Scoppe: Medicaid expansion doesn’t guarantee tax hikes

Associate EditorJuly 12, 2012 

AS OUR state decides whether to expand our Medicaid rolls by a third, to cover nearly a third of our state’s population, most of the choices come down to money, so it’s important to understand the financial implications of the Supreme Court’s decision that makes that expansion optional.

Opponents of the president’s health-care law say that implementing it will force states to raise taxes. But while the cost would be tremendous, the numbers aren’t quite as scary we’ve been led to believe. And even if we embraced the entire expansion, tax increases are by no means a foregone conclusion. I’m not convinced that they are even likely.

South Carolina currently provides Medicaid to parents who make up to 50 percent of the federal poverty level, pregnant women who make up to 185 percent and children whose parents make up to 200 percent.

The Affordable Care Act, commonly referred to in these parts as ObamaCare, required states to cover all adults, whether parents or not, who make up to 138 percent of the federal poverty rate — which means $31,000 for a family of four. The Supreme Court ruled last month that this part was optional, so our political leaders will be grappling for at least the next year with whether and how to do that.

The court upheld the federal mandate that everyone have health insurance, and that part of the law is expected to push a lot of people onto Medicaid who are currently eligible but haven’t bothered to sign up.

If the health law had not been passed, or if the Supreme Court had struck the entire thing down, our state’s Medicaid population already was projected to be nearly 1 million people next year, at a cost of $1.9 billion to the state and $4.1 billion to the federal government. Enrollment was projected to grow by about 100,000 by 2020, increasing the state’s annual cost to $2.3 billion and the federal cost to $5 billion.

We’ve heard since the court’s ruling that South Carolina would have to spend a total of $1.1 billion more from 2014 to 2020 if we didn’t opt out of the expansion. (The projection is actually $1.1 billion to $2.4 billion, depending on how many people sign up and whether provider rates have to be increased as demand increases, but I’m not using the larger number because the figures the state provided me don’t break it down by year.) We would have been spending $14.3 billion over that period without the Affordable Care Act, so that extra $1.1 billion would increase our total Medicaid spending by about 8 percent, to $15.4 billion.

But the Legislature doesn’t write seven-year budgets, so it makes more sense to consider annual costs.

Our state’s additional cost for the health law is projected to start at $55 million in 2014, and grow to $278 million in 2020. Our enrollment is projected to increase by about 550,000, to 1.6 million people in 2020.

But remember that part of the extra cost is for people who already are eligible. In fact, most of it is. And there’s nothing we can do to stop them from enrolling.

So opting out of the expansion — that is, not covering most adults up to 138 percent of poverty — would not save our state $1.1 billion over seven years; it would save $430 million. The savings would start at $43 million in 2017, the first year states must cover part of the cost for the expansion, and grow to $166 million in 2020, when we would start picking up 10 percent of the cost.

Looked at from the opposite perspective, expanding Medicaid would cost South Carolina $43 million in 2017, increasing to $166 million by 2020.

By way of comparison, the Legislature handed out $97 million in tax cuts this year.

In other words, we could have easily paid the total first-year cost this year without having to increase taxes or cut spending elsewhere. We’d just have to stop cutting taxes more every year.

In fact, it might be even easier than it seems to absorb the additional cost, because of the economic benefit our state would receive as the federal government pumped more money into our state — paying doctors, hospitals and other medical providers an additional $900 million in 2014, increasing to $2.1 billion by 2020. That’s going to generate a lot of additional revenue from income and other taxes and drive down our unemployment rate (and unemployment compensation costs) as those businesses hire up to accommodate the extra work.

I don’t know that the extra tax revenue would be enough to pay for the entire expansion — although it might be if you believe those multipliers that economists always trot out to justify whatever support individual businesses or industries are seeking from the state. Or if you consider the offsetting savings to Medicaid if hospitals have fewer uninsured people they have to provide free care, passing the cost on to everyone who pays for care. But it certainly suggests that there’s no reason to think that paying for either the mandatory or even the optional part of the law would force our tax-averse Legislature to raise taxes.

Worst case, we’d have to slow the growth of other programs. That’s no small thing, to be sure, but it’s a lot different from the scary scenarios we’re being led to believe we face.

Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.

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