Budget & Tax, Health Care

Tax/fee on health care, state savings, to fund Medicaid expansion

May 14, 2020

Ray Carter

Facing a July 1 expansion of Medicaid, members of the Oklahoma Senate voted Wednesday to fund the expansion of the welfare program with a de facto tax on health care and by drawing down an undetermined and open-ended amount of state savings.

Currently, Oklahoma’s Medicaid program pays for health care treatment of the disabled, low-income pregnant women, and children. But under the Affordable Care Act, better known as “Obamacare,” states can expand the program to include hundreds of thousands of able-bodied adults.

Gov. Kevin Stitt has filed federal paperwork to implement the Affordable Care Act expansion this summer, which he has dubbed SoonerCare 2.0.

“With the (federal) approval of that state plan amendment, we will be in Medicaid expansion on July 1,” Sen. Frank Simpson, R-Ardmore, told lawmakers.

Oklahomans will also vote on a ballot measure in June, State Question 802, which would expand Medicaid. Stitt’s plan and the ballot measure are largely identical, although Stitt’s plan could eventually allow the imposition of minimal cost-sharing requirements if such requirements survive court challenges.

While the federal government will provide $9 in federal tax funding for every $1 in state funding for the Medicaid expansion population, coming up with the state share has been a challenge, especially given the $1.3 billion shortfall lawmakers faced this year.

Lawmakers have said this year’s state budget assumes the state cost of expansion will be $164 million.

Senate Bill 1046 partially pays that cost by raising a “fee” assessed on hospital revenue that acts much like a tax. The bill raises the Supplemental Hospital Offset Payment Program (SHOPP) fee by 1.7 percentage points to 4 percent for all participating hospitals.

It is expected to generate $134 million.

Simpson said the SHOPP fee increase will go away if SQ 802 passes in June, but admitted an increase will likely be enacted to fund that ballot measure as well.

“If 802 passes, this entire program is canceled and we are back to square one,” Simpson said.

Democrats questioned the fairness of the SHOPP fee, noting many hospitals do not pay the fee/tax.

“Are the SHOPP fees fair across the state to our hospitals?” asked Sen. Julia Kirt, D-Oklahoma City.

“I think fair is in the eye of the beholder,” Simpson said.

He said 65 hospitals currently pay the SHOPP fee. That group represents around half of state hospitals.

“That means there are hospitals, other hospitals, that do not pay SHOPP,” Kirt responded.

The hospitals exempted from paying SHOPP 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.

However, Rep. Marcus McEntire, R-Duncan, recently indicated lawmakers may try to expand the SHOPP tax/fee to include many additional hospitals, saying, “I would expect for this body to see a revamping or a reworking of SHOPP, probably next year. 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.”

SB 1046 passed the Oklahoma Senate on a 29-17 vote. Eight Republicans joined Democrats in opposition.

Because the SHOPP fee is not expected to cover the full cost of expansion, senators also approved Senate Bill 1935, which will draw down state savings from the Revenue Stabilization Fund.

SB 1935 authorizes the expenditure of any “amount necessary to fund Medicaid expansion” above the amount generated by the SHOPP fee. A fiscal analysis could not project how much the expansion will deplete the Oklahoma government’s remaining state savings, saying the impact “will be determined as a result of the level of enrollment.”

SB 1935 passed the Senate on a 36-10 vote. All opponents were Republicans.

The estimated $164 million state cost of expansion has been viewed with skepticism and may be far lower than the actual cost.

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.

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.

Both SB 1046 and SB 1935 now proceed to the Oklahoma House of Representatives.