PA Auditor General Offers Ways to Balance Budget - Without Tax Hike

Add one more Democrat to the list of those who don't think we should raise the state income tax - Auditor General Jack Wagner has release a series of ideas for balancing the Pennsylvania state budget without hiking taxes.  His proposals aren't as good as ours, and don't cut much of the wasteful spending we identified, but he does offer some good ideas:

• Cut down on Medicaid fraud: $320 million
• Crack down on tax evaders (one tool for doing this might be appointing them to the cabinet): $160 million
  
• Eliminate or reduce tax credits for special interests: $100 million
• Offer early retirement incentive for state employees: $50 million

Wagner will be talking with Matt Brouillette today at 3 pm on the Bob Durgin Show - on WHP 580 Harrisburg or live online.

Federal stimulus is a trap for states

The Wall Street Journal today looks at governors considering rejecting the federal stimulus dollars, as it will increase the cost to states.  For example, the stimulus expands Medicaid subsidies, encouraging states to expand their Medicaid rolls; but once the stimulus money vanishes in a few years, states will be on the hook.  Likewise with unemployment benefits; the stimulus increases the benefits, and extends benefits to part time workers - but leaves states on the hook for these added costs in the long run.

The Rockefeller Institute (which generally argues that states need more funding for all their wonderful programs, and glosses over wasteful uses of taxpayer dollars) also has a paper asking - "What Happens When New Federal Aid to States Runs Out?"  Their answer:

“The economic and revenue picture for states is uncertain,” the new report concludes. “Under any likely scenario, however, major fiscal problems for states will return when the new aid from Washington runs out. Budget gaps in fiscal 2012 will likely rival the critical shortfalls that states faced before enactment of the new stimulus package. Cuts or reductions in growth of spending on education, health care, and other programs, and/or major tax and other revenue increases, will almost certainly be on the table once again."

We have several solutions for Pennsylvania and states in a similar boat:

• Cut wasteful spending and corporate welfare
• Reform the state Medicaid program
• Revamp how we fund higher education
• Utilize more school choice
• Make government spending more transparent
  

Pennsylvania Auditor Finds Millions Wasted in Medicaid

Auditor General Jack Wagner has a new finding that $3.3 million was spend on Medicaid benefits for those inelligible (HT Tony Phyrillas).  That $3.3 million figure (on 1,648 errors) came after analyzing only 2% of the total Medicaid caseload - meaning the total error level for the state was likely hundreds of millions of dollars.

What is the punishment for such wasteful spending?  Mostly likely a bailout from federal taxpayers awarding more money for state Medicaid spending.

Here is the Commonwealth Foundation's recent report outlining reforms needed in the Medicaid system.

What Medicaid Tells Us About Government Health Care

In the Wall Street Journal, Scott Gottlieb notes the poor performance of Medicaid, and wonders why President-elect Obama (or Governor Rendell) would want to expand on such a program.

We have raised such similar flags about the quality of government health care as has Greg Scandlen.

Our report and recommendations to fix Pennsylvania's Medicaid program is here.

Where will Obama go on health care?

In our commentary today, Matt Brouillette and I argue that President Obama will pursue a somewhat tempered course - we will get the Obama of the general election campaign more rather than the primary campaign or "Marxist" version of Obama.  One example of this is health care, in which Obama's ads portray him as a middle-of-the-road guy, somewhere between government controlled health care and free market reforms (though his ads hide how much his plan represents socialized medicine).

Our hypothesis will be put to the test quickly, as Sen Max Baucus (D - Montana) has unveiled a plan that even the New York Times considers pretty far to the left. Baucus' plan would:

• Require "guaranteed issue" - meaning anyone can wait until they get sick to obtain coverage, and can't be denied - and "community rating" - which means everyone has to pay pretty much the same rate whether regardless of age, health, or behavior.   Even those these regulations drive up the cost of insurance in states that have them, Baucus would call for them to be imposed nationwide. 
• Additionally, employers would require to "provide" "health insurance" to employees (note that they are in quotes, as the federal government will define both terms on what they will require employers to do) or face a fine or tax.
• Additional subsidies for government health insurance and Medicaid, even though government health insurance and Medicaid often provide worse results for recipients that being uninsured.
• Mandates for individuals to obtain insurance - even as cost skyrocket because of the mandates imposed by the federal government.   The Massachusetts model should indicate exactly why individual mandates are no silver bullet.  

Obama opposed individual mandates (and during the primary, before he began to move the center), arguing that we need to control costs in health care, not force people to buy insurance regardless of the cost.  Indeed solutions we have proposed are indeed aimed at lowering costs, to allow more people to afford private insurance, and to benefit those already insured.


The NCPA has more on the flaws of the Baucus plan. The question, however, is whether Obama will "avoid controversy," as we predicted, or support a plan more radical than his own. 

Medicaid reform: For the poor and the poor taxpayer

Cross-Posted at Capital Domes

The Pittsburgh Tribune-Review recently looked at the looming budget shortfall and its potential impact on Medicaid spending. The legislature couldn't simply cut Medicaid spending -- as it is an entitlement program -- but would instead have to adjust eligibility requirements or levels of payment to health care providers.

Medicaid is the largest program in the state budget. In 1980, Medicaid represented around 12 percent of the state budget, but by 2007 Medicaid accounted for almost 26 percent of the budget. The problem is that it is increasing at an unsustainable rate.

Medicaid reform is necessary, both to reduce the costs to taxpayers and to give recipients better quality of care. Since the payments to health care providers established by the state are often set too low, many providers won't serve Medicaid recipients. And when Medicaid providers are paid below-market rates, they attempt to offset this loss by increasing rates to private payers.

Apart from oversight problems, Medicaid has a well-deserved reputation for providing low-quality care. The services are often low quality, treatment is episodic and preventative care is rare. With all of these problems now is an ideal time to reform the system.

Our suggested reforms include:

• Creating an insurance and provider exchange (IPE) that would give participants credits (or vouchers) to purchase health care coverage. The insurance credits could be risk-adjusted to serve the diverse Medicaid population.
  
• Controlling fraud and providing incentives for innovation by ensuring all plans are pre-paid.
  
• And giving providers the freedom to design specific products for a variety of medical problems facing Medicaid enrollees.
  

More details of our proposal can be found on the Commonwealth Foundation's Web site.

Continuing to frame the Medicaid debate in terms of spending cuts or spending increases is useless. Reforming Medicaid requires a new way of thinking.

The question is: Can Harrisburg think differently?

Government Health Care Kills

Pennsylvania Governor Ed Rendell is calling on the Pennsylvania Senate leadership to break their pledge not to hold a lame duck session. Among Rendell's rhetorical arguments is that "nearly two people a day die in Pennsylvania because of a lack of health insurance."

The Commonwealth Foundation's response, tongue-in-cheek, is that 10 Pennsylvanians die every day because of government involvement in health care.

Of course, no one really dies because they lack insurance or because they enroll in Medicaid, but the point (besides exposing Rendell's demagoguery) is that government health insurance—which Governor Rendell sees as the solution—is worse than the disease.

Instead, we should look to options that allow more individuals to enroll in private coverage.

Converting Medicaid into Premium Assistance

The Heritage Foundation has a new backgrounder (click here for PDF) on how states can convert Medicaid spending into premium assistance for insurance - a proposal which would both reduce costs and provide better quality care - with recommendations both for state and for Congress to encourage this reform.

Their recommendations mirror those of our policy report on reforming Medicaid (Medical Assistance) in Pennsylvania by Michael Bond, which we released in May.

What can we cut?

An anonymous poster to GrassrootsPA defends the recently enacted state budget against criticism from the Commonwealth Foundation, along with that in other comments.

The budget does not, in fact, set the stage for tax increases. WAMS are less than 1.5% of the budget. Borrowing hardly kicks the can down the road. Not fixing bridges kicks the can down the road. Welfare cash grants are less than 1% of the budget. Which of the following would you like to cut? Basic Ed funding? Medical Assistance (for the very poor and aged)? Correctional Institutions? County Child Welfare? Special Education? Mental Retardation Services? Long-Term Care (for the aged)? Together these programs represent nearly 50% of the budget. You may answer, "well cut the state workers". They already did.

For starters, the poster only notes the 50% of the state budget he thinks everyone would support. But wait, doesn't that leave 50% of the budget on programs that aren't so non-controversial? In other words, the budget could be cut in half and still preserve those program.

If only I had co-authored a study detailing waste and proposing cuts in the budget—oh wait I did. Government on a Diet finds over $4 billion in wasteful spending in state government, including $1.2 billion from the General Fund—and that doesn't even tackle the programs the poster highlights. But that is not to say we shouldn't reduce spending on those programs.

Indeed, in Edifice Complex, we detailed the dramatic growth in education spending—most dramatically for new construction—without producing academic gains. How can we save funding? How about through school choice, as charter schools, cyber schools, private schools (even we supported by tax credits like the EITC), home schooling, et. al. are far more cost effective than public schools and save taxpayers at the state and local level billions, as our policy brief The Dollars and Sense of School Choice and our website SchoolChoiceSaves.org detail.

We have also highlighted the dramatic and unsustainable growth in Medicaid (Medical Assistance), and offered suggestions for reforming that program which would not only save money, but provide better health care for recipients. Furthermore, there is plenty of bloat in correction institutions, and we testified to the efficiency and savings of competitively contracting prison operations—including specific services (health care, cafeterias), prison construction, and even total prison operations.

But what about bridges? Surely that is a proper function of government. Yet the borrowing for bridge repair is on top of past debt and current borrowing for pork projects—like soccer stadiums and ill-fated cargo airports. There are also cost savings measured needed in transportation funding, even the Governor's funding commission recommended that. How about repealing prevailing wage laws for bridge construction and repair, as I testified to. That is estimated to reduce the cost by 20%—enough to repair a lot of those bridges without new spending or borrowing. We should also be directing funding to repairing existing infrastructure, rather than directing it to politically selected projects, like roads named after lawmakers. Pennsylvania can also save money through competitively contracting mass transit operations. Lastly, we need to look to the private sector, not the taxpayer, for financing. Public private partnerships on new facilities, HOT lanes, and the like—along with leasing the Pennsylvania Turnpike—are mechanisms for improving our infrastructure while not increasing taxes or debt.

Finally, as for "cutting the workers", we should reduce the 3,000 or so legislative staffers as we move from a professional to a citizen legislature—particularly those staffers involved strictly in public relations for their bosses, such as posting anonymously on GrassrootsPA.

As Jefferson said, "The natural progress of things is for liberty to yield and government to gain ground." Reversing direction and dramatically reforming the way the state government does business is a hard task. Spending more money to keep going along the same path is easy. Unfortunately, lawmakers consistently choose the easy path.

Medicaid Money Laundering

Wall Street Journal reviews how states are taking advantage of the Medicaid system to get more money from the federal government (i.e. ripping off taxpayers).

Here is a recent post on Governor Rendell's plans to cheat Medicaid.

Read our report on how Pennsylvania should adopt major reform of the Medicaid system.

South Carolina's Contender

The Wall Street Journal had a piece on Saturday on the the Vice-Presidential prospects of Mark Sanford. I point it out not because my phone is ringing off the hook with John McCain calling for my advice on a running mate, but because Sanford's victories as Governor as South Carolina should be a model for reforming Pennsylvania.

Over the past six years, he has helped shepherd through three big tax reforms: the state's first cut to its income tax; a grand tax swap that slashed property taxes and increased sales taxes; and the virtual elimination of grocery taxes. That last one is not the tax cut Mr. Sanford wanted to spur investment. But he took what he could get, explaining simply, "We're about returning money to the taxpayer."

On health care, he sums up his views succinctly: "Our contention has been that the fatal flaw with our health-care system is that someone else pays. And as long as someone else pays, there is unlimited demand for a product . . . someone is going to cap it. It's just a question of who it is going to be? A government bureaucrat? An HMO bureaucrat? Or is it going to be you? But it is going to be somebody, because we can't keep growing health care at double digits and expect to be competitive. . . .

"So we were the second state in the nation to offer health savings accounts to all state workers and all state retirees. We got that one through. We are the first state in the nation to be offering the health care choice system [for Medicaid]. . . that offers everything from traditional fee-for-service to HMOs to PPOs, but the big one that I like is the individual health savings accounts."

At this point Mr. Sanford takes a surprising detour to bring up hurricane insurance, and ends up touching on another Republican touted as a possible running mate for Mr. McCain, Florida Gov. Charlie Crist:

"Even in the insurance crisis with hurricanes . . . we very much disagreed with the . . . Charlie Crist model [which makes the state an insurer of last resort]. Basically the taxpayer is going to be zapped in the long run in that model, when the next storm hits. . . . We said, No, let's rely on private markets and let's look for ways to attract private capital to our state. One of the most interesting features in [our reform] was hurricane savings accounts. To say look, if you just flat out hate insurance companies and think they're ripping you off and don't like the way that they're pricing risk, take the risk yourself. . . . That's why, in fact, we put in a provision here with hurricane savings accounts, where if you want to tuck money aside, tax free from the state standpoint – we can't do anything about the feds – from a state standpoint, go for it."

Perhaps the hardest thing to reform in any state is education. And in South Carolina it is more difficult than elsewhere, for two reasons. The first is that the state's history of racial segregation ensures that any school choice debate will be charged with emotion. The second is because local politics drives resources and attention to a limited number of schools in politically powerful districts. The results: a 50% dropout rate, SAT and ACT scores among the lowest in the nation, and a wide achievement gap between black and white students.

Nonetheless, Mr. Sanford has enacted a voucher system for prekindergarten students, created a statewide charter school district (local districts won't approve new charters), and has pushed for, though not won, vouchers for nearly every child in the state.

Pennsylvania proposes to cheat Medicaid

Michael Cannon writes that the Rendell administration's plan to tax Philly and Pittsburgh hospitals, but give them higher reimbursements from Medicaid is a great plan ... for Pennsylvania. Of course, he also remarks that it defrauds non-Pennsylvanians.

Basically the higher Medicaid payments from the state will be matched by the federal government (i.e. taxpayers from PA and other states), but by then taxing the hospitals, the state basically takes the money back. Nice scheme.

The "Cost of the Uninsured"

Many proposals for "universal health care", including RendellCare, claim that there will be savings by eliminating what everyone pays on "costs for the uninsured", or uncompensated care.
But a new study of medical care in California, summarized by Greg Scandlen, found that the uninsured paid nearly as much as the fully insured for health care services - and more than Medicare and Medicaid recipients.

First it finds that the uninsured consume a mere 5.5% of all hospital care – far below their representation in the population (about 20% in California). Next it found that in 2001 the uninsured (self-pay) patients paid 39% of the list charges. Commercially insured patients paid 41%, Medicare patients paid 35%, and MediCal patients paid 30%. By 2005, the uninsured were still paying far more than Medicare and MediCal, but 14% less than privately covered. In fact, in 2001 the uninsured paid 18% more than Medicare, but 20% more in 2005. ...

Rather than being a drain on California’s health care system, the uninsured are actually subsidizing the state’s MediCal program.

Cover A Few Pennsylvanians update

A few weeks ago, we put out some quick facts about the few Pennsylvanians that would be covered by "Cover All Pennsylvanians." Based on the new Governor's budget, we have had to revise that estimate (PDF version).

CAP will actually cover fewer Pennsylvanians than we said it would. Even taking away some basic assumptions - that there would be any increase in uninsured (through losing coverage, new residents, children becoming adults) or any "crowd out" (those currently insured moving onto CAP), Governor Rendell's own numbers indicate only about 200,000 would use CAP (excluding current Adult Basic enrollees and future Medicaid increases). This represents one-quarter of the estimate uninsured.

Government Health Insurance Kills

Somebody needs to fact check FactCheck, like me. The group FactCheck.org issued a "fact check" on an ad by Rudy Giuliani comparing health care in the UK and the US. The ad claims that the survival rate for prostate cancer sufferers is 82% in the US and only 44% in the UK (under socialized medicine). The statistic really comes from an article by David Gratzer on Canadian Health Care.

Gratzer calculated the number of deaths divided by the number of diagnoses each year. FactCheck calls this statistic "bogus" because the way to calculate survival rates is to find the percentage diagnosed still living after five years. By this measure 74.4% of UK cancer victims live five years - but in the US 98% do.

It seems even with the new math, the Gratzer/Giuliani argument holds up. But FactCheck doesn't think this means US health care is better, just that US men get screened earlier and more often(though they don't attribute this to long lines in socialized medicine).

But FactCheck goes further than to question the data, and tries to impugn Rudy/Gratzer's entire argument that free market health care is better than socialized medicine:

Giuliani's central argument is that if the Democrats have their way, the public’s health is in danger. As we've noted, that's simply not supported by the bogus statistic he gives as evidence. There is, however, ample evidence that lack of health insurance is hazardous to an individual's health, and that those who do have coverage (as Giuliani did as mayor) live longer.

They then cite a study showing longer survival rates among those diagnosed with cancer under private insurance than those uninsured (apparently survival rates can be compared by type of insurance, but not across countries). This shouldn't be surprising, nor would I argue that it is better to be uninsured than have private insurance. But that same study finds that the uninsured live longer than those under government insurance:


"Giuliani's central argument" that FactCheck derides seems to be right on - plans to put more people into government insurance programs puts the public's health in danger. Not only are they better off under private insurance, but they are better off being uninsured.

Or to paraphrase FactCheck: There is ample evidence that Medicaid is hazardous to an individual's health, and that those have coverage (as Giuliani did as mayor) or have no insurance live longer.

Jesus: Roman Empire Should Provide Universal Health Care

Remember the passage in the Bible where Jesus called upon the Roman Empire to provide universal, government-run health insurance? Well, Governor Rendell says it is there:

Rendell criticized politicians who talk about "morals" and "family values," yet refuse to support his plan for covering the uninsured.

If they care about what's right morally, Rendell shouted, they should heed the Bible's advice to "heal the sick" or stop claiming to support such values.

New taxes to provide government-run health care does not equate to "healing the sick". To paraphrase Ronald Reagan, "The size of the state budget is not an appropriate measure of social conscience or charitable concern."

If Governor Rendell wants to be truly charitable why won't he support ending laws that prevent people from buying lower-cost insurance from other states.

What about repealing mandates which drive up the cost of insurance and makes it too expensive for many familes?

Is it charitable to tax individuals for the cost of their health insurance? If, as we think it is not, then the Governor should support equalizing the tax code for those who buy insurance.

Instead, the Governor proposes a 3% payroll tax on businesses that "don't provide health insurance" (yet to be defined) to employees. As anyone can tell you, a payroll tax is essentially the same as a wage tax (or a pay cut) - meaning that employees who don't get insurance from their employer will get a 3% salary cut. Is this charitable?

How about creating a tax credit for charitable contributions to HSAs for low income families?

As Governor Rendell's plan essentially expands Medicaid, shouldn't we be talking about the negative effects of Medicaid, include the low quality care provided to Medicaid recipients.

What about considering the long waiting lists for medical care in countries with socialized medicine. Is moving us toward that model to be considered charitable?

Governor Rendell obviously confuses health "insurance" with health care, and confuses government spending with altruism.

Here are some other policy changes to free the market to reduce the uninsured and to help reduce the cost for those already insured. Jesus, Moses, and Muhammad would support that, wouldn't they? Of course the insurance companies and the unions backing Rendell's plan might not.

Do the latest welfare numbers stack up?

AP Story covers the latest news release from the PA Department of Public Welfare claiming lowest number of welfare recipients in nearly 50 years.

This rosy analysis doesn't seem to jive with our recent commentary on welfare in PA, so where is the problem.

First - the AP story and news release look only at TANF (formerly AFDC). While this is what people often mean when they talk about "welfare" for the poor, the department of Public Welfare has many other programs to provide assistance to the poor - Cash Grants, Energy Assistance, SSI Grants, Child Care. The largest program is Medical Assistance (Medicaid) - which has 10 times the number of enrollees as TANF, and continues to grow. This is important to point out when evaluating how many individuals are dependent on government.

Second, the new release doesn't cite national trends as part of the reason for the reduction in caseloads. According to the latest national data (which is through Dec. 06, and doesn't include the latest numbers from DPW), the number of TANF families in PA grew by 3% since Jan 2003, vs. the nationwide decline of 14%.

Third, DPW selectively sites the decline since Oct 2005 - when TANF enrollment peaked. But Oct 2005 represented a dramatic increase in TANF enrollment since Gov. Rendell took office, even as nearly every other state saw declines. And the new data from DPW indicates that are still more recipients (they don't identify the number of families ) than in January 2003.

Finally, the work participation data is suspect, and DPW is not providing many details. In 2004, Pennsylvania ranked last in work participation - with an 8% participation rate. In 2006 PA's work participation rate was 32%. Now DPW is claiming a 52% participation rate. But fewer families are participating in work than in 2006. It is true that the total number of families in TANF declined, but that does not explain the participation rate.

DPW states that 12,737 families are particpating in work requirements (jobs or job training), up from 4,000 in 2004, but down from 17,000 in 2006. They must be dividing by 24,684 to get 52%. Yet there are an estimated 50,000 families with adults in TANF - meaning 30,000 families are excluded from their calculation (See below). In the past, only about 4,000 families were excluded. So it appears DPW is simply exempting familes from work participation requirements to get a higher rate.

Medicaid Reform in Texas

NCPA analysis of the Medicaid reform proposal in Texas - mostly good ideas, but lacking some key components of free-market reform.

Welfare state growing

Associated Press story on the growth of Welfare rolls. While TANF cash grants have declined nationally under welfare reform, Medicaid and other programs have grown. Today, one in six people in the US rely on some form of government aid.

National Health Care? We’re Halfway There

New York Times article highlights that fact that almost half of all Americans are covered by government health care (through Medicare, Medicaid and related program, and government employee's health care plans)