Last night's presidential debate (despite the focus on foreign policy) featured much talk on skyrocketing debt and unsustainable entitlement programs. Protecting the middle class from growing debt isn't a problem unique to the federal government. Pennsylvania is facing its own fiscal time bombs, including annual pension costs that are set to rise by more than $1,000 per household over the next five years.
Pension obligations are constitutionally protected, so how do lawmakers fully fund workers' pensions without dramatic tax increases? The answer may be found in reducing the rate of growth in Medicaid, the largest item in the state budget.
Pennsylvania Medicaid spending from all funding sources has grown by 7.7 percent annually for the last 20 years. Forecasts from the Independent Fiscal Office and the federal Government Accountability Office indicate Medicaid spending will continue to grow faster than the economy, absent reform.
Simply slowing this rate of growth would save billions in future Medicaid spending. As the chart below shows, if Medicaid spending grew by 3 percent per year instead of its historic rates of growth, Pennsylvania would save $4.2 billion annually by 2017.
By addressing the largest cost driver in the state budget, lawmakers can fund our pension obligations with no tax increases, and can even improve Medicaid outcomes. As Florida has proven, more local control improves the quality of care and reduces waste, slowing the growth in spending.
However, any change to Medicaid programs requires federal flexibility. Solving the commonwealth's fiscal crisis—including funding pensions for public employees—without further burdening taxpayers must begin with granting states authority to manage Medicaid.