Monday, November 14, 2011

Should Occupy Wall Street Oppose Obamacare?

It’s not as far-fetched a question as some might imagine.  Multiple stories about the Occupy Wall Street movement have noted that the protestors cite student loan debts as one of their foremost complaints.  The causes of rising tuition are numerous and varied; some experts argue that the easy availability of student loan subsidies actually accelerates tuition increases.  But one reason for rising tuition at public universities is that more and more state government funds are being diverted to Medicaid programs.  As former Obama Administration budget chief Peter Orszag wrote in a column last week:

Almost three-quarters of all college students attend public schools, and state governments have provided primary support for these institutions.  But revenue constraints, combined with rising Medicaid expenditures, push states to reduce spending on colleges and universities.

The experience of the past few years has been consistent with what the economist Tom Kane of Harvard University and I showed in a series of papers several years ago: Pressure from rising health costs causes states to cut back their relative support for higher education, especially during economic declines.  And the education funding never returns to its pre- belt-tightening level.

In 1977, state appropriations for higher education averaged $8.50 per $1,000 in personal income.  By 2002, after cutbacks during recessions, it had fallen to $7 for every $1,000 of personal income.  And last year, after further reductions during the latest recession, it had declined to $6.

The most recent spending cuts have tended to be largest in those states with the sharpest increases in Medicaid spending, as Kane and I had found for previous business cycles.  For example, from 2008 to 2010, for every percentage-point increase in the share of a state’s general-fund budget devoted to Medicaid, funding for higher education was reduced, on average, by 3 percent.

As we’ve previously noted, Obamacare only exacerbates these tensions, by increasing the size of the unfunded mandates on states.  At a time when states face budget deficits totaling a collective $175 billion, Obamacare is imposing new unfunded mandates of at least $118 billion.

Dr. Orszag’s column, and the state budget information we passed along back in July, once again reiterate the fact that other portions of state budgets like higher education are being cut disproportionately to preserve Medicaid programs – a trend that will only accelerate in the future once Obamacare’s massive Medicaid expansion takes effect in 2014.  So if the students in Zuccotti Park think their tuition payments and student loan debts are too high now, they may want to ponder the fact that, thanks to Obamacare, the situation could actually get much worse.