Colorado Hospital Tax and Taxpayer’s Bill of Rights Collide

Published February 29, 2016

Colorado legislators must decide whether to refund surplus hospital tax revenues to state taxpayers or reclassify a $1.2 billion fund in a way critics say skirts the state’s constitution.

Surplus revenue was a remote prospect in 2009, when the state imposed a hospital provider fee (HPF), also called a “provider tax,” to cover the cost of extending health insurance coverage to people who did not qualify for Medicaid.

But the HPF program ballooned when Colorado used it to expand Medicaid in 2014 under the Affordable Care Act (ACA). The program collected $688.5 million from hospitals between October 2014 and September 2015, The Denver Post reported, and it is projected to raise approximately $750 million during Colorado’s 2016–17 fiscal year.

Ordinarily, that would trigger a taxpayer refund under a state constitutional provision called the Taxpayer’s Bill of Rights (TABOR). TABOR requires all tax increases to be approved by voters, and it requires Colorado officials to refund to taxpayers any revenue in excess of population growth plus inflation—with one exception.

Experts Reject Loophole Argument

A TABOR loophole exempts tax revenues designated for an “enterprise” from the refund requirement. Gov. John Hickenlooper (D) has asked legislators to reclassify the Hospital Provider Fee Oversight and Advisory Board as an enterprise. Opponents say that would circumvent the state’s constitution.

“There’s this big move now to see how they can get around TABOR [and] how they can keep more of this money,” said Michael Fields, state director of the Colorado chapter of Americans for Prosperity.

Linda Gorman, director of the Health Care Policy Center at the Independence Institute, says reclassifying HPF funds would raise taxes on the sly.

“This is just a sleight of hand by the legislature,” Gorman said. “They didn’t want to have a vote on it, because they knew they’d lose.”

Gorman was one of 12 members appointed in October 2015 to the Colorado Commission on Affordable Health Care.

“The new designation would move almost $1 billion in tax disguised as fee revenue off the state budget,” Gorman wrote in November 2015 in a Health Care Policy Center blog post. “Under TABOR restrictions, the state then could requisition and spend an additional $1 billion in taxes and fees from the private sector. As Colorado collected about $12.2 billion in total taxes and fees in FY 2014, this first ‘solution’ constitutes about an 8 percent raise for state bureaucracies.”

More Receive than Give

Gorman says even without the loophole, HPF taxes hospitals unfairly. Twenty-two of the state’s 99 hospitals do not pay the fee, yet about half receive funds from it, according to The Denver Post.

“[There’s] a huge, untransparent redistribution taking place,” Gorman said. “About 10 hospitals have always had more money taken from them than they’ve gotten back. The people in those areas are going to hospitals that normally are running a profit, but since the money’s being pulled out, these people aren’t getting the health care they paid for.”

Gorman says the greatest myth is the fee is paid by hospitals.

“It’s actually paid by individuals,” Gorman said. “They get to keep my fee, and it’s a big transfer to the state bureaucracy, because they expand their little empire.”

‘Linguistic Fiction’

Fields and Gorman say the Colorado General Assembly should abide by the law and enact long-term budgetary reforms instead of spending the surpluses. Colorado’s skyrocketing health care costs and public pension budget need attention, Fields says.

“If TABOR forced us to talk about it, that’s a good thing,” he said.

“In the meantime, they ought to start axing some of their favorite solar energy programs, stop building bike paths, and generally take a hard look at the state budget,” said Gorman.

Gorman says taxpayers must defeat the attempt to evade popular tax-limitation measures through what she calls “linguistic fiction.” 

“We have a lawless government [playing] games, and we can’t let them get away with it,” Gorman said. “Then our tax limitation amendment means nothing.”

Ben Johnson ([email protected]) writes from Stockport, Ohio.

Internet Info:

Matthew Glans, “Colorado’s Hospital Provider Tax and TABOR Collide,” Research & Commentary, The Heartland Institute, February 8, 2016: