Op-Ed: New Access to Health Care Will Be an Economic Driver

Good news keeps coming in about Kentucky’s expansion of Medicaid and the launch of Kynect, the state’s health insurance marketplace. It’s clear that coverage is expanding rapidly, the newly-insured are using preventive health care services and reimbursements are flowing to health providers.

While some are spinning a false doomsday scenario about these trends—claiming it will mean unmanageable costs to the state—the real story is about the progress Kentucky will make by improving health, increasing family economic security and creating new health care jobs.

More than 421,000 Kentuckians have signed up for health insurance through Kynect, a much higher number than officials had expected. Outreach efforts have been successful, and Kentuckians clearly want and need the coverage. Also, those who are paying for private coverage through Kynect are finding it very affordable. As the Louisville paper LEO Weekly recently reported, the average monthly premium after tax credits is only $88 per month.

The coverage gains are spread across the Commonwealth, new data from Medicaid commissioner Lawrence Kissner show. Previously, at least 17 percent of residents were uninsured in 75 Kentucky counties, but it’s now likely that no counties have that many people without coverage. In four southeast Kentucky counties, the rate of uninsured may have fallen to less than 5 percent.

What’s more, those who have insurance are using it to get primary and preventive care. In the last year, annual dental visits through Medicaid increased by 15.8 percent; adult preventive services grew by 36.7 percent; breast cancer screening by 20.6 percent; and colorectal cancer screening by 16.1 percent.

Having insurance and using it to get needed care will translate into better health. A recent study looking at three states that had previously expanded Medicaid showed that after only five years, expansion was associated with a 6.1 percent reduction in premature deaths. Those who gained coverage were also more likely to say their health was “excellent” or “very good,” and less likely to say they delayed care because of costs.

Those health improvements are especially important to Kentucky, which has the highest rates of cancer deaths and preventable hospitalizations in the country, and ranks among the 10 worst states in obesity, diabetes and cardiovascular deaths. Our poor health harms economic growth by keeping many Kentuckians from living full, economically productive lives.

Health coverage increases financial security as well. An Oregon study showed that Medicaid very nearly eliminated catastrophic out-of-pocket health care costs, which are the biggest cause of personal bankruptcies. Other research shows that access to affordable insurance options can increase entrepreneurship since leaving a job to start a small business doesn’t mean facing costly individual policies or the risk of going uninsured.

Expanded coverage also means direct job creation. A University of Louisville study estimated that the money from Medicaid expansion would create 17,000 new jobs through the growing demand for health services—and that estimate was based on last year’s lower assumption of the number of people who would sign up. Kissner reported that a minimum of $284 million from the expansion flowed to Kentucky health care providers in the first six months of 2014.

While the state budget will eventually include the cost of 10 percent of the expansion, there are also big budgetary savings. Federal dollars will largely replace state money now going to cover the cost of care to the uninsured as well as some mental health and public health programs, and there will be substantial tax revenue generated from the new jobs that are created.

It’s misleading to narrow the discussion about Medicaid and Kynect to costs without looking at benefits. Doing so ignores the many ways Kentuckians will gain from the decision to expand coverage, including through improved health, lower financial risk and new health care jobs.

When looked at honestly, it’s emerging as one of the best policy decisions Kentucky has made in a long time.

Jason Bailey is director of the Kentucky Center for Economic Policy (KCEP), a nonprofit, nonpartisan institute that conducts research, analysis and education on important issues facing the Commonwealth. See more at www.kypolicy.org.

Medicaid Expansion Leads to Booming Reimbursements, Plunging Uninsured Rate in Kentucky

Five Factors Behind Shrinking Revenue Growth in the Recovery

The rate of revenue growth in Kentucky’s General Fund has slowed down between 2011 and 2014, as seen in the graph below. That’s a big part of why Kentucky’s budget has been so tight even this far into the economic recovery.

New General Fund RevenueSource: KCEP analysis of Office of the State Budget Director data.

Here are five big reasons for this falling rate of growth:

Income taxes grew quickly at the beginning of the recovery.
Revenue from individual and corporate income taxes grew rapidly the first few years of the recovery. In part, that was because a bounce-back in the financial markets and income growth for those at the top translated into tax revenues. The individual income tax grew by $263 million or 8 percent in 2011, making up nearly half of all state revenue gains that year. Since then, individual income tax growth has been more modest, and a one-time capital gains tax issue shifted some income tax revenue from 2014 to 2013. Revenue from corporate income taxes and the limited liability entity tax (an alternative corporate income tax) has also grown rapidly in the recovery due to high corporate profits, but growth is beginning to taper off. Revenue grew 35 percent in 2011, 11 percent in 2012, 12 percent in 2013 and only 4 percent in 2014.

Sales taxes have been weak due to too few jobs and stagnant wages.
Since the sales tax is a regressive tax paid disproportionately by low- and middle-income Kentuckians, it depends heavily on their ability to spend. That’s been limited by continued high unemployment and weak wage growth for those who have jobs. Sales tax revenue has actually declined in three of the last six years. Growth was stronger in 2012, at 5.4 percent, in part because of one-time spending due to pent-up demand from the recession according to the Office of the State Budget Director. Limited taxation of services also impedes sales tax growth.

Tax amnesty inflated revenues in 2013.
To help balance the budget during weak revenue growth, the state put in place a tax amnesty program in 2013 that netted a total of $58.4 million for the General Fund. Tax amnesty allows those who owe back taxes to pay them without a penalty, meaning a one-time infusion of funds.

Coal severance tax revenues were strong in 2011 and 2012, but have since collapsed.
Coal severance tax revenues were strong early in the recovery due to high prices for eastern Kentucky coal and growth in western Kentucky coal production (power plants have begun buying western Kentucky coal again after installing scrubbers to address its high sulfur content). The tax reached all-time highs of $296 million in 2011 and $298 million in 2012. But by 2013, cheap and abundant natural gas was winning out over expensive-to-mine eastern Kentucky coal, and coal severance tax revenue fell to only $197 million by 2014.

Cigarette tax revenues have dropped substantially.
Kentucky raised its cigarette tax in the 2009 session in order to help address the budget shortfall, resulting in $108 million more in 2010 than had been raised in 2008. But by 2014, the state had lost $50 million of that new revenue as declining smoking rates led to lower tax collections. While a cigarette tax increase is a good way to help curb smoking, it’s not a sustainable approach to the state’s revenue problems.
2009 Increase in Cigarette TaxSource: KCEP analysis of Office of the State Budget Director data.

Moving forward, the combination of factors that led to strong revenue growth early in the recovery is unlikely to return. No one expects eastern Kentucky coal to regain its former strength, cigarette tax revenue will continue to decline, tax amnesty can’t be repeated and corporate profits are unlikely to continue at all-time highs. A stronger recovery would help the income tax and sales tax, but because of too many holes in the tax code Kentucky is likely to continue experiencing challenges until it takes on tax reform that raises more revenue.

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Kentucky Should Get Involved In Debate About New College Affordability Strategies

While recent discussion of the student debt crisis has focused largely on federal proposals to make student loan payments easier to manage, several states (not to mention Starbucks) are experimenting with new strategies as well. Given Kentucky’s growing college affordability challenges, the state should get involved in this conversation while keeping in mind the specific shortcomings of particular ideas.

Driven in part by dramatic increases in tuition rates across the nation, cumulative student loan debt in the U.S. has reached $1.2 trillion and continues to grow. These trends are largely the result of states disinvesting in higher education. In Kentucky, tuition has more than tripled since 1998—with students facing even more tuition increases when the 2014-2015 academic year starts in the fall. State funding for Kentucky’s public universities and community colleges has declined by 27 percent (in inflation adjusted terms) since 2008.

Beginning in Fall 2015, neighboring Tennessee—through a new program “Tennessee Promise”—will be offering free tuition and fees for up to five semesters to students enrolled full-time in two-year degree and technical certificate/diploma programs. About 40 percent of graduating seniors (more than 25,000 students) are expected to apply. Just about half of those who qualify will likely participate as many will end up enrolling at colleges that do not meet the program’s eligibility requirements.

Students can use Tennessee Promise at any of the state’s 27 colleges of applied technology, 13 community colleges or any in-state independent or four-year public university offering an associate’s degree. Participating students are required to apply for federal student aid, including Pell Grants, and the state picks up any remaining balance after all financial aid sources (excluding loans and work study) are applied. In order to remain eligible for the program, students must maintain satisfactory academic progress (2.0 GPA) and complete at least eight hours of community service each semester.

Tennessee will pay for the program through the state lottery largely by shifting around funds in the existing lottery-funded scholarship programs—by raising the state’s HOPE scholarship amount for students attending community colleges from $2,000 per year to $3,000 per year, while reducing the award amount for those attending four-year institutions for freshmen and sophomores from $4,000 to $3,000 per year.

Although Tennessee Promise is an important effort toward addressing college affordability and increasing college attendance and degree completion, the program will not reach low-income adult Tennesseans who need college in order to qualify for good jobs and better support themselves and their families. The program is not available to adult students who have earned a GED or previously graduated from high school; in order to qualify, students must enroll in college right out of high school. While this restriction is in place because it would cost the state much more to cover a larger pool of potential students including adults, low-income adults face many barriers to college degree completion and are an important part of increasing any state’s educational attainment rates. Also, while free tuition is a huge help the full cost of attending college is much higher, and those housing, books, food and transportation expenses can be a barrier for low-income students. An additional concern is that the exclusive focus on two-year degrees could harm access to four-year institutions.

Another model, “Pay It Forward,” has also been gaining attention in numerous states. Pay It Forward defers the costs of attending college until after a student graduates or leaves school; students then pay a percentage of their incomes to the state for a set number of years. Oregon passed a law in 2013 to study whether or not such a pilot program would be feasible; in this legislation students would owe up to three percent of their incomes for up to 24 years. At least 19 states have recently considered legislation for the implementation of such a program—including Mississippi, Washington state, Michigan and Florida.

Critics, however, have pointed out that, among other problems with the model: students are still going into debt (the total amount that most students pay is greater than if they had paid tuition and fees up front); the full cost of attending college (i.e., books, transportation, room and board, childcare) is not addressed; and the model does nothing to reverse the trends of state disinvestment in higher education (and could accelerate it). Using the University of Oregon as an example, according to University of Wisconsin professor Sara Goldrick-Rabb, “…under Pay It Forward, the average student will still need to work 20 hours a week and pay about $28,000 (somehow) in order to get a bachelor’s degree—after which, up to 3 percent (maybe more) of annual income will be taken by the state for a period of 24 years.” Goldrick-Rabb’s own national-level proposal, known as “F2CO,” includes free tuition, fees, books and supplies for the first two years of any two- or four-year public university or college (regardless of whether or not the four-year colleges offer associate’s degrees)—which would be funded by redirecting existing federal financial aid and some state money.

Other states have considered various ways to address college affordability. Mississippi legislators recently deliberated a program similar to “Tennessee Promise,” and legislation proposed in Oregon in 2013 would have initiated a study of the viability of free community college tuition and fees. Tuition was actually free at California’s two-year colleges between 1960 and 1984, when the state succumbed to fiscal pressures and began charging enrollment fees. It is also important to note that 30 cities across the country have programs that offer graduating high school students free college tuition—for instance, Kalamazoo (Michigan), Pittsburgh and El Dorado (Arkansas).

These programs and ideas reflect important innovations in the area of college affordability, although they are not without their downsides. Participating students may still go into substantial debt, and low-income adult students in particular may be left behind. Still, it is encouraging that states are looking for creative solutions to the very serious college affordability crunch that students across the country are facing. Kentucky should join in this conversation.

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