Oregon's voter-approved tax hike to fund Medicaid buoys state budget

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Oregon’s voter-approved plan to fund Medicaid and close a budget hole was deemed a credit positive by Moody’s Investors Service.

Measure 101, approved by voters Jan. 23, upheld temporary taxes approved by the legislature and signed by Gov. Kate Brown in July as part of the 2017-19 biennial budget.

The 1.5% tax on some insurers and managed care organizations and 0.7% tax on large hospitals would add $605 million of new state funding over a two-year period. That money would leverage $1.9 billion in federal funding under the Affordable Care Act closing a $2.4 billion budget gap.

The tax makes up the difference in Medicaid expansion plan costs under the ACA as the state’s share of the expense began increasing last year. The federal government picked up 100% of the cost from 2014-2016 under the law, but the federal government’s financial share fell to 95% in 2017 and will fall to 90% by 2020.

Medicaid spending is a particular challenge for Oregon, because its high participation in expanded Medicaid means that it will have a relatively larger budget gap than other states and federal funding declines, wrote Baye Larsen, Moody’s vice president and senior credit officer, in a Feb. 1 report.

But 17 other states are also considering levying taxes on health care providers in 2018 to help defray Medicaid cost growth, according to a Kaiser Family Foundation report cited by Moody’s.

Oregon has stronger economic and revenue growth than many other states with annual revenue growth of 7.5% since the recession ended, compared to a 4.5% average growth rate for all 50 states, Larsen wrote, but federal tax reform is expected to weaken future state revenue growth.

The Oregon Legislative Revenue Office estimated that revenue could be 1% lower over the biennium from the projected loss of individual and corporate income taxes.

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