The Plan to Fund Medicaid Expansion Rests on Shaky Ground

In selling the Medicaid expansion to Arizona, supporters have proposed financing the expansion with a provider tax levied on hospitals. The money generated from the provider tax would then be used by the state to draw down federal matching dollars. The provider tax, however, is by no means a safe and secure funding mechanism.

The Simpson Bowles Commission recommended limiting the provider tax to save $49 billion dollars. President Obama’s FY2012 budget proposed reducing the maximum provider tax from 6{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f} to 3.5{010c6536f15f83a69f09c4467fdfb4a5656804feab27fe0dec71ed1e80da306f} to reduce federal spending by $18.4 billion. Senator Durbin (D-IL) said the provider tax was “a bit of a charade” and Senator Corker (R-TN) has recommended its complete elimination. The nonpartisan Congressional Budget Office has also noted that limiting or eliminating the provider tax would save the government billions of dollars.

In February, House Republicans noted various policy proposals which they would consider as a means of avoiding the sequester–one of these proposals was a decrease in the Medicaid provider tax. This was merely the latest in a series of recent bipartisan attacks on the provider tax.

As Washington’s debt problem grows, the question is not if the federal government will continue to reduce spending beyond the sequestration cuts, but when. If the provider tax is one of the cuts, as it seems increasingly likely to be, Arizona will be left with a very expensive bill. The so-called “circuit breaker” aimed at reducing Medicaid spending by the state if the feds don’t meet their obligations wouldn’t help in this situation because it is to be tied to a separate issue—the federal matching rate for newly eligible Medicaid enrollees.

The Arizona legislature should take note of these recent proposals from Washington and keep in mind that the proposed funding mechanism rests on shaky ground. If Washington eliminates or reduces the Medicaid provider tax, Arizona taxpayers will be left holding the bag. The best answer is to simply say no to the expansion.

Learn more:

Washington Post Editorial: A much-needed Medicaid reform

Kaiser Family Foundation: Issue Brief: Medicaid Financing Issues: Provider Taxes

Politico: Some In GOP want sequester deal