HEALTH NEWS

Raising Taxes to Pay for Medicaid Programs

Written by Bob Curley on February 1, 2018

Oregon voters approved a plan to increase taxes on health-related industries to pay for Medicaid. Will other states do the same as federal funding decreases?

oregon vote medicaid taxes

Will voters be willing to raise taxes to help fund Medicaid programs in their state?

They did in Oregon. Residents in that Pacific Northwest state have given a resounding vote of confidence to the state’s expansion of Medicaid benefits to residents with incomes of up to 138 percent of the poverty line.

Those who went to the polls in Oregon last month voted to approve new taxes to continue paying for the low-income healthcare coverage as federal money to those programs starts to decline.

The statewide referendum establishes higher taxes on health insurers, hospitals, and managed care companies to pay for Medicaid services.

The ballot item, called Measure 101, was approved by 62 percent of Oregon voters.

What the measure does

In effect, Oregon voters have endorsed a $550 million funding plan approved by the state legislature last year to provide funding for the Oregon Health Plan through mid-2019.

Oregon state Rep. Pam Marsh (D-Ashland) said the approved measure endorses “the legislature’s decision to put together a budget to support a million Oregonians, including 400,000 children who receive services through the Oregon Health Plan.”

“Oregonians have reaffirmed their determination to have affordable healthcare,” added Sen. Jeff Merkley (D-Oregon) in a tweet after the vote tally was announced.

The plan calls for a 1.5 percent assessment on premiums that health insurers earn and premium equivalents that managed care organizations and the Public Employees’ Benefit Board receives. It also imposes a 0.7 percent tax on the net revenue of hospitals.

In a Jan. 28 editorial, The Oregonian congratulated backers of the plan for their ballot victory, but called the funding mechanism “deeply inequitable.”

“They apply to those Oregonians who have the misfortune of buying their own health insurance through the [Affordable Care Act] marketplace, including self-employed individuals, small businesses and even thousands of college students who are required to buy coverage through their school if they lack their own plans. Cash strapped K-12 school districts must also shell out additional millions under these assessments,” the editors wrote.

“At the same time, hundreds of thousands of Oregonians who get their health coverage through self-insured employers like Nike and Intel (as well as The Oregonian), escape the 1.5 percent tax.”

That’s because federal law prohibits states from taxing self-insured healthcare plans, according to the newspaper.

The Oregon Medicaid expansion, with federal funding available through the Affordable Care Act (ACA), was initially approved in 2014.

The federal share of payments began at 95 percent, but that money from Washington is expected to decrease over the next decade under a budget plan approved last fall by Republican leaders.

Will other states follow?

In addition to Oregon, 31 other states and Washington, D.C., took advantage of the ACA’s Medicaid funding and expanded services to cover more low-income residents. The remaining 18 states, most led by Republican governors, did not.

Matt Salo, executive director of the National Association of Medicaid Directors, told Healthline that every state that expanded Medicaid is grappling with how to close the funding gap.

“What Oregon did worked for Oregon, and it’s certainly something that other states take notice of, but since every state’s political, fiscal, and healthcare cultures are different, it’s hard to draw bright lines of causation from one to the next like this,” he said.

“Every state periodically has to deal with closing unanticipated funding gaps,” added Salo. “The advantage — if you can call it that — here is that the expiration of the [federal] funds is predictable. But regardless of whether its anticipated or sudden onset, states generally have limited options when it comes to balancing budgets.”

For states, the choice comes down to cutting other parts of the budget to pay for Medicaid or finding other sources of revenue, such as new taxes.

“Most traditional forms of increasing state revenue that directly impact citizens are politically untenable, so states will look at variations such as targeted ‘sin taxes’ like on cigarettes, or taxes on the healthcare industry,” said Salo. “The last part is generally much more popular and defensible because so many sectors of the healthcare industry all stand to benefit tremendously from the Medicaid expansion.”

Healthcare providers may go along with such taxes because an increase in Medicaid coverage can lead to healthier populations, reducing the uncompensated care burdens on hospitals and minimizing risk (and raising profits) for private health plans, Salo added.

Some Republican governors have said they’ll take a second look at the Medicaid expansion they eschewed under the ACA now that President Trump is allowing states to tie Medicaid benefits to work requirements.

“I definitely see this as a trend, but it’s too early to tell whether it’s two or three states like Utah, Idaho, and Wyoming, or whether it spreads to the bigger ones,” said Salo. “I think a lot of people are sitting on the sidelines on that issue until the work requirements stuff makes it through the legal challenges.”

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