Medicaid math: Why tax hikes aren’t spending cuts

In February, Gov. Quinn told lawmakers that in order to rescue Illinois

To read Kristina Rasumssen’s letter: A tax hike is not a spending cut, click here.

In February, Gov. Quinn told lawmakers that in order to rescue Illinois’ Medicaid program, the state would need to “reduce expenditures in the program by $2.7 billion” for fiscal year 2013. But the plan he released in April does not reduce expenditures by $2.7 billion as promised.

Instead, his proposal reduces Medicaid spending by only $2 billion, the bulk of which comes from cuts to reimbursement rates for doctors and hospitals who serve Medicaid patients. In order to fill the gap between his plan and his target, he proposed hiking taxes on cigarettes to raise nearly $700 million in new revenues. Worse yet, these taxes are aimed primarily at the lower and working classes, with the average smoker’s household income falling below $36,000 per year.

Despite Gov. Quinn’s claims to the contrary, a tax hike is not the same as a spending reduction.

      Graphic 1. Quinn’s Medicaid plan fails to deliver, more tax hikes on the way

Hiking cigarette taxes to pay for skyrocketing Medicaid costs is quintessential Quinn: a temporary solution to a structural problem. Even if the state actually collects the revenues it expects from a tax hike, tobacco revenues are on the decline. At the same time, the proposed cuts reduce spending this year, but do little to slow the growth moving forward. That means that lawmakers will still be struggling next year and thereafter to fill the growing gap between revenues and program liabilities.

Instead of targeting tobacco consumers, Illinois lawmakers must reform the spending obligations that prompt the call for higher taxes. Unreliable and unsustainable tax hikes and budget gimmicks cannot solve the structural problems Illinois’ Medicaid program faces. Structural problems need structural reforms, like those called for in Budget Solutions 2013.