Budget & Tax

Expanding Medicaid to able-bodied adults costs taxpayers $2.5 billion

September 11, 2024

Ray Carter

In 2020, Oklahoma voters narrowly approved a ballot measure that allowed able-bodied adults to receive taxpayer-funded Medicaid benefits. The expansion went into effect in 2021.

Now a new report by the Legislative Office of Fiscal Accountability, a state fiscal watchdog, shows that Medicaid expansion will cost taxpayers an additional $2.5 billion next year and ultimately force lawmakers to divert hundreds of millions of state taxpayer dollars from other uses.

Under the 2010 federal Affordable Care Act, better known as “Obamacare,” states were allowed to expand Medicaid to add many able-bodied adults to the welfare program. Backers described the program, in effect, as “free money” because at least 90 percent of funding for expansion would come from citizens’ federal tax payments rather than their state tax payments.

When the issue went before voters on June 30, 2020, fiscal concerns led a majority of Oklahomans who voted in person on election day to reject the measure. Fifty-five percent of those voting in person on June 30 opposed expansion.

However, a concerted absentee-voting effort by expansion proponents boosted the “yes” vote and the measure ultimately passed with 50.49 percent of all votes.

The full state financial impact of Medicaid expansion was not felt immediately because the federal government temporarily hiked Medicaid payments to states as part of the response to COVID in 2020. Now that rates are poised to return to levels comparable to the pre-COVID period, the bill has come due for Oklahomans.

“Now that these additional federal subsidies have expired, Oklahoma will be required to shoulder more of the cost of Medicaid expansion,” the LOFT report stated. “OHCA estimates coverage for the Medicaid expansion population will cost nearly $2.5 billion in SFY25, of which the State would be responsible for $213 million.”

Because officials have built up state savings within the Oklahoma Health Care Authority (OHCA), which administers Medicaid, the state will initially be able to cover the extra cost without increasing state appropriations to the OHCA.

But over time that is expected to change.

The LOFT report noted a substantial amount of Medicaid funding is produced by health provider “fees” (totaling $275.5 million in the 2023 state budget year) and drug rebates.

However, LOFT noted that the “provider fees and drug rebates, the primary funding sources OHCA is relying on to cover the gap, will not be able to keep pace with expected inflation.”

The LOFT report showed that from expansion inception in July 2021 through April 2024, the total number of members added to Oklahoma’s Medicaid program totaled 590,471 with 247,293 of those individuals added as the result of expansion.

Oklahoma’s Medicaid costs have skyrocketed in recent years. From state fiscal years 2013 to 2019, Oklahoma’s Medicaid expenses averaged $5.46 billion per year. But by the 2023 fiscal year, that total had surged to $9.93 billion.

The LOFT report noted nearly half the increased spending was for the Medicaid expansion population.

In a letter of response, officials with the Oklahoma Health Care Authority agreed with LOFT’s warning that the state would have to “shoulder the long-term cost” of Medicaid expansion.

“OHCA agrees with this finding and has emphasized the importance of expansion funding sustainability each year in budget submission documents,” the OHCA’s letter of response stated.

Ellen Buettner, chief executive officer at the Oklahoma Health Care Authority, emphasized that point again to lawmakers serving on the LOFT oversight committee.

“This is really critical for us to think about as we move into the next budget cycle,” Buettner said. “This Medicaid-expansion population is really a difficult one to project in terms of that spend.”

State Sen. Roger Thompson, an Okemah Republican who is co-chair of the legislative oversight committee for LOFT, noted that the $213 million state cost for Medicaid expansion “exceeds what we originally had talked about as far as the state share.”

Officials initially projected the state cost of Medicaid expansion would be $164 million.

In addition, the report found Oklahomans may have to divert state taxpayer money from other needs, such as public safety and education, due to declining tobacco use in Oklahoma.

Oklahoma law requires that 66.4 percent of state tobacco tax collections go to the Oklahoma Health Care Authority funds. In 2013, tobacco tax provided Medicaid with $105.8 million in funding, but that revenue source has since declined to “a decade low of $77.5 million in 2023.”

Even as taxpayer costs have surged, Medicaid expansion has not provided rural hospitals with the financial stability promised by expansion backers in 2020. Recent reports have shown that more rural hospitals face closure today than prior to Medicaid expansion.

That lack of financial stability is due, in part, to the fact that hospital officials say they lose money on Medicaid patients. The more people on Medicaid, the more money hospitals lose. In addition, as health care providers treat more Medicaid patients, they charge higher prices to other patients to make up for Medicaid losses.