Pennsylvania Medicaid Expansion to Increase Burden on Taxpayers

Published June 11, 2013

Taxpayers will be on the hook for additional costs if Pennsylvania decides to expand Medicaid in accordance with the federal health care law, but those additional tax dollars will flow from the federal government, not from the state, for the first few years—provided the federal government doesn’t change the treatment of an important state tax and keeps its funding promises, both of which remain in doubt as implementation time approaches.

A new report from Pennsylvania’s Independent Fiscal Office—a nonpartisan number-crunching agency that serves as the state’s version of the Congressional Budget Office—says Pennsylvania would save about $220 million annually over the first eight years of the expansion, which would begin in 2014.  Most of those savings would be concentrated in the first three years, according to the analysis.

Federal spending on Pennsylvania would increase by about $3.2 billion over the same period.

“Most of the Commonwealth’s savings under expansion would be generated by transferring individuals currently served by General Assistance to the federally funded Medicaid program,” said Matt Knittel, executive director of the Independent Fiscal Office.

Under the provisions of the federal health care reform law, Medicaid coverage will be expanded to 133 percent of the federal poverty level from the current ceiling of 100 percent, beginning in 2014. In June 2012, the U.S. Supreme Court ruled states could reject the expansion without losing current funding. Only 22 states have accepted the expansion so far, and Pennsylvania Gov, Tom Corbett has been undecided on the issue.

Shifts Bill to Federal Taxpayers

The IFO report projects Medicaid expansion will provide health insurance coverage to 440,000 individuals, with about half of those being previously uninsured and the other half currently insured with private or employer-funded plans. The federal government will cover 100 percent of the costs for those newly eligible for Medicaid during the first three years of the expansion, with declining levels of subsidies in future years.

Pennsylvania Senate Democrats, who requested the IFO analysis, said the report proved the Medicaid expansion would be good for the state’s bottom line.

“The dollars identified by the IFO can be used for a variety of purposes, including investment in public schools, such as the cash-strapped Philadelphia School District,” said state Sen. Vincent Hughes (D-Philadelphia). “We can leverage those dollars to solve problems.”

But additional costs—whether at the state or federal level—are still an increasing burden on taxpayers, said Elizabeth Stelle, a research analyst for the Commonwealth Foundation, a free market think tank in Harrisburg that opposes the Medicaid expansion.

“Rather than depending on deficit-spending from the federal government to bail [them] out, Pennsylvania lawmakers must look to real reforms that reduce the costs of health care and reform unsustainable entitlement programs,” Stelle said.

Governor Undecided on Expansion

Corbett has cited uncertainty about the federal government’s ability to meet its obligations in future years. The Corbett administration is also concerned about what would happen if the state is blocked from imposing its gross receipts tax on managed care organizations. Pennsylvania uses revenue from that tax to finance part of the state’s share of Medicaid costs. The federal Department of Health and Human Services is reportedly seeking to make changes that could limit how states apply that tax.

If Pennsylvania expands Medicaid and the federal government imposes tax changes, it could cost the state as much as $1.53 billion over seven years, according to administration projections. The IFO report noted disallowing the gross receipts tax would have a “material impact on budgetary outcomes.”

Either way, the state would still have to find the funds to match its portion of the Medicaid expansion. According to an analysis by the Heritage Foundation, the cost to taxpayers through 2022 would amount to a net $2 billion.

Christine Cronkright, a spokeswoman for the governor, said that for these reasons, Corbett will continue to seek reforms to the Medicaid program from the federal government regardless of the expansion decision.

“He believes we can increase access to health care and healthcare coverage for more Pennsylvanians, but only if we’re given the independence and flexibility to do so,” Cronkright said.

Eric Boehm ([email protected]) writes for the Pennsylvania Independent.