Underfunding health services and residential care shortchanges providers and Medicaid patients.

The state of Maine faces a budget shortfall that is estimated to be over $500 million per year for each of the next two years. The way the Legislature and governor deal with this shortfall is critical to the economic health of Maine and our ability to provide services to the sick, elderly, disabled and poor.

At present, the governor has proposed (and it appears the Legislature will concur) massive cuts in the Medicaid program of $390 million in 2003-04 and $507 million in 2004-05. These cuts result in savings for the state’s general fund of $130 million in 2003-2004 and $169 million in 2004-2005.

What both the governor and Legislature seem to be overlooking is the negative impact that these reductions in Medicaid spending will have on tax revenues.

Remember, two-thirds of the money for Medicaid is federal and saving $1 from the general fund reduces spending by $3. So, when we underfund residential care, hospital care, physicians, nursing homes and community-based services for the disabled and elderly, we are both shortchanging the providers but also reducing state revenues and punishing the patients who are covered by Medicaid.

A recent report by Families USA clearly shows how a cut in Medicaid doesn’t reduce the state deficit. In fact, it makes it worse.

It is a well accepted economic fact that a dollar of government spending stimulates much more taxable economic activity, thus creating jobs and increasing tax revenue.

For Maine, the Families USA report confirmed a business activity multiplier of 3.73. Thus, $1 of state Medicaid spending matched with $2 of federal spending will generate $3 times 3.73, or $11.19 of business activity.

If the combination of state income, sales and excise taxes, and user fees total 10 percent, then Maine Revenue Services will receive $1.12 back for every general fund dollar it spends on the Medicaid program. If it doesn’t spend the $1, then tax and fee revenue will be reduced by $1.12, thus worsening the state’s financial condition.

For years, because our state government has not recognized the multiplier effect of Medicaid support, we have underfunded health care providers. This has cost jobs and tax revenues and threatened our service organizations and institutions.

Now, faced with a deficit and failing to understand the economic value of Medicaid spending, we are about to cut both services and tax revenues even more.

It would seem wise to develop a revenue forecasting process that informs the governor about the negative impact of cuts in Medicaid spending and the financial benefits of increases. It may seem counterintuitive that more spending can reduce a deficit, but it can when two-thirds of the funds are coming from the federal government.

The human benefits of the Medicaid program are proven, so increasing Medicaid spending can be a winning policy for both financial well-being and social justice.

John A. LaCasse is president and CEO of Medical Care Development Inc. in Augusta.


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