The largest reshaping of state government

August 30, 2011

What will health reform do to state’s Medicaid programs?

Medicaid is already the biggest challenge for states as they wrestle to get their budgets under control. In these tough economic times the rolls have gotten bigger. Although Medicaid grants from the federal government to state governments are already the biggest part of cash grants, a substantial expansion of the program is scheduled to be implemented when President Obama’s health program comes online in 2013. The expansion of Medicaid represents the largest reshaping of state governments’ provision of services since Medicaid was created in the 1960s. Here is how the program will expand, from Government Technology:

Low-income adults without dependent children and who have incomes up to 133 percent of the poverty level are the largest portion of the estimated 16 million to 20 million new Medicaid enrollees under reform. To help states pay for the influx of new Medicaid enrollees, the Affordable Care Act provides 100 percent federal funding for newly eligible individuals in 2014, 2015 and 2016. A 5 percent state match requirement begins in 2017. This will phase to a 10 percent state match in 2019 and thereafter.

Low-income families that don’t qualify for Medicaid will be eligible for subsidies to purchase insurance within newly established state-run health insurance exchanges. The subsidy will be on a sliding scale based on income — up to a maximum of 400 percent of the federal government’s definition of the poverty line.

Meanwhile obesity expands health care costs

Bloomberg reports that obesity will likely cost the U.S. health care system an additional $66 billion a year by 2030. Our junk food nation has become obesity nation. From Bloomberg:

Obesity rates have increased globally since the 1970s as changes in the food supply affect what people eat, Swinburn said. The condition has been driven primarily by the “passive overconsumption” of more processed, affordable, available and promoted food, he said.

Cleaning up the endless mess

The Birmingham News reports that Jefferson County, AL completed an audit of their books for fiscal year 2009 and was $677 million in red. This is not really a surprise since the county had stopped paying interest on its sewer warrants (bonds), meaning they had gone into default and had become liabilities on their books. The audits are a condition of creditors before an agreement can be reached to reduce the principal for bond holders. From the Birmingham News:

Creditors have said they needed up-to-date audits before reaching a deal with the county. The fiscal 2010 audit is expected by the end of October and the fiscal 2011 audit by Jan. 31, Stephens said.

“They have made the audits a requisite for a settlement,” he said. “They will not do a refunding or a refinancing or a settlement until the audits are current.”

The fiscal 2008 audit was finished in April and the previous county audit, for fiscal 2007, was performed before collapsing credit markets and the weight of the county’s $3.2 billion sewer debt sent Jefferson County into a financial decline that left it in default on its bonds and close to bankruptcy.

The newly released 165-page fiscal 2009 audit contains nearly 130 pages of notes to financial statements, many detailing the county’s financial crash, listing more than two dozen notices of default and bond-rating downgrades.

Stephens said he expects the 2010 audit to also highlight a number of financial issues. “The 2011 audit should reflect changes in the way we operate and the way we do our books,” he said. “We’re working toward reducing the amount of adjustment entries required through the auditing process.”

The fiscal 2009 audit notes that the county has not recorded an estimated liability for a category of expense called “other post-employment benefits” (OPEB) — benefits other than pension payments — or included the related disclosures “due to unavailability of information.”

Kudos to the members of Jefferson County Commission as they struggle to clean up the massive mess there. Corruption caused a big fiscal cesspool and repairing the damage is a herculean task.

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