Medicaid Monster Munches State Money | Eastern North Carolina Now

    Publisher's note: This article, by Dr. Terry Stoops, was originally published in the John Locke Foundation.

    RALEIGH     In recent months, state education officials and public school advocacy groups have continued to demand that state legislators pony up some big bucks for North Carolina's public schools. It reminds me of a recent AT&T commercial featuring a cute little girl who explains:

    More is better than less because if stuff is not le- ... if there's more less stuff, then you mi- ... you might wanna have some more, and your parents just don't let you because there's only a little bit. We want more. We want more, like, you really like it. You want more.

    She's right. Parents recognize that resources are scarce ("there's only a little bit"), but kids do not ("We want more. We want more"). Of course, we do not expect children to understand basic economic concepts. Adults have no excuse.

    With this in mind, those who complain that our state is underfunding public education should acknowledge that resources are scarce because of the existence of a program with an insatiable appetite for taxpayer money: Medicaid. When all is said and done, North Carolina's Medicaid shortfall will likely reach $400 million this year.

    As my colleague Katherine Restrepo explained, "Medicaid's ineffective utilization of its unpredictable budget is a parasitic disease to taxpayers and beneficiaries." It is also a parasitic disease to the state budget generally, as Medicaid obligations have consumed an ever-increasing share of revenue.

    Medicaid is a health care subsidy program for low-income families that is jointly funded by the state and federal governments and is administered by the N.C. Department of Health and Human Services. While state tax dollars provide over $3 billion of the total Medicaid budget, the federal government picks up approximately two-thirds of the cost. The $14 billion Medicaid budget is the single largest program in state government. In terms of state spending, however, Medicaid is third to public education ($7.5 billion) and higher education ($3.6 billion).

    North Carolina has enjoyed a small revenue surplus this year, but the "Medicaid Monster" looms. This year, state legislators will be forced to budget a larger share of the General Fund to cover rising Medicaid costs. The Senate proposed a nearly 11 percent increase in Medicaid spending for the coming year and a 5 percent increase the following year. I suspect that the House will appropriate even larger shares in the second year of the biennium and decades thereafter.

    Mandatory provisions that extend Medicaid funding within the Patient Protection and Affordable Care Act (Obamacare) are part of the problem. Despite the fact that North Carolina rejected Medicaid expansion, the state is obligated to appropriate $50 million next year for 70,000 new Medicaid recipients. These budget appropriations are extensions of two decades of staggering increases in Medicaid expenses both in North Carolina and in other states.

    Those who would like to blame the Medicaid problem on Republican legislators should note that the Medicaid Monster is not native to North Carolina. (Like many invasive species, it is native to northern Virginia, specifically along the Potomac River.) A May 31 New York Times article, "Surpluses Help, but Fiscal Woes for States Go On," pointed out that state revenue surpluses cannot keep up with sharp increases in the costs of retirement and health care obligations, particularly Medicaid.

    According to reporters Michael Cooper and Mary Williams Walsh, a survey (PDF) conducted by the National Governors Association and the National Association of State Budget Officers showed that Medicaid was the largest area of total state spending this year. Nearly 24 percent of state revenues will flow to Medicaid, considerably more than states plan to spend on education and transportation.

    Teacher pay increases are among the things that are crowded out by the Medicaid budget, but you will not hear much about this fact from groups such as the North Carolina Association of Educators. Among their strategies, public school advocates want to departmentalize the state budget.

    Budgets are about choices. Elected officials must be mindful of the multiple demands on the limited resources taxpayers entrust them to allocate. This leads to one simple, universal truth: You cannot satisfy everyone, particularly those who proclaim "We want more. We want more."