Special Report

Education’s Medicaid Problem

More bad news for privileged public employee teachers.

By 1.11.12

Send to Kindle

These days, there is plenty of wrangling over the future of America's woeful traditional public schools. Inside the Beltway, congressional Republicans, Senate Democrats, and President Barack Obama are in a stalemate over the reauthorization of the No Child Left Behind Act. Obama will also have to defend his school reform legacy against any one of the Republican presidential aspirants who becomes the nominee (who, in turn, will have to distance himself from the school reform mantle of George W. Bush, upon whose efforts Obama has built his own).

In statehouses throughout the country, school reform outfits such as StudentsFirst -- the one million member organization started in 2010 by legendary (or infamous) former Washington, D.C. school chancellor Michelle Rhee -- are sparring with affiliates of the National Education Association and the American Federation of Teachers over expanding school choice, and overhauling the system of teacher compensation that has imposed a $1.1 trillion burden on taxpayers.

There are the emerging cadres of Parent Power activists who are pushing against traditional school districts for the passage of Parent Trigger laws, which allow a majority of parents to petition for the overhaul of failing schools, and the end of zoned school policies that restrict school choice. Families in the Los Angeles suburb of Lynwood are already tangling with the AFT local there (which has all but called the parents dupes for "pro-charter heavy hitters"). Meanwhile school reformers will battle with teachers' unions at the polls over efforts to recall Wisconsin Gov. Scott Walker (who successfully abolished collective bargaining and forced dues payments by teachers to the two unions), and roll back reforms in states such as Idaho.

But the next front in the battle over schools will involve the most-unlikely of players: The Centers for Medicare & Medicaid Services. As with the traditional teacher compensation and defined-benefit civil service pensions, it is the high cost of decades of dealmaking -- this time between states and the federal government -- that will put teachers' unions and other defenders of traditional public education on the defensive.

Thanks to economic malaise that is now in its fifth year, the job losses and lack of new employment activity that has accompanied it, and a 15 percent increase in dependents between 2008 and 2010, Medicaid is the fastest-growing cost center in state budgets. States' Medicaid expenditures (excluding federal matching subsidies) increased by 10 percent between the 2008-2009 and 2010-2011 fiscal years, according to an analysis of data from the National Association of State Budget Officers by education news magazine Dropout Nation. That's nearly ten times the increase in overall state spending during that period. (State tax collections, on the other hand, declined by two percent during that same period.)

Federal stimulus dollars have offset some of those costs. But those dollars are no longer available. So states now have to bear the full brunt of their mandated share of Medicaid spending. An even more costs are coming. The Affordable Health Care Act will increase Medicaid roles by as much as 32 percent in one year (and, if the experience of failed experiments in Tennessee and Massachusetts are any guide, even more than that). Add in the retirements of Baby Boomers (who, along with the developmentally disabled, account for 70 percent of all Medicaid expenditures) and suddenly, Medicaid will weigh more heavily than ever on state budgets (and, ultimately, the taxpayers who finance them).

States have spent the past three years coming up with gimmicks, from restricting the number of new beneficiaries to cutting reimbursements. Still, 18 states spent more on Medicaid than they originally budgeted during the 2010-2011 fiscal year, and six states -- California, Georgia, Colorado, Maine, Maryland, and North Carolina --were running over budget this fiscal year.

Even more cost-cutting efforts are on the way. In Florida, Gov. Rick Scott is already proposing to reduce the state's $21 billion Medicaid budget by $1.7 billion, largely through reducing reimbursements to participating hospitals and doctors.

But as seen in California, where hospitals and pharmacists have successfully sought a temporary injunction against the Golden State's efforts to hold back $623 million in reimbursements, Medicaid cuts aren't going over well with the healthcare industrial complexes that have become dependent on them. Nor do governors or legislators want to tangle with either retiring Baby Boomers (who will soon take advantage of Medicaid benefits -- and are an important voting bloc to boot) or with families of children and adults with Down syndrome (whose plights make for the kind of campaign fodder that ends political careers).

So states are scouring for other areas to cut costs -- and ring up revenue. California's legislators found $5 billion in future annual revenues late last year when they passed a law abolishing local redevelopment agencies, which have become far more notorious for using property taxes for subsidizing money-losing convention center and shopping center schemes than for fulfilling their original purpose of promoting economic development. But few states can easily find such dollars in a fell swoop -- and taxpayers are no longer willing to pay higher taxes.

The Medicaid costs come on top of other burdens with which states must wrangle. States scrambled to shore up $95 billion budget shortfalls for this fiscal year -- and given the underestimates in Medicaid growth, may end up having to make additional cuts during the fiscal year. They must come up with enough budget cuts (or efficiencies) to address at least $40 billion in shortfalls that will likely appear in their 2012-2013 budgets. Add in the long-term burdens of civil servant pensions and unfunded retiree healthcare costs

Facing such struggles, cost-cutting governors and legislators are now targeting education spending, one of the few cost centers that have been largely spared from cost-cutting.

Thanks to decades of deal-making between NEA and AFT affiliates, state governments, and school districts, school spending has increased by a five-fold while the number of teachers and bureaucrats have increased by a factor of three; school spending increased by 16 percent between 2000 and 2007 alone. Even during the economic malaise, most states sheltered education from the cost-cutting applied to other line-items. The Obama administration also helped by providing $95 billion in federal stimulus spending and another $10 billion ladled to states and school districts as part of the Edujobs plan for staving off expected teacher layoffs that weren't ever coming to pass.

But states are now realizing the full cost of the array of degree- and seniority-based pay scales, defined-benefit pensions, almost-free healthcare, and near-lifetime employment that has made teaching the most-lucrative profession (and most-insulated from hiring and firing) within the public sector. The average state spent 34 cents on benefits for every dollar of teacher salary in 2008-2009 versus 28 cents six years ago. These burdens, along the unlikelihood of future federal bailouts, and the realization that traditional teacher compensation ineffective at rewarding high-quality teachers and spurring student achievement, have led budget-cutting governors and legislatures to team up with school reformers on requiring teachers to pay more toward their healthcare costs, move towards alternatives such as performance-based pay, abolish collective bargaining, and make it tougher for laggard teachers to keep their jobs.

Some states are looking to increase education spending; Florida's Gov. Scott, looking to shelter his fellow Republicans in the legislature from some of his more-unpopular moves, is proposing to restore $1 billion in previous spending. But given the growing number of Medicaid dependents, it is more likely that those proposals will fall by the wayside. Spending cuts -- along with the overhauls of teacher compensation and performance management -- will be the norm.

But the Medicaid creep (along with the fact that Baby Boomers who aren't teachers are more concerned with staving off healthcare costs than with expanding school bureaucracies) may force even stronger measures. Start with reducing the size of the teacher workforce. At least 34 percent of the nation's 3.2 million teachers are dedicated to courses such as music and shop classes, subjects that are neither as important as reading, math, science or foreign languages, often end up being used by principals to warehouse laggard teachers, and are likely better taught by experienced professionals and retirees. State budget cuts could force districts to reduce those headcounts and embrace the kind of outsourcing that has been a mainstay in the private sector.

For the NEA and AFT, who have long-benefited from annual increases in school spending, the Medicaid crunch looms as another threat to their declining influence over education policy. The unions can no longer keep the grand bargain they struck decades ago with rank-and-file workers to continually keep districts and states under their thumb, make teaching a more comfortable profession, and insulate teachers from economic reality. This state of affairs isn't displeasing to younger, reform-minded teachers (who now make up the majority of rank-and-file members, are more than happy to ditch defined-benefit pensions and traditional pay scales, and support getting rid of laggard teachers). But the Baby Boomers who still control union decision-making will be none too pleased.

At the same time, the Medicaid crunch may prove as much a challenge for what has generally been a bipartisan school reform movement as it does an opportunity.

Centrist and liberal Democrat reformers, already bristling at efforts by their conservative and Republican counterparts to abolish collective bargaining privileges, aren't ready to talk about reducing teacher headcounts. After all, they are mindful of the fact that the NEA and AFT are still the biggest financiers of political campaigns within Democratic Party politics (even as the relationship is more of a marriage of convenience than of mutual benefit). They also know that the efforts by the unions to co-opt progressive activists on ballot initiatives and gubernatorial recalls may extend to primary challenges against reform-minded Democrats already in office; together, the unions and progressives may accuse those politicians of being anti-teacher and too cozy with Republican reformers who regard school and government healthcare bureaucracies with equal disdain.

Either way, Medicaid will prove to be as vexing for those who defend faltering traditional public school bureaucracies as it is for state budget directors and taxpayers who deal with both.

Like this Article

Print this Article

Print Article
About the Author

RiShawn Biddle the editor of Dropout Nation , is co-author of A Byte at the Apple: Rethinking Education Data for the Post-NCLB EraHe can be followed at Twitter.com/dropoutnation.