What you need to know about Colorado’s biggest political battle

Even before lawmakers gaveled the 2016 session into order on Wednesday, three words have dominated debate at the Capitol: Hospital Provider Fee. Understanding the issue, why it’s an issue, and the political implications around it — as well as what makes it important to regular folks outside the Statehouse  — can be confusing. Here’s our explainer.

First of all, what is the Hospital Provider Fee?

The hospital provider fee is a state program requiring hospitals to pay money each year depending on how many patients stayed in hospital beds overnight and how much outpatient services they provided. That money is then used, among other things, to help Coloradans who can’t afford insurance plans get care, and to help the state pay for people who are on Medicaid, which is a government healthcare program for low-income Coloradans and their families. 

Each hospital pays a different amount — some pay a lot, some pay nothing — and the fee hauled in nearly $700 million last year. This money is then matched almost dollar for dollar by the federal government to expand Medicaid, provide health coverage for Coloradans who are using emergency rooms for non-emergency treatment, and reimburse hospitals for care. The more money the fee brings in the more money the feds give Colorado to make sure people who can’t afford healthcare get it. Since 2009, the program has helped more than 300,000 people get insurance coverage.

Former House Speaker Mark Ferrandino, a Democrat, carried the bill establishing the hospital provider fee program in 2009. That year, Republicans derided the plan in their campaigns. Some candidates said Democrats had pushed through a billion dollars in “new taxes” and fees. For years, some Republicans have tried unsuccessfully to repeal the fee, calling it a “hospital tax.”

In November, when Democratic Gov. John Hickenlooper laid out his $27 billion state budget plan to lawmakers, he cited the hospital provider fee as a vital source of revenue.

“By converting the hospital provider fee to an enterprise, we can ensure that we can use the money we have for the essential priorities most Coloradans expect from us,” Hickenlooper said. He also proposed reducing the amount the hospital provider fees rake in by $100 million in order to retain more money in the state budget, which would mean less federal dollars following that money and going to hospitals. 

Um, what does that last part mean?

Well, Colorado has a budget crunch this year, and politicians are looking for ways to fix it.

In 2016, the hospital provider fee program is expected to bring in some $750 million in revenues. And because of Colorado’s complex tax system involving the Taxpayer’s Bill of Rights, or TABOR, all that money will help push state funds over the limits set by the 1992, voter-approved constitutional amendment — meaning more money would have to go back to the taxpayers in the form of refunds instead of staying in state budget coffers to pay for programs.

Focus on the hospital provider fee sharpened last year when the state realized Colorado was poised to hit its spending caps under TABOR. During the 2014 elections, Republicans took control of the state Senate. Now, any attempt to work around TABOR constraints has to go through Republican-led committees and a Republican Senate. And, well, good luck with that.

During the last legislative session, Democratic House Speaker Dicky Lee Hullinghorst of Boulder introduced a bill to convert the hospital provider fee into an enterprise (see below). But she unveiled the legislation late in the session — in April — and the bill died before the legislature adjourned in May.

So now re-classifying it as an enterprise is back. What’s an ‘enterprise’ anyway?

As defined in the Taxpayer’s Bill of Rights constitutional amendment that passed in 1992, an enterprise is a government-owned business that meets three criteria. To be an enterprise and not subject to TABOR limits, an entity must be a free-standing business operation of government (think of a concession stand at a park or the state lottery), that doesn’t get more than 10 percent of its revenue from the government (think Parks and Wildlife, which generates revenue from hunting and fishing licenses), and has the legal ability to issue revenue bonds— a form of money borrowing. 

Once an entity is established as an enterprise, the money generated to it becomes money for the enterprise, keeps it from being included in the larger pot of state revenues, and protects it from being designated as money that could trigger TABOR limits — and, therefore, taxpayer refunds.

Democratic Sen. Pat Steadman, who sits on the state’s budget committee, explains it like this: Picture a bucket with water pouring in. The incoming water is state revenues, and when the bucket fills to the top (or hits its TABOR limits) water starts pouring over the edge— and that overflowing water (money) goes back to taxpayers in the form of rebates. Now, picture rocks in the bottom of the bucket. One of those big rocks is money from the hospital provider fee. It’s money that takes up space in the bucket, and those who want to take a big rock out can do so by reclassifying the hospital provider fee into an enterprise.

In short, if the pool of money funded by the hospital provider fee is turned into an enterprise fund, then state government can keep more money — some $370 million to help solve some of the state’s budget woes. When the hospital provider fee was created in 2009, the economy was in a slump and there was little worry money generated from the fee would push up against TABOR limits. Now the economy has gotten better, and here we are.

Well, how much of a refund for an average Coloradan are we talking about if the hospital fee isn’t turned into an enterprise? 

It’s nearly impossible to say exactly because so much can change and we’re dealing with economic forecasts. But under current expectations, if everything stays the way it is Coloradans could expect to get a rebate of anywhere between say, $25 and $125 on their 2017 taxes.

So would making the hospital provider fee an enterprise be a way to circumvent TABOR?

Some critics of the plan to move the hospital provider fee into an enterprise say it’s a TABOR “workaround,” or that it sidesteps TABOR, meaning that it’s essentially a shell game to avoid principles of the Taxpayer’s Bill of Rights. Opponents see the plan as an underhanded scheme to keep more money in government coffers and rebate less money to taxpayers, which they say goes against voters’ wishes when they passed the TABOR amendment in the first place.

Proponents of the plan counter that TABOR is what created the whole enterprise system in the first place. So, when it comes to TABOR, they say the hospital provider fee plan is more like a “work-within” than a “work-around.” In other words, the framework for enterprise funds was put in place by the TABOR amendment and could be a legal way to avoid TABOR’s fiscal constraints.

Who is against re-classifying the hospital provider fee and why?

Republicans. They’ve opposed Hickenlooper’s plan to create an enterprise fund. Much of their objection is ideological. They’ve spent years opposing Medicaid expansion under Obamacare, a program that makes up a big portion of the state budget. “Democratic lawmakers added the Medicaid expansion to the hospital provider fee program in 2013, making the total size roughly $2.4 billion in the 2014-15 state fiscal year,” reported The Denver Post. The more money the hospital provider fee brings in, the more federal matching dollars come with it. Some worry what would happen if the feds were to stop paying.

Others don’t like the idea of having a hospital provider fee in the first place.

Kevin Grantham, a Cañon City Republican senator on the state’s budget committee, told The Denver Post in December, “A lot of this goes back to when it was first put in … the money (Democrats) are wishing for in this endeavor is money that’s already been spent by them several times over because of their legislative actions. So they are wanting us, and the taxpayers, to bail them out of their own bad policy decisions over the last decade.”

Most recently, just before this week’s start of the legislative session, the Senate’s top Republican, Bill Cadman of Colorado Springs, made public a non-binding legal opinion from legislative lawyers that argues it would be unconstitutional to convert or reclassify the hospital provider fee into an enterprise.

Hickenlooper’s administration has looked askance at that memo, saying an opinion by the state attorney general’s office made the opposite argument and gave them a legal green light for the enterprise plan. Former Republican Attorney General John Suthers said when the fee was created that it should be an enterprise so as not to affect TABOR limits.

Cadman has said the state doesn’t have a budget problem, and lawmakers will have to make unspecified cuts.

Another idea Republicans have floated would be to put the question about changing the hospital provider fee up to voters as a 2016 ballot initiative. Hickenlooper doesn’t think voters would approve it.

This is a budget fight. But what does it say about power dynamics at the Capitol?

This year is another session with divided government under the dome. Republicans control the Senate by one seat, Democrats control the House by three.

Converting the hospital provider fee into an enterprise fund is the Democratic Governor’s top priority. Last year, he sent a four-page letter to lawmakers urging them to embrace the plan. So, it has become a partisan issue that pits Democrats who control the governorship and the House against Republicans who control the Senate. Democrats will need Republicans to help them reclassify the hospital provider fee. Republican leaders are saying no way, while they haven’t yet  been super specific beyond bonding options about where they plan to get the money to pay for transportation, education, and more when it comes time for lawmakers to write the budget this session.

In his State of the State address on Jan. 14, Hickenlooper said, “If we can’t make this very reasonable change— like many already allowed under TABOR— then what choice do we have but to re-examine TABOR? Right now, no one can say with a straight face that our budget rules are working for us.”

Democratic Senate Minority Leader Lucia Guzman told The Independent the hospital provider fee issue is “by far the most important action” lawmakers could take this session, and said Republicans are “paralyzing things by refusing to have the discussion.”

The conservative group Americans for Prosperity is engaging on the issue. So, what does that mean?

Here’s where it gets sticky for any Republican who might consider helping to reclassify the hospital provider fee into an enterprise fund: The Colorado chapter of AFP — the main political arm of the billionaire industrialist Koch brothers — has made fighting the plan and protecting TABOR its top priority this year. The group, which is adept at merging grassroots activism with big money, was following the issue last session and became concerned that, although an effort failed to reclassify the hospital provider fee then, some lawmakers might bend and support it this time around, especially with the Governor making such a big case for it. The issue also lines up with AFP’s opposition to Medicaid expansion in the states and Obama’s federal healthcare policies in general.

Hickenlooper, in turn, has challenged AFP about how the group would suggest the state pay for major programs without reclassifying the hospital provider fee. In response, AFP’s state director Michael Fields said he rejects the premise of the question. The government shouldn’t be concerned with generating revenue, but rather focus on better managing the limited resources it already has while cutting waste and making government more efficient, Fields says.

There’s a “disconnect in how people in the Capitol look for revenue and how the people look for it,” Fields tells The Independent. The group calls the hospital provider fee a “bed tax.”

The context of AFP’s involvement is that it’s a big-time, strategic pressure group with loads of resources and activists that will keep certain lawmakers holding the line on this issue, especially at a time when they need backing to run for re-election.

Meanwhile, the business lobby in Colorado is speaking in a near-monolithic voice for reclassifying the hospital provider fee into an enterprise, as have editorial boards at some of the state’s regional newspapers. 

So is it really a fee? Or is it a tax?

Argument: It’s a fee because the money generated from it benefits the hospitals that pay into it. And the same legislative legal entity that says converting it into an enterprise would be illegal also stated, “The hospital provider fee would not be a tax requiring prior voter approval” when it was created.

Argument: It’s a tax because the U.S. Department of Health and Human Services refers to it as a tax in their Medicaid regulations, and because certain hospitals don’t reap the benefit of what they pay into it.

U.S. Sen. Cory Gardner called it a “provider tax” when he was a Republican state lawmaker. (He was a little more colorful, too, saying it was “a legislative colonoscopy” and “we know what that means for the taxpayer in the end.”

A lawsuit filed by a pro-TABOR group argues that it’s a tax, so this question might eventually be up to a judge — or several judges if it reaches the Supreme Court.

Last June, a TABOR protection and enforcement organization called The Tabor Foundation filed a lawsuit alleging the hospital provider fee is unconstitutional. “The complaint argues that because revenues from the fee have been used for things other than the provision of a direct benefit to its payers — Colorado hospitals — it is actually a tax that requires approval from state voters to be operational,” The Denver Business Journal reported. The lawsuit also seeks to have Colorado repay fees with interest.

That lawsuit is still pending.

What will happen if the status quo remains this year?

Supporters of converting the hospital provider fee to an enterprise fund say if it doesn’t happen and the state hits its TABOR limits, then about $350 million will have to be cut from the state budget for programs like transportation, education, and other services. Converting the revenues to an enterprise fund would mean less refunds to individual Colorado taxpayers, but more money state government could use to fund vital programs. Proponents say the impact of pooling the money to pay for much-needed state services is, in the long run, far more valuable to Coloradans than an individual tax refund of up to perhaps $125.

What does a rural senator who was the only Republican to vote for Medicaid expansion in Colorado say about the hospital provider fee?

We’re talking about Larry Crowder, an Alamosa farmer and rancher. He represents a large swath of the rural southeastern part of Colorado that includes 16 counties, 15 of which are under the federal poverty level. His district also includes several hospitals. Crowder isn’t big on pledges, so he won’t be signing AFP’s pledge to oppose the hospital provider fee issue. He thinks hospitals in his district — and he has been lobbied heavily by them — need the hospital provider fee because it keeps them operating sufficiently. “They want it in the enterprise,” he said of the hospitals in an interview with The Independent. 

For Crowder, the big question is whether converting revenues from the hospital fee into an enterprise is constitutional. If it is, then he’d be open to it, but he’d want some kind of compromise, whatever that looks like.

Crowder worries lawmakers who represent metropolitan areas don’t understand what rural Colorado is like. “You’ve got to realize I’m a Republican. I’m really not interested in raising taxes,” he says. “And I consider myself a staunch Republican. But if we can work within our means, and since this is put together as a fee, and the question is, ‘Is it constitutional?’ that’s a question we’ll have to answer.”