Connecticut and Rhode Island have much in common. Both are small, New England states with shared history, religious and ethnic characteristics, and political profiles. Yet in recent years the two have diverged in their approach to the same pressing problems of Medicaid and public employee pension reform.

Medicaid is the single largest line item in Connecticut’s state budget. According to the Governor’s Proposed Budget for FY2014-15, the state expects to spend more than $5 billion to provide health care to the poor in the state in fiscal year 2014. To put it in context, about one of every five dollars spent by state government goes to Medicaid despite the emerging evidence that Medicaid coverage does not actually improve health outcomes.

Being the biggest target in state government usually makes the most attractive candidate for reform, but in Connecticut the focus has been in the opposite direction. Passage of SustiNet, a plan to expand state health care coverage to more state residents, was at the center of the debate. Only when state employees feared they would become SustiNet’s guinea pigs did support for that plan begin to evaporate.

As the economic downturn took hold, Medicaid’s ranks swelled, increasing costs and eating up an ever-larger percentage of the state budget.

Our neighbors in Rhode Island charted a starkly different course. In the waning days of the Bush administration, officials in that state received a waiver from the federal government to try new strategies for delivering comparable Medicaid service at a lower cost. As noted in the Wall Street Journal this week, the reforms worked. “Since the waiver, the state’s official Medicaid documents show that costs rose an average of only 1.3 percent a year from 2009 to 2012 — far below the 4.6 percent rate in the other 49 states.”

The same is true on state employee pension reform. Like Connecticut, Rhode Island faced the crushing burden of retirement benefit promises to public employees that far exceeded the state’s ability to pay. The city of Central Falls, Rhode Island actually filed for bankruptcy while pointing the finger at unfunded pension obligations as a primary source of the problem.

Led by State Treasurer Gina Raimondo, the Democratic-controlled legislature passed a sweeping public employee pension reform plan that moved employees from a traditional defined-benefit retirement system to a hybrid plan with a 401k-style retirement benefit. The reforms aimed to provide comparable benefit levels at a dramatically lower cost to the state.

In contrast, Gov. Dannel P. Malloy offered a plan to supplement the state’s annual retirement contribution with a catch-up payment to pay off the unfunded liabilities over time. The plan relies on either (A) Malloy continuing to be governor for a long, long time or (B) the General Assembly to act far more responsibly for the next 20 years than they did for the previous 20 years. The measures are a temporary Band-aid rather than a real reform.

Despite similar political landscapes, leaders in Rhode Island and Connecticut have gone in very different directions on adopting innovative policy solutions. Though not readily apparent in the short term, the long run benefits to reform will accrue in Rhode Island while Connecticut lags further and further behind.

Heath W. Fahle is the Policy Director of the Yankee Institute for Public Policy and a former Executive Director of the Connecticut Republican Party. Contact Heath about this article by visiting