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Rhode Island Governor plans business tax to fund Medicaid expansion

The Wall Street Journal Editorial Board recently examined Gov. Gina Raimondo’s plan to tax businesses to pay for part of the state share of Medicaid expansion:

Medicaid expansion under ObamaCare was sold as a free federal lunch for the states, but the bill is now coming due. Witness Gov. Gina Raimondo’s plan to tax businesses that employ low-income workers to fund Rhode Island’s booming Medicaid case load. Look for this soon in a state near you.

Ms. Raimondo has proposed a 10% payroll tax on businesses with more than 300 workers for each employee who enrolls in Medicaid. ObamaCare requires businesses with more than 50 full-time workers to offer health insurance and duns employers $3,750 for each employee who purchases a plan on the exchanges with a federal subsidy.

Why impose a tax on businesses who employ low-income workers? Projected enrollment numbers and actual enrollment numbers did not match up leaving the state with a budget hole to fill:

Medicaid enrollment in Rhode Island has increased 63% since 2014. In 2013 the state projected about 40,610 low-income childless adults would become eligible, yet 119,754 have since signed up. While the feds have picked up most of the tab, state Medicaid spending has also increased by more than 25% since 2013.

Last year 6,428 more people enrolled in Medicaid than Rhode Island estimated and spending tracked nearly $20 million above budget projections—about as much as Ms. Raimondo’s new employer tax would raise. “The biggest part of our budget is Medicaid, over $1 billion a year,” Ms. Raimondo said recently. “The reality is this is a growing cost and you are getting the benefit of an employee with health insurance. To pay a small piece of our cost, I think, is reasonable.”

Reasonable? Maybe to some. However, it’s not hard to see the consequences of taxing businesses who hire low-income workers:

Another reality is her Medicaid tax would discourage businesses from hiring low-income workers and prompt many to shift jobs to other states or automate work where possible. Employers won’t know whether their workers enroll in Medicaid until they get the state’s tax bill, and some can’t afford to provide even low- or no-cost plans.

The Medicaid tax will likely disproportionately affect low-income workers and businesses who hire this population as they will now have to grapple with a new layer of costs imposed by the state.

This example illustrates a few points we have been making here at the John Locke Foundation about Medicaid expansion. First, it is challenging to accurately predict enrollment in Medicaid when you open up the eligibility from the traditional state-mandated levels of eligibility to anyone under 138% of the federal poverty line. Many states have found this out the hard way upon expanding Medicaid.  Second, when predictions are off, the money has to be made up somewhere. As is the case in Rhode Island, this may mean new taxes. It could also mean cutting services from the Medicaid program as a whole or diverting resources from other parts of the budget.

The main point is if North Carolina were to expand Medicaid the chances of massive fluctuations in state spending will increase. Lawmakers will have to make up the funding from somewhere. The easiest way to decrease these risks is to reject all of the Medicaid expansion proposals in front of the General Assembly. We should leave Medicaid for the intended populations and continue the work to make the program work better for those it already serves.

Jordan Roberts / Health Policy Analyst

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. He analyzes state and national health policy issues with an eye toward removing governm...

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