Medicaid Costs Are Busting Budgets for North Carolina Counties

Published June 1, 2006

Counties across North Carolina are experiencing budget problems because of high and increasing Medicaid costs. According to the North Carolina Association of Commissioners, the state requires the counties to pay 15 percent of the state portion of Medicaid, currently about $460 million.

That unfunded mandate from the state legislature has taken a terrible toll on county budgets. In Columbus County, there are more people on Medicaid than are working. In Bertie and Hertford Counties, the mandate consumes upwards of 20 percent of the county budget. In Scotland County, the increases in Medicaid last year would have required a 6 cent increase in the property tax rate. With the county’s citizens already saddled with the highest property tax rate in the state ($1.10 per $100 valuation), the county commissioners decided to cut law enforcement positions in lieu of a tax increase.

Poorest Hurt Most

“This policy adversely affects the poorest counties in North Carolina,” said Bertie County Manager Zee Lamb. “The intent in 1971, when this was enacted, was not to hurt low-wealth counties. Thirty-five years later [it is] hurting our ability to educate our kids.”

Juxtaposing two counties in the state speaks volumes about the financial impact of the Medicaid policy.

Robeson County, in the southeastern part of the state, has no major metropolitan areas and no coastal property. Medicaid eats up 14 percent of its general fund, and 44 percent of the county’s residents are Medicaid-eligible.

To the north and east, Carteret County, which has coastal property where many second homes are located, spends less than 5 percent of its general fund on Medicaid.

Such differences are prevalent across the state.

Spending Rose 63 Percent

Medicaid spending has far outpaced inflation and population in North Carolina, increasing more than 63 percent in the past five years. Forty-eight counties spend more on their local share of Medicaid than on public school construction.

Solutions proposed thus far have nothing to do with slowing down costs or decreasing enrollments, but are primarily focused on shifting the burden back to the state.

Early this year, state Sen. Tony Rand (D-Cumberland) proposed the state take over the county share of Medicaid in exchange for the counties turning over their share of sales tax money.

That would have stopped the bleeding but would have been a money loser for the counties, taking more than $1 billion in revenue away from the counties and giving the state a net windfall in excess of $550 million. The proposal would have allowed the counties to enact a new 1 cent sales tax increase to replace the lost revenue. The net result would have been another $1 billion in taxes on the citizens–and no cost containment efforts by the state.

‘Robin Hood’ Plan Quashed

Rand’s proposal received mixed reviews as it went before the Commissioners’ Association. Rural counties liked the prospect, as their Medicaid expenses far outpace their sales tax revenue, while more urban counties had far more revenue from sales tax than they had Medicaid expenses.

Edgecombe County Commission Chairman Charlie Harrell summarized the rural county position in the Rocky Mount Telegram on March 25: “It’s a no-brainer for us. This would be a huge step in improving conditions in Eastern North Carolina from a fiscal standpoint.”

State Sen. Clark Jenkins (D-Edgecombe) made the point in a much more dramatic fashion. “I subscribe to the Robin Hood theory, that the rich need to help the poor,” he said.

The proposal was approved by the Commissioners’ Association’s Budget and Finance Committee, but the Human Resources Steering Committee voted against it. That committee did vote to support the proposal if more opportunities for the counties to raise other taxes and fees were added to the deal.

Spending Cap Proposed

On March 28, a subcommittee of the North Carolina House Select Committee on Health Care adopted a new proposal that would cap current county Medicaid expenditures at the 2005-06 level ($460 million). The state would accomplish that by using $65 million of federal money: $30.4 million to cap county Medicaid costs and an additional $34.6 million to provide targeted relief to all counties based on each county’s percentage of Medicaid-eligible citizens. The cap would remain in place as the House tries to figure out a way to eventually remove the mandate entirely.

The Commissioners’ Association has floated the idea of raising cigarette taxes as another alternative. Neither proposal addresses the issue at hand, which is the dramatic spiking of Medicaid costs in the state.

Fraud Hikes Costs

State Sen. Robert Pittenger (R-Mecklenburg) has been working for years to address the spending side of Medicaid. He points out the U.S. Government Accounting Office (GAO) has indicated 10 percent of Medicaid expenditures are fraudulent throughout the system nationally. In North Carolina, that represents more than $250 million in potential savings.

“There needs to be a more aggressive attempt by North Carolina to root out Medicaid fraud in the system,” Pittenger said.

Pittenger also points out, “North Carolina is one of the top five states in benefits provided beyond those mandated by the federal government,” attracting people from other states to receive benefits there.

Pittenger said he plans to introduce a bill this year that conforms to new federal policies that will prohibit providing Medicaid benefits to persons who cannot prove U.S. citizenship and residency in North Carolina.

Chad Adams ([email protected]) is director of the Center for Local Innovation at the John Locke Foundation in Raleigh, N.C.