RALEIGH – North Carolina’s political class likes to fancy itself as ahead of the curve. In reality, we follow far more than we lead.
While other states are pursuing innovative approaches to a variety of issues – higher-education finance, parental choice in education, competition in government services, etc. – Raleigh is the place where folks equate spending money with improving education, and where an escalating tax burden is called “fiscal discipline.”
And unlike state capitals across the country, Raleigh is apparently not the place where governors and legislators are talking about how best to change the fundamental structure of Medicaid, the joint federal-state program providing medical services to the poor, disabled and elderly. It’s becoming increasingly obvious that the program is unsustainable in its current form, which gives patients few incentives to consume care wisely, encourages long-term dependency on the welfare state, and allows large numbers of middle-income Americans to hide or shield their assets and qualify for tax-funded nursing-home care.
“Medicaid is the monster in the middle of the road, and it’s threatening the viability of every state in the union,” said Republican Gov. Robert Taft of Ohio, who is hardly a paragon of fiscal virtue but at least gets this issue right. Among the governors pushing for fundamental reforms are Democrats Mark Warner of Virginia and Phil Bredeson of Tennessee as well as Republicans such as Mike Huckabee of Arkansas and Arnold Schwarzenegger of California.
They don’t all agree about what to do. Nor do they necessarily favor the idea, popular within the Bush administration and Republican Congress, of forcing spending discipline within Medicaid in part by capping the annual federal contribution rather than letting it expand automatically as states enroll more people or add more services.
Here in North Carolina, however, the biggest issue in Medicaid policy this year appears to be whether to phase out the counties’ 6 percent share of the cost, which would transfer hundreds of millions of dollars from local budgets to the state budget. I happen to favor the idea – Medicaid should be financed with consumption taxes, not property taxes – but it is scarcely the highest-priority issue to address.
As previous research papers have amply demonstrated, North Carolina’s Medicaid costs are way out of line with those in comparable states (which are themselves struggling to pay their escalating bills). If we put the same resources into Medicaid that states such as Virginia and Georgia do, our state budget would be $630 million to $800 million smaller – which is about how much Gov. Easley’s proposed 2005-07 budget relies on higher taxes.
Of course, such adjustments could not realistically be made in a single year. My position is not that restructuring Medicaid could by itself erase the state budget deficit, but getting started on it would help a lot.
What should be done? We should eliminate most optional services, reduce our fee structure to the regional average, tighten eligibility, enforce asset recovery rules, and use capitation and savings accounts to move Medicaid closer to a private-sector model for health care. Other states are moving in the right direction. North Carolina won’t be a leader here, either, but at least we should have sense enough to follow.
Hood is president of the John Locke Foundation and publisher of Carolina Journal Online.