Health Care Reform - What It Means For Texas

The U.S. Senate Finance Committee today approved a stripped-down health care reform plan on a mostly party-line vote, and even though the bill will likely get a huge makeover in the full Senate, some Texas policy groups are saying the pared-down bill will still be bad for the Lone Star State.

“Our research has shown that additional government health care subsidies such as those in the Baucus bill will slow the Texas economy and blow a huge hole in our state’s budget,” said Arlene Wohlgemuth, Senior Fellow at the Texas Public Policy Foundation. “Texas families would pay more for less access and lower quality of health care.”

Wohlgemuth is referring to a study done by noted economist Arthur Laffer, “The Prognosis for National Health Insurance,” which was conducted for the TPPF. The report can be viewed here.

Laffer is known for popularizing an effect known by many as the “Laffer Curve.” The theory states that tax rates of zero and 100 percent produce a return for the government of zero, with the higher tax reducing productivity and therefore tax revenue, until it finally reaches zero. Laffer’s theories predicted that the ideal tax rate that maximizes return was somewhere in the middle – and much lower than previous estimates. Laffer’s theories are the basis of the so-called “supply-side economics” implemented under President Ronald Reagan.

The study, released in August, predicted that a bill incorporating most of the common approaches in the various proposals in congress would cause Texas to have a 4.7 percent lower economic growth rate, and cause the state mandates in spending to rise by $365 per person statewide. The entire cost to pay for President Obama’s spending priorities would swell to $4,265.

Nothing in the latest proposal significantly changes those negative impacts, Wohlgemuth said. That’s because congress is addressing the wrong problem, she added.

“All of the items in the big-government agenda have been tried before and produced disastrous results,” Wohlgemuth said. “Congress should focus on patient-centered health care reforms that have been proven to reduce cost and increase access and quality of care.”

Dissenting View

However, the Center for Public Policy Priorities – the liberal alternative to the conservative TPPF – sees the bill much differently. Medicaid changes in the current health care reform bill will actually save the state money, the CPPP argues.

“Because Texas ranks first in the percentage of uninsured, Texas stands to gain the most from national health care reform. Thus, while HHSC projects an increase of $20.4 billion over 10 years from 2014-2023 in Medicaid costs, the very same HHSC analysis also shows Texas benefiting from a net gain of $124 billion in increased federal funds over the same 10 year period,” wrote the CPPP’s Anne Dunkleberg in a recent report.

Dunkleberg’s point is that Texas will benefit by drawing down more federal dollars. For each dollar the state spends, she notes, the state will bring in $6 in federal money.

“According to Texas economist Ray Perryman, federal Medicaid and CHIP dollars spent on health services have a short-term economic multiplier of 3.25,” Dunkleberg wrote, “meaning that the new $124 billion in federal health care spending would generate a total of $402.8 billion in economic activity in the near term, as those health care dollars are spent in local Texas economies.”

The two studies, however, are not exact pairs, as they focus on different effects which the respective institutions extrapolate from the admittedly ephemeral legislation. Nonetheless, the TPPF specifically addresses the issue of expanding Medicaid which CPPP says will be so beneficial to the state in a separate report. In that report, written by Wohlgemuth and other TPPF researchers, the conservative group argues that Medicaid – which has ballooned to 25 percent of the state’s budget – is having a depressing effect on the Texas economy. Expanding it, then, is not a zero-sum game.

“Since appropriations from GR consist mostly of tax revenue, Medicaid’s $2.5 billion increase in GR likely translates into a heavier burden for the state’s taxpayers,” they wrote. “This continues a trend of asking the state’s taxpayers to directly pay billions for public health care services that they may or may not use.”

They note that with expansion of Medicaid comes perpetual mandates for spending, which may or may not be covered by the federal government. This has the effect of putting the state’s budget writers in a box with no wiggle room. And that, they say, hurts all Texans.

“As the cost of the state’s Medicaid program continues to soar, a greater share of state resources will be needed just to sustain the program, meaning that less money will be available for other programs,” the report’s authors wrote.

Although CPPP claims the federal government dollars drawn down in the course of expanding Medicaid will increase, TPPF counters that such a rosy scenario just doesn’t fit with existing trends, which show that as Medicaid expenditures increase, the state share of Medicaid costs rises .

Graph from Texas Public Policy Foundation report, viewable in context here: http://www.texaspolicy.com/pdf/2009-10-PP26-MedicaidBudget-jq-th.pdf

Adding to this concern is fraud and overpayments, and the Baucus Bill – the version which passed today – does not address that problem. The Texas Health and Human Services Commission estimates that the state’s costs will rise by more than $20 billion over the next decade – more than double the current cost – and enrollment will grow by 2.5 billion.

“Dumping these state and federal resources into the Medicaid program is not the right answer. Already the system consumes an enormous amount of public resources. Adding to it would only worsen the burden on states, enlarge the pool of health care recipients dependent on government aid, and worsen a growing problem of fraud,” the report states.

Competing Philosophies

That TPPF and CPPP can come up with such dramatically different results is not surprising, given those group’s implicit assumptions. For example, CPPP states that nearly 1/3 of the increase in costs is attributable to complying with current law to cover eligible, but unenrolled children. However, the law does not state that Texas must enroll all people, only those qualified who apply for benefits.

Liberal groups like CPPP frequently allege that there is a vast pool of eligible persons being denied care. In fact, many of these persons choose not to apply. The question is, who are these people, and why do they not apply for benefits they are eligible for.

Many of those who do not apply may not in fact be eligible, such as non-citizens. Because most health care delivery to these patients – such as in emergency rooms – is delivered under binding rules that prevent hospitals from checking immigration status, this number is hidden to both sides of the argument. Other patients which groups such as CPPP identifies as qualified are not so for various other reasons. Some people may have other health care options, and many simply do not choose to apply, and no current law requires the government to force people to participate in a health care program which they do not choose to participate it.

Fundamentally, the TPPF and CPPP have competing philosophies on the role of government or the private sector to stimulate economic development. From the Keynesian school, CPPP would argue that spending money through government action stimulates the economy and that increasing healthy outcomes – which they consider equivalent to expanding health care insurance, a point TPPF would argue – will allow the proposal to pay for itself. Working from Laffer’s supply-side theories, TPPF on the other hand argues that the benefits are worse than revenue neutral, since they first have to be taken out of the economy through taxes before being put back into the economy as expenditures, and that the economic multiplier of government spending (upon which CPPP bases many of its economic projections) is generally far less than that of private spending.

These effects – to Texas and other states – will likely be a key point of contention in arguing for the ultimate bill in the U.S. Senate and House of Representatives. Either way, passage of a bill including mandates for Texas will likely further bind the legislature’s ability to make its own choice on how to best spend Texas’ health care dollars. If, as TPPF predicts, and the mandates further overwhelm an already stressed system, Texas could face budgetary problems the like of which it has hitherto avoided, or an increase in taxes to pay for additional federal spending mandates.