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Four Governors Seek More Federal Aid for States

2 min readBy: Joseph Bishop-Henchman

Yesterday, Governors Jim Doyle (D-WI), Chris Gregoire (D-WA), Mark Parkinson (D-KSA), and Ed Rendell (D-PA) sent a letter urging Congress to reinsert $24 billion in additional Medicaid funds for states, that would free up other money for other projects.

Earlier this year, we reported on the trend of states’ using the Medicaid matching fund program to paper over state budget shortfalls (and drive Medicaid toward insolvency):

Those states most likely to adopt this scheme of enacting or expanding hospital taxes as a way of obtaining federal funds are likely to be the states facing serious budget troubles, especially involving Medicaid payments. These conditions are present in many states recently. With the American Recovery and Reinvestment Act of 2009 increasing the federal matching rate by an average of 8.7%, states have even more incentives to take advantage of hospital taxes.

Ultimately, however, health provider taxes are a short-term solution that can undermine health care providers, and rely on the tenuous continued existence of a dysfunctional Medicaid matching fund system.

Scholars across the political spectrum agree that it’s a problem. The AP article quotes Donald J. Boyd, an analyst with the State University of New York’s Rockefeller Institute of Government, as saying, “From a standard perspective of risk and prudence in budgeting, this is risky and it is not prudent.” Over at the Heritage Foundation, they call for an end to the “Medicaid bailouts for states”:

Over the past few decades, states have generally increased Medicaid programs by increasing eligibility and extending benefit packages. When bad times hit, enrollment swells. States have avoided dealing with their mismanagement of the program because they depend on Congress to force federal taxpayers to bail them out. During this decade, Congress has already bailed out state Medicaid programs 3 times.[…]

Table 1 shows the changes in state per capita spending between 1990 and 2006. This table shows that the average increase in per capita state spending was 130 percent and that 43 states more than doubled per capita spending between 1990 and 2006. The truth is that many state governments pursued reckless fiscal management over the past two decades, accompanied by the dramatic growth in state Medicaid programs. In fact, states have accumulated much budget fat that can be further trimmed.

And at the Mercatus Center, scholar Veronique de Rugy includes this chart in her report “The Death of Fiscal Federalism,” showing the growth in federal grants to states and suggesting they foster dependence:

Looting federal Medicaid funds and laundering them was not on my list of suggestions for state officials dealing with budget shortfalls.