Another Medicaid Horror Story

Our legislature should recognize this(subscription required) from Mississippi. Some excerpts:
“Over the past five years state and federal spending in Mississippi on Medicaid — the health program for the poor and disabled — has doubled to $3.5 billion. Fully one-quarter of state residents are in the program. “Medicaid is a cancer on our state finances,” says Mississippi Gov. Haley Barbour…”
“Now a state-versus-federal battle over Medicaid may be looming. President Bush, faced with a swelling federal deficit, will propose Medicaid changes in the budget he sends Congress today. The administration wants to cut about $60 billion from what it projects it will spend on the program over the next decade, mostly by cracking down on techniques used by states to collect extra federal payments.
Federal officials also are pushing a broader overhaul of Medicaid financing. Currently the federal government and state governments split Medicaid costs, so if states boost benefits or costs go up, Uncle Sam has to keep pitching in. One option under discussion with governors would cap federal contributions for certain Medicaid recipients at a set amount each year. They would have to pay 100% of Medicaid costs above the cap, but they would have wider flexibility than they do now to reconfigure benefits and increase costs for the targeted populations.
As states try to slash costs under current rules, they run into many roadblocks. Federal law mandates that states must cover many types of care, such as pregnancy care for certain low-income women. Reducing the number of beneficiaries is hard because they often have nowhere else to turn. What’s more, because Medicaid is a “fee for service” program that pays doctors and hospitals every time they treat a fever or patch up a cut, it’s difficult to encourage efficiency.
Patients, too, have little incentive to ration their own care because they pay at most a small sum to see the doctor. “When something is free, people don’t care what it costs,” says Mr. Barbour in Mississippi. Advocacy groups for the poor say that even a $5 fee for a doctor visit can prevent some people from getting needed care.”
Florida is actually doing something about the problem:
“By far the most promising answer to date comes from Florida, where Governor Jeb Bush is proposing a radical restructuring of the program that serves 2.2 million low-income people at an expected cost this year of $14.7 billion. The aim is twofold — to provide incentives for better service by putting more choice in the hands of the consumer and to rein in the rate of growth in spending.”
Somewhere along the line somebody has to do something about the perverse incentives faced by state governments because of the federal Medicaid match for state spending. Because of the match there is an overwhelming incentive on the part of state politicians, bureaucrats and advocates to deny scarcity. For example, in the 2004 legislative session an absurd and harmful nursing home bed tax was passed into law. Its only purpose was to generate more revenue from the federal government for Medicaid.

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Interstate Tax Comparison

The Tax Foundation has just issued a new tax study that compares the “business climates” of each state. The study is quite well done; and it should be a must read for tax “reformers.” As you might guess, New Mexico is in the lower quartile; but certainly not as bad as New York or Hawaii. However, given the rate at which Richardson is cranking up state spending, we may be catching down with them quickly.
A few comments on the study:
1. It does not include property taxes; New Mexico’s position in the rankings would improve if it did.
2. It weighs the components equally, so does not really catch the adverse impact of our gross receipts tax. New Mexico’s ranking would be far worse if it did.
3. It does not include severance taxes. If it did, our corporate tax ranking would be worse.
A little elaboration on point 2:
Federal and state taxes are inextricably intertwined. That being so, we can calculate the effective rate of tax on income for an entrepreneur engaged in providing a service subject to the gross receipts tax. We take into account that the GRT payment is a business expense, that state income tax is deductible on state and federal returns and that the entrepreneur’s taxable income is a certain percentage of her total receipts (say, for example, 50 percent). Give our entrepreneur a somewhat modest income: she is in the 25 percent federal tax bracket, 6 percent New Mexico tax bracket, makes “contributions” to social security and Medicare at the rate of 15.3 percent and has gross receipts that are twice her taxable income. In that case her overall rate of tax on income is 52 percent! Compare that to an equivalent entrepreneur in Texas: her effective rate of tax is 40 percent. Now you can see how the gross receipts tax destroys jobs in New Mexico. Maybe we should call our gross receipts tax the “Texas, Colorado, Arizona Economic Development Initiative.” Since the effective rate of tax on each dollar earned is much higher than is usually thought in discussions of state taxes, the adverse effects of GRT “pyramiding” for New Mexico are a much worse than is usually thought

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Does WalMart Exploit its Employees?

Look here if you want to find an entertaining yet economically informative discussion of WalMart.
An excerpt:
If you liberals want to pile on a lot more welfare payments, as a matter of political choice, then okay. But don’t tell me that this is a “cost.” We make a political choice to subsidize poor people, perhaps to ensure that there will be lots of poor people who might vote Democrat, since apparently no employed person can bring themselves to pull the D lever. (Sure, that doesn’t count college profs. I meant “gainfully employed.”)

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Increased Spending and Taxes in NM

It looks like NM is poised to increase real spending by over two percent (adjusted for population growth and inflation). Real spending has already increased by over $930 million since 1992 (again, adjusted for inflation and population growth). What have we gotten for it?
Is it not time that we controlled spending and reduced taxes? That would create real prosperity, because it would increase the rewards for responsible behavior while lowering the subsidies for irresponsible behavior. How long can we continue with the kind of wishful thinking that emerges as policy from Santa Fe?

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