Budget & Tax, Health Care

Tobacco funds eyed to cover surging Medicaid costs

February 20, 2020

Ray Carter

Grappling with the surging expense of Oklahoma’s Medicaid program and the potential for even greater costs if a ballot measure expanding the program passes later this year, members of a Senate committee have voted to redirect state tobacco settlement funds to Medicaid.

“We know the Medicaid money that we spend now continues to skyrocket,” Sen. Kim David, R-Porter, told lawmakers. “Next year, it will cost us so much more than what it cost this year to even address the current population that we have, and with expansion we’re looking at that growing exponentially. So I feel like this is a very conservative way to be able to pay for some of that population without endangering education dollars.”

The state cost of the existing Medicaid program, which mostly serves those with severe disabilities or pregnant women, was $536 million in the 1997 state budget year. Today, that figure has reached $2.19 billion.

At the same time, a ballot measure will go before voters later this year that would expand Medicaid to include up to 628,000 able-bodied adults at a state cost of up to $374 million annually. And Gov. Kevin Stitt has announced he will pursue that same expansion through a federal waiver that may allow the imposition of minor work requirements and modest premiums for the expansion population. 

Senate Joint Resolution 27, by David, would allow Oklahoma voters to amend the state constitution so that 75 percent of annual payments made by tobacco companies as part of a national settlement will be deposited into a special fund where the cash “shall be appropriated and expended to draw down federal matching funds for the Medicaid program.”

The remaining 25 percent of settlement funds would be deposited into the “Tobacco Settlement Endowment Trust Fund,” which currently pays for a range of health-related projects and programs. Currently, that fund receives 75 percent of tobacco-settlement payments. TSET uses interest earnings generated off the cumulative tobacco payments made over the past two decades to pay for health-related programs.

David said the legislation would not reduce the TSET endowment’s existing corpus and would allow continued deposits, although at a lower annual amount.

“Any programs that they currently have should be fine,” David said.

Some tobacco settlement money that currently goes to the attorney general would be redirected to the Medicaid fund. David said money from opioid settlements would replace that cash in the attorney general’s budget.

The state typically receives about $70 million each year in tobacco settlement funds.

David said lawmakers need to prepare to cover Medicaid costs, rather than wait, and noted the other funding alternatives may be much more severe.

“For the state to not have to go in and take education dollars, which is the other big pot of money that we have, it’s important that we have to start dedicating money for that expansion population,” David said.

She noted many individuals in the expansion population have health problems “related to smoking.”

However, some lawmakers objected.

“I’m deeply concerned that this will lead to spending less on the many, many myriad of problems with tobacco,” said Sen. Julia Kirt, D-Oklahoma City.

“I think that we don’t need the TSET money for Medicaid expansion, that we can find that money from other places,” said Sen. Greg McCortney, R-Ada.

But David said the experience of other states shows why lawmakers should be proactive and address Medicaid’s looming costs, particularly with potential expansion on the near horizon.

“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 said. “So those numbers will continue to grow, and in every instance, every state has underestimated that.”

It’s estimated that 85,000 Oklahomans who could be added to Medicaid under expansion already qualify for heavily subsidized insurance policies sold on federal exchanges. Those subsidies are funded entirely by the federal government with no state match. But if those individuals are placed on Medicaid, the Oklahoma state government will have to pay part of the cost, creating a cost shift to state taxpayers.

The debate also occurs as TSET’s funding priorities have come under increased scrutiny in recent years.

From 2015 through 2017, TSET spent less on the state’s Physician Manpower Training Commission, which helps recruit doctors to rural areas, than it did combined on a program to promote smoke-free bars and the Oklahoma City Boathouse Foundation.

Between the 2014 and 2019 budget years, TSET also paid at least $1.6 million to ChangeLab Solutions, a California-based entity that has declared “the most powerful risk factors in health are laws and policies that have perpetuated the legacy of racism, discrimination, and segregation throughout our nation’s history.”

Even those opposed to SJR 27 acknowledged the problems with TSET’s practices.

“Maybe it does need to work better,” McCortney said. “I definitely have questions about the way the money is currently spent.”

Sen. Julie Daniels, R-Bartlesville, was among those who supported the bill, noting the measure could be used to cover the cost of the existing Medicaid program even if expansion does not occur. She also pointed out that even if SJR 27 is approved by voters, TSET’s funding “will continue to grow, just at a slightly lower level.”

“I think this is very much maximizing the use of these funds for the benefit of Oklahoma,” Daniels said.

David urged lawmakers to support the measure to reduce state budget instability.

“Doing it this way gives us that budget certainty of every year we know that we will be receiving an approximate amount—approximately $35 million to $45 million,” David said.

SJR 27 passed the Senate Rules Committee on a party-line vote of 9-2 with Democrats in opposition.