Will the Federal Government Bankrupt the States?
State budgets are still under stress because revenues are not growing fast enough to replace the funding from the federal stimulus program. And now states are being pressured to expand Medicaid.
According to the National Association of State Budget Officers, Medicaid will account for 23.9 percent of total state expenditures in fiscal 2012. In most states, able-bodied working age adults are not eligible for Medicaid. One of the pillars of ObamaCare was the provision requiring states to either expand Medicaid to everyone with incomes up to 133 percent of the federal poverty level (plus a five percent income set-aside) or lose all of their federal matching funds. This provision was struck down by the Supreme Court.
But state governments are still being pressured to expand Medicaid, even though estimates suggest that more than 25 percent of people in the expansion group have private health coverage and that a sizeable fraction of them are college students. The federal government promises to pay 100 percent of Medicaid medical costs for the first three years of the expansion, and 90 percent of them in 2020 and thereafter. A variety of interest groups think that it would be a shame to leave this “free” money on the table.
Responsible state fiscal agents face three major problems in deciding what to do.
First, the cost of their existing Medicaid programs is likely to grow substantially as people who are already eligible but not enrolled sign up to avoid federal penalties for not being covered, and as private employers shrink their health insurance offerings for part-time workers. This cost has to be paid by the state.
Second, the federal government can always change the Medicaid matching rate once states have expanded their Medicaid programs and rolling back Medicaid expansions is politically difficult for state governments. The Obama Administration has already proposed reducing the federal match. If it does this after states have expanded their programs Drew Gonshorowski of the Heritage Foundation estimates that state spending will increase by $120.2 billion a year.
Third, some state budget officials are beginning to wonder whether increasing reliance on federal financing is in the best interest of their citizens, given the state of federal finances The Colorado State Comptroller’s Office noted that 38.0 percent of the state budget in FY 2010-11 depends on federal awards (an increase from the 36.0 percent in the preceding year), considered the state of federal finances, and issued the following warning:
…The increasing expenditures in both the Social Security and Medicare Part A programs, residual stimulus spending, employee tax cuts under consideration and the potential costs of health care reform along with the interest costs to finance U.S. government borrowing will take up an increasingly large amount of the federal revenue streams. Without significant federal revenue increases or potentially unsustainable federal borrowing, there may be large cuts in federal spending. In the absence of all or a significant portion of this funding, the State’s operations and ability to provide services to its citizens would be adversely impacted as would local government services.
Source: Colorado Comprehensive Annual Financial Report for FY 2010-2011, page 40.
If you really think about it, America’s version of socialism is radically different — but also similar — to versions of socialism found around the world. Whereas other countries have tried taking over the means of production, producing goods and services and directly employing the populous, American socialists devised a system of incentives, subsidies, taxes and direct payments. For example, nearly half of all U.S. residents receive some type of public subsidy (half of all births are paid for by Medicaid, all seniors people are covered by Medicare, Social Security is a pension program, Food Stamps boosts caloric intake of the poor, etc.). Over time the government is subsidizing more and more of residents’ expenses. As society pays for more areas of consumption, the end result is an leveling of the standards of living. It’s merely a far more sophisticated mechanism for socialism. .
Yes, it probably will.
I agree with Jeff. This is worrisome.
I have seen some really tragic cases of poor single adults being harmed by not having Medicaid (or any other public health insurance). This ranges from lack of dental care to worsening chronic diseases.
So I am inclined to favor the expansion of Medicaid, yet i understand the problems this can cause for state budgets.
The Obama administration could have been forthright and raised federal income taxes to pay for new Medicaid. This is long overdue. But forthrightness about taxes has never been part of the Obama approach.
At the same time, those states which have no income taxes should try and find a little mercy for the uninsured.
Let’s say that the burden to states did hit $120 billion a year after Medicaid was expanded. That seems accurate.
The total incomes of all Americans in all states is about $8 trillion, counting pensions and dividends along with payrolls.
We are looking at new taxes of 1.5% to pay for an expansion of Medicaid.
Granted I come from Minnesota, but this kind of tax increase would pass in our state with ease.
I get a little put out when a resident of Tennessee who is on Social Security, Medicare, and a federal pension tells me that a state income tax would be a horrible thing.
Or we could, you know, spend less.
Hasn’t it already?
Well, logic tells us that we can’t expect a different/positive outcome with the current skirocketing health care spending. Unless the federal government moderates their spending, this is where we are headed.
This is not rocket science. When you spend more than you have, expect to eventually run out of money completely.
“Drew Gonshorowski of the Heritage Foundation estimates that state spending will increase by $120.2 billion a year.” If this is at all accurate, which I believe it is, nothing good will ever come out of such increased spending.
I still struggle to understand why there’s still the belief that the benefits of expanding Medicaid could, in any way, far outweigh its risks. The uninsured surely need a hand. However, I don’t believe expanding Medicaid is the answer, since it will definitely negatively affect the rest of us not on it.
I agree with all the operational criticisms of Medicaid, but what is in the fact the alternative for a 30 year person who is stuck working at Starbucks or Dunkin Donuts and making $18,000 a year?
I guess they could take a second job, if they can find one, but even making $30,000 a year is not enough to buy health insurance for a family.
They perhaps could afford a mini-med insurance policy, which covered doctor visits and innoculations and most drugs.
That would leave them uninsured for a major illness or hospitalization.
Maybe Medicaid could kick in at that point, i.e. a catastrophic Medicaid.
Avik Roy who is no liberal recommended something like this a year ago.
Bob Hertz,The Health Care Crusade