The Connecticut Hospital Association (CHA) is asking the state’s Appropriations Committee to change Gov. Ned Lamont’s proposed changes to the hospital tax. On Feb. 18, representatives of the organization submitted written testimony, asking the Committee to reject any tax increases that don’t directly benefit hospital systems.
This year, hospitals that participate in the hospital tax program will pay a combined $820 million a year in taxes, according to the CHA. Of that $820 million, $300 million is used to help with Medicaid payments, and around $500 million is used by the state for other purposes.
Lamont’s proposed budget would increase the total amount of money hospitals are taxed by $100 million. One of the biggest problems the CHA has with the proposed tax is not the increase itself, but most of that money will not return to hospitals through supplemental payments, Paul Kidwell, CHA’s vice president of policy, said in an interview with Inside Investigator.
In the proposed budget, the increase in tax revenue will be split as follows: $54 million of the tax increase will go toward the state, and $40 million will be used for supplemental payments to hospitals.
Out of the $40 million, $15 million is reserved for Waterbury Hospital.
“The state has articulated that (Waterbury Hospital) will not pay the tax for some period of time. We are opposed to that,” Kidwell said. “We think that if you’re going to participate in the tax, if you’re going to participate in getting benefits from the tax, then you need to be a tax-paying hospital.”
In November 2025, the General Assembly passed a bill during a special session to allow the UConn Health Center to take over Waterbury Hospital. As a result, Waterbury Hospital is now a part of the state-run healthcare system.
Waterbury Hospital isn’t the only hospital subject to different rules. Connecticut Children’s Hospital is excluded from the tax program altogether.
“When the tax program was originally created… Connecticut Children’s was exempt. They didn’t pay the tax, but they also didn’t get any benefit from the tax program either… They just were on the side,” Kidwell said. “Recently, they’ve determined that it would be to their benefit to participate in the tax program, because there is a net benefit to the hospitals… and we agree with that, if they would like to participate, we think they should on both sides of the equation.”
When the hospital tax program was being created, former Gov. Dan Malloy promised that the increased taxes would go toward Medicaid payments, which would flow back into the state. However, after two years, the state started siphoning away the tax dollars hospitals were paying to cover budget holes. Hospitals sued the state and, in 2016, came to a $1.8 billion settlement agreement. As a part of the settlement agreement, the tax rate on hospitals was frozen for 10 years. That freeze will end in July.
In its testimony, CHA representatives wrote that they want 100% of any tax increase to go toward supporting patient care and addressing Medicaid underpayment.
The CHA has been raising the alarm over low Medicaid reimbursement rates for years. Connecticut hospitals have operated at a loss, and the low reimbursement rates are a driving factor. Earlier this month, the Healthcare Cabinet Report recommended raising Medicaid reimbursement rates.
The proposed budget does include $45 million for increased rates to Medicaid providers. In its testimony, CHA said it supports this, although it is “in no way sufficient to address the problem of inadequate Medicaid reimbursement.”
“There is a better approach to the hospital tax, and we look forward to working with the legislature to advance that approach,” the testimony said.
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