Health Care

Medicaid expansion complicates budget planning

May 4, 2020

Ray Carter

Gov. Kevin Stitt has filed federal paperwork to expand Oklahoma’s Medicaid program to include many able-bodied adults starting July 1, which he has labeled SoonerCare 2.0. That has forced lawmakers, who did not vote to authorize the expansion, to find a way to pay for the state cost of Medicaid expansion even in the midst of a $1.3 billion shortfall and an economic recession that is fueling a surge in the population of potential Medicaid enrollees.

During a Monday press conference announcing a House-Senate budget agreement, House Appropriation and Budget Chairman Kevin Wallace, R-Wellston, noted the estimated state cost of Medicaid expansion has ranged from $129 million to $247 million during this year’s session.

He said the budget agreement is based on a state expansion cost of $164 million.

To cover that cost, the budget agreement includes a 4 percent Supplemental Hospital Offset Payment Program (SHOPP) fee, which is assessed on hospitals’ net patient revenue and operates much like a traditional income tax. The fee will generate $134 million.

The rest of the cost of Medicaid expansion will come from tapping state savings.

Lawmakers indicated the ball is now in Stitt’s court.

“If you want to go ahead and expand SoonerCare 2.0, you have SHOPP at 4 percent and you can take the balance out of the Revenue Stabilization Fund,” said Senate Appropriations Chairman Roger Thompson, R-Okemah. “That’s real money, and we can move forward if that’s what he chooses to do.”

The SHOPP fee is not without controversy. Senate Minority Leader Kay Floyd, D-Oklahoma City, has previously noted the SHOPP fee is passed on to consumers.

“It’s raised premiums for people,” Floyd noted in February. “The cost is passed on. It’s affected benefits for pharmaceuticals and for drugs. There are a lot of possible ramifications with tinkering with SHOPP.”

The cost-shifting issue arose when House lawmakers convened in the Joint Committee on Appropriations and Budget to consider legislation raising the SHOPP fee following the announcement of the budget agreement.

“Ultimately, where does the SHOPP dollar come from within these hospitals?” asked Rep. Mark Lepak, R-Claremore.

“It comes from the revenue that they generate from surgeries and other health care,” said Rep. Marcus McEntire, a Duncan Republican who carried the legislation.

“You’re talking about payments to hospitals from insurance companies, from cash payers, from a combination of the two,” Lepak said. “And so an increase in fee, is that going to get passed along to those who are already paying hospitals as it is?”

“We certainly hope not,” McEntire said, although he added that the SHOPP fee increase is “probably going to put a lot” of state hospitals “in a cash squeeze.”

McEntire described SHOPP as a “bed tax,” but said hospitals would make up the added cost “in volume.”

But testimony from a top hospital official during a legislative study last September indicated that increased volume from Medicaid patients will not benefit hospitals. At that meeting, Jay Johnson, president and CEO of Duncan Regional Hospital, told lawmakers hospitals lose money on Medicaid patients.

“At our hospital, whether we’re taking a Medicare or Medicaid patient, our expenses are greater than what we will get paid,” Johnson said.

Johnson labeled programs like Medicaid as a “hidden tax” on other citizens.

“The hidden tax is that all of us that have commercial insurance pay exponentially more because our government programs don’t pay enough for us to break even,” Johnson said.

McEntire also said many hospitals are not financially capable of paying the first quarter of SHOPP payments under the new, higher rate, so the Oklahoma Health Care Authority will effectively loan the hospitals the cash. McEntire did not specify where the OHCA would find those millions during a time of budget shortfall.

“There’s some extra money at the Health Care Authority where they can help them,” McEntire said.

McEntire also suggested the SHOPP tax will be expanded next year to apply to many hospitals that currently do not pay it. Not quite half of the hospitals in Oklahoma are currently exempted from paying the SHOPP fee. The exempted hospitals include any hospital certified by the federal Centers for Medicaid and Medicare Services as a long-term acute care hospital, as a children’s hospital, or as a critical access hospital. The latter group consists largely of small rural hospitals in areas that are otherwise remote from health care services.

“I would expect for this body to see a revamping or a reworking of SHOPP, probably next year,” McEntire said. “Because right now you have 69 hospitals paying for the majority of SoonerCare 2.0, and so their goal is to have that diminish over time and allow more hospitals to pay in.”

Even as lawmakers raised concerns about the cost of Oklahoma’s Medicaid expansion, the estimates touted by the governor and the figures used in this year’s budget planning may dramatically understate expansion enrollment, based on other states’ experiences and prior Oklahoma research.

A previous study commissioned by the Oklahoma Health Care Authority, which administers Medicaid, predicted up to 628,000 Oklahomans would become Medicaid-eligible under expansion. Based on current Medicaid expenses, that translates into a state cost of $374 million annually. Those projections were done at a time when economic conditions were far better than today.

Senate Majority Floor Leader Kim David, a Porter Republican who has called for tapping a portion of the state’s tobacco-settlement funds to cover Medicaid expansion costs, has repeatedly stressed that no state has accurately projected expansion enrollment.

“Trying to look at it realistically and looking at it historically on what’s happened to other states, they’ve underestimated the population that’s come in. They’ve underestimated the number of people that jump off the exchange that are now eligible or would be eligible for the free health care,” David told lawmakers earlier this year. “So those numbers will continue to grow, and in every instance, every state has underestimated that.”

In 2018, the Foundation for Government Accountability found states that expanded Medicaid signed up more than twice as many able-bodied adults as predicted and experienced cost overruns of 157 percent.