Oklahoma legislators are now considering a Medicaid expansion proposal that has been pitched by its backers as an alternative to 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 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 and raise 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, where the federal government dictates multiple aspects of an insurance plan and the beneficial aspects of real market competition are lost. Despite the fact many of these programs attempt to include more substantive reforms, such as copays and employment requirements, the Centers for Medicare and Medicaid Services (CMS) have largely rejected those proposals.
The Oklahoma Council on Public Affairs (OCPA) argues the Rebalancing Act is a retread of a failed Medicaid expansion model that has “failed to deliver on its promises everywhere it has been tried and is ultimately just a more expensive way to expand Obamacare.” OCPA points to recent data on Medicaid expansion in other states to show legislators what they can expect should they adopt expansion in Oklahoma.
“The U.S. Government Accountability Office estimated that a similar expansion plan in Arkansas will cost taxpayers nearly $800 million more than traditional Medicaid expansion in the first three years. In Nebraska, state actuaries estimated that using commercial plans to expand Medicaid would be nearly twice as expensive as traditional Medicaid expansion—as if expanding Obamacare weren’t costly enough,” wrote Jonathan Small and Jonathan Ingram for OCPA.
A second major problem with any model accepting federal dollars is funding. Medicaid is one of the fastest-growing liabilities in both state and federal budgets. Under the ACA, the federal government promises it will provide 90 percent of Medicaid expansion costs. Since the implementation of the ACA, spending on Medicaid has exploded to unsustainable heights. Small and Ingram question whether the state can withstand any form of Medicaid expansion.
“According to OHCA [Oklahoma Health Care Authority] data, the state’s share of Medicaid costs has skyrocketed over the last two decades, reaching a whopping $2.1 billion in 2015. That’s a 553 percent increase over the $316 million in state funds Oklahoma paid in 1995,” wrote Small and Ingram. States will inevitably find the situation impossible to maintain without spending cuts, incurring massive debt, or tax hikes.
The proposed $1.50-per-pack cigarette tax increase would also have many negative consequences. Tobacco taxes are an unreliable and shrinking tax revenue stream, so 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.
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 creates. Using a declining revenue source to pay for an increasingly expensive Medicaid expansion will fail to provide better or more affordable health care and create budgetary problems.
The following articles provide more information about Medicaid expansion and excise taxes.
Oklahoma Health Care Authority’s Latest Plan is Simply Obamacare Medicaid Expansion
http://www.ocpathink.org/medicaid
Jonathan Small and Jonathan Ingram of the Oklahoma Council on Public Affairs examine the proposed rebalancing of Medicaid and argue it is simply Medicaid expansion repackaged. “But this ‘rebalancing’ is really just an Obamacare expansion by another name … Oklahoma policymakers could raise reimbursement rates and shift enrollees out of Medicaid even without expanding Obamacare. In fact, expanding eligibility to hundreds of thousands of able-bodied adults will only make it more difficult for lawmakers to make any other changes to the Medicaid program. Oklahoma policymakers should reject OHCA’s latest proposal to expand Medicaid to a new class of able-bodied adults and instead refocus their efforts on improving the Medicaid program for the most vulnerable.”
Ten Principles of Health Care Policy
http://heartland.org/policy-documents/ten-principles-health-care-policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems.
Cigarette and Tobacco Tax Hikes a Bad and Dangerous Idea
http://www.ocpathink.org/post/cigarette-and-tobacco-tax-hikes-a-bad-and-dangerous-idea
Over the years, a number of states have increased taxes on cigarettes and tobacco products to increase funding for numerous government programs, including education. Jonathan Small of the Oklahoma Council of Public Affair outlines in this article several examples of why any tax hike on tobacco products is unwise.
Research & Commentary: States Should Innovate, Not Expand Medicaid
http://heartland.org/policy-documents/research-commentary-states-should-innovate-not-expand-medicaid
Matthew Glans of The Heartland Institute discusses how expanding Medicaid can have repercussions beyond state budgets and the health care industry and notes better options exist: “It is important to remember government spending creates little or no income or economic growth; it is merely the redistribution of tax dollars taken from the pockets of taxpayers.”
Policy Tip Sheet: Medicaid Expansion
http://heartland.org/policy-documents/policy-tip-sheet-medicaid-expansion
Kendall Antekeier of The Heartland Institute explains why states should avoid Medicaid expansion and instead reform this fiscally unsustainable program in ways that offer better care at a lower cost to taxpayers.
A Medicaid Cure: Florida’s Medicaid Reform Pilot
http://www.floridafga.org/2011/11/a-medicaid-cure-floridas-medicaid-reform-pilot/
The Foundation for Government Accountability explains the success of its Project Medicaid Cure: “When the patient is the priority, government and HMO bureaucrats are finally held accountable. Costs flatten and patient health and satisfaction improves.”
The Private Option: Medicaid Expansion by Another Name
http://heartland.org/policy-documents/private-option-medicaid-expansion-another-name
Nicole Kaeding of Americans for Prosperity forecasts the effects of the decision to expand Medicaid in Arkansas.
Why States Should Not Expand Medicaid
https://heartland.org/publications-resources/publications/why-states-should-not-expand-medicaid?source=policybot
Writing for the Galen Institute, Grace-Marie Turner and Avik Roy outline 12 reasons states should not expand Medicaid and should instead demand from Washington, DC greater control over spending to fit coverage expansion.
ATR Opposes Oklahoma Governor Mary Fallin’s Tax Increases
https://www.atr.org/atr-opposes-oklahoma-governor-mary-fallins-tax-increases
In response to Fallin’s proposal to raise taxes by hundreds of millions of dollars annually, Americans for Tax Reform outlines its opposition to any tax increases in Oklahoma and explains why Fallin’s tax proposals are not the best policy for the state.
Mercatus on Policy: Sales Taxes and Exemptions
https://heartland.org/publications-resources/publications/mercatus-on-policy-sales-taxes-and-exemptions?source=policybot
Thomas Stratmann of the Mercatus Center argues, contrary to common assumptions held by many legislators, sales tax exemptions may actually lead to higher overall taxes and less revenue. “Legislators and policymakers need to be aware of the real-world implications of carving out exemptions for favored business sectors when drafting tax policies.”
The Empty Promises of Arkansas’ Medicaid Private Option
http://heartland.org/policy-documents/empty-promises-arkansas-medicaid-private-option
The Foundation for Government Accountability examines the empty promises of Arkansas’ Medicaid private option program. The authors offer direct quotes from media interviews, legislative floor speeches, and social media posts made by private option supporters, and they provide point-by-point free-market rebuttals.
How Medicaid Expansion (and the ‘Private Option’) Will Lock its Clients into Poverty
http://heartland.org/policy-documents/how-medicaid-expansion-and-private-option-will-lock-its-clients-poverty
Dan Greenberg of the Advance Arkansas Institute argues legislators need to consider the potential economic problems that come from expanding Medicaid, including slow economic growth and trapping taxpayers into low-wage jobs.
Research & Commentary: The Medicaid ‘Cure’
https://heartland.org/policy-documents/research-commentary-medicaid-cure
Kendall Antekeier examines the Medicaid Cure, a pilot program established in five large Florida counties by former Gov. Jeb Bush (R). The Medicaid Cure is a premium support model passed in 2006 in which gave 290,000 Medicaid recipients a range of premiums and plans from which to choose.
A Medicaid Cure: Florida’s Medicaid Reform Pilot
https://heartland.org/publications-resources/publications/a-medicaid-cure-floridas-medicaid-reform-pilot?source=policybot
The Foundation for Government Accountability analyzes the success of Florida’s Medicaid Cure program, stating, “When the patient is the priority, government and HMO bureaucrats are finally held accountable. Costs flatten and patient health and satisfaction improves.”
The Effect of Sales Taxes on Employment: New Evidence From Cross-Border Panel Data Analysis
https://heartland.org/publications-resources/publications/the-effect-of-sales-taxes-on-employment-new-evidence-from-cross-border-panel-data-analysis?source=policybot
This study, authored by Federal Reserve Board researcher Jeffery Thompson and Kent State University economics professor Shawn Rohlin, examines how sales taxes affect employment rates in areas near state borders, where cross-border economic effects often take place.
Sin Taxes: Size, Growth, and Creation of the Sindustry
https://heartland.org/policy-documents/sin-taxes-size-growth-and-creation-sindustry
Adam Hoffer of the Mercatus Center explores three criticisms of sin taxes. First, taxing selected goods for general budget revenue contradicts the standard Pigovian social-welfare argument – tobacco tax revenues aren’t being used to help smokers, for example. Second, the economic burden of sin taxes falls disproportionately on low-income households. Third, the expanding number of goods being taxed in this way results in unproductive and preventive lobbying.
Five Things to Consider Before Raising Tobacco Taxes: A Review of the Research
https://heartland.org/policy-documents/five-things-consider-raising-tobacco-taxes-review-research
This Heartland Institute Policy Brief argues, “Tax increases above current levels are not justified by appealing to the costs smokers impose on nonsmokers. Smokers already pay more than this measure could justify.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at https://heartland.org/topics/health-care/index.html, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
