Spend your way to wealth
States have to spend money to get money. Apparently that’s the message from Washington D.C.
The tax cut recently signed into law by President Bush is expected to provide states with a one-time windfall of cash to help assist with budget crises. But, there’s a catch: Medicaid eligibility levels may have to be locked in place. [1] This restriction is poor public policy and unfairly punishes states attempting systematic, long-term reform.
The motivation at the federal level is textbook Depression-era thinking¾that spending drives the economy, not saving. By flooding the nation with dollars they hope to jump-start the economy. Not only is this unlikely to resolve current economic woes, it may actually backfire by encouraging the retention or expansion of expensive long-term entitlements.
In establishing the Medicaid restriction, policymakers at the federal level are trying to prevent exactly what Ohio policymakers should do: retain cuts in Medicaid while shifting the one-time sum of cash into rainy day accounts for when it may be most needed. Ohio officials are concerned, with good reason, that maintaining current Medicaid eligibility levels (expanded during the booming 1990s) will eventually consume the entire state budget.
“We won’t have the money to sustain those levels,” says Ohio Governor Robert Taft, “and we’ll be going through the same painful cutbacks as we are this year.” [2]
Ohio’s policymakers certainly share the blame for the current situation. Even with the state’s modest expansion relative to other states during the 1990s, eligibility levels were increased and optional services were added to the program with little regard for long-term consequences. The slowing economy has alerted politicians to the reality of the situation and the fact that, penny sales tax increase or not, an unchecked Medicaid will eventually bankrupt the state. [3]
In light of the situation faced in Ohio and other states, the federal effort to tie financial relief to previously established Medicaid rates is irresponsible. State legislators grappling with budget constraints are forced into a catch-22 position.
In addition, such a requirement is biased against states like Ohio that have been slow to respond to the explosion of Medicaid costs. Many states have already cut eligibility, some down to the federal minimums. These states will not be penalized since they took these steps prior to the release of these federal funds.
Some are suggesting that any changes to Ohio’s eligibility levels, at this point, may cost Ohio federal tax dollars. This is even if Ohio’s eligibility levels, post reduction, are higher than federal minimums. If Ohio’s rates represent the standard sought by the federal government, the federal government should be withholding funds from all states with eligibility levels lower than Ohio’s.
In reality though, Ohio’s Medicaid system should not set the standard by which other states measure success. The program is an out-of-control cost driver that will continue to cause future budget crises if not fundamentally reformed.
The latest budget process graphically shows the paralysis within the Statehouse when it comes to making even the slightest movement toward reform. The ill-conceived actions of the federal government merely provide another excuse to stall any improvements that in the long run will stabilize Ohio’s Medicaid spending and help prevent future budget crises.
Notes
[1] Catherine Candisky and Lee Leonard, “Senate’s plan could jeopardize federal aid,” The Columbus Dispatch, 29 May 2003.
[2] Ibid.
[3] For more information on Ohio’s Medicaid system, see Michael T. Bond, John C. Goodman and Ronald L. Lindsey, Reforming Medicaid in Ohio: A Framework for Using Consumer Choice and Competition to Spur Improved Outcomes (Columbus, OH: The Buckeye Institute, March 2003).
