July 20, 2024

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Medicaid expansion plan would hike cigarette taxes, raise fees

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Over the last two days, members of the Senate Select Committee on Healthcare Access noodled on details of a Medicaid expansion plan crafted by Senate Majority Leader Jim Denning.

“The idea is to make it budget neutral. We can’t put any more stress on the state general fund,” Denning said as he presented aspects of his proposal to the committee on Wednesday.

The federal government will match 90 percent of funding for expansion, but the state budget has more than a $1 billion deficit by 2023 and Kansas taxpayers would be on the hook for funding approximately $121 million annually for expansion.

Denning’s proposal would make up the difference by requiring hospitals to pass a surcharge onto consumers, assessing fees on managed care organizations, and by increasing taxes vaping liquid and on cigarettes by $1 a pack.

Kansas is currently spending $500,000 more per day than it is collecting, Denning told the Senate committee. 

Kansas is one of 14 states that hasn’t expand its welfare program after Congress passed Obamacare. Expansion states haven’t been able to contain program costs, in part, because more able-bodied, childless adults than projected are signing up for the new welfare benefit.

Gregg Pfister, government affairs director at the Foundation for Government Accountability told a Kansas Senate committee in 2018 that cost overruns are the norm in other states.

He quoted data from 24 expansion states that revealed able-bodied, childless adult Medicaid enrollments doubled estimates in those states.

“Data from these 24 states shows that at least 11.5 million able-bodied adults enrolled in Obamacare expansion — an overrun of 110 percent on average–more than double projections,” he said. 

Projections in Kansas fluctuate. When lawmakers considered expansion in 2018, officials estimated that 150,000 able-bodied, childless adults would enroll in Kansas’s expansion. Today, Kansas Health Insitute officials estimate the number will be closer to 90,000; KHI also estimates 40,000 children will enroll who are already Medicaid-eligible and therefore will not qualify for the higher federal matching funds.

Even if Kansas’s most recent estimates are accurate, using a “sin” tax for funding creates new challenges. Michael Austin, director of the Sandlian Center for Entrepreneurial Government, says excise taxes on products like tobacco are extremely volatile.

“It is never good to build a foundation upon sand,” he said. “And this is the functional equivalent.”

That’s partly because the taxes on cigarettes and related products are much lower in surrounding states. Currently, Kansas charges $1.29 in taxes per pack of cigarettes which would increase to $2.29 per pack under the Denning plan, while Missouri consumers pay only 17 cents in taxes on a pack of smokes. 

Kansas has a recent historical example. When the state raised the cigarette tax by 79 cents in 2015, there initially was an expected jump in revenue in Fiscal 2016 but cigarette sales tax collections have since declined three consecutive years.

“Just because tobacco or cigarette taxes fall doesn’t mean there’s a decrease in smoking. It also could mean an increase in smuggling,” Austin says.

Researchers at the Mackinac Center for Public Policy in Michigan found a strong link between cigarette taxes and illegal smuggling rates.

“Research shows high excise taxes invite scofflaws to traffic in illicit cigarettes, encourage corruption among public officials and trigger violence against people, property, and police,” the researchers concluded.

Increased smuggling is one potential unintended consequence of the Denning plan. According to Sen. Mary Pilcher-Cook, creating perverse incentives that force more people onto the welfare roles could be another.

“People don’t realize that while you may be helping one population, you are actively hurting another population,” she said. 

She questioned how expanding Medicaid under Obamacare to able-bodied childless adults might affect the rest of Kansans. 

“If there are fewer people who have private coverage because they’re now on Medicaid, have you anticipated what this will do to the premium costs of citizens not on Medicaid,” she asked Adam Proffitt, Kansas Medicaid director.

He said the Kansas Department of Health and Environment hasn’t analyzed that.

“The (studies) we have tended to focus on the drop in the uninsured rate,” Proffitt told the Senate committee.

She used her dad as one example as an unintended consequence of focusing on one group of Kansans while ignoring the effect of policy everyone else. When her father was in a nursing home, her family paid $6,000 per month to avoid putting him on Medicaid. Meanwhile, the legislature passed a bed tax charged to people who use private insurance. The increased tax could have forced him onto Medicaid.

Kansas Health Institute also estimates that 55,000 of those who would apply if Medicaid is expanded are already insured, but would likely switch to Medicaid if the legislature expands the welfare program.

Pilcher-Cook says expansion would suck more working-class people into dependency on the government.

“That becomes a vicious cycle,” she said.

Medicaid expansion provides the welfare health insurance benefit to able-bodied, childless adults. Children and the disabled are already covered, though the federal government only provides a 60 percent match on that program. When state funding is short, that creates an incentive for lawmakers to put available funding into the expansion program rather than the program that covers children and the disabled in order to draw down the maximum in federal funds. 

“Lawmakers should focus Medicaid resources on Kansas’s most vulnerable rather than adding able-bodied adults to an unsustainable program,” Elizabeth Patton, deputy state director for Americans for Prosperity-Kansas told the Topeka Capital-Journal.

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