Opinion: Daily Journal

On Medicaid, Schools, & Tax Relief

RALEIGH – There are few issues that attract near-unanimous sentiment among state political and public-policy circles. The need to change the counties’ funding responsibility for North Carolina’s rapidly growing Medicaid program is on that very short list.

Medicaid, created along with Medicare in 1965 as an amendment to the Social Security Act, is a joint federal-state program paying for medical and long-term care services to low-income families, the disabled, and the elderly. The federal government’s percentage of the bill differs by state – it’s relatively low in more prosperous states, relatively high in less prosperous ones.

It used to be that North Carolina and New York were the only states that, in turn, passed along some of the non-federal share of the Medicaid bill to counties. Now that New York is poised to end that, we’ll be left as the only state perpetuating the practice. This reality helps to explain why the theoretical justification for a county role in funding Medicaid – that counties are involved in carrying out the program as local administrators – doesn’t really hold true in practice.

It does make sense to ensure that all levels of government involved in formulating a policy should be required to share in the cost of carrying the policy out. Without “skin in the game,” so to speak, politicians have few incentives to keep spending in check or administer programs effectively. A version of this problem is the unfunded mandate, in which a higher level of government requires that a lower lever of government provide a service but then does not share in the cost of that mandated program. It happens the other way, as well: when localities can apply for state grants for which there is no local match requirement, or when states can apply for the same from Washington, they tend to spend the dollars unwisely.

The difference is that in Medicaid, counties have very little influence over the major decisions that affect the cost and quality of the program. They don’t determine eligibility requirements. They don’t select the list of covered services. They can’t change the rules for providers or beneficiaries. Thus, they shouldn’t have to bear the cost of paying for Medicaid, which is escalating rapidly.

For years, North Carolina counties have sought to escape this Medicaid burden. For some jurisdictions, the Medicaid share is becoming one of their most-challenging fiscal issues. And even in wealthier climes, having to devote a share of their property-tax revenue to Medicaid is robbing county governments of some of the revenues they need to keep up with truly local responsibilities associated with rapidly growing communities, such as building new schools or improving highway access. In Wake County, for example, fixing the problem would free up enough local tax revenue to finance $344 million in school bonds (as of late last year). The bonding capacity would be $311 million in Guilford, $237 million in Forsyth, and $450 million in Mecklenburg (more than the bond package defeated by local voters last year because it would have forced up property taxes).

Now that the state budget is experiencing a record surplus, there should be widespread political support for dramatically reducing or even eliminating the county responsibility for Medicaid this year. Unfortunately, Gov. Mike Easley did not include such an initiative in his proposed 2006-07 budget plan. A good way to think about this issue is that having the state, which is experiencing robust revenue growth, pick up the full non-federal share of Medicaid would likely translate into a future tax cut of hundreds of millions of dollars – meaning that counties would no longer be able to cite Medicaid growth as an excuse for raising their property taxes or seeking authorization for new sales taxes.

Align funding responsibilities efficiently while reducing the long-term tax burden: sounds like a good deal to me.

Hood is president of the John Locke Foundation.