Medicaid expansion is an expensive endeavor that many critics believe does not provide better or more affordable health care. Many of the expansion plans that states are now considering use federal dollars to expand their Medicaid programs to a larger portion of their state, creating new costs the federal government may not always be able to cover and leaving state taxpayers on the hook for the new liabilities.
Oklahoma legislators are now considering a Medicaid expansion proposal that has been pitched by its backers as an alternative to a full Medicaid expansion under the Affordable Care Act. The legislation, called the Medicaid Rebalancing Act, is similar to the expansion undertaken in Arkansas. It would shift about 175,000 pregnant women and children off of Medicaid and into private health insurance plans, which would be purchased with subsidies through the federal marketplace.
About 175,000 Oklahomans without health insurance would fill the vacated Medicaid spots through the Insure Oklahoma program, which requires co-pays and deductibles. This expansion could cost as much as $100 million, and it would be funded by a $1.50-per-pack cigarette tax increase, which would make Oklahoma’s cigarette excise tax the highest in the region, raising the average cost of a pack of cigarettes to $7.44, according to an estimate by the National Association of Convenience Stores.
Emulating Arkansas’ model is problematic for several reasons. First, despite various private-market characteristics of the program, it still represents an expansion of a failed Medicaid system. The federal government would dictate multiple aspects of insurance plans, effectively reducing many of the benefits linked to real market competition. It’s true many of these programs attempt to include some limited free-market reforms, such as copays and employment requirements, but the Centers for Medicare and Medicaid Services has largely rejected similar proposals.
A second significant problem is related to funding. Medicaid is one of the fastest-growing liabilities in state and federal budgets. Under the ACA, the federal government promises it will provide 90 percent of Medicaid expansion costs, but since the ACA was implemented and Medicaid expanded, spending on Medicaid has exploded to unsustainable heights.
Jonathan Small and Jonathan Ingram recently examined the question of whether the state can withstand any form of Medicaid expansion in an Oklahoma Council of Public Affairs study. They found states will inevitably find the situation impossible to maintain without spending cuts, incurring massive debt, or tax hikes. Small and Ingram say Oklahoma’s share of Medicaid costs already swelled to $2.1 billion by the end of 2015, a 553 percent increase over the state’s share in 1995. Further spending increases are sure to push the state’s budget well beyond its limits.
The proposed $1.50-per-pack cigarette tax increase would also have many negative consequences. Tobacco taxes are an unreliable and have been proven to be a shrinking tax revenue stream. Using them to pay for a Medicaid program that is increasing in costs will likely create budget problems in the future. According to recent data from the U.S. Census Bureau, state revenue from tobacco product sales taxes decreased in 2013 by 0.9 percent, to $17 billion. In 2012, revenue dropped by 0.5 percent. The National Taxpayers Union Foundation found tobacco tax collections failed to meet initial revenue targets in 72 out of 101 recent tax increases.
After Indiana and Pennsylvania moved to expand their Medicaid programs under the false promise of offering a “free-market alternative” to “Obamacare,” some Republican governors have started to reconsider their opposition to Medicaid expansion. But the so-called “private option” plans are merely machinations concocted by Medicaid expansion supporters to give conservative legislators political cover for expansion. This is done so that politicians on both sides of the aisle can grab what they incorrectly claim is “free money” from the federal government.
The Medicaid Rebalancing Act faces several hurdles, including federal approval for the expansion and a three-fourths vote for the tobacco tax increase, but it is important to recognize the real problems expansion create. Medicaid expansion should be opposed whenever it is considered—and under any form.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
