I-185 would raise tobacco tax to expand Medicaid coverage

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Montana smokers could be on the hook for an additional $2 per pack if ballot initiative Initiative 185 passes. The tobacco industry is shelling out big bucks in hopes it won’t happen.

It’s a big reason your mailbox is stuffed this election season with flyers arguing its pros and cons.

The initiative’s backers see its passage as a “win-win.” Higher taxes for tobacco products could discourage their use and perhaps reduce medical problems they cause. The extra money raised would help expand Medicaid, the state-federal program that provides medical care to poorer Montanans.

Without the initiative — or reauthorization by state lawmakers — Medicaid expansion would end on June 30, 2019.

Healthy Montana for I-185, the group behind the measure, estimates the tax would generate $74 million a year, enough to prevent nearly 100,000 Montanans — about one in 10 — from losing Medicaid services. The benefits, they argue, go beyond the help Medicaid offers.

It supports rural hospitals, nursing homes and mental health providers. Besides improving health, supporters say it may reduce poverty and related crime.

The list of Healthy Montana’s backers is revealing. Along with Montana Gov. Steve Bullock, upwards of 50 different groups have endorsed it, including the American Association of Retired Persons, the American Heart Association, the Montana Dental Hygiene Association and hospital statewide.

Opponents argue extending Medicaid will cement in place a health care program that could grow in costs, eventually outpacing the tobacco tax’s ability to support it. That would place the burden on all taxpayers, or forcing lawmaker to cut state spending elsewhere.

Montanans against Tax Hikes, the main opponent, membership list includes the Montana Chamber of Commerce, Montanans for Limited Government, the Montana Republican Party, the Montana Business Leadership and nearly two-dozen state lawmakers, mostly Republicans.

For them, the initiative has a bitter backstory that included difficult cuts in Medicaid services during the last legislative session. I-185 was an effort to reverse those cuts, but some lawmakers fought unsuccessfully to keep what they consider a major tax increase off the ballot.

Chuck Denowh, the opposition group’s treasurer and a spokesman, predicts it will harm the average taxpayer. “I-185 is a massive new tax increase that permanently expands Medicaid but doesn’t allocate enough money to pay for it, leaving all Montanans on the hook for tens of millions of dollars per year,” he said.

Montanans Against Tax Hikes has run an aggressive campaign, partnering with major tobacco companies who have provided most of the money behind it. As of Aug. 27, the group had raised more than $12.5 million in cash and in-kind services, most of it from Altria Client Services, one of the nation’s largest producers and marketers of tobacco products.

By contrast, Healthy Montana for I-185 has raised about $4.5 million in cash and in-kind series. Top donors include the Montana Hospital Association, the American Cancer Society and Families Action USA, a national affordable health care organization.

The $17 million raised so far makes it the second most expensive campaign on the ballot, behind the U.S. Senate race.

The additional tax also would include e-cigarettes, and the so-called vaping products, which contain nicotine though not tobacco. Such products, which are not currently taxed, would be taxed at 83 percent of their wholesale value, under I-185.

Ron Marshall, vice president of the Montana Smoke Free Association, says the initiative’s passage would hurt the fairly new business. At the proposed tax rate, he predicts vape shots would have to increase their prices, which might drive customers away.

“It would devastate our industry,” Marshall said. “We’re trying to get people away from tobacco products.”

“If it passes, you’re going to put a lot of people out of business. You’re going to lose taxes from those businesses, lose payroll taxes. People are going to lose their jobs, then it’s on Montanans to pay their unemployment.”

But the measure’s supporters say doing nothing has costs too. “Right now, all Montanans are left holding the bag for big tobacco’s rising healthcare tab in the state,” said Amanda Cahill, a spokeswoman for Montana’s chapter of the American Heart Association. “Tobacco use costs Montanans $440 million dollars a year in health care costs. Every Montana household now pays nearly $779 extra in taxes annually to help cover the cost of smoking. In addition, smoking costs Montana businesses $368.9 million annually in lost productivity.”

Supporters also cite an April 2018 study by the Montana Bureau of Business and Economic Research that found broader benefits to the state’s economy from expanding Medicaid.

“While the state pays a nominal amount for these benefits, the costs to the state budget are more than offset by the savings created by Medicaid expansion and the by the revenues associated with increased economic activity,” the report said.

Montana is one of 33 states that have expanded Medicaid; 17 states have not.

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