The crushing weight of North Carolina’s Medicaid costs continue to encumber state finances amidst an historic fiscal crisis, and sources say it is about to get much worse. With economic stagnation and expiring stimulus funds, North Carolina will have to grapple with a ballooning population of Medicaid recipients coupled with increased expenditures on those participants. Furthermore, a daunting leviathan looms on the horizon: Obamacare’s new 500,000-700,0001 Medicaid recipients that will be enrolling as a direct consequence of federal healthcare legislation. The plight of Medicaid will prove to be the bane of many taxpaying North Carolinians for years to come.
North Carolina currently provides Medicaid services to 1.4 million people,2 roughly 15 percent of the state population. While the normal annual enrollment growth rate for Medicaid is between 2 and 2.5 percent, according to a Division of Medical Assistance (DMA) spokesperson, the state has experienced aberrant levels of Medicaid enrollment growth approaching 5 to 6 percent during this recent economic downturn. This year, Secretary Lanier Cansler of the North Carolina Department of Health and Human Services (DHHS), announced the state will experience a less extreme, yet still abnormal 4.25 percent growth in Medicaid enrollment. This growth has contributed to a whopping price tag for this enormous program and is expected to exceed $10.25 billion this coming year. North Carolina state government will be responsible for roughly one-fourth of that sum.
Helping to inflate that expensive price tag is the generous nature of North Carolina’s Medicaid program. While the federal government mandates only 16 types of policy coverage under Medicaid, North Carolina offers an additional 27 kinds of optional services to enrollees. For example, North Carolina provides Medicaid services to pregnant women and infants who earn up to 185 percent of the federal poverty line.3 Indeed, a 2001 report by the consulting firm The Lewin Group went so far as to characterize North Carolina’s Medicaid program as a “Cadillac” system that sacrifices cost containment to access. Our state exceeds its Southeastern neighbors in providing most forms of optional government healthcare such as private duty nursing services, chiropractors, dentures, and psychologists.4
The state currently pays a relatively small percentage of Medicaid’s total costs under the federal stimulus bill, around 25 percent, with the rest of the costs being paid by the federal government. As a provision of the American Recovery and Reinvestment Act (ARRA), an enhanced rate of reimbursement of the Federal Matching Percentage (FMAP) of Medicaid costs has reduced state Medicaid expenditures up until the end of Fiscal Year 2010-11. Therefore as this policy expires on July 1 of next year, North Carolina will be once again liable to cover its share of Medicaid expenses in effect prior to ARRA, meaning it must cover an extra 10 percent of Medicaid costs.5 The total forecasted Medicaid expenditures for this year totals $10.27 billion,6 thus a 10 percent increase in Medicaid cost liability could cause the state to have to fork over an extra billion dollars next year. This increase is one of the lethal ingredients contributing to the impending $3.2 billion budget shortfall for next fiscal year.
While the enhanced stimulus FMAP reimbursement has presumably been very helpful to states struggling to get their finances in order, it comes with some expensive strings attached. The enhanced FMAP under the stimulus stipulates that states may not alter their Medicaid eligibility requirements to make them more restrictive than they were as of July 1, 2008. That is to say, states are unable to readjust eligibility requirements to mitigate the massive costs of this welfare program by reducing the number of people they provide services. With the tidal wave of Medicaid recipients about to break, this provides a serious obstacle to work around. For states like South Carolina, these stipulations have proved too severe, prompting them to opt out of the enhanced FMAP.
Unfortunately, the state’s Medicaid troubles do not end with evaporating stimulus funding and recession-induced enrollment growth. The insidious effects of Obamacare will strongly impact North Carolina, especially in the amount of Medicaid enrollees. The Heritage Foundation reports that the notorious law will cause a massive expansion of Medicaid enrollment by 20 million participants across the country, with hundreds of thousands of such new enrollments taking place in our own state.7
The devil truly is in the details in the recent federal healthcare legislation as it pertains to the financial obligations of state government. One aspect of Obamacare raises the eligibility requirements for Medicaid from 100 percent to 133 percent of the federal poverty level, opening a sizeable segment of the population to “free” or heavily subsidized healthcare. A second component of this legislation is a coverage mandate, which will push people currently eligible for Medicaid but opting not to use it into full-fledged Medicaid recipients. Together, DHHS expects that these two components will add an additional 500,000-700,000 North Carolinians onto Medicaid after the legislation goes into effect in 2014. The federal government has ordained to initially pay the costs of the enrollment growth it is responsible for creating; however, 10 percent of the costs of this federal law will be shifted onto our state budget after three years of the law taking effect. A spokesman from the DMA reports that Medicaid costs are expected to increase by $831 million between 2014 and 2019 as a result.
The fiscal problems surrounding North Carolina’s Medicaid program alarmingly demonstrate what a financial burden government-run healthcare programs can be, especially when the state government has a very limited role in controlling the program. Federal mandates such as the infamous Obamacare legislation and the fiscal federalist coercion of enhanced FMAP under the stimulus are examples of how the federal government has exacerbated the affordability of this program through bully tactics. Medicaid expenses are on track to explode in coming years and North Carolina will be liable for much of the increased costs. When the General Assembly reconvenes in January, legislators will need to carefully examine the massive costs of this program and take necessary steps to ensure it provides the needed services while not burdening North Carolinians with the excessive costs of an overindulgent welfare program.