The states’ focus on Medicaid spending

Two political war horses, former Federal Reserve chairman Paul Volcker and Richard Ravitch, who helped restructure New York City after its near bankruptcy, released the final report of the task force they have led for the last three years. Their group, the State Budget Crisis Task Force, came to this conclusion:

The Task Force recognizes the difficulties inherent in government change. It also recognizes the urgency for change. The primary reason the Task Force was created is that insufficient attention is directed to the fiscal imperatives of the states. States, and the local governments they create, are charged with providing the most important domestic government services. Yet important decisions on the national level often do not consider the impact of those decisions on their ability to deliver those services.

For the most part, state governments, with their requirement to have a balanced budget every year, are better-run than the federal government, which rarely faces hard choices on prioritizing spending. I agree with the task force’s observation that the federal government does not take state needs enough into account when setting the federal budget and regulations. Medicaid spending has become the biggest expense for states, and yet they have little control over this spending.

The report states:

Medicaid is not immune from system-wide health care cost pressures. Both health care costs and utilization have increased significantly over the last three decades due to the use of expensive and lifesaving technology and improved life expectancy. In spite of these system-wide cost pressures, Medicaid has been able to contain per enrollee health care cost increases more effectively than either private market insurance or Medicare.

Medicaid must absorb the financial burden of overall health care cost increases as well as rising enrollment due to the increasing share of Americans who are low-income and must turn to the program for health care, long-term care, or both. In spite of these pressures to drive up program costs, an improving economy, strenuous state cost containment efforts, and the expiration of enhanced federal Medicaid funding under the American Recovery and Reinvestment Act have resulted in slower-than-projected program cost growth. Total cost growth dropped from 9.7 percent in 2011 to 2 percent in 2012.

The search for real budget numbers


I’m not sure anyone in muniland loves numbers more than the members of The National Association of State Budget Officers (NASBO). They are the geek squad who oversees the influx of tax and other government revenues. It’s the daily state money show.

Many state revenue reporting metrics, like the Rockefeller Institute’s, only show state tax collections and do not include other funding sources like federal monies. So it’s often hard to get a complete picture of state fiscal health. NASBO has been collecting state revenue data since 1987 and reports that 2012 saw the first decline in total state revenues. In contrast Rockefeller Institute has been reporting increasing state tax revenues for 13 quarters since 1Q 2010.

NASBO (see chart above) says that fiscal 2012 was a year of transition for states as they continued to emerge from the national recession. State general fund revenues grew 3.6 percent.

Medicaid: The state budget crusher

Under the Affordable Care Act, all 50 states will have exchanges where individuals can buy healthcare insurance. But the second leg of the ACA, whether and how much to expand Medicaid, is every state’s choice. The Supreme Court gave states this right when it ruled on the Affordable Care Act last June.

The Center on Policy and Budget Priorities is mapping states’ decisions to expand their Medicaid program (as of June 4).

Many commentators presume that it is an ideological choice for governors to extend or not extend public support for the uninsured through the ACA. Pat Garofalo of US News writes:

The State Budget Crisis Task Force weighs in

Much as the Simpson-Bowles report aspired to be the foremost guide to reducing the federal deficit, the Volcker-Ravitch report on the state budget crisis that was released yesterday hopes to serve a similar purpose for state government spending. Paul Volcker, the former Fed chairman, and Richard Ravitch, who helped New York City work itself out of bankruptcy, led the State Budget Crisis Task Force, the group that produced this report. The task force also included two former U.S. Treasury Secretaries as members. The bottom line of the report is that there is less money to go around and that states should become better managers of the shrinking economic pie:

The United States Constitution leaves to states the responsibility for most domestic governmental functions: states and their localities largely finance and build public infrastructure, educate our children, maintain public safety, and implement the social safety net. State and local governments spend $2.5 trillion annually and employ over 19 million workers – 15 percent of the national total and 6 times as many workers as the federal government…

…States are grappling with unprecedented fiscal crises. Even before the 2008 financial collapse, many states faced long-term structural problems. Many economists believe that in the aftermath of the crisis, the economy will grow sluggishly for years as it works off the excesses of the credit and real estate bubbles and endures slow employment growth. Tax revenues are recovering slowly and remain well below their pre-crisis trends.

Will the Affordable Care Act be starved for funds?

Millions of uninsured Americans will now have access to healthcare as a result of the Supreme Court’s decision last Thursday to uphold the Affordable Care Act. This is a big step forward for the nation, but it raises questions about funding. The nation is already starved for revenue and is supposed to cut $1.2 trillion from the federal budget over the next eight years through the sequestration process.

Under sequestration, one or more of the three major areas of the budget – defense spending, Medicare or Medicaid – need to be cut. Congress is now trying to have President Obama show where these cuts will be made. But the Daily Caller is reporting that the president doesn’t intend to implement sequestration for the military:

President Barack Obama’s White House has told at least one defense contractor not to worry – sequestration isn’t really going to happen.

Will governors support the healthcare expansion?

The Supreme Court’s decision to uphold the Affordable Care Act just created an unenviable task for governors across the country.

To grant healthcare coverage to all Americans, the ACA involves an expansion of Medicaid, a program jointly funded by the federal and state governments and administered by the states for the poorest Americans. Under the expansion, an estimated 18 million people who previously lacked health insurance will be swept into the Medicaid program. Even though the federal government will bear the full cost of this expansion in the first year and 90 percent of it in subsequent years, states will shoulder some of the program’s administrative costs.

Adding 18 million people to the Medicaid rolls is a challenge in itself, but it also comes amid fears that Congress will decide to cut spending on social programs like Medicaid as a way to decrease the federal deficit. Wary of unfunded mandates like this one, some governors are hinting that they will refuse to expand healthcare coverage under the Medicaid program despite the federal government’s offer to pay for nearly all of it:

Should retirement be considered a growth industry?

Senior citizens account for a greater share of the population of Florida than of any other state in the country: 18.1 percent of the residents of the Sunshine State are over the age of 65, compared with the national weighted average of 12.7 percent. There are some obvious reasons for the state’s popularity among the elderly: It has excellent winter weather and is one of nine states with no income tax.

There’s also some indication that in the past Florida has explicitly courted seniors and encouraged them to relocate there. A 2002 report by then-Governor Jeb Bush’s Destination Florida Commission said this (emphasis mine):

Thinking of retirement as an important industry allows Florida to recognize the economic and social value of current elders and the aging baby boomer population. Retirement is a stable growth industry. Jobs and businesses needed to sustain this industry run the gamut from hospitality to health care, from janitorial workers to neurosurgeons…

Physicians push for fewer tests

A surprising campaign called Choosing Wisely launched this week. Nine of the nation’s top medical societies joined together to put their support behind the effort to cut the number of unnecessary medical tests. The campaign marks a turning point for the practice of medicine in an economy that devotes 17 percent of its resources to curing illness, the highest level in the world. Previously, efforts to rein in medical spending have been led by health management organizations (HMOs) and other groups responsible for the payment of healthcare. It is a big shift for healthcare providers to take the lead in reining in costs.

States are increasingly burdened by their responsibility to provide healthcare through the Medicaid program, which serves over 58 million people. The new direction that Choosing Wisely advocates has the potential to lessen the strain on state budgets, as CBS News reports:

Doctors from nine of the top medical societies in the country are warning patients and fellow doctors to choose wisely when it comes to 45 common medical tests.

Planning a 21st century power system

Planning a 21st century power system

One of the biggest issues for America’s infrastructure is improving the national grid that moves electricity around the nation. From Wikipedia:

Historically, local governments have exercised authority over the grid and have significant disincentives to take action that would benefit states other than their own. Localities with cheap electricity have a disincentive to making interstate commerce in electricity trading easier, since other regions will be able to compete for local energy and drive up rates. Some regulators in Maine for example do not wish to address congestion problems because the congestion serves to keep Maine rates low.

In the US, generation is growing 4 times faster than transmission, but big transmission upgrades require the coordination of multiple states, a multitude of interlocking permits, and cooperation between a significant portion of the 500 companies that own the grid.

Republican governors want control of Medicaid

Thirty-one Republican governors have petitioned the Congressional supercommittee to devolve control of Medicaid to the states and away from Washington where it is currently supervised.  Medicaid is the government health insurance program which covers low-income earners and the elderly committed to nursing homes. Unlike other federal social entitlements, states pay a portion of the costs of the Medicaid program. The Republican governors claim that the federal government constrains their ability to develop more flexible and effective coverage. In essence Republican governors are asking that the program be transformed into a block grant rather than a proscribed benefit program. From Bloomberg:

Medicaid, the U.S. health program for the poor, should be overhauled to limit spending and let states design programs without federal interference, Republican governors said.

“The United States literally cannot afford to have the status quo on Medicaid,” said Mississippi Governor Haley Barbour, a Republican who has called for overhauling the program by ending federal oversight. “We should not have to come to Washington on bended knee and kowtow for waivers to do these kinds of things.”

  • # Editors & Key Contributors