February 26, 2009
Maine Medicaid Needs Dose of Reality

By Rep. Paul Davis

It’s time to revamp Maine’s Medicaid system, which goes by the name MaineCare. The program is enormously expensive, costing more than $2 billion per year. While some 65 percent of the cost is paid by the federal government in the two-to-one match, the program will hit Maine taxpayers for more than $1.2 billion over the next budget cycle.

The program has grown so large and costly that it is now crowding out critical investments in the more productive and forward-looking parts of our economy. It also makes it increasingly difficult to reduce Maine’s extremely high income tax rates, which are stifling economic growth and job creation.

We can no longer afford business as usual. With state revenues running well below expectations and the economy in deep trouble, our overly generous Medicaid program has become unsustainably expensive.

We are now expecting a huge influx of Medicaid money in the stimulus package. Indeed, a third of our stimulus allotment is for Medicaid. Rather than celebrating this $330 million Medicaid windfall, we should be preparing for the day when the federal government no longer has the funds to match state Medicaid expenditures. The national debt is now approaching $12 trillion, and Washington is borrowing money at a furious pace to fund the various bailouts and the stimulus package.

With trillion-dollar budget deficits predicted to last for years, the federal government will soon be forced to cut entitlement programs or risk economic turmoil. As former British Prime Minister Margaret Thatcher once remarked, “The problem with socialism is that eventually you run out of other people’s money to spend.”

Medicaid, launched in 1965 as part of the Great Society, provides free medical and dental care to people whose incomes fall below a certain threshold. There are about 270,000 folks on Maine’s Medicaid rolls, out of a total state population of 1.3 million. That makes our Medicaid system the second largest in the nation, on a per capita basis. In fact, there are 19 percent more Mainers on Medicaid than the U.S. average. It’s also worth noting that Maine’s population of low-income residents is about average compared to other states.

If you doubt that this program has become unaffordable under its current structure, consider that Maine hospitals are owed $425 million for Medicaid services provided as far back as 2005. Despite spending more than $2 billion a year, the state still cannot pay all of its Medicaid bills. The hospitals cover this loss by increasing rates for patients with private health insurance. The cost-shifting maneuver exacerbates two of our biggest problems. It makes Maine health care more expensive and it drives up our insurance rates, which already are the second-highest in the nation.

In the governor’s proposed budget for the next biennium, Medicaid spending will total $1.216 billion, or about 20 percent of all spending. Medicaid is now Maine’s second largest budget item after General Purpose Aid (GPA) for local schools.

To keep its massive Medicaid machine running at full tilt, Augusta has to cut back on other critical needs. Medicaid spending is squeezing out funds for many other vital programs, including higher education and road maintenance. Reduced subsidies for the University of Maine system, coming in the next budget, will make college less affordable for our young people, who represent the state’s economic future. The abysmal condition of many state roads is another example of our flawed priorities. Not so long ago, road maintenance was a major part of the budget. That is no longer the case.

By all standard measurements, Maine’s Medicaid operation is way outside the U.S. average. To keep the system sustainable for the long term, we need to begin restricting the number of people who qualify. People on Maine Medicaid can make much more than the national qualifying average and still receive full benefits.

We also need to take steps to reduce the amount spent per recipient. We spend 90 percent more than the national average for every person on Medicaid. This is critical, because if Maine had average Medicaid spending, the overall program would cost about 40 percent less. That would yield a savings of about $1 billion a year. Two-thirds of that savings would go to the federal government; Maine would save the other third – about $346 million. That’s enough money to equal 30 percent of the entire amount collected in Maine’s personal income tax.

In short, we could retain everyone currently enrolled in Medicaid and still save $346 million simply by bringing our covered services in line with the rest of the country. At a time when state revenues are under extreme pressure, we cannot afford to run a gold-plated Medicaid system while asking other residents to make financial sacrifices.

State Rep. Paul Davis (R-Sangerville) is the ranking Republican on the Inland Fisheries and Wildlife Committee

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