If It’s Broke, Fix It

By Becki Gray

Let’s start with Medicaid and the Earned Income Tax Credit. Medicaid began in 1965 as an entitlement program and serves as the nation’s primary health insurance source for low-income people. States provide a share of the funding and manage their own programs. Currently, one in 10 North Carolinians receives health care through Medicaid. We spend 15 percent of our General Fund budget — more than $3 billion — on Medicaid, and it is the fastest growing part of the state budget.

Under Obamacare, states have the option of expanding Medicaid coverage to thousands of people who do not qualify. As an enticement, the feds offer to pay most of the costs for the first few years. In North Carolina, that expansion would allow an additional 568,000 people to enroll in Medicaid, and it could cost taxpayers $3.1 billion over the first 10 years.

An expansion of that size calls for careful consideration even if the current program were working well. But North Carolina’s is not.

Two recent state audits disclose real problems. The administrative costs to run Medicaid in North Carolina are too high. North Carolina spends $180 million on Medicaid administrative costs — 38 percent more than in comparable states.

The audit cites “insufficient monitoring,” “inadequate oversight,” and “consistently exceeded budgeted amounts” for contracted services, and incomplete financial projections resulting in budget shortfalls of more than $153 million. Cost management is not a priority, leading to fraud. Hundreds of millions of dollars are being mismanaged and wasted.

Another recent audit found more than $580,000 was paid out in unapproved overtime to high-level salaried employees of the Department of Health and Human Services.

Senate Bill 4 wisely calls for no Medicaid expansion in North Carolina. It has passed both chambers of the General Assembly and at press time awaits McCrory’s signature.

The Earned Income Tax Credit is a federal program that subsidizes low-income working people by refunding the taxes they have paid during the year. North Carolina created a state-based EITC in 2007 to piggyback with the federal program, offering 3.5 percent of the federal credit. North Carolina is one of 25 states with an EITC.

With refundable credits (as ours are), the government often “refunds” more money than recipients paid in taxes. The General Assembly in 2008 increased the state EITC to 5 percent of the federal amount.

North Carolina paid more than $110 million in EITC claims last year, issuing checks ranging from $225 to $400. Almost 63 percent of EITC claimants get their money early with a refund anticipation loan, which carries a fee ranging from $65 to more than $115. The loan and the fee are deducted from the credit.

Moreover, the IRS estimates that nearly one-third of EITC claims are fraudulent. The left claims EITC lifts people out of poverty. In reality, the amount of the credit (particularly with the early loan fee deducted) is not enough to make a difference, and the program is wrought with fraud. House Bill 82, in the Senate at press time, would sunset the state’s EITC in 2014.

Republicans have been accused falsely of waging a war on the poor for not expanding these programs. It would be foolhardy and irresponsible to spend more on programs that are wrought with fraud, waste, and mismanagement.

Let’s get our house in order so scant resources are utilized wisely and those who need help get it. Wasting money doesn’t help anyone.

Becki Gray (@beckigray) is vice president for outreach at the John Locke Foundation.