How Much Have We Lost?

Friday, February 19, 2010

Hurting The Poor & Leaving Money on the Table

Last year, a fight developed after the House of Delegates rejected $125 million of federal stimulus funding because it required Virginia to modify its unemployment benefits to apply to some part-time workers. Instead of receiving $125 million of federal stimulus money, our money went to other states.

This seems to be a trend. This year it is Medicaid. Medicaid is the state's health insurance for the disabled and low-income people. We have one of the most restrictive Medicaid programs in the country in terms of eligibility - we are 48th in per capita spending in 2007 even though we have the 8th highest median family income in the United States ($70,894). Who receives Medicaid? In 2008, Virginia's program beneficiares were the following:

487,929 children
142,180 carents, caretakers & pregnant women
81,541 elderly people
182,636 blind and disabled persons

There are several ways to qualify for Medicaid, but generally speaking you must be incredibly poor in Virginia - 80% to 130% of federal poverty level (e.g. $10,830 for one person or $22,050 for family of four). Some states provide Medicaid for persons who are as much as 300% of the federal poverty level (but not Virginia).

The federal government matches most Medicaid spending pursuant to the FMAP ratio (Federal Medical Assistance Percentage). In Virginia, the ratio is 50% - in other words the federal government matches most Virginia Medicaid spending dollar-for-dollar (it was increased to 61.58% for two years under the Obama Administration's stimulus bill).

Therefore, if Virginia "cuts" Medicaid spending by $400 million, we actually reduce Medicaid spending $800 million - deepening the effects on the health care industry which employs tens of thousands of Virginians, further reducing taxable incomes, and taxes even further. The health care industry is estimating 6,000 job losses under the Kaine-McDonnell "cuts."

Former Governor Kaine already proposed "cutting" Medicaid by $482 million. Governor McDonnell has now proposed health care spending "cuts" of an additional $684 million including $316 million of Medicaid cuts.

Because of the federal match that would be lost, the healthcare industry is estimating that these cuts will collectively result in Virginia losing about $700 million of federal funds. They further estimate that these "cuts" will reduce tax revenue by $140 million (taxed economic activity lost). One of my fellow freshman, Del. Patrick Hope, spoke to this on the floor earlier this week and had some great comments.

The above numbers also do not even begin to address the broader effects - that when people don't go to the doctor for preventative care they can't afford, they can end up in the hospital requiring significantly more expensive hospitalization or they might end up dead. The other big side effect is that when you drive down provider reimbursements for Medicaid (what doctors and hospitals are paid for care), the providers drive up costs on everyone else. We all pay for the uninsured. This is part of what drives massive inflation on health care costs and increased costs for private insurance.

What's the bottom line? Our former and new Governors have proposed to cut care to poor elderly, blind and children, leave $700 million of federal money on the table, cause quite a few healthcare workers to lose their jobs, lose $140 million in state and local tax revenue, run up health care expenses and insurance over the long term. Is this a wise public policy choice?

Maybe this bill we passed giving movie stars tax credits will make up for it?

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