Time to grab the third rail, Madame Governor

Soon, Governor Martinez sends the 2011 Legislature her budget for fiscal 2012. At last count, she is looking to plug a $400 million gap.

She campaigned on the promise that she would not make spending cuts to education or Medicaid.

Read my lips: ‘Where are you going to find $400 million to plug the gap, Madame Governor?’

The “Third Rail” of politics refers to extremely controversial issues in which it is observed that, when acting unilaterally, “touch it, and you die. Education and Medicaid are third rail issues. Federally, Social Security is an example of a Third Rail issue.

A federal-state partnership

State governments administer Medicaid, but they receive an open-ended funding match from the federal government. The federal government pays nearly 70 percent of the cost of the program in New Mexico.

Another 21,000 people are expected to sign up for Medicaid programs in New Mexico by this summer – at the same time the state faces the loss of federal aid and health care costs continue to escalate. That triple whammy means the Legislature and governor would have to come up with another $361 million just to maintain current levels of services under the federal-state health care program.

The state’s Human Services Department projects that 573, 449 New Mexicans will be enrolled for Medicaid services by this June. That’s a 3.9 percent increase from the May 2010 enrollment figure of 552,113 – more than a quarter of the state’s population.

The projected $361 million Medicaid deficit is in addition to an estimated $400 million revenue shortfall already projected for New Mexico’s $5.6 billion budget in the coming year.

New Mexico is spending about $602 million in state money on Medicaid programs in the fiscal year that began July 1, along with about $3.1 billion in federal funds. However, the federal matching rate is scheduled to be scaled back gradually starting this month.

Taking a scalpel to Medicaid

Governors nationwide are taking a scalpel to Medicaid, which now has 48 million poor Americans enrolled, half of which are children. The single biggest expense for states, Medicaid consumes about 22 percent of their total $1.6 trillion in expenditures, more than what is allocated to elementary and secondary education, according to a National Governors Association report.

For example, Governor Gregoire of the state of Washington proposed cuts of $112.9 million in vision, hearing and other benefits for her $1.1 million-member Medicaid program.

In California, Governor Schwarzennegger proposed $980 million in savings on Medi-Cal, which covers 7.5 million people, after previously slicing $110 million for acupuncture, chiropractic and dental services in 2009.

Arizona will reduce payments to doctors, hospitals and ambulance services by 5 percent beginning this April. The state stopped paying for heart, liver and other transplants last October.

Under the 2009 stimulus bill and the 2010 health overhaul backed by President Obama, states can’t reduce Medicaid eligibility below a prescribed level. Governor Jan Brewer of Arizona, facing a $1 billion budget deficit, said she’ll ask federal permission to remove 300,000 people from the 1.3 million-member program. The cuts would be limited to those who have incomes higher than the federally mandated minimum.

Reforming with block grants

From a budget perspective, an effective way for the federal government to reform Medicaid would be to turn it into a block grant.

Block granting was the successful approach taken with federal welfare reform in 1996. A block grant would provide a strong incentive for our state to trim its Medicaid program, combat fraud and abuse, and pursue more innovative and cost-effective health care solutions.

The federal government would give each state a lump-sum grant amount each year, allowing federal taxpayer costs to be directly controlled. Federal aid to the states could be ratcheted down over time, but the states would have greater flexibility to design more cost-effective health care programs.

Which would put the challenge squarely back into the laps of our governor and Legislature.

The open-ended federal match under Medicaid has prompted our state government to continuously expand health care benefits and the number of eligible beneficiaries. New Mexico has designed a complex scheme (like other states) to artificially raise federally matching payments under Medicaid, and it has come back to bite us in our budget.

In the long run, federal Medicaid spending should be phased out completely. After all, funding for the program comes from taxpayers in the 50 states, so we may as well keep the money in the states and allow each state government to determine what sort of health care policy it wishes to pursue.

Molitor is a regular columnist for this site. You can reach him at tgmolitor@comcast.net.

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