Last week, a guest column from the Public Affairs Research Council of Alabama (PARCA) was published in several state media outlets. Changing circumstances surrounding the state’s budgets mean it is now possible for Alabama to afford full Medicaid expansion, the column argued.
The state is in a stronger financial position today than it was 10 years ago, but that does not mean that the state’s General Fund (GF) budget, which would bear the costs of Medicaid expansion, has enough money to pay for it without jeopardizing other state services. Other factors beyond dollars and cents must also be considered.
PARCA concedes that until a few years ago, Alabama lawmakers would have been unable to even consider Medicaid expansion. “For much of the 2010s, the state relied on one-time revenue sources to balance its books, particularly the General Fund,” PARCA explained. However, that is no longer the case, PARCA argues, because of a new GF reserve fund and because of booming online sales tax receipts.
According to Gov. Kay Ivey’s fiscal year 2024 budget request, the GF ended 2022 with a balance of approximately $515 million. That’s about 20% of the funds appropriated in 2022. The state expects to spend $793.5 million on Medicaid this year and is asking for a roughly 8% increase in 2024. PARCA estimates that the average costs to the state over the first six years of Medicaid expansion would be $225.4 million annually, so yes, this year the state probably could afford expansion and still pay all other GF expenses.
But what happens after this year?
The Alabama Executive Budget Office projects that at the end of 2023 the GF will have a balance of $142.9 million. By the end of 2024, the carryover balance is gone. That’s without accounting for the projected $225 million per year in Medicaid expansion costs. Slower overall economic growth, as well as sharp GF budget increases in programs like Medicaid and Corrections, is projected to consume any budget surpluses.
It is also important to remember that the initial costs and savings estimated by PARCA only cover a six-year period. By year six, PARCA projects that costs would rise to more than $243 million. At the federal level, the Congressional Budget Office estimates that total Medicaid spending will rise by 54% in the next decade. Even if state costs rise at a more moderate pace, it’s still conceivable that Alabama’s GF could be devoting more than $300 million per year to Medicaid expansion within 10 years.
If the governor’s projections hold true and the state implemented expansion, the GF budget could be in proration by 2024.
PARCA argues that the state has measures in place to deal with the consequences if proration occurs. But those measures don’t come without strings attached. First, the state could draw down 10% of the previous year’s GF appropriation from its rainy-day account, but that money must be paid back over 10 years. Accessing it every year to pay Medicaid expansion costs is neither realistic nor sustainable. The GF has an additional reserve account that can be accessed to avoid proration, but it is capped at $100 million. It’s at best a temporary solution to finance a permanent expansion of Medicaid.
PARCA also points to the state’s booming online sales tax collections as a means to pay for Medicaid expansion. Prior to 2017, this revenue stream was basically nonexistent. Online sales taxes were paid on a voluntary basis. In 2022 gross collections totaled $633.5 million. The GF receives 37.5% of those collections.
Bolstered by the COVID-19 pandemic, the growth of the online sales tax is above and beyond what lawmakers could have predicted, contributing to record state revenue surpluses. Those surpluses should be used to lower the overall tax burden of Alabamians, not to expand Medicaid. A number of proposals to achieve that goal, such as reducing the state sales tax on groceries, eliminating the state’s 2% tax bracket, and lowering the state’s top tax rate are being discussed, with the Education Trust Fund budget receiving the primary impact.
There’s also the notion that Medicaid expansion would create new jobs and, according to PARCA, have an overall economic impact of almost $2 billion annually. Unfortunately, because of Alabama’s heavily earmarked two-budget system, if those new revenues were realized, most of them would go into the state’s Education Trust Fund, not the GF. Without major legislative changes, they could not be used to pay for Medicaid expansion.
Lawmakers should also consider the impacts of becoming more reliant on the federal government, as well as how expansion might impact the state’s already lagging labor participation rate.
Those on both sides of the Medicaid expansion debate want Alabamians to have access to high-quality and affordable health care. Where they differ is whether the government or the free market is best suited to provide it. Alabama taxpayers shouldn’t be forced to pay for it.
Justin Bogie serves as Fiscal and Budget Reporter for 1819 News. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to: Commentary@1819News.com.