To: Utah House of Representatives, Utah Senate,
Subject: MEDICAID EXPANSION UPDATE #5: The proposed Healthy Utah Plan is on shaky financial footing
Date: Fri May 09 20:58:35 MDT 2014
The proposed Healthy Utah Plan seeks to use federal Medicaid expansion funding to subsidize private health insurance coverage for the Medicaid expansion population, the majority of whom are likely able-bodied, single adults, based on a state-funded analysis. This raises the question: Is federal Medicaid expansion funding stable? The answer is important since it could dictate the fate of health care coverage for over 100,000 Utahns.
According to an analysis of federal financial statements by the American Institute of CPAs (AICPA), as of 2012 the federal government’s total deficits were $68 trillion. This included a “net accumulated deficit” of $16 trillion (federal financial liabilities minus federal assets) and $52 trillion in federal social insurance obligations (Medicare, Social Security). Based on the AICPA methodology and more recent federal financial publications, the federal financial position has worsened by several trillion dollars since 2012.
To put these numbers into context: According to GDP data from the federal Bureau of Economic Analysis, nominal U.S. GDP in 2012 was $16.2 trillion – meaning total federal deficits were more than four times the size of the entire U.S. economy that year. Alternatively, according to a Federal Reserve report, household net worth for the entire country in the second quarter of 2012 was $67 trillion – meaning that if the federal government used tax policy to take every dollar of wealth from every American in the summer of 2012, it would still not have had enough to meet its long-term financial obligations, which do not include Medicaid. Not surprisingly, the AICPA quotes the U.S. Government Accountability Office as saying “…the current structure of the federal budget is unsustainable.”
Analysis from Utah’s legislative fiscal analysts supports the GAO’s conclusion. In 2013, federal funding was termed “at risk” in a five-year budget projection due to federal deficit reduction measures. While this was in part due to sequestration, the report also noted that “even if sequestration does not occur, or is postponed, massive federal debt suggests that at some point all states will have to take cuts to federal funds.”
Federal Medicaid expansion funding is a ripe target for these cuts. This is in part because Medicaid expansion adds to federal entitlement spending, which is already nearly two-thirds of all federal spending. According to analysis of data from the Congressional Budget Office, current federal spending policies are projected to grow federal deficits from less than 5 percent of GDP to more than 13 percent of GDP over the next few decades. Much of this projected spending growth is due to entitlement spending, which is projected to “consume all [federal] tax revenues” by the year 2030. In other words, the basic math of federal spending dictates that seriously addressing the worsening federal financial situation will require cuts to federal entitlement spending.
Just as importantly, cuts to federal Medicaid expansion funding have already been proposed on a bipartisan basis. President Obama’s 2011 budget – issued before Medicaid expansion had even begun to be implemented – proposed the idea of a “blended rate” for federal funding of Medicaid and other state-run health care programs. The impact of this policy would have been to decrease federal funding for Medicaid expansion. Additionally, the U.S. House Republican budget, as well as the CARE Act proposed by Republican U.S. Senators Hatch, Coburn and Burr, would repeal Medicaid expansion altogether as part of a full repeal of the Obamacare law.
Whether looked at mathematically or politically, cuts to federal Medicaid expansion funding seem likely, even inevitable, as part of a solution to deepening federal deficit and debt problems. Given the level of unsustainability in federal Medicaid expansion funding, the proposed Healthy Utah Plan seems fiscally imprudent as health care policy for Utah.
One reason Utah has earned the reputation as a well-managed state is that it has chosen not to ignore medium-to-long-term fiscal implications and realities in the face of political pressure. In this case, prudence suggests that policymakers reject the Healthy Utah Plan.
Director of Policy
Director of Public Affairs