The Politics of Scarcity

Larry Arrington and Brian Klepper

First published 2/11/11 on Kaiser Health News

Medicaid, along with debt and shortfalls in public pension funds, is driving state and local governments toward budgetary disasters. The ways we cope with this fiscal crisis will test our political system and our national character. Political expediencies could further compromise the lives of the sick and the disadvantaged, and risk unnecessary human suffering and social turmoil.

The politics of scarcity demand leaders with a long term vision of a sustainable society who are able to sort through complex issues, competing interests and ideologies. In a poorly managed economic crisis, the vulnerable, with no strong political voice that can influence funding or public policy, are hit hardest. By contrast, successful solutions will shore up the safety net, protecting the weak while maintaining as much political and social stability as possible.

A $360 billion annual federal and state Medicaid expenditure pays for the health care of more than 60 million low-income Americans. But the recession has generated millions of new enrollees, placing Medicaid under enormous fiscal and political pressure. Unlike their federal counterpart, state and local governments must balance budgets. They are in a full-blown fiscal crisis that will worsen when federal stimulus package subsidies end in June.

It is easy to imagine terrible scenarios. As competition for scarce public funding intensifies, fewer vulnerable citizens qualify for Medicaid, and services available within Medicaid shrink. Stressed safety net hospitals are overwhelmed and financially collapse, transferring the care burden to community hospitals. To contain the damage, policies shift so that health care systems' care for the poor becomes purely voluntary.

The problem is acute in our home state of Florida. Since 2007, the Sunshine State's unemployment rate rose from 4.1 percent to 12 percent and Medicaid enrollment grew by 40 percent, exacerbating an already dire state budget shortfall. Medicaid spending consumes more than $20 billion dollars of the state's approximately $70 billion budget, and is climbing. Each of the past two years, Florida's Medicaid expendituresincreased about 25 percent, or double the national average.

Absent a robust economic recovery or more federal assistance, complying with reform's requirements will force state and local governments to cut eligibility and services to the extent regulations allow. Raising taxes and fees is highly improbable in Republican-controlled states. Some states have talked about getting out of Medicaid altogether.

The new health law will further increase the burden, adding 16 million more Medicaid beneficiaries nationally by 2019. The feds will cover expansion costs through 2016, but then gradually transfer a 10 percent share to the states. Reform's impact on state Medicaid budgets partly explains Republican governors' fierce lobbying for congressional repeal of the health law. 

The various lawsuits brought by states and other stakeholders challenging parts of the sweeping overhaul, including its Medicaid expansion, also are evidence of state-level uncertainty. 

When it comes to Medicaid, politicians avoid characterizing the issue as "class warfare." But efforts to diminish or eliminate the program, combined with other trends bearing down on the disadvantaged, can be understood as that. Unemployment, the decreasing availability of health care, and a rising income gap between rich and poor create a "perfect storm" for social unrest and political instability.

If history repeats itself, state governments will likely shift as much cost as possible to local governments through unfunded state mandates. Coupled with continuing pressures to lower property taxes, that approach will merely push the crisis closer to home.

All these social and fiscal trends are "counter-cyclical." As tax revenues fall, demand for services rises. These circumstances are complex and difficult to resolve. Their solutions demand strong political will combined with innovations that ensure the needy continue to have access to health and human services while holding programs such as Medicaid accountable for value.

Of course, approaches that reflect the politics of sustainability seem like an elusive ideal. But as we're seeing elsewhere around the world, the politics of scarcity, combined with the new openness in communications, make transformative change possible. This is the opportunity in the present crisis: To use sustainable governance to transcend the politics of scarcity and to avoid the upheaval that so often accompanies it.

Larry Arrington   is a public management consultant and author. His new book Covenant in Crisis: Lessons in Democracy, Sustainability and Commonsense , is due out in 2011.  Brian Klepper   is a health care analyst.