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Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 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.
Gary 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.
Welfare Chaos
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Chaos in the Federal-State Relationship
2
Key
= indirect interaction
= direct interaction
• Aging WaiverAging
OCDEL(pink)
OIM(dark blue)
ODP(red)
OLTL(green)
OMAP(brown)
OMHSAS(purple)
OCYF(yellow)
• For Families with Children
• For the Aged and Disabled
• Long Term Care
• Select Plan for Women
Medical
Assistance
• Nutritional support for low-
income families
Supplemental
Nutrition
Assistance
Program (SNAP)
• A suite of programs that
provide job readiness,
placement, retention
training, and supportive
services
Employment
and Training
Programs
• Provides services to families
and children in immediate
need of shelter and to those
in imminent danger of
becoming homeless
Homeless
Assistance
• Temporary Assistance for
Needy Families (TANF)
• General Assistance (GA)
• SSI State Supplement
Cash
Assistance
• Assistance to low-income
families in need of
assistance with their
heating and cooling bill
Low Income
Home Energy
Assistance
Program (LIHEAP)
• Establishes paternity and
support orders and
provides medical support
and employment services
for non-custodial parents
Child Support
Enforcement
• Provides free services to
assist clients to resolve civil
legal problems Legal
Assistance
• Consolidated Waiver
• P/FDS Waiver
• Base Services
MR/ID:
HCBS
• Adult Autism Waiver
(AAW)
• Adult Community Autism
Program (ACAP)
Autism:
HCBS
• State Centers
• Private Facilities
Intensive Care
Facilities/ Mental
Retardation
• Attendant Care Waiver
• Act 150
Attendant
Care
• MA Nursing FacilitiesNursing
Facilities
• AIDS WaiverAIDS
• Independence Waiver
• COMMCARe Waiver
• OBRA
Community Service
Programs for
People with
Physical
Disabilities (CSPPPD)
• Managed Care
• Fee for Service
Medical
Assistance• Child Care Certification
Certification
Services
• Early Intervention,
Infant/Toddler
• Early Intervention,
Preschool
Early
Intervention Services
• Child Care WorksSubsidy
Services
• Keystone STARS
• Keystone Babies
• Pennsylvania Pre-K Counts
• Full Day Kindergarten
• Head Start State
Supplemental Assistance
Program
• Early Head Start
• Parent-Child Home Program
• Nurse-Family Partnership
• Children’s Trust Fund
Early
Learning Services
• Youth Development Centers
• Youth Forestry Camps
• County Juvenile Probation
Offices
• Private Agency Delinquency
Services
Juvenile
Justice Services
• Homemaker/Caretaker
Service
• Life Skills Education
Adult
Education
• Adoption Services
• Adoption AssistanceAdoption
• Information and Referral
Services
• Service Planning
Administration
& Oversight
• Foster Family Service
• Community Residential
Service and Group Home
Service
• Supervised Independent
Living Service
• Residential Service
• Secure Residential Service
• Emergency Shelter Service
Placement
• Protective Services (Child
Abuse)
• Protective Services (General)
• Counseling/Intervention
Services
Protective
Services
• Day Care Service
• Day Treatment Service Day Services
• Life ProgramLIFE
• HealthChoices Behavioral
Health (HC-BH) Program
• Fee-for-Service
• Behavioral Health Services
Initiative (BHSI)
• Base
• Act 152
Behavioral
Health & Substance
Abuse Services
• CHIPPIntegration
Programs
• State Hospitals and
Restoration Center
• Other Initiatives
State
Facilities
• Special Pharmacy Benefits
Program for Mental Health
(SPBP-MH)Pharmacy
FNS ACF SSA CMS
AoAHRSAOSEPSAMHSA
IRS
Audit
Data
Sharing
SNAP
and
School
Meals
ICE
VAUSDLIUS DOT
Through
PA DOT
Through
PA L&I
Audit /
Eligibility MH
Eligibility
HHS
Through
PA DOH
HHS OIG
State
Counterparts
State
Counterparts
Federal DOJ
FBI
2
SNAPSHOT OF WHAT A STATE HAS TO DEAL WITH FROM THE FEDERAL GOVERNMENT MYRIADS OF CONFLICTING RULES AND REGULATIONS FROM A MASSIVELY DISORGANIZED BUREAUCRACY
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Lack of Transparency
5
$- $5 $10 $15 $20 $25
Laparoscopic Cholectystectomy (OP)
Laparoscopic Cholectystectomy (IP)
Knee Replacement (IP)
Colonscopy (OP)
Chest Pain (IP)
Median Paid Thousands
Serv
ice
Hospital A Hospital B Weighted Average
Median Price of Health Care Services Selected Hospitals in Urban Settings, Southeastern
Pennsylvania
• Health care consumers do not know the cost of medical services or if price is associated with quality
• Health care costs vary dramatically across the Commonwealth without any apparent connection to quality or the health status of patients served
• In Philadelphia for example, a colonoscopy at one hospital is over $3,000 and a few miles away at a surgical center it is under $800
• Taxpayers cannot decipher the breadth of the problem
IP – Inpatient OP – Outpatient 2011 DPW Data
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Welfare Cliff
• Single mom
• Two Children
• Lives in Pennsylvania
• No disabilities
• Children are 1 and 4 years old and placed in a Star 4 childcare center
Example Household Receiving Welfare Benefits:
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
-
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 -
5,0
00
10
,00
0
15
,00
0
20
,00
0
25
,00
0
30
,00
0
35
,00
0
40
,00
0
45
,00
0
50
,00
0
55
,00
0
60
,00
0
65
,00
0
70
,00
0
75
,00
0
80
,00
0
85
,00
0
90
,00
0
95
,00
0
10
0,0
00
Earned Income minus taxes
Wages
We
lfar
e B
en
efit
s +
Wag
es
Red Line Represents Net Income
• To understand the problem, it’s best to look at the family’s income continuum.
• This chart depicts the
family’s income on a sliding scale.
• A family making about
$60,000 takes home about $49,000.
• Despite the progressivity
of the income tax, this family is always better off making more money, taking a better job.
Household Benefits and Income Chart
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
-
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
-
5,0
00
10
,00
0
15
,00
0
20
,00
0
25
,00
0
30
,00
0
35
,00
0
40
,00
0
45
,00
0
50
,00
0
55
,00
0
60
,00
0
65
,00
0
70
,00
0
75
,00
0
80
,00
0
85
,00
0
90
,00
0
95
,00
0
10
0,0
00
CHIP
MA
Childcare
Energy
Housing
Food
Cash
Negative Income Tax
Earned Income minus taxes
The single mom is better off earning gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income & benefits of $57,045.
Highest Welfare Cliff
We
lfar
e B
en
efit
s +
Wag
es
Wages
If we stack on welfare benefits, you can quickly see what happens. Welfare cliffs crop up in several spots.
Household Income and Benefits Chart
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Result: Out of control welfare spending.
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Pennsylvania Growth Trends
36.5%
7.4%
29.9%
1.3%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
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
PA Welfare Budget
Economy
Poverty
General Fund Revenue
• 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.
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
0
100
200
300
400
500
600
700
800
900 1
96
6
19
68
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Forecasted State Medicaid Expenditures
Forecasted Federal Medicaid Expenditures
State Medicaid Expenditures
Federal Medicaid Expenditures
Official Forecast of the U.S. Department of Health and
U.S. Medicaid Expenditures B
illio
ns
of
Do
llars
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
0
10
20
30
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90 1
96
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Enrollment Due to ACA
Forecasted Enrollment
Enrollment
Official Forecast of the U.S. Department of Health and Human
Services
U.S. Medicaid Enrollment M
illio
ns
of
Rec
ipie
nts
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
7.2%
65.9%
100.7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
110%
Growth in Medical Assistance enrollment has outstripped both population growth and economic growth.
13
PA: Growth in Medicaid Since 1979
Real Personal Income Medicaid Population
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
158%
52%
6%
-2%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Food Stamps Enrollment
Medicaid Enrollment
Government Employment
Private Employment
10 Year National Accumulative Growth
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
17.9
4.8 5.1 5.2
3.9 2.6 2.5
13.0
4.2 3.8 4.0 3.2
2.0 1.9
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
18.0 1
96
6
19
68
19
70
19
72
19
74
19
76
19
78
19
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19
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19
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19
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19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Employment to Enrollee Ratio
Private Employment to Enrollee Ratio
Number of Workers per Medicaid Recipient
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
109.3 million
21.2 million
66.1 million
- 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000
Privately Employed Persons
Government Employed Persons
Estimated Welfare Recipients
For every 1.65 employed persons in the private sector, 1 person receives welfare assistance.1
For every 1.25 employed persons in the private sector, 1 person receives welfare assistance or works for the government.1
1 The source 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.
2011 National Data
Tax Burden on Wealth Producers
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Disability Growth Soaring
• 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
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
• 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.
Rhode Island was granted an 1115 Medicaid Waiver in January of 2009
Rhode Island Medicaid Reform
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.
$2,600
$1,746.2
$2,400
$1,332.1
$2,300 $2,300 $2,375
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Ex
pe
nd
itu
res
(m
illi
on
s)
Year 1 Year 2 Year 3 Year 4 Year 5
Global Waiver Year
Budget Neutrality Performance
CMS Allocation Actual
The Results…
Source for chart: Rhode Island Executive Office of Health and Human Services December 2010.
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
• 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 can't afford, the federal government is happy to match it with dollars they don't have.”
• The RI Waiver changed the culture and incentives!
More Results - RI Culture Change
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.
The Main ingredient for success the SPENDING CAP forced CULTURE CHANGE
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.
Recent News/Results…
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
The study found that the Ocean State's reform with a federal waiver had been "highly effective in controlling Medicaid costs" and improving "access to more appropriate services.”
Lewin examined the state's 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 Lewin Group Study
In 2011, the Lewin Group performed an independent study to test the RI reforms.
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
The Medicaid Solution: A New Partnership
• Solutions
– Harness the Laboratories of Democracy
– Maximize Flexibility to States
– Forecasting Cost Savings
– Specific Reforms
24 DRAFT - version 6
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Give States Flexibility
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
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Forecasting Cost Savings
• 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.
26 DRAFT - version 6
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Potential Savings by Capping Medicaid Growth
27
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
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us
Three Solutions for America
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.