COLETTI: Taxing hospitals to pay hospitals is a bad idea

Gov. Roy Cooper speaks during the annual economic forecast event Wednesday

Gov. Roy Cooper hopes to get federal approval to expand Medicaid in North Carolina before Donald Trump becomes president and Congress repeals the Affordable Care Act. Barely a week into his term, and before Cooper even named a secretary for the Department of Health and Human Services (DHHS), it marks another challenge by the former Attorney General to laws passed during the Pat McCrory administration. But this is not about the legality of expansion.The largest randomized control trial of Medicaid found the program does little to improve health. Expansion will cover able-bodied adults instead of the most vulnerable already on waiting lists for existing programs. Newly eligible people will have services paid with a more generous federal match than given for the poorest and most vulnerable who already qualify for Medicaid — children, pregnant women, the elderly, and those with long-term developmental disabilities. But this is not about the health and humanity of expansion.Even with more generous federal terms, Medicaid expansion could cost North Carolina an additional $6 billion between 2020 and 2030. Cooper has chosen to focus on the potential to receive $4 billion in additional federal funds in the first year. Costs have been higher than projected in states that have already expanded Medicaid. But this is not about the fiscal probity of expansion.This is about the widely accepted scheme Cooper wants to use to pay the state’s share of Medicaid payments. North Carolina would use voluntary provider assessments from hospitals to pay for Medicaid services and trigger the federal match. Republican and Democratic legislatures and governors have done this for decades across the country, including here in North Carolina, most prominently in 2011.The General Assembly’s Fiscal Research Division provided a detailed picture of the money flows in its analysis of the proposed assessment in 2011. In that case, hospitals would have paid assessments totaling $215 million, $43 million for DHHS to reallocate and $172 million for Medicaid payments to draw $413 million in Federal matching funds. The state would have gained $43 million and hospitals would have generated $370 million in net revenue. If this happened in nearly any other transaction, we would call it a kickback. Not surprisingly, President Barack Obama in his 2016 budget proposal and the Republican Congress in 2016 each tried to shrink or end this scheme. Hospitals supported the concept of Medicaid expansion, but only if it has backing from the General Assembly and from Washington. An assessment would start at 5 percent of the cost for those newly eligible under expansion, or $200 million per year, but will reach 10 percent by 2020 while costs would continue to rise. Pro-expansion researchers found in 2014 that the federal contribution in 2020 would be over $5 billion, which would make the state share $500 million, paid in the Cooper plan by hospitals. Health care providers would more than recover their costs, but only by imposing higher costs on everyone else.In short, Medicaid expansion would be based on a law that could be repealed, would not likely get final federal approval, would be rejected by the General Assembly if it did, would put the most vulnerable at greater risk, would do little to help the newly eligible, would cost more than expected, and would do it all with a kickback scheme that may not survive longer than the law that made Medicaid expansion possible in the first place.Joe Coletti was director of Fiscal and Health Care Policy Studies at the John Locke Foundation and was deputy director of NC GEAR in the Office of State Budget and Management.