The Federal Government Needs to Assume all Medicaid Funding

Posted by Michael A. Kamperman on January 29, 2011

It is time for the feederal government to step up and assume all funding and responsibility for Medicaid.  The federal government spent approximately $290 billion on Medicaid in 2010.  The states spent roughly $130 billion on Medicaid in 2010.  This included stimulus aid to the states whereby the federal government picked up an extra $50 billion in Medicaid expenditures on behalf of the states.  That aid, along with other stimulus aid to the states, ends July 1, 2011.  That is when America will hit its real auterity moment if change we can believe in doesn’t come.  Most states, and all the large ones, simply cannot afford the ever growing costs of Medicaid in an era of depressed tax revenue and high unemployment.  Most states have already made deep cuts to education, which the President emphasizes should be a priority.  They will make much deeper cuts to education after July 1 when the stimulus dollars runout.  Traditionally liberal states with Democratic Governors like California and New York intend to make cuts to their respective Medicaid programs.  The best way to assist the states fiscal burden is for the federal government to end the Medicaid mandate and assume full responsibility for the program. 

While this will increase the federal budget and the federal deficit, it will decrease state budgets and state deficits.  The states must balance their budgets, whereby the federal government can operate with deficits, even large ones.  The states cannot print money and the federal government can.  Federalizing Medicaid will not create a new program, it will not create net new federal/state combined government spending, therefore it will not create an extra burden on the taxpayers who pay both federal and state taxes in one form or another.  What it will do is end the political trick of claiming fiscal prudence while pushing the mandates for spending and taxes down the food chain to the states, who in turn push it down to the local level. 

Despite the rhetoric and the acquisence of the weak minded who are legion amongst us, the fact is the federal government does not have a spending problem.  It has an economy in a depression problem.  Costs for aid to the needy and the unemployed haved soared, while tax revenues from paychecks have plummeted.  Full employment would cut the current federal budget deficit by more than 3/4.  Less money out and more money in.  From there prudent fiscal management could easily allow economic growth to balance the budget by 2020.  One way to ease the pressures of the depression is to remove almost certain draconian austerity cuts coming from state budgets starting July 1.  How many kids in grade school can we cram into a classroom before seriously eroding their education and our country’s future?  Texas plans to cut $5 billion per year in education funding.  That amounts to around $1,000 per kid per year in a state that averages $7,000 per kid in overall education spending.  Texas budget hawks looked seriously at withdrawing from Medicaid, but fortunatley reason and wisdom prevailed.  Its not rocket science to figure out cutting $3 billion a year in health spending for the poor out of the state budget doesn’t offset foregoing the benefit of $17 billion a year in federal health spending for the poor in Texas.  The President needs to step up to the plate and lead us on a path different from the path President Hoover led the nation on during the last depression.  Despite current punditry I see him sharing Hoover’s fate at both the polls and in the history books if he doesn’t come forward with an agenda focused on creating good paying jobs with benefits for the middle class.  Federalizing Medicaid won’t create new jobs, but it will help stop the bleeding, especially in the classroom.