by Roxanne Scott
by Morgan Watkins
A recent report from the Center for American Progress (CAP) shows Kentucky is home to refugee populations that rank our state and some metro areas among those with the largest identified refugee communities across the U.S. Using Census data to look at four groups in particular — Bosnian, Burmese, Hmong, and Somali, who together make up about one in every five refugees resettled in the U.S. since 1982 — the report explores their success at integrating into and contributing to their new communities.
As CAP discusses, Kentucky has the 13th largest Bosnian population, the 14th largest Burmese population, and is tied with South Dakota for the 9th largest number of Bosnians as a share of total population — 8 refugees per 10,000 residents. Louisville ranks 14th among metropolitan areas for its Somali refugee community and 31st for the 4 refugee groups combined. In Bowling Green, Bosnians and Burmese combine to make up 24 percent of the total immigrant population, giving it the 7th largest community in the nation of the 4 refugee groups as a share of the total immigrant population. More generally, Kentucky is one of the most welcoming states to all refugees (top 20 percent), with 68 refugees per 100,000 residents in 2013 and 2014.
By definition, refugees are people who are outside of their countries and cannot return because of a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion. Because there is a lengthy application and screening process which can take up to 18 months before refugee status is granted, all refugees are well-documented and are of legal status in the U.S.
In addition to starting businesses at a slightly higher rate than their native-born neighbors, refugees contribute economically to Kentucky by joining the labor force, paying taxes and supporting local businesses. And while refugees are not economic migrants who primarily seek job opportunities, they quickly become a vital part of the workforce. CAP finds that over the long term:
- Men in the four refugee groups have rates of employment that are comparable or higher than their U.S. born counterparts (see chart below);
- Refugees who have been in the U.S. for more than 10 years earn median wages on par with U.S. born individuals;
- Home ownership rates vary by group, but after 10 years in the U.S., Burmese and Bosnian refugees at 73 percent and 72 percent respectively, surpass their U.S. born counterparts at 68 percent.
- Those who arrived to the U.S. as children complete high school at about the same rate (80 – 91 percent) as U.S. born individuals (90 percent);
- Refugees acquire high levels of English language proficiency by 10 years;
- A vast majority of refugees who have lived in the U.S. for 21 years or more (78 – 92 percent) obtain citizenship.
Source: Center for American Progress, 2016
The UN’s announcement that the world now has more displaced people than after World War 2 calls for a renewed awareness of the plight of refugees. In 2015 alone, 12.4 million people were designated as refugees, and the severity of the crisis was made vivid through the images of refugees arriving on the shores of Europe by the thousands. In the current political climate, opponents to immigration have denounced longstanding policies for resettlement, sometimes by characterizing refugees as a threat to our nation’s security. But immigration has been a foundational part of U.S. history and we continue to benefit from refugees’ commitment and successes, their participation in our local economies and communities, and their additions to our cultural diversity and vibrancy.
To view KCEP’s comments for the federal comment period, click here.
To view this brief in PDF form, click here.
Kentucky is applying to modify its Medicaid program through a waiver under Section 1115 of the Social Security Act. The proposed changes will result in fewer Kentuckians covered and decrease health care access, which will ultimately harm the health status of Kentuckians and move the state backwards in its recent health care gains. And while the proposal is framed in terms of increased financial sustainability and reduced costs, it can end up costing the state more overall as it introduces new, expensive and complex administrative burdens, and limits access to the preventative care that improves health. In the end, rolling back Kentucky’s historic gains in healthcare coverage would be antithetical to the goals of the Medicaid program and the 1115 waiver process and hurt the many Kentuckians who benefit from the Medicaid program in its current form.
How far we’ve come, and what is at stake
Kentucky’s Medicaid participants include thousands of working families, veterans, pregnant women and people with disabilities, as well as hundreds of thousands of children and seniors. Current enrollees include the following:
- Children: 561,326 (39 percent) of enrollees are children.
- Working adults: The majority of Medicaid-eligible adults who gained coverage under the expansion in 2014 in Kentucky were low-wage workers 1.
- Veterans: An estimated 9,500 uninsured Kentucky veterans and 5,300 uninsured spouses of veterans became newly eligible for Medicaid under the expansion.
- Pregnant women and infants: 43.6 percent of all births in Kentucky were covered by Medicaid in 2010 (the most recent year for which data were published).
- Seniors: 90,794 of current Kentucky Medicaid enrollees are ages 65 and older.
- Disabled or requiring long-term care: 161,380 Kentucky Medicaid enrollees are eligible through disability, blindness, long-term care needs or brain injury for which they require care either in a facility or at home.
Kentucky is a national leader in its substantial reduction in the uninsured rate under the Affordable Care Act; the share of the population without insurance dropped from 20.4 percent in 2013 to 7.5 percent in 2015, according to Gallup. The Medicaid and marketplace enrollment counts show these coverage gains were driven largely by the Medicaid expansion in 2014, which increased eligibility to up to 138 percent of the federal poverty level. Coverage alone is not the end goal, but it is the basis for better access to care, prevention of disease, cost-efficiency of long-term health spending and (over time) tremendous public health gains including reductions in preventable mortality.
As summarized by the Center on Budget and Policy Priorities, “Numerous studies show that Medicaid has helped make millions of Americans healthier by improving access to preventative and primary care and by protecting against (and providing care for) serious diseases. For example, expansions of Medicaid eligibility for low-income children in the late 1980s and early 1990s led to a 5.1 percent reduction in childhood deaths. Also, expansions of Medicaid coverage for low-income pregnant women led to an 8.5 percent reduction in infant mortality and a 7.8 percent reduction in the incidence of low birth weight. 2 ” When compared to Texas in 2014, which did not expand its Medicaid program, low-income Kentuckians were more likely to take prescribed medicines; more likely to receive regular care for chronic diseases such as asthma, hypertension, and depression; were more able to pay medical bills; and were less likely to use the ER as a usual source of care 3 .
In Kentucky, increased coverage has led to better access to services, including many forms of preventative care. State Medicaid data shows hundreds of thousands of people are using their new coverage for such cost-effective purposes. Comparing 2013 to 2014, the following services were funded by Medicaid:
- Cholesterol screening, 80,769 to 170,514 (up 111 percent).
- Preventative dental services, 73,739 to 159,508 (up 116 percent).
- Hemoglobin A1c tests (diabetes), 52,685 to 101,360 (up 92 percent)
- Cervical cancer screenings, 41,613 to 78,281 (up 88 percent).
- Breast cancer screenings, 24,386 to 51,292 (up 111 percent).
- Annual influenza vaccinations, 14,090 to 34,305 (up 143 percent).
- Colorectal cancer screenings, 17,164 to 35,633 (up 108 percent).
- Tobacco use counseling and interventions, 406 to 1,094 (up 169 percent).
Although each service does have a cost, the services being used by the expansion population are, for the most part, not the services that drive overall Medicaid spending. These enrollees are relatively inexpensive to cover and the coverage allows them to maintain health and continue working and caring for their families. And when a screening does indicate cancer or diabetes, it is still money well-spent 4 . Left undiagnosed or untreated, these conditions worsen and become more complicated (and expensive) to treat later on.
Kentucky’s current Medicaid program also has a positive impact on Kentucky’s economy, an impact that this waiver would put in jeopardy. For example, the General Fund savings Kentucky will realize because of Medicaid expansion in 2017 and 2018 from spending on public health, mental health, indigent care and other areas surpasses what the state will have to put in to match the federal investment. Even when 10 percent of the cost must be covered by the state beginning in 2020, the return on the state’s net contribution will be large after taking into account these savings, the additional tax revenue resulting from job creation due to the injection of federal dollars and the health benefits for our communities and workforce.
Over $2.9 billion has flowed to health care providers because of Medicaid expansion as of last October. Such an influx of funds to the healthcare system has had an impact on jobs in the state. According to Bureau of Labor Statistics data, after modest growth in health care and social assistance jobs during the first year of Medicaid expansion, growth picked up at a rapid pace in 2015. The sector grew 5.5 percent from 2014 to 2016, compared to 3.4 percent growth overall (see graph below). That growth results in income and sales tax revenue to the Commonwealth 5. Also, everyone saves when fewer people let health problems go untreated only to use expensive emergency room care later 6. Hospitals saw a reduction of $1.15 billion in uncompensated care from treating patients without health insurance during the first three quarters of coverage year 2014 when compared to the same time period a year before 7.
Source: KCEP analysis of Bureau of Labor Statistics data.
Waiver does not meet criteria set forward in law
The purpose of 1115 waivers is to provide flexibility to create and share better methods of providing health coverage and care. Waivers ultimately should result in a healthier population. They should also be rooted in evidence that the changes proposed can be made without harming the people Medicaid seeks to serve. We strongly believe that far from benefitting Kentuckians, there is evidence this waiver would be detrimental to the most vulnerable citizens in the Commonwealth. This result becomes clear when looking at the components of the proposal through the lens of the four criteria the Centers for Medicare and Medicaid Services (CMS) use to evaluate an 1115 waiver:
- Increase and strengthen overall coverage of low-income individuals in the state.
- Increase access to, stabilize and strengthen providers and provider networks available to serve Medicaid and low-income populations in the state.
- Improve health outcomes for Medicaid and other low-income populations in the state.
- Increase the efficiency and quality of care for Medicaid and other low-income populations through initiatives to transform service delivery networks.
1. Will this waiver increase and strengthen overall coverage of low-income individuals in the state?
The waiver is projected to result in fewer people enrolled because it includes a number of measures shown to reduce coverage, including denying benefits to people who don’t pay premiums or fail to re-enroll in time and locking them out for a period of time as well as work requirements for maintaining coverage. Ample past research shows such barriers will reduce the number of people who can participate. But the purpose of 1115 Medicaid waivers is to test ways to expand coverage or otherwise improve care, not move backwards on health care access.
The waiver is designed to reduce coverage
The Medicaid waiver proposal claims the changes will save $2.2 billion in federal and state money over the first 5 years of the program. But the waiver document shows those savings would occur because fewer Kentuckians are covered.
The data provided shows 17,833 fewer people will be covered by Medicaid in the first year of the demonstration compared to not having the waiver, a number that would grow to 85,917 in year 5 (data from report presents “member months,” and the table below converts that to number of full-year members by dividing by 12. The actual number of members who would lose coverage would be larger as those who lose coverage for portions of a year are taken into account).
Source: KCEP calculations from Kentucky HEALTH document.
Other elements of the waiver don’t explain the projected cost savings because the estimated cost per member, per month is actually slightly higher for the Medicaid expansion population under the waiver, though it is slightly lower for children and non-expansion adults.
Evidence does not support that the waiver will result in members’ incomes increasing such that they are no longer Medicaid eligible
The administration suggests coverage reduction will happen in part because they will move people to private insurance plans; in addition, their incomes would need to rise above 138 percent of poverty so they are no longer eligible for either regular Medicaid or premium assistance and wrap-around coverage. But it is unclear what evidence is being used to connect the assumed increase in economic well-being to the measures and requirements included in the plan.
The assumption that promoting work will somehow lead to this outcome is at odds with the research on work requirements (reviewed below) and the reality that the majority of those who have gotten coverage from the Medicaid expansion are working now; they just work in jobs where they cannot afford or are not offered coverage 8. Many workers are Medicaid recipients because a large portion of jobs pay low wages while wage growth has been stagnant, and because rising health care costs over the last few decades have led employers to shed responsibility for coverage. Whereas 70 percent of Kentucky workers had employer-based coverage in 1980, only 56 percent do today 9. Even if the minority who are not working were to suddenly gain employment — which evidence does not support would result from these requirements — it should not be expected that many would obtain jobs that lift them above 138 percent of the federal poverty level.
Experience with past safety net programs shows that work requirements do not increase well-being
In spite of a rejection of work requirements in every other state that has proposed them (including Indiana and Pennsylvania), this waiver seeks to require work or community engagement activities as both an expectation for coverage and an incentive for added benefits. However, it has been long demonstrated that work requirements in other safety net programs are not only ineffective in promoting long-term employment and wage growth, but have led to a greater likelihood of being stuck in deep poverty – at or below 50 percent of the federal poverty level 10.
The Center on Budget and Policy Priorities’ analysis of potential work requirements for Medicaid eligibility determined that such requirements would ‘unravel’ many gains from the Medicaid expansion without increasing employment:
Imposing a work requirement in Medicaid thus could undo some of the Medicaid expansion’s success in covering the uninsured… The Medicaid expansion has enabled states to provide needed care to uninsured people whose health conditions have often been a barrier to employment, including people leaving the criminal justice system who have mental illness or substance use disorders and for whom access to health care can reduce recidivism and improve employability. Connecting these vulnerable populations with needed care can improve their health, help stabilize their housing or other circumstances, and ultimately improve their ability to work. These gains would be eroded if a work requirement led to significant numbers of these individuals losing coverage and being unable to access health care that they need 11.
Also, as already mentioned, most Kentuckians getting coverage because of Medicaid expansion don’t need an incentive to work because they are already working, they are just working in low-wage jobs where they can’t afford or are not offered health insurance through their employer. In the first year of Medicaid expansion, those who gained coverage most commonly worked in restaurants and food services followed by construction, temp agencies, retail stores, building services like cleaning and janitorial services and grocery stores. These kinds of jobs usually have limited benefits, if any.
Many Kentucky workers make low wages — in fact, in 2014 30 percent made wages that would put them below the federal poverty line for a family of four. Wages are low and also have been stagnant or declining across the bottom of the wage distribution after adjusting for inflation over the last 15 years. Because the waiver creates an escalating level of premiums for those who remain Medicaid eligible, it punishes workers for the low wages and wage stagnation that are beyond their control.
In addition, jobs are lacking in significant parts of the state as Kentucky still seeks to recover from the Great Recession and as fundamental restructuring of industries like mining and manufacturing have left certain communities with far fewer jobs than are needed. Only 28 of Kentucky’s 120 counties have more people employed now than in 2007 — before the Great Recession hit — and 24 counties have seen more than a 20 percent decline in employment 12. Those decreases are not because of a sudden unwillingness to work, but because jobs were eliminated and have not been replaced. The shortage of jobs is likely to exacerbate the extent to which work requirements result in losses of coverage rather than increases in employment.
Other Kentuckians face significant barriers to better employment including a criminal record, lack of education and training, inability to afford transportation and other hurdles. Absent a more comprehensive solution to create jobs and remove barriers, measures to make health coverage contingent on certain activities will result in fewer people covered.
Premiums are a barrier to coverage
According to an extensive body of research, premiums create a barrier for health coverage for many low-income individuals. For instance, Oregon received approval in 2003 to increase the premiums it charged participants in its Medicaid waiver program and also impose a six month lock-out period for non-payment of premiums; a study found that following these changes, enrollment in the program dropped by almost half 13. Similar effects occurred with programs in Utah, Washington and Wisconsin 14. All five states that have instituted premiums for their expansion populations have seen either an increase in collectable debt among enrollees, a decrease in enrollment or at the very least an increase in churn in and out of the Medicaid program 15. Finally, since many employers don’t offer coverage, escalating premiums are an ineffective incentive for moving people off of Medicaid on to employer-sponsored health insurance. They become, in effect, a penalty for being poor – especially as they increase over time while wages in low-income jobs remain flat. Escalating premiums are also harmful for entrepreneurs whose businesses often struggle in the early years after start-up; this proposal would introduce a graduating cost to those individuals just as their businesses are getting off the ground.
Instituting a lock-out period will lead to fewer people covered
A mandatory six-month lock-out for failure to re-enroll on time or to pay premiums on time for a population already struggling with low wages will almost certainly leave people without coverage. As of April of this year, Indiana had not publicly revealed how many people had been shut out of health coverage through their lock-out period, but given the thousands who had been disenrolled for failure to pay premiums, it is likely that the ranks of uninsured adults have swelled.
Reducing some benefits is another method of reducing coverage
The waiver proposal refers to benefits such as vision and dental coverage as “enhanced benefits” that people should earn back rather than be guaranteed. This stance reflects a dangerous departure from the recognized impact that oral and vision screenings and preventative care play in maintaining health as a whole. Though modest in cost, these benefits are a critical part of Medicaid coverage.
In addition, removing retroactive coverage and non-emergency medical transportation (NEMT) will create added barriers to coverage and the utilization of coverage. By eliminating retroactive coverage, there is risk of individuals facing unpayable bills, which would be further aggravated by the fact that they will owe premiums. Getting to and from treatment, especially in rural parts of the state, is often a challenge, which is why NEMT is such an important component of our state’s healthcare success. In two expansion states (Nevada and New Jersey) adults who newly received coverage through Medicaid and used NEMT did so largely (40 and 30 percent respectively) to get to treatment for mental illness and substance abuse 16. Removing this benefit would limit effective coverage for many Kentuckians who have difficulty with personal transportation, and could exacerbate drug abuse and mental health problems already rampant across the Commonwealth.
2. Will it increase access to, stabilize and strengthen providers and provider networks available to serve Medicaid and low-income populations in the state?
Provider networks and providers will likely become even less available to those covered by Medicaid and low-income populations in Kentucky under this waiver. Specifically, in the case of vision and dental providers who already receive low reimbursement rates for the services they provide to Medicaid recipients, making coverage for such services contingent upon community engagement activities and healthy behavior incentives will likely reduce the number of people who use such services. It is likely that providers will no longer see it as worthwhile to continue accepting such inconsistent coverage.
Moreover, healthcare providers who serve patients that have a blend of employer-sponsored health-insurance and Medicaid, as the waiver would promote, will have to determine which insurer to bill, and create systems to be able to make those determinations. This will add more administrative overhead and inefficiency in delivering care. Some small, vulnerable providers may have to discontinue accepting Medicaid coverage because they are unable to afford the added administrative costs.
3. Will the waiver improve health outcomes for Medicaid and other low-income populations in the state?
Reductions in the number of people covered by Medicaid, disincentives for using benefits and the elimination of dental and vision coverage will not lead to healthier Kentuckians. The idea that community engagement activities, cost-sharing measures and financial or health literacy courses will result in better health outcomes is not supported by evidence. However, higher rates of coverage have been associated with better health outcomes, particularly those that can lead to early diagnosis of preventable conditions.
Dental and vision coverage are critical to wellness
Though the waiver refers to these benefits as “enhanced,” they should be viewed as necessary, basic benefits essential for health. Both of these routine services offer critical opportunities for specialized early diagnosis and preventative treatment that often cannot be offered in a primary care appointment. Such care is especially needed because Kentucky already has poor oral health and significant vision impairment, and because routine appointments with dentists and optometrists save money and sometimes lives.
The American Dental Association recommends that good oral health requires a minimum of one cleaning and check-up per year. The 2013 Kentucky Health Issues Poll found that individuals are much more likely to see a dentist if they are insured, or well off 17. Only 43 percent of uninsured Kentuckians saw a dentist in the past year, versus 70 percent of those who were insured.
Kentucky’s oral health reflects its low levels of dental care, and reducing access would only worsen these problems. A study by the Center for Health Workforce Studies shows 18:
- Kentucky ranked eighth in 2012 for adults who had a tooth extracted because of tooth decay or gum disease.
- Kentucky ranked 5th in 2012 for adults 65 years or older who had 6 or more teeth extracted for the same reasons. While this population is largely covered by Medicare, tooth decay is a long-term preventable condition that would have started much earlier.
- Similarly, for Kentuckians aged 65 or older, 23.5 percent had untreated dental cavities, 19.3 had oral pain within the last 3 months and 22.1 percent had trouble chewing food.
Low-income Kentuckians are disproportionately affected by bad oral health. For instance, 28 percent of low-income Kentuckians surveyed by the American Dental Association in 2015 said the appearance of their mouth and teeth affects their ability to interview for a job, versus 17 percent of middle and high income Kentuckians. They were also more likely to report that life was less satisfying because of a dental condition and were more likely to have problems like dry mouth, difficulty biting and chewing, pain, avoiding smiling, embarrassment, anxiety, problems sleeping, reduced social participation, difficulty with speech, difficulty doing usual activities and taking days off from work due to oral conditions.
Although poor dental health can be debilitating on its own, there are several ways in which oral health is connected to more serious health problems. Problems with oral health have been linked to diabetes, stroke, adverse pregnancy outcomes and cardiovascular disease. Dental cavities left untreated often lead to secondary infections that can become life-threatening. Routine oral exams often lead to early detection of other diseases that display symptoms in the mouth, enabling less costly diagnosis and treatment.
Medicaid’s provision of dental coverage is cost effective. Trips to the emergency room (ER) for dental-related conditions (which are covered by Medicaid) are expensive and often preventable through routine dental visits. Dental-related ER care is at least 3 times as expensive as a dental visit – $749 for non-hospitalized care 19. States that report ER visits show large numbers of patients who receive costly care for conditions that could have been prevented in a dentist’s office 20. Medicaid is the primary payer for 35 percent of all dental-related ER visits, which amounted to $540 million in 2012 21, but it only makes up 28.1 percent of non-dental-related ER visits. According to Pew, when California ended its dental care for 3.5 million low-income adults in 2009, ER use for dental pain increased 68 percent; in 2014 adult dental benefits to eligible Californians were restored.
ER visits do not typically treat the underlying dental disease, so issues like infection can reoccur, leading to costlier and repeated emergency room visits. Dental pain is also the leading gateway to opioid addiction, and doing more to prevent such pain is critical to addressing Kentucky’s drug problem.
Dental care is relatively inexpensive as a Medicaid benefit. Given current Medicaid spending per patient, utilization rates and reimbursement rates in states that offer dental benefits, the Health Policy Institute estimated that it would cost an extra 0.7 percent to 1.9 percent for the other states to begin offering that benefit 22. In 2014, the 29 states that offered some dental benefit through Medicaid collectively spent $10.1 of $327.5 billion on dental care. This means only three percent of Medicaid expenditures were spent on dental care.
Likewise, the health consequences of eliminating vision coverage for routine screenings would likely be significant. The Centers for Disease Control notes early detection, diagnosis and treatment can prevent significant loss of vision, and “people with vision loss are more likely to report depression, diabetes, hearing impairment, stroke, falls, cognitive decline and premature death. 23”
In Kentucky there are an estimated 192,060 people who are either blind or have serious difficulty seeing even when wearing glasses, according to 5 year estimates of the 2014 American Community Survey. This represents roughly 1 in 20 Kentuckians who aren’t in an institution like a nursing home. On a county level, vision impairment ranges from 1.5 percent in Gallatin county to 12.7 percent in Pike county.
Because diabetic retinopathy — or vision loss from diabetes — is a leading cause of blindness, early detection of diabetes often starts in an optometrist’s office. Other conditions like glaucoma and cataracts are also often detected early during annual vision screenings, before they become more difficult and costly to treat.
The current Medicaid vision benefit in Kentucky is modest, and only covers exams and diagnostic procedures at optometrist and ophthalmologist offices. Glasses (lenses, frames and repairs) are only covered for Kentuckians up to age 21, so most Kentucky adults are still responsible for buying their own eyewear and contacts out of pocket 24.
In the administration’s waiver proposal, beneficiaries could “earn back” vision and dental benefits by completing “specified health-related or community engagement activities.” But evaluations of similar incentive programs in Iowa and Michigan suggest few people likely would earn such incentives, leading to a big drop in the number of people with coverage 25.
Lower rates of coverage will result in poorer health outcomes
Findings from the ongoing Oregon Health Study show Medicaid beneficiaries were less likely than those without insurance to suffer from depression and more likely to be diagnosed with and treated for diabetes. Those with Medicaid were also far more likely to access preventative care such as mammograms for women 26. Another study found that 5 years after 3 states expanded Medicaid, expansion was associated with a 6.1 percent reduction in mortality 27. Recipients were also more likely to report that their health was “excellent” or “very good” and less likely to report delaying care due to costs 28.[vi] With the recent increase in screenings and other forms of preventative care in Kentucky, we can expect similar results. But as coverage is either taken away in the case of dental, vision or lock-out periods, or made less available in the case of premiums and work requirements, health outcomes will almost certainly decline.
4. Will the waiver increase the efficiency and quality of care for Medicaid and other low-income populations through initiatives to transform service delivery networks?
The waiver proposal would increase inefficiencies and add costs by creating complex new bureaucratic systems to track payments, activities and other elements that will shift dollars away from care and are likely to cost more than the revenue that is generated. While cost savings is stated as a primary purpose for submitting this waiver, it is not a sufficient criterion for an acceptable waiver on its own. Further, proposed changes would likely not even save money other than by reducing the number of people covered under the program — which could result in higher costs in the long-term as more Kentuckians are treated in the emergency room for expensive conditions that could have been managed through earlier intervention.
Added administrative costs and bureaucratic complexities will be expensive and inefficient
Creating new requirements for premiums means creating state administrative structures to bill, collect, track, answer customer questions and otherwise administer the program, including tracking expenditures against each enrollee’s income to ensure that premiums collected remain under federal caps. Also, the state must set up systems to manage two Health Savings Accounts (HSA) for each individual in the program (a deductible account and a “MyRewards” account), including tracking activities that earn credits and making payments between, into and out of the accounts. This tracking would require either expanded state government structures, or having the state contract (and oversee) the service to a third party.
Other states have examined the costs of collecting premiums in Medicaid programs and found the costs of collection typically exceed revenue collected. For example, several years ago Virginia introduced $15 monthly premiums to some families, but cancelled the program when the data showed the state was spending $1.39 to collect each $1 in premiums 29. Arizona concluded even if it charged the maximum allowed premiums, it would cost four times more to collect them than the value of the collected funds 30. Another layer of complication arises from the fact that 31.7 percent of Kentucky households with family income under $15,000 are unbanked, according to the Federal Deposit Insurance Corporation 31. This makes collecting premiums even more difficult as traditional modes of making payments will not work for a significant portion of low-income households.
Regarding HSAs, the Urban Institute’s analysis concluded, “HSAs for the poor are highly likely to be administratively inefficient. The amounts collected from individuals would be small relative to health care costs. Because there are large numbers of individuals in these programs, there would be a relatively large number of small monthly transactions. Similarly, the money that flows out of these accounts, also small amounts each time a service is used, would have to be managed…. Although these payments may lead to lower enrollment rates and more disenrollment, it is unlikely they will lead to more appropriate use of care by enrollees. 32”
Beyond collecting premiums and HSA contributions, new systems for assessing, certifying and tracking work or community engagement activities, financial literacy courses and health literacy courses will have to be created and managed. The state will then have to maintain a database that is able to affirm and record that members participated in some activity so that they can get credit in their “MyRewards” account. Then there will need to be some way of determining appropriate uses of those funds as enrollees make various health-related purchases. This will add significant bureaucratic inefficiencies and cost to the existing program.
For the premium assistance component of the waiver, yet another system will need to be created in order to track what benefits are being offered through employer-sponsored health insurance plans so the state will know what additional wrap-around services it will need to provide to satisfy all the guaranteed benefits of the Medicaid program. This will require reporting from insurance companies, a database for tracking benefit coverage for employees and ongoing monitoring for any changes that occur during open enrollment each year. It will also require that providers be knowledgeable about which program to charge for the services they perform – a patient’s employer sponsored health insurance plan, or the Managed Care Organization (MCO) offering the remainder of the benefits.
With less preventative care, costs will increase over time
Limited access to or use of preventative care is likely to add greater costs in emergency room care and in other more expensive treatment as otherwise preventable conditions worsen over time. Cutting access to early screening and detection will result in more significant health problems that go undiagnosed and untreated. Again, as was demonstrated in California, when dental benefits were cut they saw a 68 percent increase in ER usage for dental pain. As people are disenrolled without other forms of coverage, they are more likely to use care without being able to pay for it – resulting in more uncompensated care for which hospitals will seek payment.
Conclusion and recommendations
The Kentucky Center for Economic Policy seeks to improve the quality of life for all Kentuckians. We believe in policies that help create communities where everyone can thrive. To that end, we support the purposes and criteria of a Medicaid 1115 waiver as stated by CMS. That is why we are so concerned about the vast majority of the provisions in Kentucky’s proposed waiver. It is not only misaligned to the criteria of a demonstration waiver, in many cases it stands in opposition to them. Some elements of the waiver such as boosts to substance abuse treatment, chronic disease management and renegotiated contracts with MCOs are laudable, but either don’t require a demonstration waiver specifically, or don’t require waiving a part of the Social Security Act at all. We encourage the administration to continue to pursue these goals separate from the current proposal.
Work/community service requirements; premiums (including an escalation of premiums over time); reductions in coverage and benefits including loss of vision, dental, retroactive coverage and non-emergency medical transportation; lock-out periods for failure to pay premiums and for missing re-enrollment deadlines; blended employer-sponsored insurance; and complex administrative and compliance structures are real threats to the historic gains in health our state has recently experienced. For the first time in recent memory, Kentucky is heading in the right direction on health, and it would be a major mistake to go backwards now. We respectfully ask that the aforementioned features of the waiver be removed prior to its submission to the Department of Health and Human Services.
- Jason Bailey, “Many Kentucky Workers Have Gained Insurance through the Medicaid Expansion, Are at Risk If Program Is Scaled Back,” Kentucky Center for Economic Policy, November 10, 2015, http://kypolicy.org/many-kentucky-workers-have-gained-insurance-through-the-medicaid-expansion-are-at-risk-if-program-is-scaled-back/. ↩
- Center on Budget and Policy Priorities, “Policy Basics: Introduction to Medicaid,” June 19, 2015, http://www.cbpp.org/research/health/policy-basics-introduction-to-medicaid. ↩
- B.D. Sommers, R.J. Blendon, & E.J. Orav, “Both the ‘Private Option’ and Traditional Medicaid Expansions Improved Access to Care for Low-Income Adults,” Health Affairs, January 2016 35(1):96–105, http://content.healthaffairs.org/content/35/1/96.full?keytype=ref&siteid=healthaff&ijkey=A6hBKcGzMrX2A. ↩
- Mary Cobb, “Protecting Medicaid’s Role in Advancing a Healthy Kentucky,” Kentucky Center for Economic Policy, May 2016, http://kypolicy.org/dash/wp-content/uploads/2016/05/Medicaid-Advancing-a-Healthy-Kentucky.pdf. ↩
- Jason Bailey, “With Medicaid Expansion, Kentucky Healthcare Job Growth Picked Up in 2015,” Kentucky Center for Economic Policy, March 9, 2016, http://kypolicy.org/with-medicaid-expansion-kentucky-healthcare-job-growth-picked-up-in-2015/. ↩
- Jason Bailey, “It’s Kentucky’s Lack of Coverage and Poor Health that are Unsustainable, Not Medicaid,” Kentucky Center for Economic Policy, March 10, 2016, http://kypolicy.org/its-kentuckys-lack-of-coverage-and-poor-health-that-are-unsustainable-not-medicaid/. ↩
- The Kaiser Commission on Medicaid and the Uninsured, “What’s at Stake in the Future of the Kentucky Medicaid Expansion?,” The Henry J. Kaiser Family Foundation, July 7, 2016, http://files.kff.org/attachment/fact-sheet-Whats-At-Stake-in-the-Future-of-the-Kentucky-Medicaid-Expansion. ↩
- Jason Bailey, “Waiver Proposal Says Cost Savings Come from Covering Fewer People,” Kentucky Center for Economic Policy, June 23, 2016, http://kypolicy.org/waiver-proposal-says-cost-savings-come-covering-fewer-people/. ↩
- Bailey, Kentucky’s Lack of Coverage and Poor Health that are Unsustainable, Not Medicaid.” ↩
- LaDonna Pavetti, “Work Requirements Don’t Cut Poverty,” Center on Budget and Policy Priorities, June 7, 2016, http://www.cbpp.org/blog/work-requirements-dont-cut-poverty. ↩
- Hannah Katch, “Medicaid Work Requirement Would Limit Health Care Access Without Significantly Boosting Employment,” Center on Budget and Policy Priorities, July 13, 2016, http://www.cbpp.org/research/health/medicaid-work-requirement-would-limit-health-care-access-without-significantly. ↩
- Jason Bailey, “Kentucky’s Lopsided Recovery Continues,” Kentucky Center for Economic Policy, May 11, 2016, http://kypolicy.org/lopsided-recovery-continues/. ↩
- Jessica Schubel & Jesse Cross-Call, “Indiana’s Medicaid Expansion Waiver Proposal Needs Significant Revision,” Center on Budget and Policy Priorities, October 17, 2014, http://www.cbpp.org/research/indianas-medicaid-expansion-waiver-proposal-needs-significant-revision. ↩
- Ashley Spalding, “Indiana Approach to Medicaid Expansion Limits Access to Needed Care,” Kentucky Center for Economic Policy, August 26, 2015, http://kypolicy.org/indiana-approach-to-medicaid-expansion-limits-access-to-needed-care/. ↩
- Andrea Callow, “Charging Medicaid Premiums Hurts Patients and State Budgets,” Families USA, April 2016, http://familiesusa.org/product/charging-medicaid-premiums-hurts-patients-and-state-budgets. ↩
- MaryBeth Musumeci & Robin Rudowitz, “Medicaid Non-Emergency Medical Transportation: Overview and Key Issues in Medicaid Expansion Waivers,” The Henry J. Kaiser Family Foundation, February 24, 2016, http://kff.org/medicaid/issue-brief/medicaid-non-emergency-medical-transportation-overview-and-key-issues-in-medicaid-expansion-waivers/. ↩
- Foundation for a Healthy Kentucky & Interact for Health, “Most Kentucky Adults have had Dental Visit in Past Year,” 2013 Kentucky Health Issue Poll, March 2014, http://healthy-ky.org/sites/default/files/KHIP%20Dental%20visits%20FINAL%20032114.pdf. ↩
- S. Surdu, M. Langelier, B. Baker, S. Wang, N. Harun, D. Krohl, “Oral Health in Kentucky,” Center for Health Workforce Studies, School of Public Health, SUNY Albany, February 2016, http://chws.albany.edu/archive/uploads/2016/02/Oral_Health_Kentucky_Technical_Report_2016.pdf. ↩
- Laura Ungar, “ER Visits for Dental Problems Rising,” Courier Journal, June 28, 2015, http://www.courier-journal.com/story/news/local/2015/06/24/er-visits-dental-problems-rising/29242113/. ↩
- Pew Children’s Dental Campaign, “A Costly Dental Destination: Hospital Care Means States Pay Dearly,” The Pew Center on the States, February, 2012, http://www.pewtrusts.org/~/media/assets/2012/01/16/a-costly-dental-destination.pdf. ↩
- Thomas Wall & Marko Vujicic, “Emergency Department Use for Dental Conditions Continues to Increase,” Health Policy Institute, April, 2015, http://www.ada.org/~/media/ADA/Science%20and%20Research/HPI/Files/HPIBrief_0415_2.ashx. ↩
- Cassandra Yarbrough, Marko Vujicic & Kamyar Nasseh, “Estimating the Cost of Introducing a Medicaid Adult Benefit in 22 States,” Health Policy Institute, March, 2016, http://www.ada.org/~/media/ADA/Science%20and%20Research/HPI/Files/HPIBrief_0316_1.ashx. ↩
- Vision Health Initiative, “Why is vision Loss a Public Health Problem?” Centers for Disease Control, September 29, 2015, http://www.cdc.gov/visionhealth/basic_information/vision_loss.htm. ↩
- Dustin Pugel, “Vision Benefit Critical to Health of Kentuckians,” Kentucky Center for Economic Policy, July 5, 2016, http://kypolicy.org/vision-benefits-critical-health-kentuckians/. ↩
- Judith Solomon, “Medicaid Beneficiaries Would Lose Dental and Vision Care Under Kentucky Proposal,” Center on Budget and Policy Priorities, June 30, 2016, http://www.cbpp.org/blog/medicaid-beneficiaries-would-lose-dental-and-vision-care-under-kentucky-proposal. ↩
- Katherine Baicker, et. al., “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes,” The New England Journal of Medicine, May 2, 2013, http://www.nejm.org/doi/full/10.1056/NEJMsa1212321. ↩
- Benjamin D. Sommers, Katherine Baicker, & Arnold M. Epstein, “Mortality and Access to Care among Adults after State Medicaid Expansions,” New England Journal of Medicine, September 13, 2012, http://www.nejm.org/doi/full/10.1056/NEJMsa1202099. ↩
- Ashley Spalding, “Medicaid Expansion Will Help Kentuckians Get the Care They Need and Increase Financial Security,” Kentucky Center for Economic Policy, May 9, 2013, http://kypolicy.us/medicaid-expansion-will-help-kentuckians-get-care-need-increase-financial-security/. ↩
Tricia Brooks, “Handle with Care: How Premiums Are Administered in Medicaid, CHIP and the Marketplace Matters,” Georgetown University Health Policy Institute, Center for Children and Families, December 2013, http://www.healthreformgps.org/ wp-content/uploads/Handle-with-Care-How-Premiums-AreAdministered.pdf. ↩
- Melissa Burroughs, “The High Administrative Costs of Common Medicaid Expansion Waiver Elements,” Families USA, October 20, 2015, http://familiesusa.org/blog/2015/10/high-administrativecosts-common-medicaid-expansion-waiver-elements. ↩
- Federal Deposit Insurance Corporation, “2013 National Survey of Unbanked and Underbanked Households,” 2014, https://www.economicinclusion.gov/surveys/2013household/documents/tabular-results/2013_banking_status_Kentucky.pdf. ↩
- Jane B. Wishner, et al., “Medicaid Expansion, the Private Option, and Personal Responsibility Requirements: the Use of Section 1115 Waivers to Implement Medicaid Expansion Under the ACA,” Urban Institute and Robert Wood Johnson Foundation, May 2015, http://www.urban.org/sites/default/files/alfresco/ publication-pdfs/2000235-Medicaid-Expansion-The-PrivateOption-and-Personal-Responsibility-Requirements.pdf. ↩
To view this brief in PDF form, click here.
A work group has been tasked with developing a model of performance-based funding for Kentucky’s public postsecondary institutions in the coming months, with five percent of higher education funding to be contingent upon performance in 2018. As Kentucky grapples with the best way to implement performance-based funding, a guiding principle should be the need to bring about successful outcomes for all students.
This principle is important in order to ensure that nontraditional students such as low-income, low-skilled adults do not get left behind as state universities and community colleges begin to receive funding based on graduation rates and the number of degrees that are produced, among other metrics. As noted recently in a statement by the Lumina Foundation’s president and CEO: “A focus on equity in student outcomes is an essential objective of today’s outcomes-based funding models. In addition to increasing attainment, we must close the current achievement gaps for students of color and low-income students.” 1
The performance funding model that ends up being implemented in Kentucky needs to include in its measures of success how well the state’s public postsecondary institutions are doing at helping low-income students, including adults, successfully move through developmental education courses, persist in earning college credits and acquire degrees and other credentials. This model should not include measures that discourage institutions from serving underprepared low-income students or dissuade this population from attending.
Why Success Among Low-Income Adults Is an Important Measure
In 2013, 65.6 percent of Kentuckians in their primary earning years (25-54) did not have an associate’s degree or higher. 2 These adults typically have lower wages than those with more education, which makes it difficult to meet basic family expenses, help move their children out of poverty and into higher education in the future, contribute to the state economy and save for retirement.
While postsecondary degree attainment in Kentucky has been growing, little to no progress has been made on addressing the gaps between degree attainment for low-income and other college students. The bachelor’s degree graduation rate for all Kentucky students at four-year institutions in 2015 was 49.4 percent, up from 47 percent in 2009. Meanwhile, the bachelor’s graduation rate for low-income students was 36.3 percent — down from 46.2 percent in 2009. 3
Among the barriers faced by low-income students who are often adults are: financial difficulties, the need to work and support a family, being academically underprepared and losing momentum in developmental education courses rather than moving on to credit bearing courses, and the need for supports like intensive advising and counseling particularly for first generation college students. 4 At its best, performance funding could help the state’s higher education institutions address these gaps in degree attainment.
Strategies for Promoting Successful Outcomes for All Students
As outlined in a Working Poor Families Project report, among the strategies for ensuring that performance-based funding promotes success for all students are: 5
Measure performance broadly — for instance, by including all types of students and educational programs. This includes part-time as well as full-time students and certificate as well as diploma programs.
Adopt performance criteria that reward intermediate educational outcomes, as well as longer term ones. This includes acknowledging educational checkpoints related to student success in addition to credential attainment. Such intermediate educational outcomes could include: completion of a first course in developmental education; transition from developmental education to a first credit bearing course; attainment of the first 15 and 30 credit hours of college level instruction; and receipt of a degree, diploma or certificate.
Include incentives for serving disadvantaged Kentuckians like low-income working adults. This is important as these students typically face multiple barriers to success in college.
The Performance Model Supported by Kentucky’s Higher Education Institutions Followed These Strategies
Among the performance-based funding models under consideration leading up to the formation of the work group were one put forward by the state’s Council on Postsecondary education (CPE) with the support of the state’s public university and community college presidents toward the end of last year and a model included in the Senate’s budget proposal during the 2016 General Assembly.
The model developed by CPE could have promoted successful outcomes for all students, including low-income and adult students, through some of the strategies described above. At the same time, while the metrics in this model are promising additional details would be needed to fully assess the extent to which it would lead to successful outcomes.
Here are the performance metrics in the CPE proposal: 6
- Degrees and credentials produced (certificates, diplomas and associate degrees at the state’s community colleges and baccalaureate degrees at the public universities)
- Retention rates from first to second year
- Progression metrics
- Percentage of students earning 30+ credit hours per academic year at the University of Kentucky
- Students progressing beyond 60 credit hour and 90 credit hour thresholds at all other four-year institutions
- College readiness
- Underprepared students completing credit bearing math course at a community college
- Underprepared students completing credit bearing English course at community college
- Graduation rates (three-year rates at community colleges and six-year rates at four-year institutions)
- Closing achievement gaps for underrepresented minority students and low-income students
- Sector specific metrics
- Research and Development expenditures at the research universities
- STEM (Science Technology Engineering and Mathematics) degree production at the comprehensive universities
- Workforce education and training contact hours and transfers out with an associate degree at the community colleges
- As yet to be determined institution specific metrics
This performance funding model measures performance broadly — for instance, by including certificates and diplomas as well as associate degrees for community colleges and not disincentivizing institutions other than the University of Kentucky (UK) from having part-time students. At UK, a performance metric is the share of students earning more than 30 credit hours a year, incentivizing the university to encourage full-time attendance and discourage students from enrolling part-time, which is necessary for many adult students. However, it is important that the other institutions, particularly the state’s community colleges, would be able to continue serving low-income, low-skilled adults with these performance metrics.
The model also includes rewards for intermediate educational outcomes, in addition to longer term ones, including: retention rates from first to second year, progression metrics for four-year institutions and completion of credit-bearing courses in math and English by underprepared students at community colleges, which is a measure of students successfully moving beyond developmental education courses.
In addition, the model incentivizes closing achievement gaps for underrepresented minority students and low-income students. It is also important to note that institutions will be evaluated based on institution specific metrics, rather than all being held to the same standard, which acknowledges the schools’ different missions and student bodies.
The Senate model’s performance metrics were largely based on CPE’s; however, there are important differences that could negatively impact underprepared students. 7 Among the Senate’s main metrics were degrees and credentials awarded; student retention rates from first to second year; percentage of full-time undergraduates earning 30 or more credit hours a year; and graduation rates and sector-specific metrics. In contrast to CPE’s model though, the Senate proposal did not measure and reward the successful progression of underprepared students or provide a separate metric for closing achievement gaps. While the Senate model’s scoring system did boost an institution’s scores for the degree/credential attainment and retention rate metrics for low-income and underrepresented minority students, it is not clear how much weight these measures would be given in the calculations. These gaps in performance metrics could disincentivize institutions from serving underprepared students who are often low-income. Academically underprepared students often have more difficulty staying enrolled in college and graduating, particularly within the prescribed time frame.
It should also be noted that CPE’s proposal was based on new money to offset budget cuts to the state’s higher education institutions in recent years, and the Senate’s proposal would have made 25 percent of 2018 funding contingent upon performance (other than Kentucky State University (KSU), which was exempt). In the end, the final budget proposal had five percent of institutional funding (with KSU exempted) contingent upon performance, and cut higher education funding an additional 4.5 percent.
It is problematic that performance-based funding will be implemented in the context of budget cuts, which makes meeting performance goals difficult. Increased tuition as a result of state budget cuts jeopardizes the ability of low-income students to afford to attend or persist in college. In addition, low-income, particularly adult students often require supports like intensive academic advising and education/career counseling to overcome numerous barriers to college persistence and degree attainment, and institutions may have difficulty affording these supports given yet another round of budget cuts is going into effect. 8
While there is more than one way to design performance-based funding to be effective at promoting successful outcomes for all Kentucky students, the three general strategies mentioned previously should be followed. In addition, the data system supporting the model will need to track outcomes for adults, Pell grant recipients and part-time students, and metrics should be reviewed on a regular basis and modified as needed. As an example, Tennessee does a five-year review of their funding formula and recently increased the premium that institutions receive for enrolling adult, low-income and academically underprepared students to further encourage enrollment of these “at-risk” students and recognize the additional supports necessary to ensure their success. 9
- Lumina Foundation, “Outcomes Based Funding: Important Takeaways for State Policymakers,” March 10, 2016, https://www.luminafoundation.org/news-and-events/outcomes-based-funding-important-takeaways-for-state-policymakers. ↩
- Working Poor Families Project, Population Reference Bureau, analysis of 2013 American Community Survey. ↩
- Kentucky Council on Postsecondary Education, “Statewide Performance Metrics,” Stronger by Degrees, http://dataportal.cpe.ky.gov/sadashboard/dashboard_master.swf. ↩
- Ashley Spalding, “Crossing the Finish Line,” Kentucky Center for Economic Policy, November 26, 2012, http://kypolicy.org/crossing-finish-line-overcoming-barriers-community-college-degree-credential-attainment-kentucky-2/. ↩
- John Quinterno, “Making Performance Funding Work for All,” Working Poor Families Project, Spring 2012, http://www.workingpoorfamilies.org/wp-content/uploads/2012/05/policybrief-spring2012.pdf. ↩
- Kentucky Council on Postsecondary Education, “2016-2018 Postsecondary Education Budget Recommendation Institutional Operating Funds,” November 13, 2015, https://v3.boardbook.org/Public/PublicItemDownload.aspx?ik=37872824. ↩
- Ashley Spalding, “Questions and Concerns About the Senate’s Performance-Based Funding Proposal,” Kentucky Center for Economic Policy, March 25, 2016, http://kypolicy.org/questions-concerns-senates-performance-based-funding-proposal/. ↩
- Ashley Spalding, “Five Reasons Cutting Higher Education Hurts Low-Income and Minority Kentuckians,” Kentucky Center for Economic Policy, May 24, 2016, http://kypolicy.org/five-reasons-cutting-higher-education-hurts-low-income-minority-kentuckians/. ↩
- Nate Johnson and Takeshi Yanagiura, “Early Results of Outcomes-Based Funding in Tennessee,” March 10, 2016, https://www.luminafoundation.org/resources/early-results-of-outcomes-based-funding-in-tennessee. ↩
by Deborah Yetter
by M. Gabriela Alcalde
Revenue receipts are in for June 2016, the final month of Kentucky’s last Fiscal Year (FY), showing modestly strong General Fund growth of 3.7 percent since 2015. Here are five big takeaways:
Revenue Growth Itself Isn’t Remarkable as It Almost Always Grows from Year to Year
Kentucky collected $372 million more in FY 2016 than in FY 2015. And while this increase shows Kentucky’s economy is growing – with people earning and spending more, thus paying more income and sales taxes, for example – it is the norm for our economy, and therefore revenue, to grow.
Source: KCEP analysis of Office of the State Budget Director data.
After the Great Recession, revenue dropped two times in FYs 09 and 10, but in the 6 years since, has grown every year — 3 times at a rate higher than in FY 16. Over the last 20 years, revenue has declined only 3 times, and has grown at a higher rate than in FY 16 8 times.
Whether revenue is growing enough is a different matter (one we can say more about in August when the state publishes quarterly economic data). For a long time in Kentucky, revenue growth has not been keeping up with economic growth, meaning our ability to sustain a certain level of crucial investments is eroding. And given Kentucky’s large pension liabilities and pressure to reinvest in education, human services and other areas, the gap between what we are generating and what we need is substantial.
It Is Unclear at this Point Whether We’ll Have a Surplus
It will be another month before state officials reconcile expenditures with revenue and announce if there was a surplus in FY 16. This process will account for necessary governmental expenses – unbudgeted expenditures such as natural disasters like the recent flooding in western Kentucky – as well as how much was actually spent by various agencies of state government compared to what was budgeted. Governor Bevin announced cuts of 4.5 percent for many parts of state government in FY 2016 and 2 percent for higher education.
Relative to the original forecast on which the 2016 budget was built, revenue collections were $292 million higher than expected (or 2.9 percent). Part of that difference can be attributed to improvement in our economy since January 2014 when the forecast was created, and some is due to the difficulty of predicting receipts two years out.
Compared to the official revised forecast from January of this year, revenue was just $49 million higher (0.5 percent) – a small difference in the context of a $10.3 billion General Fund.
Strong Revenue Growth is Needed to Address a Deepening Structural Deficit
Experts have predicted that if Kentucky does not address the holes in our tax code – especially the billions in tax breaks inserted into our tax laws by powerful interests – we face a structural deficit that could grow to $1 billion by 2020. That means a growing challenge in finding the money we need to invest in public schools, affordable colleges and universities, health and human services, and other services essential for thriving communities. The most recent two-year budget reflects this growing crisis, which pitted our pension liabilities against higher education, services for vulnerable Kentuckians and many other areas that received their 16th round of budget cuts since 2008.
Kentucky’s Individual Income Tax is Crucial to the State’s Ability to Improve
Sales and use tax growth outpaced individual income tax growth (IIT) by 0.8 percentage points in 2016 compared to 2015. But looking back over the years since the recession, the IIT has grown 41 percent or $1.2 billion while the sales tax has grown 23 percent or $645 million. Over the long term, income taxes grow more than sales taxes do.
Source: KCEP analysis of Office of the State Budget Director data.
The kind of tax reform Kentucky needs strengthens both income and sales taxes and resists jumping onto the income-tax cutting bandwagon that has been popular (and devastating) in other states. Cutting income taxes would weaken the strongest source of revenue growth we have to invest. The idea that shifting to a more sales-tax reliant system would make up for these losses is misguided: not only does it increase income inequality by asking even less of those at the top and more of everyone else, but it also ignores the problem that, in the context of growing income inequality, sales tax-reliant states struggle to generate enough revenue. That’s because a shrinking middle class means weakening demand for the purchases that generate sales taxes.
The Road Fund is Hurting Because Lawmakers Took Too Long to Raise the Gas Tax Floor
Despite action in the 2015 session of the General Assembly to raise the gas tax floor and adjust the rate setting process going forward, Kentucky roads and bridges – and therefore our motorists and economy – were not sufficiently protected from falling gas prices over recent years. With the tax based on the wholesale price of gasoline, declining global oil prices have impacted Kentucky revenue. Even though the Road Fund’s second biggest source of revenue, the motor vehicle usage tax, grew by 11.9 percent or $52 million in 2016, the entire fund shrank by 2.9 percent or $44 million to $1.5 billion. The gas tax itself shrank $100 million in FY 2016.
The administration’s proposal to change Medicaid is framed around increasing workforce participation — making it harder for people to get public benefits, it is assumed, will somehow make them more likely to seek work. But as a recent report by the Council of Economic Advisors shows, the gradual decline in the workforce — especially among working age men — can be linked primarily to a loss of decent jobs accessible to less-educated workers as well as the absence of a variety of supports that remove barriers to employment.
Over the past 60 years, there has been a steady decline in the share of U. S. prime working age men (ages 25 to 54) who are participating in the labor force, a rate that has fallen from 98 percent in 1954 to 88 percent today and is lower than in most other advanced countries.
A lack of labor force participation is not necessarily a bad thing. People can be out of the labor force to pursue education, to care for children or ailing family members, or to retire. But as the report outlines, the decline in workforce participation for prime age men has been associated with more hardship — nearly 36 percent of these men lived in poverty in 2014, an increase from 28 percent in 1968.
The problem of low and declining labor force participation rates is particularly serious in Kentucky. Our total prime age labor force participation rate is the second-lowest among states — behind only West Virginia. Our male labor force participation rate is third from the bottom among states.
Although working age male labor force participation rates have declined among all education groups, losses are largest among men with the lowest levels of education.
Men Choosing Not to Work Can’t Explain Decline
The report reviews factors that could explain the decline and rejects alternative sources of income and other responsibilities as major causes of men leaving the labor force. Income from spouses working doesn’t explain the trend, in part because those men out of the labor force are increasingly less likely to have a working spouse. Men outside the labor force don’t have growing responsibilities for household work, the report suggests, and participation rates have fallen more for men without children. And being out of the labor force isn’t associated with these men pursuing education.
Importantly, the report also rejects the theory that access to public assistance (men choosing not to work because they receive benefits instead) can explain the decline. While the percentage of prime age men receiving disability insurance has increased, the rise is not nearly enough to explain the decline in the workforce. At most it explains between 0.3 and 0.5 percentage points of the 7.5 percentage point decline in labor force participation since 1967.
More generally, the myth of welfare dependence isn’t supported by the data. Public assistance programs like the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance to Needy Families (TANF) have become increasingly difficult to access for this group of Americans and are a declining source of their income.
And as the report explains, if more men were voluntarily choosing to stay out of the labor market while jobs are available, we’d expect to see wages rising for similar workers as the decrease in labor supply means greater competition among employers for those who are working. But inflation-adjusted wages for this group have been decreasing over time.
Job Loss and a Lack of Work Supports Play Major Role
A primary factor explaining the decline, the report suggests, is the elimination of decent-paying jobs traditionally available to men with lower levels of education, including manufacturing, construction and mining. Research suggests when these middle-skill jobs are eliminated, many displaced workers don’t move into low-skill or high-skill jobs. Low and even declining real wages at the bottom may be a disincentive to participate in the labor market. And there’s evidence big economic shocks like the Great Recession can contribute to lasting reductions in the labor force. In general, the fact the economy has been short of full employment most of the last few decades means a scarcity of jobs and little pressure on wages to go up.
Adding to the problem is the lack of policies to help promote participation compared to many other advanced countries. These include access to job training, paid leave that allows workers keep a job when family or personal issues arise and policies that lift wages at the bottom to increase the returns to employment. Also contributing to the problem are high levels of incarceration in the United States (and Kentucky), which create a large population of formerly imprisoned individuals who face discrimination in the job market and lack the personal networks needed to obtain work, among other barriers.
Policies to Stimulate Job Growth and Support Workers Can Help
There are ways forward that would both improve the lives of many low-income men and families and help create a stronger economy overall, the report notes.
Policies that stimulate stronger economic growth by addressing the lack of demand in the economy will create more jobs these men can access and help wages grow again. Key steps include investing in infrastructure needs across the country, which would employ many low-skilled men; bringing back the subsidized employment program that helped encourage employers to hire workers they otherwise wouldn’t have during the recession; and strengthening programs like unemployment insurance and SNAP that help economies bounce back during downturns.
We also need policies that make labor markets more supportive of workers’ participation, including:
- Better aligning community college and training programs with in-demand jobs, and making such programs affordable;
- Reforming unemployment insurance to provide incentives for employers to reduce hours rather than lay off workers during downturns, keeping more workers attached to their jobs;
- Automatically allowing more weeks of unemployment insurance during recessions, which keeps workers in the labor market because they must engage in job search to continue receiving benefits;
- Providing wage insurance, which for a period of time replaces a portion of lost wages for workers who are laid off and take lower paid jobs;
- Expanding the Earned Income Tax Credit (EITC) for low-income childless workers, a program that has been showed to increase participation;
- Improve the quality of job opportunities by increasing the minimum wage and strengthening collective bargaining;
- Helping address work-life balance by expanding access to paid family leave, paid sick days and child care assistance;
- Passing criminal justice reforms like reducing mandatory minimum sentencing, improving reentry programs and enacting ban the box legislation.
While policies to create more jobs and increase support for workers can help, taking away health coverage threatens to make the problem worse. Limiting access to preventive and primary care can reduce health, decreasing workforce participation further and driving more workers and their families into poverty.