January 16, 2013
Members of the Georgia Chamber, Lieutenant Governor Cagle, Speaker Ralston, state legislators, elected officials, judges, justices, ladies and gentlemen:Let me begin by congratulating you. We have had one of the best years of economic development in quite some time. A few notable companies that have chosen Georgia include Baxter, General Motors, and Caterpillar, along with numerous others. We did this with your help, with both the private and the public sector doing their parts!Several weeks ago, the lieutenant governor, along with Sandra and I hosted a reception at the Governor’s Mansion to honor Georgia’s Olympic and Paralympic athletes who competed at the London Olympic Games. This was an outstanding group of young people of whom we are extremely proud.One of the men in the group was Aries Merritt, a native of Atlanta and a graduate of Wheeler High School in Marietta. Aries won an Olympic Gold Medal in the 110 meter hurdles.Unlike sprinters who travel in a straight line with no obstacles other than the lane markers assigned to them, hurdlers, as the name implies, must jump over obstacles that are placed in their path.Making analogies between sports and government is always risky, but I want to suggest to you that the business of governing our state is somewhat similar to running the hurdles.As governor, my goal is to see Georgia become the No. 1 state in the nation in which to do business. I have made that clear from the beginning, because I believe that is the best path to economic growth and the quickest way to get Georgians into jobs. And we are not all that far off from reaching our target: For two years in a row, we have ranked in the top five for business climate by Site Selection Magazine, and we ranked No. 3 for doing business in 2012 by Area Development Magazine. But we certainly still have some hurdles that we must overcome before we get there.This morning I will focus my remarks on one of the highest hurdles facing state government, that of healthcare. In Georgia, we have had many successes in the realm of healthcare. With rising healthcare costs, we have worked to keep Georgians healthy so that they can avoid some of these expenses rather than react to them when they become ill.We have launched the Georgia SHAPE program as a way to combat childhood obesity, a growing problem in our state. I proclaimed this past September “Georgia SHAPE Month,” during which we emphasized physical activity and proper nutrition for our state’s children. In its inaugural year, the Governor’s SHAPE Honor Roll had 39 schools achieve Gold Medal status for their dedicated work in making our state’s youth healthier.These healthier young people generally perform better in the classroom, and many will continue their healthy lifestyles into later years, making these programs an investment in the economic and cultural well being of our state.The State Health Benefit Plan just finished the first year of its Wellness Program—the largest such program in the country, with more than 245,000 enrollees. We would like to take the next step by growing and developing it; we want to see employees taking responsibility for their own health through preventative action … and receiving lower premiums as a reward.Even with all of these cost-saving approaches, it still costs approximately $10 million per day in claims to provide health benefits to active and retired employees and teachers. Those costs have and will increase because of Obamacare’s mandated benefits; in FY2014, the State Health Benefit Plan is projected to incur $106M of additional costs due to Obamacare. And because our State Health Benefit Plan is classified as a Self-Insured Plan, it is subject to the three-year Obamacare reinsurance tax. This means we would pay an additional $35M in 2015.Of course, even among the healthy, not all illness can be prevented; so last year, we grew graduate medical education by adding funding in the budget for the development of 400 new residency slots in hospitals throughout the state, helping keep Georgia’s doctors in Georgia.These are just a few of the great things we have going for us in healthcare.But we also face hurdles that we must overcome, like how to fund the state’s responsibility for Medicaid. Right now, the federal government pays a little under 66 cents for every dollar of Medicaid expenditure, leaving the state with the remaining 34 cents per dollar, which in 2012 amounted to $2.5B as the state share.For the past three years, hospitals have been contributing their part to help generate funds to pay for medical costs of the Medicaid program. Every dollar they have given has essentially resulted in two additional dollars from the federal government that in part can be used to increase Medicaid payments to the hospitals. But the time has come to determine whether they will continue their contribution through the provider fee. I have been informed that 10 to 14 hospitals will be faced with possible closure if the provider fee does not continue. These are hospitals that serve a large number of Medicaid patients. I propose giving the Department of Community Health board authority over the hospital provider fee, with the stipulation that reauthorization be required every four years by legislation. They have experience in this area, having had authority over a similar fee for the nursing home industry since around 2004. Of course, these fees are not new. In fact, we are one of 47 states that have either a nursing home or hospital provider fee—or both. It makes sense to me that, in Georgia, given the similarity of these two fees, we should house the authority and management of both of them under one roof for maximum efficiency and effectiveness.Sometimes it feels like when we have nearly conquered all of our hurdles, the federal government begins to place even more hurdles in our path.I am, of course, referring to the various mandates of Obamacare that put a strain on our state, its businesses and its citizens.As most of you are well aware, the United States Supreme Court upheld the individual mandate as a tax. Therefore, most Georgians, beginning in 2014, will be forced to get insurance coverage or else pay a minimum of $95 (and potentially far more) in penalties. So what does this mean for us? It means that Georgians must pay out dollars to either an insurance company or the federal government—whether they want to or not.But ultimately there still is a choice, albeit a rock-and-a-hard-place kind of choice. As more individuals enter the marketplace, younger, healthier Georgians might begin deciding they would rather pay the penalty than deal with the potentially much higher cost of coverage, causing the price of insurance for everyone to climb; this increase will drive even more healthy individuals out of the market, further swelling the cost. This potential cycle is one of the inherent flaws in the federal law.The employer mandate means that businesses with 50 or more employees must provide affordable health insurance to their workers or else pay the rather large penalties. Costs can increase here, as well, as the pool of insured becomes less healthy.These costs stand to hurt our state’s private sector. Because as all businessmen and women know, the higher your input costs, the lower your profits; the lower your profits, the less you operate, expand or employ. But whether it’s through fewer employees and less equipment purchases or higher costs, this mandate will negatively impact many of our state’s businesses and, of course, the would-be employees themselves.Georgians who have already received a paycheck this January have no doubt noticed that their payroll taxes went up and their take-home salary went down. This is the cost of entitlements. If you think your taxes went up a lot this month, just wait till we have to pay for “free health care.” Free never cost so much.The individual mandate has a second tier of impact involving Medicaid and its cost to the state. I have said clearly that Georgia will not expand Medicaid under the federal government’s guidelines. Even so, in Fiscal Years 2013 and 2014, Medicaid and SCHIP funding will be the second largest portion of the state funds budget with more than 13 cents of every dollar going straight to one of these programs. And with just the portions that our state must do, Obamacare is expected to add more than 100,000 new individuals to our Medicaid rolls and mandate other requirements, costing our state nearly $1.7B over the course of 10 years—and that’s on top of the $2.5 B we already pay annually. The reason: These Georgians qualify for Medicaid under the current system but have yet to enroll in it. With the individual mandate requiring either insurance or a hefty fee, they will likely think that Medicaid looks like a pretty good option. And since they fall under the current system, the state of Georgia and its taxpayers must pay the current rate of 34% and not the 0 to 10% rate proposed for the expanded population group.We constitutionally must balance our state budget—a wise requirement instituted by those who have come before us. This increase in costs to the state means we have to find that money somewhere in our already tight budget; we cannot simply create more. As such, I have instructed the Department of Community Health to reduce its budget by at least three percent in Amended Fiscal Year 2013 and by five percent in Fiscal Year 2014—a difficult but necessary task. They have already identified $109M in cost-saving measures between the two years. But this hardly covers the additional nearly $500M in needed funds caused by growth in Medicaid expenses during the same time frame. That means we must make necessary cuts in other agencies and core functions of government since raising taxes is not an option I will accept!As I have indicated, I have rejected the Medicaid expansion in Georgia already, but let me emphasize that the expansion would have put our additional costs over 10 years closer to $4.5B—and that’s operating under the dubious assumption that the federal government, with its ever-growing national debt, would have fulfilled their promised share. The 620,000 new enrollees would have stretched our resources and our state to the limit. But whether the cost to our state would have been $2B, $4B or $6B, it does not make much sense to ask for more hurdles when you are already utilizing every muscle in your state’s body to overcome the ones you currently have before you and that you must face. So unless the federal government changes it to a block-grant program and allows Georgia to design the benefit plan, I cannot justify expanding Medicaid.The irony to me is that there are those in the medical community who are urging the expansion of the Medicaid program while at the same time, we are seeing more and more medical providers refusing to accept Medicaid patients. Their reason for doing so is that they claim the reimbursements for their services are below their costs. It is for that reason that the previously discussed provider fee is so important since that revenue is used to pay providers. If providers are already having difficulty covering their costs for care to Medicaid patients, how will they accommodate 34% more people on the Medicaid rolls? If you are losing money now, how do you reconcile the number of patients on whom you will lose even more money? Add to that the fact that the new enrollees would be higher on the economic scale, and some will be leaving their higher-paying, employer-provided health insurance plans to enter the taxpayer-funded Medicaid program with its lower reimbursements for the providers. If we have to depend on provider fees now to keep our reimbursements to Medicaid providers at a “tolerable” level, just imagine the pressure that will come when hospitals and doctors are losing more money on a larger portion of their patient base. Expansion of the Medicaid rolls does not solve the problem, it only exacerbates the one we already have.As many of you know, I also turned down the federal government’s offer to let us put our name on their insurance exchange program. I have no interest in seeing our state’s name, or its taxpayer dollars, used on something that we would have very little input in designing. If the purpose is to let those closest to and most knowledgeable about the population design the program, then we should be allowed to do so. It does not appear that is the pattern for the exchanges. I see no benefit to our citizens to have a program bearing the name of the State of Georgia over which our elected or appointed officials have little if any say so. While many federal programs come with strings attached, these strings turn states into marionettes to be manipulated by federal bureaucrats. If there is one thing we don’t need, it is another puppet show directed from Washington, D.C.!We cannot always determine what obstacles will be laid in front of us, but we can decide how we deal with them, and whether we approach them with anger, indifference or decisive action. The first two provide very little in productivity, but the latter offers opportunity to grow our state (and our businesses) in spite of newfound hurdles. Therefore, we must choose to work diligently. We must choose discernment over acquiescence, which is what I have aimed to do in my decision-making. And we must choose to confront these hurdles together, because discussion and determination, without bitterness, lead to the greatest forward progress.Despite all that is in front of us, we will still make Georgia the No. 1 state in which to do business.One last note: For those of you not attending in person, tune in tomorrow at 11 a.m. as I outline the rest of my plan for Georgia in this year’s State of the State Address, or go to my Twitter account, where my staff will be live Tweeting my remarks or at least the good parts.