August 26, 2010

August 26, 2010 | Commentary on Medicaid/SCHIP

Medicaid Bailout Will Hurt Georgia

Considering how talented members of the House of Representatives are at spending taxpayer money, it was good to see them recently begin a six-week vacation. Unfortunately, Speaker of the House Nancy Pelosi then summoned members back to Washington — to spend even more.

Specifically, to vote on a
$26 billion state bailout —
$16 billion of which is aimed at Medicaid. This is on top of the $87 billion Medicaid bailout enacted last year. The first one disproportionately benefited the states with Medicaid programs with large numbers of enrollees and overly generous benefits. These same states will also unfairly benefit from the bailout extension that House members just approved. And taxpayers in Georgia will be especially harmed by it.

Medicaid, the government’s health insurance program for the poor, is the fastest-growing entitlement. Between 1990 and 2008, national spending on Medicaid more than quadrupled as most states greatly expanded both eligibility and benefits.

When the recession began, Medicaid programs grew in size and expense, and state budgets went into the red. Now, states want relief so they can avoid making necessary budget cuts that will reduce the size of state bureaucracies.

States determine Medicaid eligibility and benefits with federal taxpayers picking up a significant portion of the tab. The more states spend on Medicaid, the more money that comes in from federal taxpayers because the reimbursement is open-ended.

Perhaps the best way to evaluate state Medicaid program generosity is to compare state Medicaid spending per person in poverty. New York, Massachusetts, Vermont, Rhode Island and Connecticut have extremely generous Medicaid programs.

The result is that federal taxpayers support many individuals who earn above the federal poverty level in those states.

For instance, New York spends more than $18,000 on Medicaid for each person in poverty.

In Georgia, Medicaid spending per person in poverty is less than $6,000, which is a more sustainable and fiscally responsible amount. Only 18 percent of Georgians are enrolled in Medicaid as opposed to 26 percent in New York, with its more generous eligibility rules.

In 2008, federal taxpayers chipped in about $4.63 billion to pay for Georgia’s Medicaid program.

So far it seems like a gem for Georgia — $4.63 billion in “free” money. However, about 2.8 percent of all federal tax revenue comes from Georgia’s taxpayers. This means Georgia’s taxpayers paid about $5.42 billion to fund other state Medicaid programs through the federal subsidy.

The difference between those two numbers costs Georgia taxpayers about $790 million annually, which translates into about $330 for a typical family of four. In other words, without the federal subsidy, Georgia could have exactly the same state Medicaid program, with the typical Georgia family having $330 in extra disposable income.

Instead of being rewarded for saving federal taxpayers money, Georgia’s taxpayers are punished through the perverse federal subsidy.

This problem will be exacerbated under the Medicaid bailout extension. It will further incentivize mismanagement and will delay a return to state fiscal prudence, while rewarding states like New York that were more reckless or were counting on further federal dollars.

States like Georgia shouldn’t be punished to reward states like New York with bloated Medicaid programs. In 2008, federal taxpayers spent nearly $24 billion subsidizing New York’s Medicaid program. This is more than five times as much as Georgia received from federal taxpayers, even though New York has only twice as many individuals living in poverty.

Georgia will receive about $240 million from the bailout extension. New York, by contrast, would receive an additional $2.4 billion — 10 times as much. The states that unfairly benefit from the bailout are mostly states in New England with expensive programs.

The perverse nature of the federal Medicaid subsidy — rewarding states for out-of-control spending — must be reformed. Instead of bailing out state programs further, Congress should address the underlying reasons that states are addicted to this support from federal taxpayers.

Georgia’s lawmakers should be especially skeptical of Medicaid bailouts. Getting control over the growth in Medicaid would benefit the vast majority of Americans, but particularly Georgians.

Policymakers who continue to bail out mismanaged programs do the nation a disservice by ignoring the tsunami of red ink in front of us while instead putting a Band-Aid on a patient with a self-inflicted wound.

Brian Blase is a policy analyst in the Center for Health Policy Studies at the Heritage Foundation.

About the Author

Brian Blase Policy Analyst
Center for Health Policy Studies

Related Issues: Medicaid/SCHIP

First appeared in the Atlanta-Journal Constitution