“It’s not like you can avoid it forever, ’cause it’s here now. And we all know it’s here. And the federal government doesn’t have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That’s it. And it’s gonna arrive everywhere. Timing will vary a little bit, depending upon which state you’re in, but it’s comin’.”
Kroft goes on to report:
Not all of the problems that Illinois and other states are facing right now can be traced to the recession. But the precipitous drop in tax revenues did expose decades of financial irresponsibility, reckless spending, unrealistic benefit packages for public employees, and the use of political gimmicks to cover up hidden deficits. It’s forcing state governors and the public to confront some harsh realities.
Governors of cash-strapped states are beginning to cajole or bully public employee unions into making concessions on what are considered to be gold-plated retirement and health care packages, which are now collectively underfunded to the tune of $1 trillion.
But as bad as government union contracts and pensions are, they are not the real driver of state insolvency. Medicaid is. Already, Medicaid is the second largest item on the average state budget at 21% (education is first at 22%). But according to the Centers for Medicare and Medicaid Services (CMS) that is all about to change very soon thanks to Obamacare. Remember, more than half of the health care coverage expansion under Obamacare is attained by placing Americans on Medicaid. CMS projects that state and local spending on Medicaid will increase 41.4% between 2010 and 2011. 41%!!! Heritage policy analyst Brian Blaze warns:
If state Medicaid spending increases by 41 percent as projected by CMS, then by next year Medicaid could end up consuming nearly 30 percent of the average state budget. Medicaid would greatly exceed all other state priorities, including education, which tops state budgets at about 22 percent. In fact, state spending on education would experience certain cuts next year.
Presumably, the state spending increase is so high because the enhancement of the federal Medicaid match will expire at the end of 2010. CMS projects that federal spending on Medicaid and the Children’s Health Insurance Program will decrease 7.1 percent between 2010 and 2011. The loss of federal funds will drive most of the increase in state Medicaid obligations.
Unfortunately, states have lost considerable flexibility to reduce Medicaid’s burden on their budgets. As a condition for receiving the additional federal dollars, both the stimulus bill and PPACA contain maintenance-of-effort (MOE) provisions that prohibit states from changing eligibility levels.
And it only gets worse after 2011:
Beyond the enormous increase in state obligations for Medicaid next year, more trouble lies ahead. The new law includes a massive Medicaid expansion. CMS estimates that by 2014, 85.2 million Americans will be enrolled in Medicaid—an increase of 23.3 million individuals from the projections under prior law.
This is the second study in a week that provides unwelcome news to states. Indiana reports that the cost of Medicaid expansion will cost its state $3.6 billion over 10 years. Texas estimated its 10-year cost at $27 billion. The situation could be even worse. State estimates are subject to great uncertainty, especially with assumptions about the take-up rate (the number of people who actually sign up) among both the newly eligible (the federal government reimburses state spending at a rate of 90 percent after 2020) and the previously eligible (the federal government reimburses at the state’s standard match rate).