurers won’t raise the issue, being too frightened of retaliation from elected officials if the secret of their hidden taxes ever gets out.
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Chris Powell has written about Connecticut government and politics for many years.
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Chris Powell column 