Taxing issues: Growth in economy can create bigger revenue pie

Tuesday, December 21, 2004

Since Missouri taxpayers have shown no interest in tax increases to pay for the many services being advocated, it seems that any lobbying for more money should recommend from whence it should come.

Rarely (never, to my knowledge) do we see public K-12 schools suggesting cuts in higher education, transportation or social services (including Medicaid) or vice versa.

But there is continuous pressure for more money for roads, economic development, buses, lakes, tax abatements, public employee salaries and pension plans.

Only growth in the economy can create a bigger revenue pie to divide. And economic growth is rarely achieved through tax increases, additional rules and regulations.

The following excerpted article by Pamela Brogan (Gannett News), as printed in the Springfield, Mo., News-Leader, illustrates an example of the coming perfect storms (and doesn't even mention Social Security) that state governments are facing:

States spending more on Medicaid than K-12 education: Governors and budget officials across the country -- including in Missouri -- are facing a budget crisis that pits education for children against health care for the poor.

This year, for the first time, states will collectively spend more on Medicaid -- the federal-state health care program for the poor -- than on any other program, including K-12 education. Nationally Medicaid is projected to account for 21.9 percent of total state spending compared with 21.5 percent for primary education.

Missouri is among 22 states where Medicaid already has surpassed primary education as the largest expense, according to a report by the National Association of State Budget Officers.

Since 1998, Medicaid inflation has outpaced revenue growth in state budgets, which ran deficits in 2002 and 2003, according to the Kaiser Commission on Medicaid and the Uninsured. Next year, Medicaid is projected to grow at 12 percent, according to the budget group. The reason: the rising cost of medical care, from prescription drugs to long-term care.

Medicaid's increasing costs have caught the attention of education advocates, who cite threats to everything from teacher pay to after-school activities.

"We don't like to see these programs played against one another, but this is what is happening," said Daniel Kaufman, a spokesman for the National Education Association. "There is no doubt that primary education will, and is, suffering."

Missouri spends 30.7 percent of its budget on Medicaid compared with 24.4 percent on K-12 education, according to the budget group. Together, both programs account for more than half of the state's budget.

Missouri's Medicaid program covers about 980,000 people. Missouri spent $4.5 billion on Medicaid last fiscal year, according to the Department of Social Services.

"In general, the state does not have enough revenues to fund education at the level it should be funded," Alderson said. "Every school district is fighting to keep what we have," she said.

Alderson said that Springfield's school district has cut $10 million out of its budget in the last three years and that teachers did not get a raise last year.

In budget discussions, education is competing with Medicaid for budget dollars.

Education and Medicaid funding are top priorities for Republican Gov.-elect Matt Blunt, said his spokesman Paul Sloca.

"He is going to sit down with all sides involved," said Sloca, who added that the governor campaigned on a pledge not to cut education funding.

In Tennessee, a clash over Medicaid and education funding has created a rift between educational groups and advocates for the state's low-income residents.

Democratic Gov. Phil Bredesen plans to cut about 430,000 recipients from TennCare, the state's Medicaid program. Public school activists who want the savings spent on education programs support the proposal.

Tennessee is No. 1 in the country for the portion of its budget it spends on Medicaid -- 33 percent. It spends 17 percent of its budget on K-12 education.

Even before Bredesen made his latest proposal, Tennessee had begun restricting eligibility for Medicaid benefits.

Republican Gov. Mike Huckabee of Arkansas said the federal government needs to take over the costs of long-term care for the needy, which accounts for roughly 75 percent of states' Medicaid budgets. This year, Arkansas will spend nearly 19 percent of its budget on Medicaid and 15 percent on education.

"The growth of Medicaid is not sustainable," said Huckabee, vice chairman of the National Governors Association.

But administration officials, who are struggling to cut a record $413 billion federal deficit, are unlikely to provide more federal Medicaid dollars for the states.

How Medicaid works

Q: What is Medicaid? A: Medicaid is the government-sponsored health plan for the poor. It was established by a 1965 law and is jointly funded by the federal and state governments. More than 40 million Americans are covered under Medicaid, about half of them children.

Q: Who is eligible? A: Most states grant Medicaid coverage to people who are at or below the federal poverty level and have limited assets. The poverty level is $9,310 for an individual, $12,490 for a family of two and $15,670 for a family of three. States can modify that requirement for certain groups of people -- such as pregnant women, children, the blind and the disabled -- to make it easier for them to qualify.

You also must be a U.S. citizen and a resident of the state where you are seeking Medicaid benefits. Legal immigrants also can qualify under certain circumstances.

Q: How does the program work? A: Each state sets its own guidelines subject to federal rules, but states must provide all Medicaid patients with a choice of doctors, a hospitalization plan and prescription drug coverage. States also may impose nominal deductibles, co-insurance or co-payments on some Medicaid recipients for certain services. Emergency services and family planning services must be exempt from such co-payments. Certain Medicaid recipients must be excluded from this cost sharing, including pregnant women and children under age 18.

Q: How are doctors paid? A: The government makes payments directly to doctors and hospitals. Providers cannot charge Medicaid patients any additional fees. Each state has relatively broad discretion in determining reimbursement rates but must follow certain federal guidelines.

Gary Rust is chairman of Rust Communications.

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