Modest Savings from Medicaid Waiver Ignore Added Costs and Mostly Don’t Come from Expansion Population

The Bevin administration has submitted the revised version of its request to make changes to Kentucky’s Medicaid program and continues to tout the plan’s savings. However, projected state savings are only from covering fewer people, and those savings are small and don’t primarily come from the Medicaid expansion population, which is the portion of Medicaid the administration says we cannot afford. What’s more, savings diminish once the costs of a less-healthy population, the economic losses from fewer federal dollars into the state and higher administrative costs to operate the new program are taken into account.

The waiver’s projected savings are small compared to what we spend overall

According to the waiver document, savings would come from people failing to comply with work requirements, the removal of benefits (like transportation and retroactive coverage), moving people onto employer sponsored insurance, the introduction of premiums and other changes. But state savings are only a small fraction of total savings because the costs of Medicaid are primarily paid by the federal government. Here is a summary of the waiver’s fiscal projections:

waiver 1

Source: Kentucky HEALTH Waiver proposal, August 15, 2016

The projected state savings average $66.3 million annually over the 5 years of the demonstration waiver. To put the savings in context, in 2018 the state will pay nearly $2 billion in General Fund monies on Medicaid administration and benefits, making the waiver’s projected savings for that year only 1.8 percent of costs. Over the five year period, the savings are only about 0.6 percent of the entire state General Fund budget.

The projected savings come from covering fewer people and mainly from the non-expansion population

The waiver proposal lays out how many people it expects to cover over the course of the five years. By the 5th year, 87,639 fewer expansion and non-expansion eligible adults will be covered through Medicaid under the waiver compared to without it (document uses member months, and estimates below translates that to number of members by dividing by 12).

waiver 2

Source: KCEP calculations from Kentucky HEALTH Waiver proposal, August 15, 2016

Even though a larger number of people lose coverage in the expansion population, more of the projected state savings come from the traditionally eligible Medicaid enrollees, or “non-expansion adults,” as the plan puts it (see below). Kentucky is projected to save a greater amount from the decrease in traditionally-eligible enrollees because the state pays a higher portion of their coverage, nearly 30 percent as opposed to 7.6 percent on average for the expansion population during the 5-year waiver period.

So although the administration says we must make the changes in the waiver because we cannot afford Medicaid expansion, more of the projected savings come from covering fewer people in the traditional population, who are even poorer than the expansion group (some savings are also projected in coverage for children).

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Source: KCEP calculations from Kentucky HEALTH Waiver proposal, August 15, 2016

Basic assumptions about cost don’t account for new, expensive administrative systems

As we’ve pointed out before, many new elements of the waiver will require the state to create complex and costly administrative systems. These include:

  • Charging and collecting premiums
  • Identifying, approving and tracking work/community engagement activities
  • Identifying, approving, and tracking health & financial literacy courses
  • Evaluating the cost and benefits of employer sponsored insurance (ESI) premium assistance for all employed participants
  • Creating and maintaining two separate health savings accounts (HSAs)

The waiver document’s projected savings make no mention of added administrative costs these elements will create. In other states like Virginia and Arizona the costs associated with collecting premiums were higher than the revenue premiums would create, leading both states to abandon that measure. Some of the projected average savings of $66.3 million per year would be eaten up in paying for staff, infrastructure and contractors relating to these new requirements.

Other costs will erode state-wide economic benefit of the Medicaid expansion

When the original decision around whether or not to expand Medicaid coverage was being made, research was done on its possible effects on employment, economic activity and state revenue. No such study was done on the proposed new changes to Medicaid in the waiver. However, evidence shows that these changes would hurt Kentucky in several ways:

  • Kentucky is proposing eliminating vision and dental as a guaranteed benefit. When California eliminated dental coverage for Medicaid enrollees, ER usage for dental pain increased 68 percent. Dental-related ER treatment is more expensive than routine preventative care and does not usually treat the underlying cause of the pain.
  • By reducing the number of people covered, undiagnosed and untreated conditions will worsen and become more expensive to treat over time. One demonstrated benefit of the Medicaid expansion is that Kentuckians are getting needed care and preventative screenings more than before, especially routine care for chronic illnesses. Without coverage, people will wait to seek care until it becomes an emergency when treatment becomes much more expensive and difficult.
  • The waiver proposes foregoing $1.9 billion in federal funds to cut $331 million in state spending. But giving up $1.9 billion and covering fewer people will almost certainly increase the amount of uncompensated care hospitals must provide, and reduce the strong job growth in the healthcare sector in the state.
  • Fewer people employed in the healthcare sector, less money flowing into our local economy, and a less healthy workforce will negatively impact state revenue as sales and income taxes that saw a boost from the added spending in healthcare will decline with the reduction in spending.

Drops in coverage will reduce budgetary savings that came with Medicaid expansion

In terms of the Kentucky budget’s current bottom line, Medicaid expansion is a good deal. According to projections from Kentucky’s Cabinet for Health and Family Services, we will save more from the current program than we spend the first year of the new two-year budget, and in the second year we will spend very little in net new costs.

waiver 4

Before expansion, the state was spending General Fund dollars on the public health, mental health, substance abuse, indigent care and other programs in the table above but because of expansion more of these services are covered by Medicaid with the federal government picking up most or all of the costs. With the waiver plan resulting in drops in enrollment, some of these financial benefits will decline with more of the burden shifting back to the state.

The State of Working Kentucky 2016: Bright Spots But Still Far From Full Recovery

As the Commonwealth continues to gain distance from the Great Recession, a new report, The State of Working Kentucky 2016, shows a mixed story of progress for workers in recent years.

The report, by the Kentucky Center for Economic Policy (KCEP), notes the state’s unemployment rate has fallen below pre-recession levels while workers experienced real wage growth from the top to bottom in 2015 for the first time in 15 years, both good signs for Kentucky workers. But it also shows the positives are regionally centralized, with parts of the state facing major economic challenges and Kentucky as a whole still far short of the near full employment experienced back in 2000.

“The overall picture continues to brighten,” said Anna Baumann, primary author of the report. “But the devil is in the details. Areas of concern include the large number of jobless workers not officially counted in the unemployment rate, poor job quality in some industries that are growing, and the ways economic changes hit some groups and regions of the state harder than others.”

The data show continued labor market challenges for Kentuckians in 2016:

  • Population has grown nearly twice as fast as job growth since 2007 (5.1 percent compared to 2.6 percent), meaning Kentucky is an estimated 47,400 jobs short of pre-recession employment levels once population is factored in.
  • If the same share of Kentucky’s prime-age population (25 to 54) was working today as in 2000, 118,000 more people would be employed. The state’s labor participation force is third from the bottom, above only West Virginia and Mississippi, as parts of the state face a continued lack of job opportunities.
  • The industry with the most growth since the recovery began (32,900 jobs since June of 2009) is temporary or employment service jobs, which pay low wages and lack security. Other industries with strong job growth include a mix of job quality in industries like auto manufacturing, restaurants and health care.
  • Younger workers, those with less education, African American and Hispanic workers continue to face especially high rates of underemployment.
  • Only 25 of Kentucky’s 120 counties had more people employed in June 2016 than June 2007, almost all in the “Golden Triangle” between Louisville, Lexington and Northern Kentucky. Many eastern Kentucky counties, on the other hand, have seen big drops in employment.

“We can only say our economy is truly improving when job opportunities, wages and working conditions across the board are getting better,” said Jason Bailey, executive director of KCEP. “There are policies we should be pursuing that can lead to more progress,  including a higher minimum wage, better college affordability, and more public investments in our economy and our communities that put people back to work and allow wages to keep rising.”

The full report can be found here.

The State of Working Kentucky 2016

To view this report in PDF form, click here.

Despite steady improvement in the overall economy since the Great Recession, the current presidential election cycle has demonstrated Americans’ persistent and perhaps even worsening anger about the economy. Jobs are still too scarce, the standard of living for many low- and middle-income workers remains precarious and income inequality continues to soar. These sentiments are borne out by the data on Kentucky’s workers and economy. To learn more, click to read the State of Working Kentucky 2016.


Budget’s Reliance on One-Time Funds Presents Challenge Next Time Around

The new two-year state budget that began in July relies on a substantial amount of one-time monies to balance its books — more than twice as much as was used in each of the previous two budgets. That presents an extra challenge when the state comes back to develop a new budget in 17 months, as the Kentucky General Assembly must find those dollars again plus other money to deal with rising costs and the state’s many needs.

The gap in General Fund monies between what the new budget spends and what it brings in as far as recurring revenues — what’s called the structural deficit — amounts to $428 million a year in 2017 and in 2018. As seen in the graph below, the annual gap in the last two budgets ranged from only $100 to $230 million (although structural deficits as big as in 2017 and 2018 existed in some prior years).

Deficit 1

Source: KCEP analysis of Office of the State Budget Director data.

Most of the gap is closed by $518 million in fund transfers over the biennium, which are monies intended for other purposes that are moved to the General Fund to help pay expenses. In particular, the state relied on $375 million pulled out of the Kentucky Employees’ Health Plan (another $125 million was also taken out of the fund and transferred to a so-called permanent pension fund to be used at a future date). The health plan had monies that could be transferred primarily because the state has shifted more of the cost of health insurance to public employees in recent years in the form of higher deductibles and co-insurance.

The remainder of one-time monies came from General Fund revenues exceeding what the state originally projected would come in both in 2015 and in 2016. Stronger than expected economic growth, and the resulting income and sales tax revenue, are the main cause. Those extra monies created a carry-forward and put more money into the rainy day fund. But the new state budget spends $281 million of that carry-forward money in 2017 and 2018 plus spends $57 million out of the rainy day fund.

The new budget includes major cuts — 9 percent to many parts of state government and 4.5 percent cuts to higher education, on top of 15 rounds of previous cuts since 2008. But it also puts a record amount of extra money into meeting our state’s pension obligations. Even worse cuts or continued underfunding of pensions would have occurred if the state hadn’t had access to the one-time monies used to plug the hole in the budget.

That fact presents a challenge as Kentucky approaches its next two-year budget. Although some amount of one-time monies will be found again (as they always are), if such dollars are difficult to identify next time it will make the already-severe budget challenge even harder, and the ongoing need to raise more revenue through ending tax breaks and loopholes that much more important.

Op-Ed: Bolder Economic Solutions One Answer to the Anger

This column originally ran in the Richmond Register on Aug. 18, 2016. 

The 2016 presidential primaries were marked by a surge in popularity from candidates tapping the anger of those Americans who feel left out and left behind. It’s in states like Kentucky where those feelings are especially raw, with the economic conditions many face a key source of frustration.

There’s more going on than economic worries when it comes to the state of the nation this year, including the festering of deep wounds around race that have been with the country since its founding. But suspicion and rage at those who look different bubbles up when people feel their status is falling and their future is unsure.

Many working class white men have seen a decline of their well-being over the last few decades, with a loss of available good-paying jobs and stagnant wages for those lucky enough to find work.

Kentucky has experienced these trends as deeply as any other state because of our reliance on traditional industries like manufacturing and coal. The state has lost one in five of the manufacturing jobs we had at our peak in 2000 and coal employment is now a tiny fraction of what is was after World War II. The state has the second-lowest share of adults ages 25 to 54 in the workforce, behind only West Virginia. And 30 percent of Kentucky workers are struggling to make it in jobs that pay less than $12 an hour — no improvement from 15 years ago.

Rural counties across Kentucky have been particularly hard hit by the Great Recession and structural changes in the economy. Despite a steadily improving economy as a whole, in 92 of Kentucky’s 120 counties there are still fewer people employed now than in 2007 — before the recession hit — and 24 counties (mostly in eastern Kentucky) have seen employment drop more than 20 percent over that time.

These challenges are rooted in policy failures: the abandonment of a national commitment to full employment over the last few decades, trade and financial policies that too often prioritize Wall Street gains over families’ economic security and inadequate efforts to help workers and communities adjust to economic transitions that are inevitable.

To turn things around, we need actions that make a meaningful difference in people’s lives. So many have lost faith in our ability to do things together because they believe government is not on their side. Changing that view will require a bolder set of solutions than have been pursued in the past.

For example, the federal government should be taking advantage of historically low interest rates to launch an aggressive nationwide investment in infrastructure and community repair. Work is needed to fix roads and bridges, build schools, restore scarred landscapes, ramp up drug treatment options, lay broadband lines and more.

A serious effort will put millions of Americans to work today and spur small business and other private sector growth. That will finally get us back to full employment, the key condition needed for wages to rise across the board.

Designed right, it would put special emphasis on the coal communities and factory towns where hope is waning in the face of major economic dislocation. The Reclaim Act, a bill introduced by Congressman Hal Rogers that would release $1 billion to restore abandoned mine lands, is a good example of what’s needed.

You could call such an initiative the New Commitment, in frank recognition that government has fallen short when it comes to the interests of ordinary Americans in recent decades. In contrast, offering only solutions that nibble around the edges of what communities need runs the risk of stoking further anger and cynicism. The times call for something braver.

If we don’t do more to address the country’s real problems, we’re headed toward further division. Throughout the last year, we’ve seen the beginnings of the dark fallout that could result.

Gov. Bevin Submits Medicaid Overhaul Plan to Feds, With Some Changes

Bevin Administration Submits Final Medicaid Changes To Feds

Bevin Submits Revised Waiver

Bevin Submits Revised Waiver

by Ronnie Ellis

Bevin Submits Medicaid Plan That Restores Allergy Testing

Controversial Parts of Medicaid Plan Remain