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Nothing is for Free: Why Arizona Should Not Expand Medicaid

Appropriations Committee

The current proposal before the legislature regarding the expansion of Arizona’s Medicaid program, the Arizona Health Care Cost Containment System (AHCCCS), is about much more than simply whether or not additional people should be eligible for coverage. It is about committing Arizona’s fiscal future to decision makers in Washington DC. The legislature is being asked to trust that Congress will maintain its financial commitment to cover this expanded population without any ability to ensure they will. If Congress does not, in order to continue to cover the expanded population the legislature will have to divert funds from education, public safety and infrastructure.

AHCCCS contracts with private health plans to manage the care of enrollees. Coverage provided by AHCCCS is equivalent to the federal Medicaid requirements and the state has further expanded coverage for infants and pregnant women. In 2000, Proposition 204 was passed by the voters to expand coverage for parents, the disabled and childless adults. This expanded population, above the federal requirements, was paid for with tobacco settlement funds rather than general fund dollars. In 2011, during the state’s fiscal crisis, enrollment for the childless adult population was frozen and no new enrollees are currently allowed. As a result of the freeze, the number of childless adults covered by AHCCCS has decreased from 227,000 to 86,000. If the current proposal is enacted, AHCCCS coverage will be restored for the childless adult population up to 100% of the federal poverty level (FPL), which is the Proposition 204 population, and expanded to cover parents and childless adults who make up to 133% of the FPL.

A key component of the proposal to expand AHCCCS is the enactment of a tax on hospitals serving AHCCCS patients. It is anticipated this tax will generate approximately $250 million a year, which will be used to obtain federal dollars. Over the next two and half years, the federal government claims they will provide more than $3 billion to provide this coverage to approximately 170,000 new enrollees.

This may appear to be a reasonable proposal in the short term. However, over time the federal government’s financial commitment to cover these enrollees decreases, which increases the obligation the state will have to make to continue their coverage. Further, there is no guarantee hospitals that do not serve AHCCCS patients will be exempt from the tax or that costs hospitals incur serving these enrollees will not be recovered through payments from privately insured patients (hidden healthcare tax).

I have several other concerns regarding the proposed expansion of the AHCCCS program. During my time in the legislature, I have served on the Appropriations committee and worked to return Arizona to fiscal sustainability. While our efforts have been successful, there is much more work to be done. We must be cautious about accepting temporary revenues from the federal government for what many believe will become a permanent expenditure.

At the end of the current fiscal year, Arizona will have a Rainy Day fund balance of $450 million and a carry forward balance of over $700 million. While that may sound like Arizona’s fiscal house is in order, it is not. It is projected that during the next fiscal year, our revenues will be approximately $450 million less than our spending; significantly reducing our cash carry forward balance. This trend of baseline spending exceeding baseline revenues is expected to continue through Fiscal Year 2016. I do not believe now is the time to significantly increase our permanent spending.

I am also concerned with the method in which the hospital tax is being enacted. In 1992, voters approved Proposition 108 which requires a two thirds vote of each chamber of the legislature if a bill provides for a net increase in state revenues. Specifically, the two thirds vote requirement applies to the imposition of any new state fee or assessment. There is an exception to this requirement if the amount of the fee or assessment is not prescribed in the bill. My concern is that the current proposal delegates authority to the director of AHCCCS to impose an unspecified tax on hospitals that is estimated to generate over $500 million in two and a half years without any approval by the legislature. Should this proposal be challenged in court and defeated, the state’s fiscal situation will be in jeopardy.

While I am opposed to expanding Medicaid, we must be prepared should this proposal be enacted. I believe there should be safeguards in place to protect Arizona’s taxpayers in case the federal government does not meet its financial obligation. There are two contingencies that are critical;
First, I believe the expansion should stop if the federal government’s match to the state drops below 90%. Currently, the match is scheduled to be reduced to 90% by 2020. Second, the expansion should be sunset after four years so the impact of it on Arizona’s fiscal situation can be reevaluated to determine if it should continue.

However, including these provisions in the proposed bill is not enough as they can be changed with a simple majority vote of the legislature at any time. I believe these safeguards should be referred to the ballot at the next general election. Should they pass at the ballot, they will be subject to the provisions of the Voter Protection Act and not able to be changed without a three fourths vote of each chamber of the legislature. This will establish a stronger mechanism should federal dollars be reduced and a more definitive end to the program if Arizona can no longer afford to support it.

While on the surface it may sound as if expanding Medicaid is a simple decision, it is not. With so much uncertainty surrounding the financial commitment of the federal government, the method in which the amount of the tax will be determined, and the potential for litigation, every avenue must be explored to protect Arizona from being left holding the financial bag of another broken promise from Washington DC.

Rep. Michelle Ugenti-Rita

June 10, 2013

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