Four Obamacare Failures & How to Fix Them

JANUARY 19, 2017  | by ELIZABETH STELLE

For almost seven years the benefits of Obamacare have been exaggerated and the costs severely underestimated. As repeal efforts gain momentum, many are understandably uncomfortable about another dramatic shift in American health care, but there is plenty of reason for optimism.

Here are four ways Obamacare has failed to improve health care and how lawmakers in DC and Harrisburg can replace those failures with policies that make health care (not just insurance) truly affordable and accessible for all Pennsylvanians.

Failure #1: Cost of Insurance

President Obama famously promised the Affordable Care Act (ACA) would lower premiums by $2,500 for the average family of four. However, the cost of insurance premiums increased dramatically, taking a greater toll on working families.

This year, Pennsylvanians buying insurance on the individual market saw a massive 32.5 percent (on average) increase in insurance premiums. At the same time, average deductibles for gold, silver, and bronze plans rose by $254, or 17 percent, in Pennsylvania for 2016.

For a 27-year old male in the Philadelphia market, the lowest-priced monthly premiums have grown by an astronomical 396 percent since 2013! For that same demographic in the Pittsburgh area, 2017 premiums are 227 percent higher.

Fix: Reduce Mandates

Reducing health insurance benefit mandates and allowing insurance companies to consider a patient's age and health status can go a long way in reducing the cost of health insurance.

Failure #2: Consumer Choice

President Obama's infamous "you can keep your plan" line aside, it's clear Pennsylvanians have fewer choices under the ACA. The average Pennsylvania exchange shopper has only three insurance providers to choose from—with only two serving the Pittsburgh area, and only one option in Philadelphia. In 2013, 14 carriers offered individual health plans to Pennsylvanians on the Obamacare exchange.

Fix: Expand HSAs

Allow insurers to innovate with different types of plans including more options for Health Savings Accounts. Contributions to HSAs should be able to meet a plan's full deductible and be used for premium payments or payments for alternative health delivery models, like yearly membership fees for direct primary care.

Failure #3: The Uninsured

Estimates that over 1 million Pennsylvanians would be uninsured without the ACA are highly misleading. According to U.S. Census data, the number of uninsured in Pennsylvania declined from 2010 to 2015, but by 469,000 residents. Specifically the uninsured rate dropped from 10.2 percent to  6.3 percent. Yet some of this decline can be attributed to improvement in economic conditions and increased employment following the recession. Indeed, the uninsured rate was 7.7 percent in 1999.

Similarly, Gov. Wolf overestimates the number of individuals enrolled in Medicaid expansion. According to state data, Medicaid enrollment in total has increased by 550,000 since December 2014, far fewer than the 690,000 the governor claims.

This embellishment is partly because the state shifted 73,000 individuals already enrolled in Medicaid over to the expansion Medicaid. This was done entirely as an accounting gimmick to benefit from the 100 percent federal reimbursement rate—getting federal tax dollars to pay for individuals already enrolled in Medicaid.

Moreover, there is no evidence these new enrollees were uninsured prior to Obamacare. The Census data actually indicates many Medicaid enrollees left private insurance to enroll in Medicaid. This is particularly problematic given Medicaid is a poor provider of health care.

Fix: Lower the Cost of Care

Forcing everyone to get an insurance card is no solution. Just ask Denise who avoids going to the doctor because her plan carries a $5,000 per person deductible. The real problem is the cost of care. State level reforms to expand the services mid-level providers, like nurse practitioners, can offer and efforts to reward consumers who shop for high value health care are two ways to ensure care is accessible for all regardless of their insurance status.

Failure #4: Medicaid is Broken

The ACA relies heavily on expanding health care access by putting more individuals on Medicaid. Yet Medicaid has a terrible reputation. Medicaid recipients experience more difficulty finding doctors and longer wait times than those with private insurance—thanks to low provider reimbursement and a maze of red tape. Worse, Obamacare's perverse incentives make the neediest Medicaid patients (children, pregnant women, the blind, and the disabled) most vulnerable to benefit cuts.

Fix: Flexibility for States

If there is one thing Pennsylvania needs in a replacement plan, it is flexibility to revamp our Medicaid program at the state level—not just for the expansion population, but for all Medicaid recipients.

Almost half of the Pennsylvania state operating budget (49 percent) is spent on Human Services, with the bulk of that—$26.33 billion—on Medical Assistance and Long Term Living (i.e., Medicaid programs). Medicaid alone consumes more of the state budget than PreK-12 education, higher education, transportation and debt service combined.

According to the Independent Fiscal Office, Medical Assistance and Long Term Living costs are projected to rise by another $844 million next year, from the state general fund alone. Some $200 million of this is the result of the Medicaid expansion reimbursement rate, and other cost increases tied to federal mandates and restrictions on making program changes.

Without flexibility to reform these programs, the commonwealth will have to either raise state taxes or make significant cuts to other areas, such as education or corrections.

Block granting federal Medicaid dollars to the states or granting states Medicaid waivers would allow Pennsylvania the Medicaid flexibility it needs to improve the quality of care and control costs, ensuring the health care safety net is sustainable for all families.

The Affordable Care Act may have resulted in more individuals getting an insurance card, but it has done little to improve the affordability of health care and wreaked havoc on our economy, killing 300,000 jobs in 2015 alone. For health care to be fixed, Obamacare must be left behind.

For more on how to responsibly replace Obamacare, read our letter to Pennsylvania's U.S. congressmen and senators.


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Budget Solution of the Week: Corrections Reform

JANUARY 13, 2017  | by BOB DICK

The Department of Corrections (DOC) recently announced its intentions to close two state prisons and reduce capacity at community corrections facilities (halfway houses). These decisions will cut state incarceration costs—an amount now north of $2 billion—without jeopardizing public safety.

That's a big win for taxpayers and an important move towards redesigning state government to avoid new taxes.

Unsurprisingly, the Pennsylvania State Corrections Officers Association is highlighting the potential for job losses and overcrowding. But these concerns are weak justifications for saddling taxpayers with the costs of two unnecessary prison facilities

Why? The DOC has already promised to move all displaced employees to another position within the department. As for overcrowding, the changes will bring “emergency capacity” up to 92 percent, which isn’t ideal, according to Corrections Secretary John Wetzel, but it also doesn’t constitute a crisis.

Lawmakers can ensure the prison population continues to responsibly decline by adopting the reforms laid out in our policy brief, Embracing Innovation in State Government:

  • Ensure individuals are released when they’re eligible for parole. Too often prisoners are kept beyond their minimum sentence without good reason. This additional time in prison costs taxpayers an estimated $69 million a year.
  • Base sentences on cost-effective recidivism-reducing sanctions. Judges don’t have access to the pertinent information needed to impose sentences most likely to reduce recidivism. If lawmakers give judges the tools needed to hand down effective sentences, they will be in a better position to move less dangerous offenders out of prison.
  • Avoid lengthy prison terms for minor probation and parole violations. According to the Independent Fiscal Office, housing an inmate costs $44,000 more than supervising the average parolee. Ensuring “swift and predictable” sanctions for probation and parole violators can keep people out of prison and drive down costs.
  • Properly utilize community correction facilities. DOC is already pursuing this course of action. According to Sec. Wetzel, community correction facilities have not been “yielding satisfactory outcomes.” This is why DOC is cutting facility capacity. Under the department’s plan, people who would normally be sent to these facilities would be supervised by a parole agent at home.

These reforms stem from the Justice Reinvestment Initiative Working Group, which seeks to build on the landmark reforms passed in 2012. These reforms helped reduce the inmate population by 850 in 2015the largest one-year decline in 40 years.

Reducing overtime pay and merging the Pennsylvania Board of Probation and Parole with the Department of Corrections are two additional ideas not included in our report but worth pursuing. DOC is in the process of addressing the former by filling vacant positions, conducting a staffing analysis to determine the optimal number of employees, and of course closing down two prison facilities.

Senator Stewart Greenleaf introduced the latter reform last session. It passed the Senate on a bipartisan basis, but it unfortunately died in the House. According to the Wolf Administration’s conservative estimate, the merger would save $10 million in the first year of implementation.

By adopting the reforms above, lawmakers can adequately keep Pennsylvanians safe, protect their wallets, and improve the state's unacceptable financial position.


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The Inquirer's Problematic Budget Prescriptions

JANUARY 11, 2017  | by BOB DICK

A Philadelphia Inquirer editorial urges optimism about the forthcoming state budget debate. It’s certainly well-warranted. Gov. Wolf and legislative leaders have repeatedly expressed interest in redesigning state government to avoid broad-based tax increases. This is a welcomed departure from past proposals to enact large tax hikes on working Pennsylvanians.

However, the governor still won’t completely rule out tax hikes. He’s likely to propose an energy tax to the delight of the Inquirer’s editorial board, which supports the tax as a way to make natural gas companies pay their “fair share.” This political slogan ignores all of the taxes natural gas companies already pay, including an impact fee, which effectively operates as a 6.9% severance tax.

The board also criticizes the tax relief extended to businesses, asserting this policy failed to stimulate job growth. Sure, businesses did see some relief through the elimination of the capital stock and franchise tax, but Pennsylvania’s overall tax burden ranks 15th highest in the nation. Weak job growth should be seen in light of the commonwealth’s broader tax and regulatory climate. The implication here is that a lower tax burden doesn't grow the economy. The evidence suggests just the opposite.

The editorial's assault on the state's tax structure continues:

Instead, the [tax] cuts lowered the public's quality of life by reducing revenue needed to educate children, fix roads, and provide other services. Business tax cuts account for about half the state's $600 million deficit.

These two sentences are plagued with problems. First, as CF has demonstrated in the past, more education spending does not necessarily lead to improved academic achievement. As a matter of fact, policymakers could improve the educational system while spending less on education if they embraced school choice.

Secondly, the state already has a dedicated source of funding to fix roads. That’s why the state’s gas tax jumped 8 cents to kick off the new year. If more money is needed for transportation, why not embrace public-private partnerships or repeal the prevailing wage mandate?

And third, placing blame for the deficit on tax cuts implies state government hasn’t taken enough out of the pockets of taxpayers. This flatly ignores the state’s overspending problem.

State spending has risen 46 of the last 47 years—climbing by $4,010 per person over that time. Had the state kept spending increases in line with inflation and population since 2000, it would have produced a budget surplus during this fiscal year. With spending increases possible each year, is it really reasonable to say Pennsylvania has a revenue problem?

Finally, the editorial suggests raising the minimum wage to improve residents’ quality of life and make Pennsylvania a destination state. But mandated wage hikes haven’t stop residents from fleeing other states. In fact, of the ten states that saw the biggest declines in state-to-state migration, nine had minimum wages exceeding the federal level. The only exception was Pennsylvania.

In contrast, of the ten states experiencing the largest increases in state-to-state migration, only half mandated wages above the federal minimum. The editorial board correctly identifies the importance of higher wages for Pennsylvania, but their policy prescription will ultimately undermine employment opportunities for the people who need it most.

Thankfully, Pennsylvania's dismal economic rankings are reversible. But turning the tide requires rejecting attempts to solve every problem with more government spending. What's the alternative? Robust economic growth driven by entrepreneurs and consumers pursuing their happiness.


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Officials Move to Streamline the Corrections System

JANUARY 10, 2017  | by JESSICA BARNETT

Pennsylvania Corrections Spending

“We are again in the position where the Department of Corrections must make significant reductions because of the dire budget forecast.”

Thus Corrections Secretary John Wetzel highlights the challenges facing Pennsylvania as the prison population declines and revenue collections cool down.

The Department of Corrections (DOC) and Gov. Wolf announced plans to close two state prisons and reduce the community corrections population 50 percent by June 2017. Citing a decrease in the inmate population and 1,000 open beds in SCI Camp Hill, DOC aims to significantly reduce costs without jeopardizing public safety. The specific prison closures will be announced January 26, with affected prison staff guaranteed positions elsewhere in the department.

While closing prisons sounds gloomy, there is a silver-lining. The commonwealth's prison population is shrinking with no corresponding rise in crime. That's a trend worth celebrating and largely the result of bipartisan reforms we supported in 2012 to reduce recidivism.

The DOC's plan comes on the heels of the Wolf Administration's efforts to streamline government to deal with General Fund collections now $367 million below expectations. The DOC's proactive approach is a nice break from the status quo, which required Pennsylvanians to swallow a $650 million tax hike to fund $1.6 billion in new government spending this past summer.

Lawmakers can build on these cost-savings efforts by embracing innovative ways to protect taxpayers, including additional corrections reform. This is the topic of our latest policy brief, which offers a range of reform ideas to reduce state government's footprint and avoid adding to Pennsylvanians' tax burden. 


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Budget Solution of the Week: Government Efficiency Review

JANUARY 6, 2017  | by BOB DICK

With the budget deficit casting a shadow over the current fiscal year, and deficits projected for at least the next five years, policymakers are acting to stem the tide of red ink.

The Wolf administration has adopted a hiring freeze—an idea CF proposed back in October. And just this week, the administration announced the consolidation of the state’s technology and human resource functions—a move aimed at achieving savings for taxpayers.

The governor has also ruled out broad-based tax increases this upcoming fiscal year, which were the central components of his two prior budget proposals. Instead, he—and legislative leaders—are putting greater emphasis on reducing the costs of a bloated state government. Taxpayers should be optimistic about these developments, which all point to a culture shift in Harrisburg. Instead of seeing large tax increases as a viable solution, the focus has shifted to the spending side of the ledger.

Beyond the promising cost-savings steps taken thus far, more must be done. State government needs a complete overhaul. In our latest policy brief, Embracing Innovation in State Government, CF outlines solutions to reduce government spending and improve the institutions and programs now failing too many Pennsylvanians.

Over the next month, we will highlight at least one budget solution per week. First up, a government efficiency review.

This review would identify ways government can make the best use of each tax dollar. The State of Louisiana conducted such a review in 2013 with the help of Alvarez & Marsal (A&M)—a business management firm specializing in performance improvement. The firm made 72 recommendations, which were estimated to save or raise $2.7 billion over five years.

According to state's final report on the recommendations, “efficiency reviews have generally identified savings of five to six percent of the general fund budget” in other states. For Pennsylvania, this would mean $1.5-$1.9 billion in savings. Such a significant sum would go a long way toward helping policymakers reduce government spending.

An efficiency review is just one of many ideas that can lead to savings for taxpayers. As we move closer to the governor’s budget address, we’ll be exploring other ideas to balance the budget without taking more out of the pockets of working people. Be sure to check back next week for the 2nd blog in our series.


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Phila. Cigarette Tax Levied on Non-Philadelphia, Non-Smokers

JANUARY 5, 2017  | by JAMES PAUL

Since Philadelphia residents aren’t buying enough cigarettes, taxpayers across the state will chip in millions to fund Philadelphia schools.

Huh? Julie Shaw of Philly.com attempts to make sense of it:

Tax revenues from Philadelphia’s $2-per-pack cigarette tax for this fiscal year are projected to be almost $26 million lower than initial projections, according to the City Controller's Office.

But the Philadelphia School District says the shortfall is not expected to put the district at risk.

According to a state provision, if local revenues from the city's tax do not reach $58 million, the state will cover the difference.

The upshot? "There's no risk to the school district," Uri Monson, the district's chief financial officer, said Wednesday.

No risk to the school district—because the entirety of the risk falls on other Pennsylvanians. As CF has written before, tobacco taxes are unstable and incentivize smuggling. Worse, they fall hardest on low-income residents.

Let this be a reminder to school boards and local governments: Limiting and prioritizing spending is always a better solution than raising taxes.

What’s the bottom line? A tax promised to fall on cigarette smokers will effectively be levied on non-smokers from outside of the city. And as for the state budget shortfall? It may have just grown by $8.4 million.


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Pennsylvania Deficit Watch: January 2017

JANUARY 4, 2017  | by BOB DICK

Pennsylvania fell further into a financial hole during the month of December. According to the Department of Revenue, total General Fund collections came in $105.2 million below the state's official estimate. This marks the second straight month—and five of the last sixwhere revenue collections failed to meet expectations.

Overall, Pennsylvania collected approximately $2.6 billion last month, which was 3.9 percent less than anticipated. To date, revenue collections are approximately $367 million below estimate.

The $1.3 billion revenue package passed last July, which includes $650 million in higher taxes, is proving inadequate to pay for the 2016-17 budget's $1.6 billion increase in government spending

The chart below shows revenue collections lagging official estimates in the first six months of the fiscal year. If this pattern continues, the state will end the year with a deficit.

 

Back in August, the Independent Fiscal Office (IFO) released a report identifying major problems with the revenue projections used to balance the budget. To present a more accurate picture of Pennsylvania's finances, the agency made the following observations and assumptions:

  • The IFO Deducted $95 million to pay for the expenses of the Commonwealth Financing Authority (CFA) from sales tax revenue. The legislature moved this line-item out of the General Fund Budget and created a new fund via the fiscal code. Legislative leaders have expressed an interest in passing gambling expansion to generate $100 million to cover CFA spending, but no enabling legislation exists.
  • The IFO assumes Act 39 (wine modernization) will raise $73 million in 2016-17. The legislature predicts an increase of $149 million—a $76 million difference.
  • IFO projections of tobacco tax revenue (includes taxes on cigarettes, e-cigarettes, loose & roll-your-own tobacco) are approximately $38 million less than the official projections.
  • $75 million from the Philadelphia casino is not included in the IFO’s official revenue estimate. They do not expect it will generate revenue for the current fiscal year.

Regrettably, the state budget has been unbalanced from the start. It's built on $260 million in one-time revenue and transfers from other funds and includes a $200 million loan from the Pennsylvania Professional Liability Joint Underwriting Association.

Borrowing money to pay our bills is the very definition of unbalanced.

Acknowledging the seriousness of the commonwealth's financial position, legislative leaders and Gov. Wolf have committed to restructuring government to balance the budget. To achieve this goal, policymakers have a number of options, including those found in our latest policy brief, Embracing Innovation in State Government. Here are just a few ideas:

With six months left in the fiscal year, revenue collections can improve. But a plan to balance the budget is needed soon in the event revenues don't match expenditures come June. The last thing taxpayers need is another tax hike to cover last year's bills.


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What Population Trends Tell Us

JANUARY 4, 2017  | by BOB DICK

Before the holidays, CF publicized the historic decline in Pennsylvania’s population. The state was one of only eight to see an absolute decline in its number of residents. Domestic migration—or the movement of people between states—drove this decline. 

In a post early last year, we documented the population trends in twenty states. The ten states that experienced the greatest growth via domestic migration (“destination states”) had a lower average tax burden than the states that experienced the greatest declines (“deserted states”). After adding another year of population figures to the data set, the pattern remains the same.

The table below shows people fleeing high tax states and moving to low tax states.

 

The destination states imposed an average tax burden of 8.84 percent on residents, according to data from the Tax Foundation. The deserted states imposed an average tax burden of 11 percent—more than two percentage points above the destination states’ collective tax burden.

Of course, taxes aren’t the only obstacle government throws in the way of economic opportunity. It also imposes a variety of unnecessary regulations (licensure laws, compulsory unionism, etc.) on workers trying to pursue a decent living. Together, these restrictions affect the economic freedom of a state—a concept measured by the Fraser Institute in their annual Economic Freedom of North America report.

The report assigned an economic freedom score to each of the fifty states, some of which are included in the table above. As the table indicates, the destination states have a higher average economic freedom score than the deserted states. People want, and are willing to pursue, a better quality of life. And since economic freedom is tied to improvements in the quality of life, it makes sense for people to move to freer states.

If policymakers want to avoid the consequences of the coming demographic changes, they need to give people a reason to live and work in Pennsylvania. Adopting the recommendations in our new policy brief, Embracing Innovation in State Government, is a great start on the road to making Pennsylvania a destination state once again.


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Five Big 2016 Victories Across the States

DECEMBER 29, 2016  | by ELIZABETH STELLE, DAWN TOGUCHI

We love end-of-year lists. And while you can find boatloads of them across the internet (including our most popular blog posts of the year!), some of the most exciting policy victories happened at the state level in 2016.

  1. Personal Income Tax Elimination: Tennessee eliminated all state personal income taxes in April, joining seven other income tax free states. The CEO of the Beacon Center said, "They [lawmakers] realized that this tax unfairly hurts senior citizens and job creators and did the right thing to repeal it. We can now celebrate a major reduction to the tax bills of many Tennesseans who are in desperate need of tax relief.”
  2. Local Right to Work: In a major win for right-to-work laws, a Kentucky town won a federal appeal to implement local right to work.
  3. 26th Right to Work State: Speaking of right-to-work, in February West Virginia passed the Workplace Freedom Act and became the 26th right-to-work state.
  4. Labor Reform Election Victories: In Alabama, South Dakota, and West Virginia, voters backed labor union reforms. In Alabama, some 70% of voters supported an amendment to enshrine right-to-work in the state’s constitution. In South Dakota, a union-backed ballot measure aimed at destroying right-to-work protections was rejected by around 80% of voters. Finally, lawmakers in West Virginia, who helped pass right-to-work, were overwhelmingly rewarded with re-election.
  5. State Corporate Income Tax Reduction: Five states implemented corporate income tax reductions, including Arizona, Indiana, New York, New Mexico, and North Carolina.

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The Student Debt Threat

DECEMBER 29, 2016  | by ANDREW J. BECKER, JAMES PAUL

It shouldn’t be a debt sentence to get a college education. Yet in 2010, Americans’ student loan debt surpassed even that of credit card debt. In a testimony before a U.S. Congressional Subcommittee, Neal McCluskey of the Cato Institute explains why college has become so expensive: the skyrocketing growth of federal student aid, which comes in the form of Pell grants, federal loans, and other assistance programs. 

Consider how the cost of college has risen compared to other industries. Between 1978 and 2011, the annual tuition increase was 7.45 percent. Over the same period, health care costs grew 5.8 percent, and the Consumer Price Index increased by only 3.8 percent.

McCluskey provides this analogy to explain the problem of rising aid: 

If I had been buying a hot dog from a vendor for a dollar, and hot dogs were basically the only available food stuffs, then someone gave me a dollar and, in ear-shot of my vendor and all other vendors, told me I had to use it for a hot dog, my vendor and all the other vendors would have strong incentives to raise their prices. Then, if the hot dog benefactor kept upping my allowance to keep up with rising prices, a price spiral would ensue. That seems a rational explanation for what is basically happening in college pricing...

Federal student aid enables extravagant building projects, as well as higher administrative and overhead costs, which add little educational value to students. 

Gradually phasing out these subsidies would allow individuals and families to assume more responsibility over their education—and lower tuition costs for everyone. Aid that remains should come in the form of flat grants to students. (The grants should not be awarded based on the the cost of tuition at a given university, as this encourages schools to raise tuition and receive greater taxpayer support). What can take the place of declining government subsidies? Private lending, private scholarship funds, and income-based repayment plans

Read McCluskey's testimony in full


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