The Retirement Systems of Alabama (RSA) is joining the push for Medicaid expansion in our state. RSA’s monthly member publication, The Advisor, recently argued in favor of expansion, posing the question, “Do we care about all Alabamians?”
The answer is likely a resounding yes. All Alabamians need and deserve to have access to high quality health care. But RSA’s main argument for Medicaid expansion is that 39 other states have already done so, meaning that Alabama is missing out on federal dollars. Unfortunately, it is not that simple.
Calling out the Alabama Policy Institute (API) for its “feeble” argument that Alabamian tax dollars contribute to ever-growing federal spending, and that we should all have an interest in how our money is being spent, the RSA article pushes Alabama lawmakers to not “be last.” Yet if Alabama lawmakers followed the “everyone else is doing it” approach, the state would have already implemented generational tax cuts for all Alabamians.
Interestingly, the RSA piece fails to mention at least four other arguments that API has made against expanding Medicaid.
First, there is the issue of money. Savings and new revenue from expanding Medicaid would total over $1 billion in the first six years of implementation, the Public Affairs Research Council of Alabama (PARCA) estimates. The bulk of the new revenues ($767.2 million) would be realized during the first two years, when the federal matching rate would be increased by 5%. Annual savings are projected to average just under $67 million in years three through six of expansion.
While this may sound like a no-brainer in terms of dollars and cents, it is more complicated than that.
In order to draw down the new federal money, Alabama would be required to invest more State General Fund (SGF) dollars into its Medicaid program. PARCA estimates that average annual cost would be about $225 million over the first six years. Annual costs increase by almost 17% between year one and year six. And while there are no estimates of what expansion might cost the state beyond six years, federal Medicaid spending is projected to grow by nearly 54% by 2032. Alabama’s expansion costs will almost certainly increase every year.
There are also strings attached to additional federal funds, meaning that Alabama’s government would have less autonomy over how it runs the state Medicaid program.
Much of the new tax revenues generated by Medicaid expansion would go into the Education Trust Fund (ETF), PARCA reports. Because of Alabama’s unique two-budget system, revenues cannot shift from one fund to the other. This means that while the ETF budget gains a new revenue source, the SGF budget could be left with a several hundred million dollar hole.
The shifting of funds to the state Medicaid program could leave fewer resources available for agencies such as the Department of Corrections, Alabama Law Enforcement Agency, and the Department of Public Health. Citizens would likely be left filling that gap through higher taxes.
But there are important factors beyond money to consider. What would expanding Medicaid mean for Alabama’s labor participation rate? Alabama had a labor force participation rate—the number of state citizens working or actively seeking employment—of 56.8% in December 2022. That is 45th in the nation and 5.5% below the national average. Some people work only because it provides access to health insurance. What will happen to the participation rate if that incentive is removed? My guess is it will shrink even further.
There is also the argument that Alabamians’ federal tax dollars are paying for expansion efforts in other states. Alabama ranks fourth in total dependency on the federal government. The state gets $1.25 back from the federal government for every dollar that it sends to Washington, D.C. Only nine states have a higher ratio. Do Alabamians want to become more dependent on the federal government?
Ensuring the health and safety of citizens should be a priority for state government, but these and other factors must be carefully weighed before lawmakers make any decision on Medicaid expansion. Alabama should not take the “do it because everybody else is” approach.
