Supporters say tobacco tax increase will cover Medicaid costs despite Big Tobacco claims

Altria Client Services, which represents Philip Morris, put more than $12 million toward the campaign against Initiative 185. That’s more than any other ballot initiative in state history and 3.5 times what the Montana Hospital Association, the biggest financial backer of the initiative, has spent.

An analysis by the Associated Press shows Montanans Against Tax Hikes, the group opposing the initiative, spent an average of $895,000 a week last month on advertising. In Billings, AP reported 57 ads opposing the initiative will play in one week on a single television station.

In addition to raising the tax on a pack of cigarettes by $2 starting Jan. 1, I-185 would increase the tax on snuff and tax vaping products for the first time. The initiative would generate an estimated $73 million a year.

If it passes, Medicaid expansion would be made permanent in Montana.

The Affordable Care Act created the opportunity for states to expand Medicaid to people earning up to 138 percent of the federal poverty level: $16,700 annually for a single person or $34,600 for a family of four.

Montana’s Legislature voted to approve expansion in 2015 and built in a sunset date of summer 2019, intending to give lawmakers the chance to continue it, alter it or end it.

More than 96,600 Montanans are covered under expansion, or 9.4 percent of the state's population. Data from the state health department shows more than 32,700 adults have had preventive primary care visits and nearly 27,000 have received outpatient mental health services using the program.

Of money collected through the proposed tobacco tax, $26 million would go toward the state’s share of the cost of Medicaid expansion. The rest is directed toward other health care programs and traditional Medicaid, as well veterans services, tobacco prevention and the state’s general fund.

Healthy Montana, the ballot issue committee supporting I-185, has backers including the Montana Hospital Association, AARP Montana, the American Cancer Society, American Heart Association and American Lung Association. That's in addition to hospitals and clinics around the state.

The group says because smoking costs Montana families an estimated $81 million each year in tobacco-related illness, it’s time Big Tobacco pays its share for the state’s medical bills.

“The debate over I-185 boils down to three simple facts: Big Tobacco kills. Medicaid saves lives. I-185 pays for itself and will save Montana taxpayers $365 million in health care costs,” said Amanda Cahill, American Heart Association-Montana.

One of the initiative’s most high-profile backers is Montana Gov. Steve Bullock, a Democrat. The governor said Medicaid expansion has been a boon for Montanans’ health and helped preserve the state’s network of rural hospitals.

“Not only do 100,000 more Montanans have health care, but our rural hospitals are staying alive when we’ve seen a closure rate of six times faster in states that didn’t expand Medicaid. We haven’t lost one hospital,” Bullock said.

A series of reports has touted the benefits of expansion in Montana, including  one by Manatt Health, commissioned by the Montana Healthcare Foundation. It found uncompensated care at Montana hospitals dropped $103 million, or 45 percent, between 2015 and 2016.

Another report, done by the University of Montana's Bureau of Business and Economic Research and commissioned by the Montana Healthcare Foundation and Headwaters Foundation, said expansion brought in $350 million to $400 million to the state and created new jobs in the health care field.

The report also found workforce participation among the part of the population that would qualify for expansion coverage increased from 58 percent to 64 percent since Montana expanded Medicaid. The report says while those results do not prove expansion increased employment, but suggests it might. Of people covered under expansion, just over 81 percent live in families where at least one adult is working and 67 percent are working themselves.

When Montana choose to expand Medicaid, it also added a program called Help-Link that connects those covered under expansion with employment assistance.

Where the money goes

Much of the debate over I-185 has centered around how the increased tax revenue will be spent. Signs have popped up at what seems like most gas stations and convenience stores around the state calling the initiative an “unfunded mandate” that will leave taxpayers on the hook for more down the road.

A website created by tobacco tax opponent Montanans Against Tax Hikes argues that because Medicaid expansion costs Montana taxpayers about $60 million a year and the tobacco tax would only put $26 million toward the program annually, there is a $34 million gap that the state would look to taxpayers to fill with another tax down the road.

But Health Montana says that equation ignores the premiums paid by people covered under Medicaid expansion and the savings the state has been seen as a result of covering more people. They also point out those who don't smoke won't pay the tax.

"These are the same multinational corporations that have been lying to us for generations about how addictive and deadly their products are. They’ve lied about marketing to kids and targeting our military. Now they are lying about I-185’s budget impact to protect their profits,'' said Heather O'Loughlin, co-director of the Montana Budget and Policy Center.

Here’s how the initiative would work:

In 2020, the state is projected to spend $45.9 million on benefits for the health care people receive under the expansion. Administering the program will cost an additional $11.5 million, bringing the state's cost for expansion to $57.4 million.

But Montana also expects to save $28.4 million. The savings come because the federal government pays a higher percentage of the cost for the expansion population, 93 percent in 2019 and dropping to 90 percent by 2021. The rate is much lower for traditional Medicaid, about 65 percent.

By putting some children, people with mental disabilities and women with breast and cervical cancer into the expansion pool instead of traditional Medicaid, which they also qualify for, the state reduces its costs and shifts more of them to the federal government.

The state also offsets what it spends on Medicaid expansion through $4.6 million in premiums paid by people covered and $2.5 million in facility reimbursement, which is what the state receives when it bills Medicaid for services provided to some clients at state facilities.

Add those offsets and the savings to the $26 million from the tobacco tax and, at least in 2020, financial predictions show Montana would come out $4 million ahead — in terms of state funds — on Medicaid expansion if the tobacco tax increase happens, according to a fiscal note attached to the bill and numbers from the state health department.

In fiscal year 2021, if the tax passes, the state’s share of expansion is expected to be $2.8 million and in the following year it’s predicted to be $3.2 million and then $3.7 million in subsequent years.

Dave Lewis, an ex-state lawmaker and budget director for three governors, was in the budget office when the state voted to join the Medicaid program in the 1970s. He said it has always cost more than expected and will this time, too, leaving the burden on taxpayers.

“I think revenue’s going to be quite a bit short,” Lewis said. “They’ll have to raise another tax or squeeze the money out of another program.”

When Montana voted to expand Medicaid in 2015, it did end up costing more than expected because 95,000 people signed up instead of the expected 45,000.

The fiscal note for the initiative predicts enrollment will continue to grow and plateau at 101,562 in January, followed by an estimated annual growth rate of 1 percent, matching the state’s population growth.

Montana’s cigarette tax is now $1.70 and it would increase to $3.70. According to the Tax Foundation, the cigarette tax in Washington is $3.025, 57 cents in Idaho, 60 cents in Wyoming, 44 cents in North Dakota and $1.53 in South Dakota.

Lewis is also worried the higher cost of cigarettes will drive people to buy their cigarettes elsewhere.

The fiscal note estimates a $2 tax increase per pack will reduce the number of packs sold in Montana by 16.8 percent, but Lewis thinks it will be higher. And he argues it won’t be fewer people smoking, just people buying from other states or online.

“I think you’re going to get between a 30-40 percent reduction in sales,” Lewis said. “I think revenue’s going to be quite a bit short. And I can’t believe the Medicaid program is going to quit growing.”

Sen. Ed Buttrey, R-Great Falls, carried the bill to expand Medicaid in 2015. He told Montana Public Radio he opposes the initiative because it limits what lawmakers can to do tweak expansion and that the funds from the tax won't be enough, which means the state would have to increase taxes elsewhere to pay for the program.

Opponents to I-185 have also raised concerns about the legality of a ballot initiative appropriating money, saying that conflicts with the state's constitution. The last time Montana raised the tobacco tax was through a similar initiative in 2004 that supporters say has held up over time.

“Nothing in I-185 prevents the state Legislature for doing its job. In 2004, Montanans passed a previous tax on tobacco by initiative in 2004. The money raised by that initiative was dedicated in the same way as the current initiative proposes: to health services, veterans’ care and the general fund. And it was passed by more than 64 percent of voters. District Court upheld that initiative. It wasn’t unconstitutional then, and it isn’t unconstitutional now. As with any initiative, the Legislature has the final say on whether the dollars are appropriated as outlined in I-185,” said Jesse Laslovich, who used to work at the state Commissioner of Securities and Insurance Office and is now regional vice president of network development at Sisters of Charity of Leavenworth Montana region.

This year's initiative, like 2004's, has already been challenged in court over claims the language was misleading to voters about how much the tax would go up. In both cases, the lawsuits were tossed.

Earlier this year the state Commissioner of Political Practices found Altria and Reynolds American Inc., the parent company of R.J. Reynolds that has spent about a quarter of a million dollars opposing the initiative, broke state campaign finance rules by not properly disclosing spending.