Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Welfare’s Failure and the Solution Presentation by Gary D. Alexander Secretary of Public Welfare Commonwealth of Pennsylvania The American Enterprise Institute July 2012
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us • The Welfare Problem – Chaos – No Transparency – The Welfare Cliff – The President’s Healthcare Tax makes each of these problems worse.
Welfare ChaosGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us “The U.S. welfare system would be an unlikely model for anyone designing a welfare system from scratch. The dozens of programs that make up the ‘system’ have different (sometimes competing) goals, inconsistent rules, and over-lapping groups of beneficiaries.” -Concise Encyclopedia on Economics Introductory sentences on the topic of “welfare” by Thomas MaCurdy and Jeffrey M. Jones. Thomas MaCurdy is the Dean Witter Senior fellow at the Hoover Institution and a professor of economics at Stanford University. He is a member of standing committees that advise the CBO, the U.S. Bureau of Labor Statistics, and the U.S. Census. Jeffrey M. Jones is a research fellow at the Hoover Institution. He was previously executive director of Promised Land Employment Service.
Chaos in the Federal-State RelationshipGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us FBI Audit / Eligibility Federal DOJ MH SSA Eligibility CMS IRS SNAP FNS ACF and HHS School Audit Meals Data Sharing State Counterparts OIM ODP OLTL OMAP OCDEL OMHSAS OCYF (dark blue) (red) (green) (brown) (pink) (purple) (yellow) • For Families with Children • HealthChoices Behavioral • Youth Development Centers • Consolidated Waiver Medical • For the Aged and Disabled MR/ID: Attendant • Attendant Care Waiver Medical • Managed Care Certification Health (HC-BH) Program • Youth Forestry Camps • P/FDS Waiver • • Child Care Certification Behavioral Juvenile Assistance • Long Term Care HCBS Care Act 150 Assistance • Fee for Service Services • Fee-for-Service • County Juvenile Probation • Base Services Health Justice • Select Plan for Women • Behavioral Health Services Offices & Substance Initiative (BHSI) Services • Private Agency Delinquency Abuse Services • Base Services • Act 152 Supplemental • Adult Autism Waiver Nutrition • Nutritional support for low- Autism: (AAW) Nursing Subsidy • MA Nursing Facilities • Child Care Works Assistance income families HCBS • Adult Community Autism Facilities Services Program (SNAP) Program (ACAP) • Homemaker/Caretaker Adult Service Integration Education • Life Skills Education • CHIPP Programs • A suite of programs that Intensive Care Employment • Early Intervention, provide job readiness, Facilities/ • State Centers Early Infant/Toddler and Training placement, retention AIDS • AIDS Waiver Intervention Programs training, and supportive Mental • Private Facilities • Early Intervention, services Retardation Services Preschool • Adoption Services Adoption • Adoption Assistance • State Hospitals and • Provides services to families Community Service State Restoration Center and children in immediate Programs for • Independence Waiver Facilities Homeless • Keystone STARS • Other Initiatives need of shelter and to those People with • COMMCARe Waiver Assistance in imminent danger of Physical • Keystone Babies • OBRA becoming homeless Disabilities (CSPPPD) • Pennsylvania Pre-K Counts • Information and Referral Administration Services • Full Day Kindergarten & Oversight Early • Service Planning • Head Start State • Temporary Assistance for Learning Supplemental Assistance Program Cash Needy Families (TANF) Services Aging • Aging Waiver • Early Head Start • Special Pharmacy Benefits Assistance • General Assistance (GA) • Parent-Child Home Program Pharmacy Program for Mental Health • SSI State Supplement (SPBP-MH) • Nurse-Family Partnership • Foster Family Service • Children’s Trust Fund • Community Residential Service and Group Home Service Low Income • Assistance to low-income • Supervised Independent Home Energy families in need of LIFE • Life Program Placement Living Service Assistance assistance with their heating and cooling bill • Residential Service Program (LIHEAP) • Secure Residential Service • Emergency Shelter Service • Establishes paternity and support orders and Child Support provides medical support Enforcement and employment services for non-custodial parents Through • Protective Services (Child Abuse) • Provides free services to PA DOT Protective Services • • Protective Services (General) Counseling/Intervention Legal assist clients to resolve civil Services legal problems Assistance Through • State Day Services • Day Care Service Day Treatment Service PA L&I Counterparts Through PA DOH SAMHSA ICE OSEP HRSA AoA Key = indirect interaction US DOT USDLI VA HHS OIG 2 2 = direct interaction SNAPSHOT OF WHAT A STATE HAS TO DEAL WITH FROM THE FEDERAL GOVERNMENT MYRIADS OF CONFLICTING RULES AND REGULATIONS FROM A MASSIVELY DISORGANIZED BUREAUCRACY
Lack of TransparencyGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us• Health care consumers do not Median Price of Health Care Services know the cost of medical services Selected Hospitals in Urban Settings, Southeastern Pennsylvania or if price is associated with Hospital A Hospital B Weighted Average quality• Health care costs vary dramatically Chest Pain (IP) across the Commonwealth without any apparent connection Service Colonscopy (OP) to quality or the health status of patients served Knee Replacement (IP)• In Philadelphia for example, a colonoscopy at one hospital is Laparoscopic over $3,000 and a few miles away Cholectystectomy (IP) at a surgical center it is under $800 Laparoscopic Cholectystectomy (OP)• Taxpayers cannot decipher the IP – Inpatient OP – Outpatient $- $5 $10 $15 $20 $25 breadth of the problem Thousands 2011 DPW Data Median Paid 5
Welfare CliffGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Example Household Receiving Welfare Benefits: • Single mom • Two Children • Lives in Pennsylvania • No disabilities • Children are 1 and 4 years old and placed in a Star 4 childcare center
Household Benefits and Income ChartGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 80,000 75,000 70,000 • To understand the problem, it’s best to look 65,000 at the family’s income 60,000 continuum. Welfare Benefits + Wages 55,000 • This chart depicts the 50,000 family’s income on a 45,000 sliding scale. 40,000 Earned Income minus • A family making about 35,000 taxes $60,000 takes home 30,000 about $49,000. 25,000 • Despite the progressivity 20,000 of the income tax, this 15,000 family is always better off making more money, 10,000 taking a better job. 5,000 Red Line Represents Net Income - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000 - Wages
Household Income and Benefits ChartGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.usIf we stack on welfare benefits, you can quickly see what happens. Welfare cliffs crop up in several spots. 80,000 75,000 70,000 Highest Welfare Cliff 65,000 Welfare Benefits + Wages 60,000 55,000 50,000 45,000 40,000 The single mom is better off earning 35,000 gross income of $29,000 with 30,000 $57,327 in net income & benefits CHIP 25,000 MA than to earn gross income of Childcare $69,000 with net income & benefits 20,000 Energy of $57,045. 15,000 Housing Food 10,000 Cash 5,000 Negative Income Tax Earned Income minus taxes - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000 - Wages
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Result: Out of control welfare spending.
Pennsylvania Growth TrendsGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 40% PA Welfare Budget 36.5% 35% 30% Poverty 29.9% 25% 20% 15% General Fund Revenue Economy 10% 7.4% 5% 1.3% 0% FY 00-01 FY 01-02 FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11 -5% • Adjusted for Inflation using the Consumer Price Index for the regional area of Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD. • Poverty Growth is the accumulated population growth since 2000 of those persons in poverty as defined by the Census Bureau. • Economic Growth as indicated by State Personal Income as measured by the U.S. Bureau of Economic Analysis, and adjusted for inflation.. • PA’s Welfare budget GROWTH NOT adjusted for inflation stands at close to 80% over the past decade. • Even after adjusting PA’s Welfare growth for inflation, it still far outpaces poverty growth.
U.S. Medicaid ExpendituresGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Official Forecast of the U.S. Department of Health and 900 800 700 Forecasted State Medicaid Expenditures Billions of Dollars 600 Forecasted Federal Medicaid Expenditures 500 State Medicaid Expenditures 400 Federal Medicaid Expenditures 300 200 100 0 1998 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
U.S. Medicaid EnrollmentGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Official Forecast of the U.S. Department of Health and Human 90 Services Enrollment Due to ACA 80 Forecasted Enrollment Enrollment 70 60 Millions of Recipients 50 40 30 20 10 0 1998 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
PA: Growth in Medicaid Since 1979Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 110% 105% 100.7% 100% 95% Growth in Medical Assistance enrollment has 90% outstripped both population growth and economic 85% growth. 80% 75% 70% 65.9% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 7.2% 5% 0% Population Real Personal Income Medicaid 13
10 Year National Accumulative GrowthGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 160% 158% 140% 120% Food Stamps Enrollment 100% Medicaid Enrollment Government Employment 80% Private Employment 60% 52% 40% 20% 6% 0% -2% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -20%
Number of Workers per Medicaid RecipientGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 18.0 17.9 17.0 16.0 15.0 14.0 13.0 13.0 12.0 Employment to Enrollee Ratio 11.0 Private Employment to Enrollee Ratio 10.0 9.0 8.0 7.0 6.0 4.8 5.2 5.1 5.0 4.0 3.9 2.6 3.0 4.2 3.8 4.0 2.5 2.0 3.2 1.0 2.0 1.9 - 1982 1966 1968 1970 1972 1974 1976 1978 1980 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Tax Burden on Wealth ProducersGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 2011 National Data Estimated Welfare Recipients 66.1 million Government Employed Persons 21.2 million Privately Employed Persons 109.3 million - 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 For every 1.65 employed persons in the private For every 1.25 employed persons in the private sector, 1 person sector, 1 person receives welfare assistance.1 receives welfare assistance or works for the government.1 1 Thesource for the privately employed persons and government employed persons is the U.S. Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages, September 2011. The number of persons on welfare is calculated with national Medicaid and Food Stamps numbers and using a formula based Pennsylvania’s experience to remove duplicate counts estimated for October 2011.
Disability Growth SoaringGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us • A record 5.4 million workers and their dependents have signed up to collect federal disability checks since President Obama took office. • Nearly 11 Million now on Social Security Disability – up 53% over the past 10 years. •The number of new disability enrollees has climbed 19% faster than the number of jobs created during the sluggish recovery.
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us State Based Solutions: Lessons from Rhode Island
Rhode Island Medicaid ReformGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Rhode Island was granted an 1115 Medicaid Waiver in January of 2009 • RI first asked feds for: Block Grant with gain sharing based on Performance [measures]; to reinvest a portion of savings from the “grant” back into preventive health care; to waive onerous federal rules; and to align all welfare programs. DENIED by Washington • Federal Government and RI settled on and agreed to: providing RI with a capped allotment of federal-state funds for Medicaid based on historic trends. This was the first state ever granted an entire spending cap over an entitlement. Granting the state with unprecedented flexibility to change delivery systems, infuse competition, performance based programs and change the culture from open ended spending to cost-effective quality design and expenditure reduction. Granting a new streamlined administrative structure where Federal Government has to answer the state within 45 days. Up until the waiver, the Federal Government would often make the state wait months or years to receive an answer to a question. Allowing the ability to access additional federal funds for state funded programs that delay institutionalization and are wellness and prevention focused [to further the goals of the waiver] Granting the state with IT funds to create the Health reporting system for recipients • Obama administration revoked biggest parts of reform and agreement: Example – HSA type account for each Medicaid recipient with incentives to improve health, behavior and performance of each recipient and the goal of moving as many people off the system and into the economy as possible.
The Results…Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us • After 2 years, Rhode Island stayed $1.7 Billion under the federal-state cap of $12.075 Billion. • Projections show that by the end of the 5 year waiver period, Rhode Island will be over $3 Billion under the cap. In other words, spending was almost cut in half. Budget Neutrality Performance $3,000 $ 2,600 $ 2,400 Expenditures (millions) $ 2,300 $ 2,300 $ 2,375 $2,500 $2,000 $1,746.2 $1,500 $1,332.1 $1,000 $500 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Global Waiver Year CMS Allocation Actual Source for chart: Rhode Island Executive Office of Health and Human Services December 2010.
More Results - RI Culture ChangeGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us The Main ingredient for success the SPENDING CAP forced CULTURE CHANGE • Having one waiver, with a spending cap set below historical spending patterns and in accordance with the federal government, allowed Rhode Island to break down silos of care and services. • Spending cap forced the state to be financially responsible for the first time in history. • Before the Global Waiver, “if the State spends a dollar it cant afford, the federal government is happy to match it with dollars they dont have.” • The RI Waiver changed the culture and incentives! The Spending Cap Changed the culture and forced the state to reform, redesign and be cost-conscious. Without an urgency to save, government will never be cost-effective and improve quality.
Recent News/Results…Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Providence Journal BREAKING NEWS May 10, 2012 By Randal Edgar PROVIDENCE, R.I. -- State budget analysts said Thursday that they expect revenues for the fiscal year that ends June 30 to be $62 million greater than predicted…They also said revenues for the coming year are now expected to be $17.8 million greater than projected, based on trends that suggest…Medicaid and cash assistance programs will be $27.8 million lower than projected this year and $31.6 million lower next year.
The Lewin Group StudyGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us In 2011, the Lewin Group performed an independent study to test the RI reforms. The study found that the Ocean States reform with a federal waiver had been "highly effective in controlling Medicaid costs" and improving "access to more appropriate services.” Lewin examined the states shift to home and community-based care from nursing homes for long-term care patients. Lewin found the reform helped save $35.7 million. $15 million in 2010 alone. The Lewin study also "found evidence of lower emergency room utilization and improved access to physician services" from "care management programs" for Medicaid patients with asthma, diabetes, heart problems and mental health disorders. Emergency room care is a major driver of Medicaid costs.
The Medicaid Solution: A New PartnershipGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us • Solutions – Harness the Laboratories of Democracy – Maximize Flexibility to States – Forecasting Cost Savings – Specific Reforms DRAFT - version 6 24
Give States FlexibilityGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us The Temporary Assistance for Needy Families (TANF) program, which allows greater flexibility among the states has seen a 68% enrollment drop from 1990 to 2008. By contrast, Medicaid, which is layered with federal rules, has seen an 110% explosion in the number of enrollees. Poverty has grown only 19% during the same time period. 25
Forecasting Cost SavingsGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us • Innovation and creativity by the states will produce savings. • With freedom from federal rules, an Initial 10% savings is very possible: – Pennsylvania’s Actuary has run several financial models on potential reforms for Medicaid and estimates total savings between 7% and 16%. – TANF resulted in 68% enrollment drop after flexibility was given to the states (see previous slide.) • The Federal Government can attain more than $1.5 trillion through a new federal-state partnership on welfare reform. DRAFT - version 6 26
Potential Savings by Capping Medicaid GrowthGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us Estimated ten-year savings for taxpayers by just capping Medicaid growth and allowing states to innovate and manage within the cap: in billions of dollars Capped Growth Federal States Total 5% 605.4 388.5 993.9 4% 771.1 495.6 1,266.7 3% 927.1 596.5 1,523.6 2% 1,074.0 691.5 1,765.5 1% 1,212.4 781.0 1,993.4 0% 1,342.7 865.3 2,208.0 -1.0% 1,465.4 944.7 2,410.1 -1.3% 1,500.8 967.6 2,468.4 This was the goal of the Joint Select Committee on Deficit Reduction goal achieved. DRAFT - version 6 27
Three Solutions for AmericaGary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 1. Rhode Island Global Waiver as implemented: – Assumes the federal government will provide all states the same flexibility given to Rhode island as implemented with the restrictions imposed by the Obama administration. 2. Full Rhode Island Global Waiver: – Assumes the federal government will provide the Rhode Island Global Waiver as stated in the terms and conditions. One and two above provide programmatic flexibility with a financial cap and gain sharing to the states similar to what was given to Rhode Island in its Global Waiver. No act of Congress is necessary and only involves approval from the Federal Centers for Medicare and Medicaid [CMS]. 3. Mega Grant: – Assumes a New Social Compact where all social welfare program funds are combined and delivered to the states with clear performance measures and gain sharing. NOTE: Projected Pennsylvania savings from super block grant: about $129.1 billion over 10 years. Pennsylvania is roughly 4% of U.S. population and spends roughly 5% of the welfare funding. Extrapolating from above: $2.5 trillion to $3.2 trillion total savings for all states and federal government. Assuming Federal share is 52.5%, the federal government saves $1.4 trillion to $1.7 trillion over ten years.