National Governors Association executive director Raymond Scheppach said that while both education and Medicaid take significant portions of state budgets, Medicaid creates more problems because much of its spending is not discretionary — while all education spending is discretionary.
In a commentary written for the on-line service Stateline, Mr. Scheppach pointed out that "regardless of the length and bullishness of the economic recovery, states will continue to confront very difficult long-run budget choices.
"More than 50% of a state’s budget goes to education and Medicaid. Medicaid is a mandatory federal entitlement whose growth rate is driven by rapidly changing demographics and rising costs, while education is primarily discretionary. Medicaid’s growth is biasing state budget decisions and is winning the contest for state dollars. This will limit the ability of states to adequately fund education over the next decade," he added.
States have limited ability to control Medicaid costs, according to Mr. Scheppach, because much of the program involves mandates for specific benefits given to specific populations.
State spending for Medicaid increased 8.4% per year over the last 10 years, but has accelerated to 11.3% over the last three years in spite of the fact that virtually every state cut reimbursement rates as well as optional populations and benefits and restricted drug purchases through use of formularies.
Education spending affected
State spending on education has increased 6.6% per year over the last 10 years, Mr. Scheppach said, but over the last three years when Medicaid growth exploded, secondary education growth fell to 2.7% and higher education fell to 1.5%.
"Unfortunately, the next decade looks like a continuation of recent growth rates of 8% to 10% for Medicaid and 2% to 4% for education," he predicted.
"The existence of a federal entitlement health care program that states administer and partially fund, but have limited ability to control costs, creates a serious bias in state budget priorities. These are not the growth rates preferred by most governors or their citizens. Most would prefer more equal growth rates for both, or even moderately higher growth rates for education as opposed to Medicaid," Mr. Scheppach continued.
"Now that the United States is operating in a true global marketplace, it is critical that the United States develop a highly educated and skilled labor force. Furthermore, it must be a creative labor force whose education will stimulate continuous innovations that can be converted into products sold in the global marketplace and utilized to continue high rates of productivity change. This is not the time to reduce our commitment to education," he explained.
Medicare and dual-eligibles
Mr. Scheppach said one aspect of Medicaid reform should be for the federal government to assume the cost of low-income individuals older than 65 who are eligible for both Medicare and Medicaid (the so-called dual-eligibles).
He pointed out that this population is growing rapidly, is very costly, and from a programmatic standpoint, should be part of Medicare rather than Medicaid.
Cost-effective health care
In addition to such a realignment of Medicare and Medicaid, Mr. Scheppach added it also is critical to develop a cost-effective, high-quality health care system for the 21st century.
Failure to do so will limit the nation’s ability to maintain its commitment to education, which will, in turn, make it very difficult to maintain our country’s position in the new global marketplace, he stressed.
[Contact Mr. Scheppach at (202) 624-5300. More information is available at www.nga.org.]