Where Will the Money Come From?

Governor Martin O’Malley of Maryland has proposed a budget that relies on nonexistent federal Medicaid funds to balance it. This is bad budgeting, certainly, but it’s also the result of the policymakers’ failures to reform Maryland Medicaid, as I write in a recent op-ed:

Instead of looking for ways to control Medicaid’s growth, the governor and legislators expanded the program in 2007.

While other states, such as Florida and Georgia, were restructuring their Medicaid programs to contain costs, Maryland policymakers preferred to ignore the problems in the system.

Without Medicaid reform, Maryland will continue experiencing budget difficulties, especially during recessions. The refusal of O’Malley and the General Assembly to address Medicaid’s structural problems has resulted in the budget trickery we see this year. The governor rightly deserves condemnation for his reliance on nonexistent federal funds, but state policymakers deserve even more condemnation for their continual refusal to fix Medicaid’s spending problems.

A Very Narrowly Tailored Insurance Mandate

Legislators love to mandate what procedures health insurance companies must cover. In Maryland, though, one legislator is taking it to a whole new level by introducing a mandate that would cover only one couple in the state:

A seemingly minor bill introduced by Sen. Joan Carter Conway dominated debate in the Senate Monday night.

The measure would have expanded insurance coverage of costly in vitro fertilization in one very specific instance: when the man can’t produce sperm because of a condition called non obstructive azoospermia AND the woman has ovarian hyper stimulation syndrome.

Sen. Andrew P. Harris, a Baltimore County Republican, was skeptical. A doctor by training, Harris told his colleagues the medical conditions outlined in the legislation are so narrowly crafted that the bill most likely “only covers one person.”

Conway says that up to 1% of the population could be covered by the mandate, but did admit that she introduced it at the request of one of her constituents.

If this mandate passes (although it was narrowly defeated, it is up for reconsideration later this week), we can look forward to more personalized health care mandates in the future. If you have something you want insurance to cover, just tell your legislator so you can get a narrowly-crafted mandate to please you!

More Cigarette Smuggling in Maryland

Jay Hancock, a columnist for the Baltimore Sun, notes that since Maryland increased its cigarette tax, smuggling has increased in the state:

Maryland may be No. 1 in the country in cigarette smuggling, according to calculations by Michigan’s Mackinac Center for Public Policy, a pro-markets think tank.

Hard data on smuggling are nonexistent because so much is undetected. But Mackinac researchers compared legal cigarette sales with each state’s actual level of smoking as shown by federal health surveys. The difference was probably smuggling.

My favorite part of his column is where Hancock takes on the ridiculous assertion of Vinny DeMarco, a self-appointed public health advocate:

People who supported the tax increase cheer what looks like an amazing plunge in Maryland smoking. But they’re looking only at official figures.

“This shows that the dollar tax increase did exactly what public health advocates predicted,” Vincent DeMarco, president of the Maryland Citizens’ Health Initiative, said a few months ago.

Come on, Vinny. Legal sales have plunged because smokers and smugglers save $17 a carton by driving south and loading up the trunk.

Someone (who could it be?) predicted that this type of smuggling would be a natural result of increasing cigarette taxes. Legislators, however, seem to think that Maryland would be immune from the problems that have occurred in other states that have high cigarette taxes.

Then, Assume a Miracle

There’s a New Yorker-style cartoon in which two scientists or mathematicians are talking in front of a blackboard. The blackboard is covered with complex formulas, but in the  middle of it is a cloud, in which we read the words, “a miracle occurs here.”

I thought of that cartoon when I read this article about the Maryland budget. It quotes Marc Kilmer, a policy analyst who sometimes writes for this site. One newspaper says, “Gov. Martin O’Malley’s inclusion of $389 million in federal aid for Medicaid in his $13.2 billion budget represents a bet that Congress is again going to bridge a growing cost that has the potential to cripple states struggling to emerge from the recession.” Last year Congress came through with $775 in “stimulus” money.

O’Malley’s budget counts on there being a Son of Stimulus to bring in more money. As Kilmer points out, however, the governor should have taken some reforms last year to save money. Now any problem the state faces will be worse.

I’m afraid that there many states in this situation.

What Do Massachusetts Voters and Scott Brown Believe?

It’s ironic that the speed bump of the nationalization of health care came from the state that has enacted RomneyCare, which served as an accidental test bed of some of its principles.

(By the way, the Evergreen Freedom Foundation has a photo of a tombstone, declaring the death of ObamaCare. Perhaps.)

Writing in Forbes, David Gratzer (author of The Cure: How Capitalism Can Save American  Health Care) argues that the Massachusetts election is a “mandate against ObamaCare”:

In a press conference in downtown Boston on Dec. 28, Brown told voters that if elected as the 41st senator in the anti-ObamaCare camp, he “could stop the Obama proposal that’s being pushed right now through Congress.” Massachusetts Democrats agreed. “If Scott Brown wins, it’ll kill the health bill,” Rep. Barney Frank said on Jan.15. Massachusetts voted for Brown anyway–or, more likely, because of it (ObamaCare negatives are high in the Bay State).

He also points out that  Brown, who has  caught flack for supporting RomneyCare (more on that in a minute) supported putting a hold on piling on more mandated benefits, which have driven up the cost of insurance.

Rasmussen Reports, which conducted exit polls on election day, say that “56% of Massachusetts voters named health care as the most important issue. That suggests it was a big issue, but Democrat Martha Coakley actually won among those voters by a 53% to 46% margin.”

A Wall Street Journal editorial summarizes the lessons of a recent Cato Institute report on RomneyCare, and says “Liberals are now trying to sell the fantasy, and maybe even convince themselves, that ObamaCare isn’t among the reasons Senator-elect Scott Brown is headed to Washington.” That’s a more modest claim that arguing that ObamaCare was the primary factor for Brown’s victory.

Editorial board member Kim Strassel, meanwhile, talks about the key role that former governor Mitt Romney played in the Brown campaign, as well as Romney’s continued support for the Massachusetts experiment that informally bears his name. Only 25% of voters in the state strongly support ObamaCare, she notes, and their experience with RomneyCare is one reason. She offers this warning to Republican politicians: “while GOP primary voters care about federalism, most will be hard pressed to parse the difference between a failed state program and a failed federal one.”

Brown, for his part, said late in the campaign that RomneyCare was a “free-market enterprise.” Which just shows that even if the election of Scott Brown has put the brakes on the nationalization of health care, we’re still a long ways from a health care sector that resembles the mostly free and competitive market that we have in many other sectors of the economy.

Maryland’s Medicaid Gamble

Governor Martin O’Malley of Maryland announced his budget this week. As expected, Medicaid continues to eat up an increasing share of state finances. So how does the governor plan to pay for it? Count on the federal government to bail the state out. His budget assumes that the federal government will once again increase its share of Medicaid spending, even though no legislation to this effect has passed Congress.

Counting on this federal aid is like going to the casino and counting on the roulette wheel to hit an odd number in order to pay your rent. It could happen, sure, but it’s a pretty poor way to plan a budget. As I pointed out in the article linked above, Governor O’Malley and the General Assembly have consistently expanded Medicaid over the years (the last time during a special session called to cut the state’s deficit). Their inaction to control Medicaid spending is a large part of why the state has budget problems.

Their strategy to deal with these self-created problems — hope the federal government will continue to bail them out. As another analyst in the article pointed out, with the election of Scott Brown to the Senate any federal bailout may now be even more unlikely.

The Rich Get Richer: Senate’s Medicaid Proposal Gives Bigger Bailout to Wealthier States

People were rightly upset when they learned about the “Cornhusker Kickback,” the deal whereby Sen. Ben Nelson of Nebraska sold his vote in favor of the Senate’s health bill in exchange for his state never having to pay for any of the Medicaid expansion in the bill.

However, the biggest problem with the Medicaid expansion in the Senate health bill is not the “Cornhusker Kickback,” but that it leverages an already flawed formula to determine federal payments to state Medicaid programs. The Senate bill would motivate states to invest more resources in recruiting higher-income residents into Medicaid, rather than traditionally eligible beneficiaries, including the blind and disabled. The Senate bill also gives richer states a bigger Medicaid bailout than lower income ones. New Hampshire, Maryland, and Connecticut get the biggest handouts, while Mississippi, West Virginia, and Arkansas are short-changed, according to my just published analysis.

The Federal Medical Assistance Percentage (FMAP) is the federal financing formula that encourages each state to spend its own taxpayers’ money irresponsibly in order to maximize its take from other states. For example, California’s FMAP was traditionally the 50 percent minimum: For every dollar California spent, the U.S. Treasury would kick in one dollar. However, the FMAP is supposed to give more federal dollars to states with more poor people. So, Mississippi has had the highest FMAP, 75.67 percent: For every dollar Mississippi spent on Medicare, the U.S. Treasury would kick in $3.11.

The Senate bill proposes a much higher FMAP, averaging 90% nationwide, in 2019. However, the higher FMAP would only apply to the relatively higher-income, able-bodied, newly eligible, beneficiaries. People eligible under the current law will still draw the previous FMAP. States with FMAPs of 50 percent would see them increased to 82.3 percent for the newly eligible beneficiaries. Imagine yourself a county public-health bureaucrat who would attract one federal dollar for every dollar spent on a blind or disabled Medicaid beneficiary, or $4.65 for every dollar spent on an able-bodied young man. Obviously, you would invest your energy in recruiting the able-bodied youth.

Furthermore, the expanded FMAP gives more federal fiscal leverage to rich states: Each thousand-dollar increase in money income per capita is associated with a one-percent increase in the FMAP under the Senate bill, and this statistically significant regression explains over one-third of the variance in the change in FMAP.

For example, New Hampshire’s money income is $68,175 per capita, which is $16,942 greater than the national average of $51,233. Its FMAP would increase from 50 percent to 82.3 percent, an increase of 65 percent. This is 18 percent greater than it would have been if higher per capita incomes did not explain the Senate’s “generosity.” On the other hand, Mississippi’s FMAP increases by only 20 percent: From the current 74.73 percent to 95 percent. This increase is 15 percent less than it would have been if the state’s low income did not explain its poor outcome in the Senate’s FMAP allocation.

Instead of leveraging the FMAP, Medicaid reform should jettison it entirely, in favor of easily understood block grants.

Drink More — Maryland Needs the Money

With Maryland facing a $2 billion deficit this coming fiscal year, legislators and the governor are scrambling to cut spending and find new revenue sources. Self-appointed public health advocates, though, are proposing that liquor and beer drinkers pay more in order to fund health-related government programs.

Amazingly, Maryland policymakers have not raised liquor taxes since 1955 and beer and wine taxes since 1972. Even the Democratic leadership in the General Assembly are skeptical they should be raised now, given the problems in the hospitality industry.

Advocates are not deterred, though. Vinnie DeMarco, head of the Maryland Citizen’s Health Initiative, said, “Just as the tobacco industry fell, the alcohol industry will fall.” That statement begs the question, is this a tax to raise revenue or a tax to punish a politically-incorrect industry?

Maryland Medicaid Ignores Anti-Fraud Measures

Remember how we’re going to expand government health care programs AND save money, by eliminating “fraud, waste, and abuse?”

Consider this item from Maryland: “More than $98 million in Maryland Medicaid claims were paid without the use of safeguards built into a computerized system designed to stop inappropriate payments to medical providers, state auditors reported Tuesday.”

Stuck in Deficit Mode

StateHouseCall contributor Marc Kilmer recently wrote about the state budget troubles afflicting Maryland. In short, it recently had a budget deficit, raised taxes, and will have to expand its Medicaid program should federal health “reforms” go through.

He concludes

If our legislators decided to try and cut the budget, another provision in the federal legislation mandates that states cannot reduce Medicaid eligibility or services. That would put 17 percent of the state’s budget off-limits during efforts to close a deficit.

Couple that with the political and legal impracticality of cutting education spending and there is not much left in the budget to trim. You don’t need to be a psychic to see new taxes for Marylanders in the future.

I’m not sure how much of Maryland’s budget is taken up in education, but it’s got to be either the #1 or #2 item in the state budget. Both education and health care are rife with inefficiencies and, not coincidentally, both bear the heavy imprint of politics and government participation (health care) if not outright control (education). Having such qualities in the state’s two largest budget items doesn’t bode well for the economic climate of any state.