Monday, December 29, 2008

Federalize Medicaid!

There has been much justified concern and talk about the fiscal problems of the state and local governments in the current crisis, most of whom have some form of balanced budget rule in place, forcing them to engage in automatic destabilizing policy in the form of cutting spending or raising tax rates as the recession lowers tax revenues. One of the most significant of rising costs that is hitting all the state governments, and has been even when times have been better, has been Medicaid, the needs-based program to pay for the medical care of poorer people. Unlike non-needs based Medicare and Social Security, this program is partly funded by the states as well as the federal government, which also means that poorer states face a larger burden.

Although I have heard nobody propose this, and it would cost a lot of money at the federal level, there is an obvious move here that would help in both the short term and the longer term. Federalize Medicaid! Besides essentially eliminating the fiscal crises of the states, it would also provide a more level playing field in the longer term between the states.


BruceMcF said...

What is the budgetary cost of Medicaid, all up? Would it be possible to fund with a levy capped at the level of the Social Security payroll income tax that kicks in after the Social Security payroll income tax kicks out?

TheTrucker said...

There are so many good ways to fund the social safety net that the mind explodes. Fuel taxes and rebates (in the form of egalitarian citizen payouts or in the same "shape" as the recent "stimulus but on a quarterly basis) are a very good way to "stimulate" the general economy in the correct direction. And progressive taxation is always good. Import tariffs are still another way to fund the safety net and so too the removal of FICA tax caps. The program for health care must take land rent into account. It is land rent that drives up the cost of health care in one region as opposed to another when you look at it on a state by state basis. A simple block grant based on population or number of representatives would seem do very nicely. It should be viewed as a grant to each DISTRICT, even if the funds are managed by the states and counties as opposed to the voting districts.

Eleanor said...

I like the idea of federalizing Medicaid. Minnesota, which used to be a financially sound state, is facing a very serious budget shortfall, due to the current recession/depression and two terms of a Republican governor, who refused to raise taxes in good times and gutted every fund the state has. I mention this, because Minnesota needs help badly now -- so much so that North Dakota offered us a loan, which our jerk governor refused. Anyway, help with Medicaid would be great for the state and even better for the people who depend on Medicaid.

Barkley Rosser said...

I do not have the latest data. My quick google check got the aggregate numbers for FY 2003, about $115 billion by the states and $160 billion by the feds. One aspect of it that is not as bad as I argued in my post is that the share of fed contributions is tied inversely to per capita incomes, which partly overcomes the "uneven playing field" aspect, although I know that some of the states experiencing the highest unemployment rates and most sharply collapsing budgets are not all that low on per capita income, think Michigan and Ohio and California, so they are not helped all that much by such adjustments.

Anyway, I think the case was there and still is there for this federalization.