Maine Medicaid expansion vote adds stress to state finances

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Maine’s voter approval of an Election Day referendum expanding Medicaid eligibility is a credit negative for the state that could increase budget risks, according to Moody’s Investors Service.

The ballot measure, which was passed with 59% support, would increase Maine’s Medicaid enrollee population by about 70,000, Moody’s analyst Julius Vizner said in a report last week.

Gov. Paul LePage said after the proposition’s approval that he won’t implement the expansion until the state legislature fully funds it. He called the expansion “fiscally irresponsible” and “ruinous” to Maine’s budget.

The expansion would raise Maine’s annual Medicaid costs by at least $55 million when fully implemented in 2021, according to Vizner, while also driving up federal funding for the program to 47% of annual state own-source revenue.

“The projected increase in state expenditure comes at a time of relatively subdued growth in state revenue,” said Vizner in his report. “Increased Medicaid expenditures without accompanying state own-source revenue growth will force the state to cut spending in other areas, raise revenue or look for other budget-balancing measures.

Maine’s own-source revenue increased 2.6% in the 2017 fiscal year that ended on June 30, according to Moody's. Vizner noted that with $959 million in state funding for the 2016 fiscal year, Medicaid was Maine’s second largest expenditure item behind only education at 21% of state own-source revenue. He said the expansion will up federal funding of MaineCare to $2.1 billion, a rise of $525 million or 32% over fiscal 2016.

“The larger risk to the state is that the federal government could reduce Medicaid funding,” said Vizner. “If funding for the federal expansion program is cut or eliminated, Maine would face budget pressure if it decides to maintain similar levels of coverage.”

Maine previously expanded Medicaid in 2002 before the LePage administration curtailed eligibility in 2011. Vizner noted that added Medicaid costs in that nine-year period contributed to stressing Maine’s liquidity and available reserves. The state eventually repaid overdue MaineCare payments to hospitals in 2013 thanks to proceeds from a bond that securitized other state revenue and increased state debt.

Maine general obligation bonds are rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings.

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