A $1.50-per-pack cigarette tax increase will go toward funding a form of Medicaid expansion in Oklahoma—if lawmakers and Gov. Mary Fallin (R) approve the Medicaid Rebalancing Act of 2020 (MRA) this session, scheduled to adjourn on May 27.
MRA would move nearly 175,000 members of SoonerCare, the state’s Medicaid program, into private health insurance plans purchased with federal subsidies administered through a revised version of Insure Oklahoma, currently a state-funded premium assistance program for employees of small businesses.
If approved, MRA will cost Oklahoma a combined $137 million in 2018 and 2019 and $105 million in 2020. Over the same three-year period, the program will cost the nation’s taxpayers approximately $3 billion—the federal government’s share—according to an infographic by the Oklahoma Health Care Authority (OHCA).
In 2010, Oklahomans approved by ballot initiative an executive proclamation by then-Gov. Brad Henry (R) stating opposition to multiple features of the Affordable Care Act. Sixty-five percent of voters approved the proclamation.
Fallin decided in 2012 not to pursue Medicaid expansion, saying it would be “unaffordable” and “further Oklahoma’s reliance on federal money that may or may not be available in the future,” according to a press release at the time.
Jonathan Small, president of the Oklahoma Council of Public Affairs, says instead of making health care more accessible for the state’s needy, MRA would just rearrange the funding of the current system.
“The proposal by the OHCA guts the current Insure Oklahoma program so Oklahoma can qualify for Medicaid expansion dollars,” Small said.
Small says proponents of Medicaid expansion seem eager to hide the federal price tag.
“This is the part not getting a lot of attention, and I think that’s somewhat intentional by the Oklahoma Health Care Authority,” Small said. “The feds will spend almost $10 billion in addition to what we’re spending the next 10 years.”
Small says a lack of transparency in medical billing allows hospitals to fabricate financial shortfalls out of mere paper deficits.
“It’s very easy for them to make it look like they’re losing money when really it’s just paper losses,” Small said. “Hospitals discount their price and then call the difference between the actual price and the master price ‘uncompensated care.’ Hospitals use the kind of accounting that got Enron shut down.”
Special interests would be the real beneficiaries of Medicaid expansion, Small says.
“The public has to understand that there is big money from the feds in Medicaid expansion for special interests,” Small said. “The OHCA budget provides over $800 million a year to hospitals.”
Big Drag for Smokers
The National Association of Convenience Stores estimates the increase of an existing surcharge on cigarettes to pay for Medicaid expansion under MRA would raise per-pack prices to about $7.44 and make Oklahoma’s cigarette excise tax the highest in the region, the Associated Press reported on April 30.
Small says charging smokers even more will make Oklahoma a top-10 state for high cigarette taxes.
“The tax increase that’s proposed would increase the cigarette tax by 145 percent and take Oklahoma from 31st to 10th in cigarette taxes,” Small said. “It would put Oklahoma in the position that if you traveled from the coast of Texas and [the] Gulf of Mexico to the shores of Lake Michigan, you would not cross a state that had a higher cigarette tax than Oklahoma.”
State Rep. Mike Ritze (R-Wagoner County) says proponents of the tax increase may be underestimating the elasticity of demand for cigarettes among smokers who are already paying as much as they can.
“Theoretically, it would generate $130 million to $170 million in new taxes, but what I think they’re overlooking is eventually smokers will reach a point of no return, where they can’t afford it and some give it up,” Ritze said. “When New York did this, the state lost money.”
Smuggle ‘Em If You Got ‘Em
Ritze says he favors some so-called sin taxes, but he argues an excessive cigarette surcharge will incentivize illicit cigarette purchases.
“It drives smoking underground,” Ritze said. “I think you’ll see a much bigger black market in Oklahoma.”
“A study [the Oklahoma Council of Public Affairs] did with the Mackinaw Center found that this massive of a tax increase would increase cigarette smuggling [so as to account for] 2 to 19 percent [of the market],” Small said.
More Tax Hikes to Come?
MRA’s funding mechanism leaves taxpayers vulnerable to future tax increases when this one fails to generate the expected amount of revenue, Small says.
“This method of paying for Medicaid expansion really exposes taxpayers to future significant tax increases, because rarely do the promised large cigarette-tax-increase proposals amount to the revenue projected,” Small said.
“We’ve seen 70–80 new taxes introduced this session,” Ritze said. “They keep saying it’s going to help the little guy, and I keep saying it’s going to hurt the little guy.”
Sometimes lawmakers can procure greater reforms for their constituents by taking and keeping bad policies off the books, Ritze says.
“People ask me, ‘What good laws should we pass?’ Sometimes, I think it’s better to look for bad laws we can repeal,” Ritze said.
Matthew Glans, “Oklahoma ‘Medicaid Rebalancing’ is Simply Medicaid Expansion,” Research & Commentary, The Heartland Institute, May 4, 2016: https://heartland.org/policy-documents/research-commentary-oklahoma-medicaid-rebalancing-simply-medicaid-expansion