Are Cigarette Taxes a Way to Help Alabama Ease the Transition to Medicaid Managed Care?

Hospitals have endorsed the movement toward Regional Care Organizations (RCOs), which would guide the transition away from fee-for-service. But a looming budget gap is an immediate concern, while Alabama's Medicaid costs keep climbing.

The newspaper in the Alabama state capital has called for a $1 per pack increase in state cigarette taxes, to fill a budget gap and ease Alabama’s transition through an ambitious plan to move its Medicaid population away into managed care.

Gov. Robert Bentley, a Republican fresh off re-election, has been careful not to raise expectations of instant savings for the Alabama Care Plan, which creates Regional Care Organizations (RCOs) for more manageable sections for care delivery. Gov. Bentley has said that while the move away from fee-for-service may slow the growth of Medicaid over time, savings won’t be seen right away.

In the meantime, Alabama has hole of at least $260 million in the budget. Rather than try to wrest more savings than would be reasonable from the healthcare system, The Montgomery Advertiser this week called for the $1 per pack increase, up from the current 42.5 cents per pack. The newspaper’s editorial noted that smaller increases already have support from key legislators who control the state’s budget process.

An increase of $1 per pack would still give Alabama a cigarette tax below the national average (it is current the fourth-lowest). But within the context of the move toward managed care, the tax revenue would also give the state some breathing room to avoid drastic healthcare cuts as it transitions to the RCOs. This would avoid the problems seen in some states, whose moves were driven less by policy and health considerations and more by the need to find instant savings.

Kentucky’s 2011 transition to Medicaid managed care stands out; even the programs officials said later it went too quickly for anyone’s liking. States that have tried to move too fast into managed care have ended up with contractors that quit, insurers that lost money, and, in some cases from Ohio, with healthcare workers severing ties with longtime patients after going without pay for weeks at a time.

In Alabama, Medicaid is growing. Its costs now consume 35% of the state’s general fund, or $685 million for 2015. While the state has not expanded eligibility for those between 100% and 133% of the federal poverty level, the arrival of the Affordable Care Act has raised awareness of existing eligibility levels, causing some residents who did not realize they were eligible to sign up. Also, more working poor families do not receive health insurance at work, pushing the rolls past the 1 million mark in 2014, or more than 20% of the state’s population.

Gov. Bentley has also expressed a willingness to discuss Medicaid expansion, with conditions that could include a work or job training requirement. Such expansion and the RCO transition have been endorsed by the state’s hospital association, which in late December said the program “would not be Obamacare.”

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