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Tobacco tax for Medicaid plan faces challenge in Oklahoma

A plan to shift coverage for some of Oklahoma's Medicaid recipients in order to trigger an infusion of federal funding appears to be gaining support among Republican lawmakers, but the idea of funding it with a tobacco tax is facing uphill sledding in the GOP-controlled Legislature.

The Medicaid Rebalancing Act of 2020 was unveiled this spring by state health officials as an alternative to a Medicaid expansion under the Affordable Care Act, which has been fiercely opposed by Republican lawmakers for years. The proposed plan involves shifting about 175,000 pregnant women and children off Medicaid and into private insurance plans, which would be purchased with subsidies through the federal marketplace.

Another 175,000 Oklahomans who currently have no health insurance would then become eligible for Medicaid through the state's existing Insure Oklahoma program, which requires modest co-pays and deductibles.

Although the plan still would require federal approval, the biggest hurdle is how the Legislature could afford the more than $100 million price tag while facing a $1.3 billion shortfall in next year's budget.

The funding mechanism currently eyed is a $1.50-per-pack tax increase on cigarettes, which would make Oklahoma's cigarette excise tax by far the highest in the region and raise the cost of a pack of smokes to about $7.44, according to estimates from the National Association of Convenience Stores.

But such a tax increase would require a three-fourths vote in the Republican-controlled Legislature — 76 House members and 36 senators — a tall order for GOP members, most of whom face re-election in the fall. It would only require a simple majority to send the proposed tax to a vote of the people.

"I believe there is majority support in the Legislature for it," said Sen. Clark Jolley, R-Edmond and the key budget negotiator for the Senate. "I don't know if we can get the supermajority that it would require to get it."

Democrats, some of whom would need to vote for the proposal in the House, have repeatedly said hiking the cigarette tax to pay for the Medicaid rebalancing plan doesn't make sense when the state has the option of simply expanding Medicaid, triggering a 9-to-1 match in federal funding and providing health care to hundreds of thousands of uninsured residents.

"We do not support pushing 175,000 pregnant women and children off of Medicaid," said House Democratic Leader Scott Inman. "The only reason that's even being offered is so that Republican members can say they didn't technically expand Medicaid. It's all a political game."

Meanwhile, big tobacco companies and the teams of lobbyists who work for them are warning legislators that tax hikes on cigarettes never generate as much revenue as projected and will drive customers to tribal retailers or neighboring states.

"To rely on an unreliable revenue source to fund broad, important government programs is not good policy and will likely result in budget holes down the line that have to be filled with additional tax increases," said David Sutton, a spokesman for Altria, one of the world's largest tobacco companies.

Without an infusion of funding into the state's Medicaid program, health officials have warned that reimbursement rates paid to health care providers will have to be slashed as much as 25%, likely forcing some hospitals and nursing homes to shut down.

But legislative leaders in both the House and Senate said even if a tobacco tax isn't approved, they will work to ensure additional funding can be secured to prevent deep cuts to providers.

"I don't know that Medicaid rebalancing is a sure thing, but trying to mitigate the impact on provider rates is absolutely a key goal of the Senate," Jolley said. "We are not going to stand for a 25% rate cut. We know they can't afford that ... and we're not going to stand for that."


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