Paying the Piper

Feb 28, 2018 | Christopher F. Koller, President

Because the federal government can print money, the federal government can spend it. And spend it did, when the Affordable Care Act—even as adjusted by the Supreme Court—picked up 100% of the tab for newly eligible Medicaid enrollees, instead of the national average of 55%.

But now that federal share is slowly decreasing—to 90% by 2020—and states that expanded Medicaid, lacking the printing machines of the feds, are looking at ways to maintain their commitment. The most publicized example may be in Oregon—where legislators, perhaps not so eager to be associated with the word “taxes” punted the decision to voters who, in January, approved a set of tax increases to fund Medicaid coverage for up to 350,000 Oregonians.

On one hand, this was a rousing show of social solidarity. Seen another way, however, it was a short-lived victory for the health care industry and a financially fragile status quo.

The case for social solidarity. Public referenda are a sort of statewide pastime in Oregon, in keeping with the state’s participatory civic culture. The vote for Measure 101, held off cycle and in the middle of winter, was in some ways a direct poll of the citizenry of the extent to which they believed they should be their brother’s and sister’s keepers. And Oregonians answered resoundingly, “yes”—the measure passed 62 to 38, with roughly 30% of those eligible voting. Strong majorities in all of the state’s populous counties carried the measure. Predictably, rural counties were considerably less enamored of the idea.

The methods by which Measure 101 raised revenue probably softened the blow for supporters. The measure raised taxes not on individuals or businesses, but only on hospitals and insurers, a source of consternation for opponents of the measure. The crux of their objections was less about the appropriateness of government-funded health care—one legislative champion was herself a Medicaid recipient in her youth—and more about the inequitable and complex method of raising funds to pay for it. The taxed entities, leaders pointed out, would not pay the costs and would shift them in opaque and uneven ways.

Provider taxes are a favorite Medicaid financing mechanism for state legislators. That’s because Medicaid can raise rates paid to the taxed providers for the services they provide and then collect the amounts for the additional expenses from the federal government. In spite of finger wagging and limitations from the Centers for Medicaid and CHIP Services, the very nature of the Medicaid financing formula encourages this shell game and 47 states have some form of it. The yowl you hear is from reformers like Speaker Paul Ryan calling for the end to such monkeyshines and the establishment of per-capita allotments to states to finance Medicaid.

In Oregon, federal caps on the permissible size of hospital taxes meant that the state had to hunt for more revenue. Insurers were willing targets for a 1.5% tax on certain premiums with the raised funds also helping to stabilize the fragile individual market. Implicitly or explicitly the insurers could pass the taxes on in the form of raised rates. Excluded from the insurer taxes would be all the larger companies in Oregon that self-insure and pay insurance companies to administer their programs.

Faced with the prospect of 350,000 more non-paying customers, hospitals and insurance companies were willing to be the source of state revenues, with the assurance that they would not have to bear all the costs of the taxes. Seen this way, their financial backing of a pro-Measure 101 campaign that outspent opponents 34 to one was not a strong statement of social solidarity but merely a smart investment.

Opponents, including the Editorial Board of the Portland-based Oregonian, who called for a broader discussion about how to pay for health care, never had a chance in light of the prospect of more uninsured people if the measure failed and no alternative financing could be developed, a big and sophisticated public relations campaign, and a tax that did not directly fall on voters.

Perhaps that is the nature of compromise. Oregon is a deeply purple state. More than the Cascades separates rural eastern Oregon from Portland. Legitimate differences in values about the role of government, our obligations to one another, and the extent of personal responsibility are bound to produce ugly compromises that fall far short of the ideal. And while principles are fine, budgets have to be balanced. States have to dance to the music that is being played, including a federal Medicaid financing formula that encourages the cost shifting at the heart of provider taxes.

That said, in health care we seem to be dancing to the tune with empty pockets. We pay our provider-musicians more than elsewhere for the wrong kind of music—undervaluing primary care, care coordination, and prevention. Health care costs are still rising faster than general inflation, driven by provider price increases and administrative complexity. Other than health care, the economy is producing jobs in industries that don’t offer health insurance. An aging population will lead to more Medicaid enrollees and greater pressures on state budgets. In Oregon, the taxes in Measure 101 only last through 2019. In the Beaver state and across the country, the piper will keep looking to be paid…until we change the tune.