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May 26, 2004
Raising the Issue: A Case for Saving Money in HHS
Posted by John Hood at 2:00 PM
The following will begin the first in a series of online debates in this space, entitled “Raising the Issue,” that will feature
participants from the John Locke Foundation, the North Carolina Justice Center, and other organizations. Click here for
more information on the debate series. This online debate will continue until 5 pm today.
As North Carolina enters its fourth-straight year of projected gaps between what politicians want to spend and what taxpayers are paying in, the
debate sounds familiar. Some argue that we should raise taxes to protect essential services. Others (and I’d be one) say that spending on
truly essential services would be far less than proposed, so tax increases are unnecessary and unwise. Many others argue for mixing some budget
savings with some tax hikes.
A key flashpoint is the potential impact on health and human services. If you are going to be a serious advocate for lower spending and lower taxes,
you cannot ignore the contribution that HHS spending has made to our current budget imbalance (from FY 1992-93 to FY 2002-03, the overall General
Fund budget grew by 80 percent but HHS spending shot up by nearly 160 percent).
So, it is asked, “are North Carolina’s health and human services programs the right place to find significant savings to balance the
state budget?” My answer is yes.
Let me make two initial observations. First, I do believe that as a prudential matter the taxpayers should finance a basic “safety net” of
services for the disabled, abandoned or neglected children, and the truly destitute who would otherwise impose other, substantial costs on taxpayers,
the economy, and public order. I am not calling for wholesale elimination of major programs, or even deep cuts. Instead, I believe that state government
can discharge its appropriate responsibilities at a lower cost, and indeed that it should not take on additional responsibilities at such a time
of fiscal pressure.
Second, debates about funding HHS programs frequently devolve into listing the number of people who currently can’t access services and accusing
critics like me of “not caring” about the disadvantaged. Let’s be clear about this. Eligibility standards for public assistance
are notoriously elastic. It used to be that poverty was considered a marker for need, but now many welfare programs are “targeted” at
families with incomes above the poverty line in some cases far above the line. Obviously, given how expansive one might want to be about who deserves
help, the number of unmet needs can always be made to look huge.
Government is not a charity. It is predicated on force, not persuasion,
so the standards for “needing” other people’s money need to be tightly drawn and prudently enforced.
Benchmarking is valuable here. Most states offer a similar array of public-assistance programs, including Medicaid, cash welfare, housing allowances,
and child-care subsidies. How does North Carolina compare in total public-assistance spending with its neighbors? According to the latest census
data, for FY 2000, our spending on various welfare programs comes to about 3.2 percent of personal income, ranking us above the national average
(3 percent) and above that of most of our neighboring Southeastern states.
With regard to Medicaid, the single-biggest item in the HHS budget, we are even more out of line in the Southeast. In federal
fiscal year 2002, North Carolina spent $841 per resident, compared with the regional average of $716, and spent an average of $6,640 per Medicaid
enrollee, compared with the regional average of $5,256. Since I have been unable to find evidence that North Carolina’s outcomes differ dramatically
from those of our neighbors our infant-mortality rates remain a bit worse than the average, as does our rate of uninsurance it would seem reasonable
to set as a benchmark that we should work to pull our Medicaid expenditures in line with the regional average. While this could not be accomplished
in a single year, the savings would eventually range from $350 million to $500 million annually.
No one doubts that balancing the state budget while maintaining or lowering our marginal tax rates will require some tough choices. But in my view,
controlling the growth of HHS spending so that it matches that of Virginia, South Carolina, or Georgia isn’t an unreasonable objective, and
would contribute significantly to restoring fiscal stability and economic vitality to North Carolina.
Linkable Entry
Raising the Issue: Don‘t Balance the Budget on the Backs of Those in Need
Posted by Rob Schofield at 2:01 PM
The issue of health and human services spending is an apt place to begin this new debate series between the Justice Center and the Locke Foundation.
Even as we “speak,” lawmakers in the state House of Representatives are considering a package of amendments to Governor Easley’s
proposed 2004-’05 budget that would slash human services funding by more than $90 million. A look at some of the details of the current situation
reveals why this is not the place to find cuts for balancing the budget.
Earlier this month, Governor Easley presented a proposed series of adjustments to the 2004-’05
budget that he and state legislators crafted last year. As we reported in the May 10, 2004 edition of our weekly newsletter, NC
Policy Brief, the Governor’s proposal was a bit of a mixed bag. On the positive side, the Governor did a reasonably good job of insulating
health, human services and education from new funding cuts that would bring about reductions in essential services. On the negative side, the Governor
failed to restore many of the painful funding reductions of recent years and opted instead for a package of corporate tax cuts and expanded “business
incentive” programs.
Today, unfortunately, budget makers in the House of Representatives are looking to impose additional deep cuts in health and human services spending
in order to generate more funds for, as yet, undisclosed purposes (but, presumably, larger pay raises for state employees). According to information
obtained by Justice Center advocates on the ground at the General Assembly, cuts under consideration include:
- Elimination of Medicaid health insurance coverage for 4,300 low-income pregnant women and hundreds of low income 19 and 20 year olds;
- Elimination
of Medicaid dental coverage for as many as 94,000 poor and disabled adults;
- Reducing childcare subsidies for low-income families even though the
waiting list currently stands at 24,000;
- A $25 million reduction for the state’s already troubled and inadequate system of mental health services
including cuts to the successful Community Alternatives Program that helps keep disabled folks in their homes and out of nursing facilities;
- A reduction
in the number of child abuse and neglect social workers (despite the already overwhelming caseloads and recommendations of a bi-partisan legislative
study committee for more resources in this area).
These are not illusory cuts orchestrated in some kind of conspiratorial shell game by a group of bureaucrats bent upon self-preservation. Neither are they the wild imaginings of a group do-gooder advocates for the poor. These proposed cuts are
but the latest in a long line of real and painful service reductions that have been implemented in recent years as state government has struggled
to keep up with the effects of health care inflation and a struggling economy that has swollen the ranks of the uninsured. If adopted and implemented,
they will translate into a direct reductions in the quality of life (and even life expectancies) of thousands of the most vulnerable North Carolinians.
Happily, there is a better solution for the state that ought to win the support of analysts and advocates across the political spectrum especially
anti-corporate welfare champions at the Locke Foundation. According to the latest
calculations of the N.C. Budget and Tax Center (a Justice Center project) lawmakers could easily free up over $200 million for 2004-‘05
simply by diverting planned outlays from an array of corporate incentives, subsidies and tax breaks. Such funds would allow the state to avoid painful
cuts, and maybe even to regain some of the lost progress of recent lean years. So how ‘bout it John, can we agree that the first issue we’re
raising is a “no-brainer” for thinking people on the right and the left?
Linkable Entry
Raising the Issue: On Tax Subsidies and Alleged HHS "Cuts”
Posted by John Hood at 2:25 PM
Rob, we obviously are going to agree that North Carolina's state government is riddled with unjustified
and counterproductive subsidies for businesses and economic-development programs. But we are likely not going to agree with what should be
done with the fiscal capacity that excising corporate welfare would free up.
As I noted in my initial piece, we have seen dramatic growth in HHS spending over the past decade, much of it in the mid- to late-1990s when the
economy was humming. Let’s face it: politicians got annual windfalls of state revenue, in part due to a “progressive” tax structure
that kicks households into higher tax brackets during periods of rapid growth. The politicians chose to create new programs, including those within
HHS (Medicaid expansions and Smart Start come to mind). Now, slower rates of growth off of these high baselines are being called “cuts.” In
context, they are not.
I don’t necessarily endorse the priorities within HHS that some of the House budget writers appear to be setting. But I do think it is reasonable
not to continue to increase new programs, such as More at Four and Health Choice, when we have other pressing needs to address, including budgetary
balance and tax relief. And I think we need to be willing to reexamine the program expansion of the mid-1990s.
Linkable Entry
Raising the Issue: A Response on "Cuts"
Posted by Rob Schofield at 3:20 PM
John,
Where do I begin? Let’s start with our points of agreement, because the common ground offers some hope for progress. While we may differ on
what to do with the savings, our shared opposition to wasteful business subsidies is important and worth emphasizing. See our NC
Policy Brief from last December’s corporate incentives legislative session for additional details.
We also share a common commitment to reduce costs, where possible, in social spending. The only difference is that while you would apparently look
first to reducing or freezing services, we would look first to keeping reimbursements for powerful providers in check particularly the pharmaceutical
industry.
On the facts, I think you make an important error when you attempt to argue that HHS spending is out of control because of fuzzy applications of
the official poverty level. As has been documented on many occasions,
the federal poverty guideline (FPG) is widely understood to be obsolete. Most North Carolina families would have an extremely difficult time living
on twice the FPG, much less what officially constitutes poverty.
Finally, your notion that “government is not a charity” goes very much to the heart of the central philosophical divide between the
Justice Center (which views progressive, democratic problem-solving as one of the best and most important achievements of the American experiment)
and the Locke Foundation (which seems to view modern government at least when it comes to issues unrelated to societal security and personal morality
and behavior as a necessary evil). I hope we can explore this more.
Linkable Entry
Raising the Issue: On Medicaid, Poverty, and Redistribution
Posted by John Hood at 3:31 PM
Rob, we certainly do agree that state government should not dole out corporate welfare. From there the disagreements proliferate, which kind of
comes in handy when you are engaging in a public debate.
On finding savings, you say that I favor freezing services and you favor reimbursement adjustments. Actually, I favor both. We can’t achieve
significant savings by fiddling around the edges, and certainly not by joining in the current “bash-the-drug-companies” folly because
drug costs don’t explain much of the rise in Medicaid spending.
North Carolina’s Medicaid program costs more than its peers’ programs do for a number
of reasons. Our package of benefits for recipients includes more optional services. Our reimbursement rates for all providers are higher
than those offered in neighboring states. North Carolina isn’t as aggressive as other states are in combating fraud and misspending, and indeed
in recent years has been known more for being aggressive in misspending
Medicaid funds.
Also, in the 1980s and 1990s North Carolina lawmakers expanded eligibility for Medicaid services several times to include groups not required to
be covered by Washington. These expansions did not result in one-for-one reductions in the number of uninsured North Carolinians, as we have documented
in previous reports, because such expansions reduce the incentive for those of modest
(but not necessarily poverty-level) incomes to purchase or retain their private health insurance.
The problem was not, as some have suggested, either imposed by federal mandates or by worsening poverty. Bouts of rapid Medicaid growth,
in North Carolina as well as nationally, don’t correlate with
either trend. They are primarily self-inflicted wounds by state policymakers.
On poverty, I might be persuaded that we should adopt a different formula for determining destitution, but I certainly do not endorse the “living
wage” formula you advance, for reasons that readers can examine in detail here.
This point touches on the philosophical divide you invoke, too. Once you get too far removed from poverty in defining eligibility for welfare, it
becomes incoherent. You end up designating huge swaths of the population as “the needy,” while the only way to finance services for
them is to tax punitively a now-shrunken share called “the wealthy.” This degenerates into old-fashioned wealth redistribution, which
is both morally appalling (think cardinal sin beginning with “e”) and impractical in a free society where entrepreneurs, investors,
and highly skilled professionals can simply choose somewhere else to reside and earn their income.
Linkable Entry
Raising the Issue: On Medicaid and "Wealth Redistribution"
Posted by Rob Schofield at 4:15 PM
JH- While it is true that there was significant growth in HHS spending during the past decade, your critique conveniently omits some critical
points. First, most of that growth was not a function of lawmaker largesse to people in need, but of the explosive growth in health care costs generally.
As a matter of fact, Medicaid has actually done a better job of containing
costs than private health care plans. Second, while state politicians did indeed adopt modest expansions of Medicaid in the 1990's, these changes
did not make for anything akin to a "Cadillac" program. For instance, it was only in the last year --after a successful lawsuit by the Justice Center
and others (which the state fought all the way to the U.S. Supreme Court)-- that North Carolina has even provided a reasonable reimbursement rate
for dentists treating poor kids. Prior to that, parents of poor kids were often forced to drive four hours to find a dentist that would see them
for Medicaid's then-paltry fee.
Now, as for the question of poverty in general and that tired old aspersion about "wealth redistribution," take a look at our Policy
Brief from earlier this year about John Edwards' "Two Americas" campaign. The real wealth redistribution in this country over the past 30 years
involves the shift from those in the middle and at the bottom to those at the top. While no one at the Justice Center is arguing for a revival of
the kind of crude and disastrous economic leveling that marked Eastern European socialism during the 20th century, I sure hope you're not arguing
that we should pursue the kind of anarchic, every person for himself, capitalism that marks modern Russia. The trick, it seems, is to craft the
right balance. Sure, it's not an adequate solution for us to simply label a huge percentage of the population as "needy." Neither, however, is it
good enough for us to say that we'll simply make sure that nobody starves or dies in the street and leave it at that.
Linkable Entry
Raising the Issue: Medicaid vs. Private Plans, plus Anarchy in Russia
Posted by John Hood at 4:26 PM
Rob,
I fear that you, and a prior Center for Budget and Policy Priorities report your Justice Center colleagues have cited, may well have accidently
committed a statistical error. Here?s what you said:
Most of the [Medicaid] growth was not a function of lawmaker largesse to people in need, but of the explosive growth in health care costs generally.
As a matter of fact, Medicaid has actually done a better job of containing costs than private health care plans.
The specific claim in your report, attributed to the CBPP, is as follows:
From 2001 to 2002, the average per capita Medicaid cost for children and nonelderly adults rose at far lower rates (6.7% and 7.5%, respectively)
than did per capita premiums for employer sponsored insurance and federal employee insurance (12.7% and 13.3%, respectively).
But this formulation entirely misses the point by using per-capita Medicaid costs. Defenders of the Medicaid program?s efficiency have committed
the same error in longer-term analysis during the 1990s. A major point I?ve been making is that Medicaid enrollment has grown due to eligibility
expansions. During the 2001-02 period, enrollment was growing also because of the recession. This will serve statistically to moderate the per-capita trend ? you
are adding to the denominator ? even as it exacerbates the upward trend in total spending, and thus cost to taxpayers. Enrollment in private plans
follows a different pattern, thus generating incomparable results.
In fact, from 1994 to 2000, Medicaid spending nationally rose by 31 percent while overall health care spending minus Medicaid rose by 18.5
percent and the overall economy (GDP) grew by 20.5 percent. Medicaid is not a paragon of virtue, at least as health-care inflation is concerned.
I will admit that health care spending has been surging across the board, public and private, but again we?d likely disagree as to cause.
On the gap between the rich and poor, obviously we can?t effectively wage that rhetorical battle today. Indeed, it might well be an excellent topic
for a future ?Raising the Issue.? But I would object to portraying modern-day Russia as ?anarchic.? Much of its economic woes stem from its continuing
statist mindset, heavy-handed regulations, and lingering bureaucracies, though business activity there is also depressed due to the absence of an
effective rule of law to enforce contracts and protect private property.
Linkable Entry
Raising the Issue on Medicaid and "Wealth Redistribution"
Posted by Rob Schofield at 5:00 PM
John - This'll be my last stab at this today. I've very much enjoyed my first blog session and look forward to further joint efforts - especially
when we can do "simultaneous posts" (if that's the right term) after the Justice Center launches its own blog section later this summer. Here are
a few responses to your latest Medicaid and Russia comments:
Yes, Medicaid costs have risen. Yes, it's a far from perfect program. Yes, it is covering more people today than it did in the past. While it?s
easy to talk in general about eliminating "optional services" and "expanded eligibility" there's no getting around the fact that when we do this,
we impact real people with real needs.
One of the biggest expansions in the state Medicaid program of recent years occurred in 1999 when Medicaid
coverage was expanded to seniors and people with serious disabilities and incomes below poverty (currently an income of about $776 a month.)
This change allowed about 40,000 people in poverty to afford prescription drugs.
Or maybe (like the NC House) you?d like to cut one of the other major "optional" groups of people to whom we've extended health coverage -- pregnant
women whose family income is between 151% and 185% of federal poverty guidelines, (i.e., between $18, 860 and $23,107 for a two person family).
Decent prenatal care means healthy babies, but since North Carolina has the tenth
highest infant death rate in the nation, maybe cutting such care isn't such a hot idea.
While far from perfect, North Carolina is near the middle of pack in average
state Medicaid spending per enrollee. Sure, we've invested in our Medicaid health insurance system over the last ten years, but that has meant
a healthier workforce, better educated children, and thousands
of new jobs and economic activity.
Finally, I too hope that we can have further debates about the growing gap between the haves and have nots in modern America (and maybe even Russia,
too!). Ultimately, no single issue goes more directly to the divide between the two worldviews of our organizations than that of what is the best
and most effective means of growing and dividing the economic pie. Peace.
Linkable Entry
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