In May, Virginia’s Republican-controlled General Assembly passed legislation, which was then signed by Democrat Gov. Ralph Northam, to provide Medicaid health insurance for up to an additional 400,000 Virginians. Income limits for a family of three rose from $6,900 to $28,700.
As a result, up to 1.4 million of the Old Dominion’s 8.5 million residents – nearly 16.5 percent – will qualify. The federal government reportedly will fund 90 percent of the increased costs, a state tax on hospitals the remainder.
Virginia’s Medicaid expansion often was described as a humanitarian move to help the poorest. Virginia joined 33 other states and the District of Columbia that so far have enlarged Medicaid coverage.
But little attention was given to affordability – not affordability for the poor receiving coverage, but of Medicaid, Medicare (federal health insurance for the elderly) and Social Security – for taxpayers and the states.
Local, state, and federal government budgets sit on a growing debt bubble. Federal government debt tops $21 trillion. That’s $1.5 trillion more than U.S. gross national product (GDP) for 2017.
State and local governments add $2 trillion more debt. Another $4 trillion or so lurks in local and state unfunded public employee pension obligations. That burden equals the size of Germany’s economy, the world’s fourth largest.
Former Indiana governor Mitch Daniels (R), now president of Purdue University, has asserted that states like Illinois, Connecticut, and California “have descended into unmanageable public indebtedness. In Illinois, vendors wait months to be paid by a state government that is $30 billion in debt and one notch above junk bond status. In per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen.”
Wrote Daniels, “the explosion of Medicaid spending, even before Obamacare [induced states to broaden their programs with the promise of money from Washington], has devoured state funds just as it and its entitlement cousins, Medicare and Social Security, have done at the federal level.” Local and state employee pensions “of sometimes grotesque levels guarantee that the fiscal strangulation will soon get much worse.”
Though hardly alone, New Jersey sometimes serves as the poster child for states suffering public employee pension migraines. In 2016, unions representing the state’s teachers and highway patrol officers lost a U.S. Supreme Court case that attempted to force Trenton to pay fully its share of annual contributions to their pension funds. Under a plan endorsed by then-governor Chris Christie (R) in 2011, New Jersey had begun increasing the state’s payments to the chronically underfunded public employee pensions. It wasn’t full funding in any case, and in a few years, the government began to cut back.
But even with higher levels of public employee contributions – up from 5.5 percent in 2007 for teachers to 7.5 percent for 2019 and from 7.5 in 2007 to 10 percent in 2019 for police and firefighters – New Jersey public retirees could recoup all retirement pay-ins over a 30-year career in the first four years of retirement, according to one report.
So, by early 2018, officials were considering shifting from pensions for public employees to 401(k)-style retirement plans already common among private businesses and not-for-profit corporations. These tax-deferred models typically require much higher levels of employee contribution and lower percentages from employers.
Opposition from New Jersey state workers, their unions, and political representatives didn’t change some of the “grotesque” figures Indiana’s Daniels warned of. For example, in 2003, Garden State employees paid $853.7 million into pension funds; the state added another $316.6 million for a total of $1.2 billion. Yet the funds paid out $4 billion. In 2017, the figures were $5.8 billion in but $10.5 billion out. Nevertheless, says one critic, Gov. Phil Murphy (D)’s latest budget increases spending without any provision for reforming state spending on health and benefits.
Louis XV had a phrase for it: Après moi, le déluge – not too loosely translated as “after me, the debt crisis.” This is exactly what began the upheaval that led to grandson Louis XVI’s losing his head.
From Rome to Richmond to Washington
If a crash comes, states will beg Congress to “nationalize” their debts, Indiana’s Daniels forecast.
But at the federal level, Social Security trustees have told Congress that spending on old-age and survivor benefits exceeds revenue and has begun eating principal, four years earlier than previously anticipated. Medicare payouts are expected to reach that point in 2026.
“Medicare,” said Health and Human Services secretary Alex Azar in a late July speech, “is running out of other people’s money, and those other people happen to be our children.” Regardless, Sen. Bernie Sanders (I-Vt.) and a number of Democratic candidates advocate “Medicare for All.” A George Mason University Mercatus Center study claims that this would require an additional, economically imposing $3.2 trillion in new taxes annually for the first ten years.
Social Security and Medicare consume 42 percent of the federal budget. With Medicaid, the proportion tops 50 percent. Add interest on the national debt, seven percent and growing. Eugene Steuerle and Caleb Quakenbush of the Urban Institute – cited by Washington Post economics columnist Robert J. Samuelson – predict that “over the coming decade, nearly all growth in [federal] spending will go towards higher health, Social Security, and interest costs – with little left for almost everything else: infrastructure, research, education, defense, housing” and other government functions.
Imagine a cartoon: a sailor walks into a bar. The bartender asks, “What’ll it be? Rebuilding the Navy or Social Security?”
Another cartoon: A teacher walks into bar. “What’ll it be? Schools or Medicare?”
A scientist walks into a bar. “Research or Medicaid?”
Exploding debt, government and private, is neither a joke nor only an American problem. According to Samuelson, global debt now stands “at a staggering $247 trillion.” It’s risen dramatically in the last 15 years, to 318 percent of the world’s gross domestic product (GDP).
Fifteen years ago, Italy’s government debt reached a problematic 120 percent of GDP. It still suffers economic stagnation. That 120-percent debt-to-GDP ratio is about where the United States stands now.
Sustainable? So long as most people have decent jobs, pay their debts, and pay their taxes, governments can service debts and borrow more money. The system is sustainable until a prolonged economic downturn; until investors – the Chinese government, Arab oil states’ sovereign wealth funds, Wall Street, or others – decide that U.S. Treasury bonds aren’t as attractive as previously, or perhaps until artificial intelligence applications upend the workforce by shrinking it and the number of taxpayers.
Ultimately, sustainable government can be only – especially in terms of social welfare or “entitlement” programs – the provider of last resort, for those least able to help themselves. Government as provider of first resort and virtually to everyone eventually will find itself choking on debt and strangling the economy as it does so. President Ronald Reagan famously remarked that people are free where government is limited – and not just free, but more prosperous.
There is no such thing as a free doctor’s visit. Someone somewhere must pay for the doctor’s education; his support staff, supplies, equipment, development, and supply of medicines; his office rent; and so on. That being the case, now that Virginia and other governments have expanded Medicaid, to be fiscally responsible, what are they going to cut?