Scare Tactics Shouldn’t Dissuade States From Expanding Medicaid

April 23, 2014 at 2:16 pm

The Foundation for Government Accountability (FGA), a Florida-based conservative think tank, is using scare tactics in its campaign against Medicaid expansion.  It claims that Arkansas taxpayers will have to pay tens of millions of dollars to the federal government in 2014 cost overruns in the state’s “private option” Medicaid expansion.  But that claim doesn’t hold up, and it shouldn’t keep other states from pursuing the private option to expand Medicaid.

The federal government approved Arkansas’ Medicaid expansion through a demonstration project, under which the state will use Medicaid funds to buy private health insurance plans for newly eligible adults through its Marketplace.  The per-person cost of covering these new Medicaid beneficiaries for the first four months of the demonstration project was slightly above projections incorporated in the terms and conditions to which the state agreed with the federal government, prompting FGA’s claim.

Demonstration projects (which are usually called “waivers”), like Arkansas’ private option, must not cost the federal government more than it would have otherwise spent.  If the project is not budget neutral over its entire duration, a state could have to repay excess federal spending.  This is extremely unlikely to happen in Arkansas, for several reasons:

  • Budget neutrality is determined over the entire term of the demonstration project —three years in this case — not what happens in 2014, as FGA claims.  Arkansas would only have to repay the federal government if total three-year spending on the private option exceeds the three-year limit.
  • The terms of the waiver recognize that the budget neutrality limit is a forecast, and like all estimates, it could be off in either direction.  Arkansas can ask for an upward adjustment if the limits underestimate the actual costs of covering the new beneficiaries.  At the same time, the state won’t share in any federal “savings” if costs are lower than projected.
  • Arkansas is taking steps that will likely keep spending within the three-year limit.  In 2014, some health plans offered extra benefits that increased premiums and hence per-beneficiary costs under the waiver.  Starting in 2015, insurers will have to offer plans without these extra benefits to private option participants, which should bring down premiums and per-person costs to stay below the budget neutrality limits.  Other states that pursue the private option model can prevent health plans from offering these more expensive plans to begin with, thus avoiding this problem altogether.

More than 150,000 low-income adults have gained Medicaid coverage in Arkansas in 2014, and enrollment continues to grow.  That’s the lesson that the 24 states that have not expanded — where 4.8 million uninsured adults fall into the coverage gap that results from not taking the Medicaid expansion — should take away from Arkansas.

In Illinois, a Chance to Fix a Constitutional Flaw

April 23, 2014 at 1:04 pm

Illinois’ constitution has a requirement that is quite unusual among states:  the state must have a single-rate income tax, meaning that middle-income taxpayers pay income tax at the same rate as the state’s wealthiest.  This provision has been a fiscal and economic failure.  Now lawmakers are considering a fix that would benefit the state’s middle-income taxpayers and economy for the long term.

When Illinois enacted the single-rate rule in 1970, the income gap between the wealthy and everyone else nationwide had been falling for several decades.  Since the 1970s, however, the top 5 percent of Illinoisans’ incomes have risen 123 percent — six-and-a-half times the rate for middle-income households (see chart).

In other words, most of the income benefits of the state’s economic growth since 1970 have accrued to the wealthy, and Illinois today has the nation’s ninth-highest level of income inequality.

The single-rate income tax is bad enough for middle-income households.  Other major revenue options, like sales or property tax increases, are even tougher on low- and middle-income families.  Indeed, accounting for all forms of state and local taxation, the Institute on Taxation and Economic Policy reports that Illinois’ tax structure is the nation’s fourth most lopsided in favor of those with high incomes, with the top 1 percent of taxpayers (with average income of $1.5 million) paying less than half as much of their income in taxes than the 80 percent with incomes below $93,000.

In part because of its limited revenue options, Illinois for many years did not raise enough tax dollars to cover its costs.  The state accrued nearly $10 billion in unpaid bills to doctors, child care centers, and other service providers, and it fell far behind on its pension payments. A temporary income tax increase enacted in 2011 has helped the state to slash the backlog of unpaid bills, but the state’s fiscal challenges remain large.

Nor has the flat-rate requirement helped Illinois’ economy.  Unemployment in Illinois remains well above the national average, and much higher than neighbors like Minnesota and Missouri that have multi-rate taxes.  (In fact, Minnesota last year raised taxes on its highest-income residents, with no economic harm, contrary to opponents’ predictions.)  A plethora of academic studies, as well as states’ direct experience, show that personal income tax rates have essentially no relationship to economic growth.

In the coming days, Illinois’ legislature will consider whether to give voters the option of fixing the flawed single-rate mandate.  A proposed constitutional amendment would enable Illinois to impose different rates on different levels of income, an option that all but a handful of other states already have.  This change could allow the state to fully pay its backlog of bills; better fund schools, parks, and roads; or meet other needs without imposing the greatest burden on middle-income Illinoisans.

States’ Very Good Deal on Expanding Medicaid Gets Even Better

April 22, 2014 at 3:51 pm

In a little-noticed finding in last week’s Congressional Budget Office (CBO) report on health reform, CBO sharply lowered its estimates of how much the Medicaid expansion will cost states.  We’ve noted repeatedly that the federal government will cover the large bulk of the expansion’s cost.  As our new report explains, these new figures make it even clearer that the expansion is a great deal for states.

  • CBO now estimates that the federal government will, on average, pick up more than 95 percent of the total cost of the Medicaid expansion and other health reform-related costs in Medicaid and the Children’s Health Insurance Program (CHIP) over the next ten years (2015-2024).
  • States will spend only 1.6 percent more on Medicaid and CHIP due to health reform than they would have spent without health reform (see chart).  That’s about one-third less than CBO projected in February.

Moreover, the 1.6 percent figure doesn’t reflect states’ savings in providing health care for the uninsured, many of whom will now have Medicaid coverage.  The Urban Institute has estimated that if all states took the Medicaid expansion, states would save between $26 billion and $52 billion from 2014 through 2019 in reduced spending on hospital care and other services provided to the uninsured.

Improving the Odds for America’s Children

April 21, 2014 at 12:18 pm

The safety net has been more effective than critics suggest, the Center’s Robert Greenstein, Sharon Parrott, and I explain in a chapter for Improving the Odds for America’s Children, which Harvard Education Press has just published.

For our chapter, we reviewed the last 40 years of anti-poverty policies for children and offered ideas for future decades.

Here’s some of what we found, and some of what we proposed:

Household incomes have risen since 1973 for the poorest fifth of children if you include the value of non-cash benefits, as most experts favor (the official poverty figures omit them).  If you eliminated the safety net today, another 9 million children would fall into poverty.

Also, studies show that income from safety-net programs like the Earned Income Tax Credit (ETIC) and SNAP (formerly food stamps) has a powerful effect on children’s long-term success, in school and beyond.

Yet poverty and hardship continue to stunt many children’s futures.  To help families obtain incomes that are adequate to raise successful children, we recommend steps in three core areas:

  • Jobs:  Creating a funding stream similar to the successful TANF Emergency Fund — through which states placed more than 260,000 low-income adults and youth in paid jobs during the Great Recession — but one that was permanent and expanded in an economic downturn.
  • Income support:  For example, expanding housing vouchers (and making it easier for people with vouchers to move to neighborhoods with more jobs and better schools), while preserving recent improvements in the Child Tax Credit and EITC.
  • Support for work and higher earnings:  For example, raising the minimum wage and providing more funding for job training and child care assistance.

Other chapters provide analysis and policy ideas from noted experts such as Greg Duncan and Richard Murnane (on inequality), Sara Rosenbaum (health care), Deborah Jewell-Sherman (education), Jane Waldfogel and Michael Wald (child protection and family support), Joan Lombardi (child care), and others.

3 Steps States Can Take to Improve Their Rainy Day Funds Now

April 21, 2014 at 10:02 am

States can take concrete steps now to improve the structure of their rainy day funds, helping them to more effectively weather the impact of inevitable future downturns, as we explain in our new paper.

States used their rainy day funds to avert over $20 billion in cuts to services, tax increases, or both, in each of the last two recessions, highlighting the funds’ importance.  Yet these reserves filled only a modest share of states’ record-setting budget gaps; states would have weathered the storms better with bigger rainy day funds.

States shouldn’t make rapid replenishment of rainy day funds a priority until their revenues rise well above pre-recession levels, unemployment has declined further, and they have restored programs cut during the recession — and most states are not yet there.

But, when they are ready to replenish those funds, here are three steps they can take:

  1. Create a rainy day fund, if they don’t have one.  Four states — Colorado, Illinois, Kansas, and Montana — lack a designated rainy day fund.  The budgets of all of these states except Montana were hit hard by the economic downturn, and the lack of a rainy day fund left them more vulnerable to the recession’s effects.
  2. Loosen overly restrictive caps on the size of rainy day funds.  One reason rainy day funds weren’t even more effective in the most recent downturn is that 31 states and the District of Columbia cap them at inadequate levels, such as 10 percent of the budget or less.  States with overly restrictive caps could either remove the cap or raise it to a more adequate level, such as 15 percent of the budget.
  3. Ease rainy day fund rules that make it difficult to make deposits in good times.  Most states place a low priority on replenishing their funds, depositing only whatever surpluses are left over at the end of the year.  States could integrate rainy day fund transfers into the budget as part of an overall reserve policy that places a high priority on saving.

Click here to read the full paper.