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JEREMY HOBSON: The battle over union rights continues in Wisconsin as that state's Republican governor moves ahead with his plan to tackle the state's budget deficit. In Ohio, a similar plan to strip public workers of their collective bargaining rights is being scaled back a bit.

For more on the budget battles going on in state houses and in Washington, let's bring in our economics correspondent Chris Farrell. Hi Chris.


HOBSON: So obviously unions have become the big story in Wisconsin, but as states across the country look at their budgets, what other things are they focusing on?

FARRELL: Look Jeremy, there's really one story when it comes to state budgets, and that story is health care. Specifically the Medicaid program and this is the join federal state program and it's health care for the poor, the elderly, the vulnerable.

HOBSON: And what are states doing to tackle that?

FARRELL: Well, states are having to tackle it. Let me just give you one number. I think this really encapsulates the whole story. So, you go back a quarter century ago -- states spent 50 percent more on higher education than on Medicaid. Today they spend 50 percent more on Medicaid than higher education. And that budget keeps growing and growing and growing so they're having to do things like make cuts and also trying to reduce their spending or their funding.

HOBSON: And what are they doing?

FARRELL: Well, let's take for example Arizona. Arizona has decided, or they proposed, eliminated Medicaid coverage for 280,000 people. Then you look at California, which is leaning toward rather than just sort of cutting people, it's sort of leaning towards a solution where it's saying, "You know, we're just not going to pay as much. We're just going to cut the funding," and a lot of the cuts are going towards the elderly, the vulnerable with long term care. So governors are being forced to make really tough decisions.

HOBSON: And not just governors, this is an issue in Washington with the federal budget as well.

FARRELL: You know we're really worried about these budget deficits. We're talking about these budget deficits in the news. But really, whether it's on the federal level or the state level, we don't have a budget deficit problem. We have a long term health care problem. So federal level, state level -- it's health care, health care, health care.

HOBSON: And Chris does the Obama health care law that was passed last year -- is that going to be part of the solution to this problem?

FARRELL: It's part of the solution, but boy it's a very small step. We need to revisit this whole area again, and again.

HOBSON: Yippee. Marketplace economics correspondent Chris Farrell, thanks for your time this morning.

FARRELL: Thanks a lot.

Follow Chris Farrell at @cfarrellecon