New hospital tax could help expand Medicaid in Delaware

A new bill could enhance Medicaid coverage for thousands of low-income Delawareans by taxing the state’s hospitals in order to spur a surge of federal dollars into the program. 

Senate Bill 13, also known as the Protect Medicaid Act of 2024 and sponsored by State Sen. Sarah McBride (D-Claymont), could provide over $100 million in additional funding to improve and expand coverage for the nearly 300,000 people enrolled in Medicaid or the Children’s Health Insurance Program (CHIP) in Delaware.

The bill was introduced in the State Senate on Tuesday and was assigned to the Senate Health & Social Services Committee. 

Medicaid is a program that provides health coverage to millions of citizens, including low-income adults and people living with disabilities. Medicaid is funded jointly by states and the federal government, with states operating the program under federal requirements. 

The money that states invest in Medicaid is then matched with extra funds from the federal government. The amount of money that the federal government returns to states varies depending on the state’s average per capita income. 

On average, every $2 a state puts into Medicaid is matched with $3 from the federal government. 

The bill would impose a 3.58% tax on net patient revenues from Delaware’s acute-care and behavioral health hospitals. By taxing hospitals, the bill would increase the amount of state funding available for Medicaid and incite the return of more federal matching dollars.

The bill would allow for most of the tax money collected from hospitals to be returned to them in lump-sum payments.  

McBride described the process as borrowing money from hospitals to increase Delaware’s Medicaid funding so that the state could then use the additional federal dollars to enhance Medicaid programs. 

The bill appears to comply with federal regulations regarding provider taxes, given that the tax would be broad-based and uniformly imposed. 

The tax also appears to be in compliance with “hold harmless” regulations that bar states from holding providers harmless from taxes above 6% of revenue. The regulation aims to prevent states from fully reimbursing providers for their tax contributions. 

The bill’s proposed tax is 3.58%. 

The Committee for a Responsible Federal Budget, a nonpartisan organization focused on issues with significant fiscal policy impact, has raised concerns about similar health care provider taxes in the past. 

It argued that provider taxes move growing Medicaid costs from the state onto the federal government, increasing federal spending. The organization called for policymakers to apply further reforms, transparency and accountability to the process.

State Sen. Eric Buckson (R-Dover), who sits on the Senate Health and Social Services Committee, said that he was supportive of the intent of the legislation but wanted to be careful about imposing new taxes in the state.

“I certainly appreciate the intent of the legislation and agree we must explore ways to make health care more affordable, particularly for low-income individuals and families,” he said in a statement.  “What concerns me about this legislation is the method.” 

If the bill is passed, it’s expected to bring in over $100 million in Medicaid funding from the hospital tax and federal matching funds, McBride noted. 

“This is a monumental step forward for health access and equity in Delaware, and it’s been a long time coming,” McBride said during a news conference Monday. 

McBride was joined at the news conference by hospital executives and representatives from ChristianaCare, Westside Family Healthcare and Nemours Children’s Health, who are all supportive of the bill. 

Health care provider taxes are currently the second-largest source of funding for states’ share of Medicaid costs after general funds. Every state, except Alaska, has implemented some form of health care provider tax to help fund their Medicaid programs. 

Delaware already has a nursing facility provider tax in place that helps cover the state’s share of Medicaid funding, unlocking more federal dollars. The effort was signed into law in 2013. 

Still, Delaware is only one of a handful of states that does not have a hospital provider tax in place. Hospital taxes have been used to expand Medicaid eligibility and increase provider rates in other states with taxes in place. 

“We are currently missing out on critical Medicaid funding that the vast majority of states are able to access,” McBride said. 

What would the bill do?

The bill would create the Hospital Quality Assessment, which would impose a tax on Delaware hospitals. The bill would establish the Hospital Quality and Health Equity Fund, a pot to hold collected hospital taxes to use for more federal matching dollars.

Net funds garnered through the tax must be used in one of two ways, except for 10% that may be used to support existing Medicaid obligations. 

Of the net, 53.5% must be used to increase the inpatient and outpatient payments to hospitals, while 46.5% must be put into the equity fund to be used to “develop or enhance” funding for Medicaid initiatives to incite matching federal dollars. 

The bill would also establish the Hospital Quality and Health Equity Assessment Commission in order to monitor the ongoing implementation of the hospital tax. The commission is tasked with developing and approving modifications to the tax in order to remain in compliance with federal regulations.

To view Senate Bill 13, click here.