Tuesday, July 28, 2009

States, Look Out!

Source: http://www.ibdeditorials.com/IBDArticles.aspx?id=333153865426689

By INVESTOR'S BUSINESS DAILY | Posted Wednesday, July 22, 2009 4:20 PM PT

Reform: What if there are too few millionaires to pay for a big expansion of tax-paid health care coverage? Congress may then adopt its tried-and-true Plan B, dumping the burden on lower levels of government.

IBD Exclusive Series: Government-Run Healthcare: A Prescription For Failure

Ever since the Congressional Budget Office delivered its harsh verdict on the ObamaCare bills — that they would raise the cost of health care and would add $240 billion or more to future deficits — Democrats have been frantically looking for a way to square the tax circle.

They need to find some source of revenues that covers their spending but doesn't cost them votes.

Adding a surtax for the merely well-off, as the bill just passed by the House Ways and Means Committee would do, catches too many voters in its net. So Speaker Nancy Pelosi wants the new tax to be limited to people making $500,000 (up from the current bill's $280,000) and couples making $1 million (up from $350,000). That would make it a true millionaire's tax, she says.

It also would bring in less money. Maybe a lot less, given the volatility of income at high levels and the options that high earners have to defer, shelter and otherwise shift their income out of the taxable stream. Democrats have hit a wall and they know it.

But they do have one detour left. They can play the old game of unfunded mandate — in this case shifting burdens to states, local governments and individuals without covering the added costs. Congress has done this countless times in big and small ways.

Major regulatory laws, such as the Clean Air Act and the Americans with Disabilities Act, impose heavy costs on the private and public sectors that are not reimbursed.

Federal law since 1986 has required hospital emergency rooms to treat all comers, regardless of ability to pay. The Medicaid program requires states to pick up 43% of the tab, on average, for medical services to the poor.

Governors are worried, with good reason, that Congress will deal with its revenue problem by expanding state obligations under Medicaid. Half of them were at last weekend's meeting of the National Governor's Association, and everyone there seemed to have the same fear that, as Tennessee's Democratic Gov. Phil Bredesen put it, they would get hit with the "mother of all mandates."

The current House and Senate bills would add millions more people to Medicaid rolls by loosening eligibility standards. The House bill would add 11 million, according to CBO projections, and would commit the federal government to covering all the costs of those newly eligible.

Under a draft bill in the Senate Finance Committee, Washington would cover those costs, but not forever. In five years or so, states would have to pick up their share of the tab.

All these commitments look iffy in light of the CBO's new shortfall projections. They would have been shaky even if the CBO had come through with a rosier forecast, simply because the projected deficits beyond health care are so huge.

The federal government will need trillions of dollars from somewhere if it sticks to the spending plans of President Obama and Democratic leaders in Congress. And it's always easier to close a budget gap by shifting burdens than by openly raising taxes.

The states are experts in Medicaid and its problems. If consulted seriously, they could have given Congress plenty of reasons why expanding the program is a bad idea.

Bredesen's Tennessee tried such an expansion in the 1990s and had to scale it back.

Massachusetts is learning a similar lesson with Commonwealth Care, its insurance for low-to-middle income people who aren't poor enough for Medicaid.

The Massachusetts plan has produced soaring costs and no significant savings.

The state has started to tighten eligibility (starting with 30,000 legal immigrants) to rein it in.

At least Massachusetts has engaged in this experiment freely. There's a real threat that the other 49 states would be forced to do the same, this time with no say in the matter.

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