Running head: REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

Reallocations of Public Funds to Medicaid and Other Social Programs and the Effects on Higher
Education
Donna W. Carney
Georgia Southern University

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

Reallocations of Public Funds to Medicaid and Other Social Programs and the Effects on Higher
Education
Higher educational institutions are facing incredibly, shrinking budgets in our nations
current economy. Decreases in state income tax and sales tax revenue collections have caused
states to reallocate budget monies from one line item to another. State tax revenues are mainly
comprised of sales and income taxes (Zumeta, 2004). Colleges and universities have had to look
for different revenue sources due to decreasing state funding. During tough times in the flow of
economic cycles, lawmakers use public education budgeted revenues to balance state budgets
(Selingo, 2003). According to Selingo (2003), states look at higher education as the balance
wheel of the states budgets. The balance wheel comes into existence during desperate
calculations as policymakers try to meet demands for public assistance, indigent health care, and
criminal justice services (Zumeta, 2006). If additional revenue is needed in social programs, the
state government will reallocate revenue from higher education to social program budgets.
College students are not the neediest population so higher education budgets take massive hits
when times are bad (Doyle & Delaney, 2009). Zumeta (2004) stated the main alternative for
decreases in state funding to higher education is student tuition. Institutions have the ability to
increase tuition when it is not always feasible to increase taxes. Most institutions have been
obligated to increase their tuition and fee charges to students.
Zumeta (2004) stated policymakers have tried to exempt K-12 education, higher
education, Medicaid, and public safety from budget reallocations but have been unsuccessful in
their attempts. For several years, many states have instituted hiring freezes and freezes on
employee pay raises. Some states have had made massive reductions in services and layoffs due
to budget cuts (Doyle & Delaney, 2009). Unfilled job positions have been left open due to the
lack of funding available to pay for these positions. Kane & Orszag (2003) indicated states have
struggled to respond to demands placed on their budgets due to rising state Medicaid obligations

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

which results in parents and students having to pay a larger share of the costs in public higher
education.
Medicaid is a companion program to Medicare that was created in 1965 by federal
legislation (The Henry J. Kaiser Family Foundation, n.d.). The Medicaid program provides
federal matching grants to states to finance health care of the aged, disabled, blind, children, and
single parents (The Henry J. Kaiser Family Foundation, n.d.). Medicaid expenditures are
expected to grow quickly over the coming decades which will cause state support for higher
education to come under increasing pressure (Kane & Orszag, 2003). Meeting the demand for
higher education is desirable but not mandatory, or even as urgent as meeting K-12 enrollment
demand or caseloads and legal requirements in Medicaid, criminal justice, and public assistance
(Zumeta, 2006, p. 38).
Selingo (2003) states public institutions are getting smaller and smaller proportions of
taxpayer dollars for higher educational expenses. Lawmakers increasingly view higher
education as a private good that should be supported more by students and donors, rather than as
a public good that deserves state support (Selingo, 2003, para. 10). States are still the key
governmental players for public higher education (Zumeta, 2006). The state governments
contribute a percentage of revenue to public institutions for costs of in-state residents tuition.
States typically provide over half of the revenue for instruction required for degrees (Zumeta,
2006). However, the majority of the costs of higher education are slowly being shifted from the
states to the students and their parents. Parents and students may have to look to other revenue
sources for assistance with the cost of higher education such as student loans. With these costs
being shifted from the states, the student loan programs will flourish as they loan money for
higher educational expenses.
Paulsen & Smart (2001) indicated the recession of the early 1990s was the most
important cause of the fiscal problems confronted by the states. Millers work (as cited in

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

Paulsen & Smart, 2001) stated the volatile growth of Medicaid and the increased impact of
federal mandates required all states to spend more money without producing any additional
revenue to cover Medicaid expenses. Golds studies (as cited in Paulsen & Smart, 2001) stated
mandatory sentencing requirements and stricter practices in the criminal justice system required
states to greatly increase their spending on corrections and new prison construction.
Higher education institutions will have to come up with different ways of replacing
revenue taken away by the Medicaid and criminal justice system. Additional funding may come
from private endowments, federal grants, state grants, or other funding sources. Dicksen (2010)
stated American institutions of higher education are overwhelmed by internal and external
demands which threaten the capacity of higher education to meet the increasing demands of
society.
Due to decreasing revenue streams, colleges and universities may have to eliminate
programs. It may be difficult for institutions to eliminate programs due to community support
for specific programs. Dicksen (2010) believes one must conclude that an inadequately
supported program lacking in usefulness, efficiency, and essentiality, does not strengthen an
institutions reputation. Board members and the executive leadership of an institution will have
to support cuts or eliminations of programs (Dicksen, 2010). College and university boards of
directors should ultimately make the decision to eliminate programs because they are familiar
with a communitys needs. Cutbacks and elimination of programs may be difficult for an
institution, but choices have to be made in order for the institution to survive. Obsolete programs
will have to be phased out or terminated. If programs no longer serve a purpose for the
community or economy, they should be eliminated so programs that will benefit the community
may be implemented.
In the last several years, colleges and universities have been faced with having to reduce
expenditures more than initially anticipated. Due to reductions in state funding, colleges and

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

universities have had to revise budgets due to lost revenue. With additional costs associated
with aging facilities and technological advances, higher education budgets will continue to swell.
With decreases in federal and state funding the alternatives are increasing fees and tuition, and
seeking donations from the private sector. Students entering low-paying public oriented career
tracks will have a difficult time adjusting to higher tuition structures (Zumeta, 2004). Decreases
in state aid, such the Georgia HOPE grant and scholarship, will have students paying more outof-pocket expenses or consuming most of their federal PELL grant awards to pay tuition and
fees.
Between 1997-98 and 2000-01, average (enrollment-weighted) annual tuition growth for
state resident undergraduates at four-year public colleges and universities ranged from 3.5 to 4.5
percent (Zumeta, 2004, p. 69). Tuition is expected to increase as colleges work to balance their
budgets. The federal government has tax credits available to students or their parents. Federal
tax credits for college tuition expenses, while costly in foregone tax revenue, have had limited
impact on participation in higher education since the credits mainly benefit better-off students
who would likely have enrolled anyway (Zumeta, 2004, p. 70).
Ultimately the reallocations of revenue from higher education to social programs will
result in higher out-of-pocket costs for students and their parents. Students must see higher
education as a long-term investment as well as a current cost to themselves (Chabotar, 2010).
Many people feel higher education is crucial to ones success and students and their parents will
invest with or without subsidies provided by government loans (Zumeta, 2006). Hopefully
students will graduate from college and obtain well-paying jobs. Upon graduation from college,
students may be faced with large monthly loan payments which may make their lives difficult for
a number of years due to financial constraints.
The federal and state governments are going to have to look at the population of the
Medicaid rolls. We have to find ways to put our unemployed workers back to work. According

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

to the Georgia Department of Labors website (n.d.), Georgias current unemployment rate is
8.9% and the national unemployment rate is 8.2%. Greater educational attainment is associated
with lower receipt of public assistance payments or subsidies (Levin, Belfield, Muenning, &
Rouse, 2007, p. 14). Since there are a great deal of pregnant young women on Medicaid,
perhaps federal and state governments will create more programs in an effort to lower the
pregnancy rate in teenagers and single mothers. Local health departments work diligently trying
to educate young people about birth control and abstinence, but our country is still faced with
large numbers of pregnancies and babies covered by Medicaid.
Other types of governmental assistance programs include housing assistance and
Temporary Assistance for Needy Families (TANF). Approximately 50% of TANF recipients do
not have a high school education (Levin et al., 2007). TANF is a temporary, state assistance
program that assists needy families with cash for certain expenses for a limited time period.
TANF caseloads are predominantly female (approximately by a factor of ten), with black and
other race groups disproportionately represented (Levin et al., 2007, p. 15). Public housing
assistance programs are available to needy persons based upon their income. According to Levin
et al. (2007), at the time of their publication 1.6 million people annually were receiving housing
assistance.
Our communities and states will need to study why people are committing multiple
crimes which lead to longer prison sentences. Prisons are overcrowded which causes increases
in violent behavior and escalates costs to keep others safe. Levin et al. (2007) stated increased
crime rates produce increased expenditures for policing, state-funded victim costs, and programs
to combat crime. According to the Bureau of Justice Statistics (as cited in Levin et al., 2007), the
average cost savings per year for each new high school graduate is $26,600; however, the
savings is even higher for males than females. The government would save an average of
$26,600 per year in criminal justice system expenditures for each student that graduated from

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

high school. It is easy to see if we increase our high school graduation rates, we will greatly
reduce the amount of tax dollars spent on crime and the prevention of crime in the United States.
We have to find new ways to increase the high school graduation rate. Levin, et al.
(2007) stated 64% of high school dropouts will have used food stamps compared to only 38% of
high school graduates during their lifetimes. Increased high school graduation rates will
generate increased pay for graduates as compared to dropouts. As stated by Levin et al. (2007),
ways to increase high school graduation rates are: smaller school sizes, personalization, high
academic expectations, counseling, parental engagement, longer school sessions, and competent
and appropriate school personnel. By increasing the high school graduation rate, we will have
fewer people seeking Medicaid, housing assistance, food stamps, and TANF which will
decrease funds needed for these programs.
Additional research is needed regarding the charging and collection of sales tax on
internet sales, grocery sales, and service transactions. States need to reconsider federal-state
partnership programs and federal limitations on their ability to tax internet sales (Zumeta, 2004).
Currently sales taxes are not charged and collected on service revenue. If sales taxes were
assessed on service revenue, the federal and state governments would be able to rebuild their
financial reserves. However, taxing many of these transactions will be difficult because of
political implications.
States are being faced with an aging population needing subsidized long-term care and
skyrocketing health care and health insurance costs (Zumeta, 2006). The federal-state
partnership program of health insurance (Medicaid) for low-income or disabled people
approaches 20% of state general fund spending and 15% of all state expenditures (Zumeta,
2004). Studies need to be conducted on the various types of medical care being provided to the
Medicaid patients. Perhaps a way to eliminate unnecessary medical testing or use of other

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

testing alternatives could be utilized which would reduce health care costs for those people
receiving Medicaid.
The higher education community will need to find a way to convince lawmakers to stop
using higher education as the balancing wheel in the states budgets. New competitors are
already vying for the inadequate pool of public funds that is increasingly distributed as portable
student aid (Zumeta, 2006, p. 46). According to Selingo (2003), college officials are still
expected to appear before legislative committees, deal with meddlesome politicians, and abide
by strict state regulations. The Great Recession is exposing and reinforcing a trend in which the
nations educational attainment rate, along with the quality of its higher education areas, will
determine the fate for its economic competitiveness and its socioeconomic health (Douglass,
2010).
As stated by Fossett & Burke (2004), Medicaid is one of the largest programs in state
budgets, with total spending totaling $ 260 billion in FY2003. With 45 million people enrolled
in Medicaid, covering one-third of all births in this country, and providing health insurance
coverage for one in every five children, Medicaid is a big deal in state budget and health care
systems (Fossett & Burke, 2004). The most recent Medicaid numbers available show 52.6
million people enrolled in Medicaid as of June 2011 (Kaiser Commission on Medicaid Facts,
2012). Federal and state administrators are going to have to pay close attention to all our social
programs and program expenditures. Program abuse should be investigated and violators should
be prosecuted.
We must find a way to increase the high school graduation rate. State governments
would have much smaller Medicaid rolls if students graduated from high school. It would be
even better if the high school graduates enrolled in college and succeeded in becoming college
graduates. By increasing the college graduation rate, the graduates will have much better
chances of becoming employed in higher paying positions than they would if they were only

REALLOCATIONS OF PUBLIC FUNDS TO MEDICAID

high school graduates. With increases in the college graduation rates, we will see a much smaller
number of people receiving Medicaid and other social program benefits. With increased high
school and college graduation rates, less people will commit crimes and less people will be put in
prison. More revenue could be shifted from our social programs and back to our institutions of
higher education. If changes are not made in the budgeting process for higher education, we will
see higher tuition rates, more layoffs and less people attending college. A college education is a
valuable investment for our students and its value should never be discounted.

References
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Dicksen, R. C. (2010). Prioritizing academic programs and services. San Francisco, CA: JosseyBass.
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