Maryland's lawmakers need to pay close attention to the state's dispute with the federal government over Medicaid. Maryland has been using a combination of state and federal Medicaid dollars to pay for a variety of services for children in special education. The federal government is now saying some of these payments were improper and wants its money back.
This disagreement illustrates an often-overlooked fact about Medicaid: The federal government is looking for ways to reduce its Medicaid spending. That does not bode well for those looking to expand Medicaid in our state.
Proponents of expanding state health care coverage contend that the federal government always pays for a large portion of any new spending. In other words, Maryland can essentially get "free" money for its health care spending. This was a key part of the plan put forward by the Health Care for All Coalition and many during this year's session of the General Assembly. It called for a large expansion of both Medicaid and the Maryland Children's Health Program.
This viewpoint is true to a certain extent. The federal government does pay a portion of spending for Medicaid and the Maryland Children's Health Program. However, there is a push to reduce the burden Medicaid places on the federal government, because Medicaid is a major contributor to the federal deficit. Any attempts to significantly reduce the deficit will necessarily include some sort of Medicaid restructuring. That will likely mean less money for states.
From 2000 to 2004, Medicaid spending in Maryland increased by 10 percent to 14 percent every year. This increase had a powerful effect on not only the state budget but on federal spending as well, because the federal government matches what the state spends on Medicaid.
In response, Congress attempted to restructure the program. Congressional Republicans and the nation's governors pushed plans to alter the way Medicaid operates. Then, as the economic climate improved and Medicaid growth slowed, Congress placed restructuring discussions on the back burner. With economic growth slowing recently, such efforts will likely be revived.
The recession also produced increased scrutiny of how states qualify for federal matching funds. As a result, Maryland now faces questions about how it uses Medicaid money to serve special education students. This new resistance from the federal government is an indication that the politics of Medicaid at the federal level are changing. State lawmakers looking for more federal money should take note of this.
Federal funding to maintain the state's health insurance program for children is also likely to change. Maryland has a history of skillfully exploiting the program to leverage every federal dollar possible. However, such use of money is only possible only because other states are not using their full allotment. As more states start using their allotment, and as this program is reauthorized and changed by Congress, the federal matching share for Maryland's program will likely be reduced.
Maryland policymakers seem to be ignoring these current and future trends in federal spending. In the face of a huge state structural deficit, some in Annapolis are talking about further expanding these health programs. But if there is less federal money than some in the Assembly anticipate, either the programs will be cut in the future or Maryland taxpayers will be forced to pick up the slack. Neither is an attractive option.
Our legislators should seek ways to reform these programs to ensure manageable and sustainable costs that do not contribute to future state deficits. We need long-term thinking instead of short-term political calculations during this time of fiscal uncertainty in Maryland.
Marc Kilmer is a senior fellow at the Maryland Public Policy Institute. His e-mail is mkilmer@verizon.net.