by Jeanie Smith
Senate leaders released a “new” version of their bill to replace the Affordable Care Act that fixes none of the original Senate bill’s core problems and makes some of them even worse.
Through its cuts in funding, the Senate bill would effectively end Kentucky’s highly-successful Medicaid expansion, resulting in lost coverage for 473,000 Kentuckians. The bill goes beyond that to permanently harm the traditional Medicaid program by instituting caps that will squeeze funding over time. Those caps will jeopardize coverage for another nearly 1 million Kentuckians, including people with disabilities, seniors and children. An analysis of the initial Senate bill found that the cuts would reduce federal Medicaid funding in Kentucky by more than half.
The Senate bill would raise premiums and deductibles for millions of Americans who buy coverage in the individual marketplace by reducing tax credits and eliminating cost-sharing assistance, especially harming older people. It also would gut consumer protections, leaving people with pre-existing conditions without access to needed health care. The so-called “Cruz Amendment” would effectively segregate people with pre-existing conditions into plans with other people needing expensive care, leading to rising costs and destabilized markets.
While a Congressional Budget Office score is not yet available for the revised bill, its cuts to Medicaid and marketplace financial assistance will result in many millions of Americans losing coverage. And the bill makes these cuts in order to give $400 billion in tax cuts to the wealthy, drug companies, insurers and other corporations.
The much-touted new funding Senate leaders put in the bill doesn’t solve these problems. They point to additional “stability” funds for states. But the funds are woefully inadequate, poorly designed and will do little to improve health insurance for low-income people who will lose Medicaid coverage or those whose subsidies used to buy marketplace insurance are being cut.
Proponents are also touting additional funding for opioid treatment. But the bill provides far less than experts estimate we need. And, more importantly, it would be greatly outweighed by the bill’s deep Medicaid cuts and other fundamental changes to the ACA that would cost millions of people their health care coverage, leaving many opioid sufferers without access to much-needed treatment. As reported this week in The Atlantic, some of the hardest-hit places in the country by the opioid crisis are also places where Medicaid plays a big role in insurance coverage — and Medicaid, as noted here, is slashed under the Senate bill.
Now Senate leaders are trying to rush this bill through next week without the time needed for the public to understand how it will affect them and their communities. Sen. Mitch McConnell indicated recently that if the bill failed, he would shift to a bipartisan approach to fixing the Affordable Care Act including action to stabilize the marketplaces. For Kentucky’s sake, let’s hope that’s where this is headed.
by Rachel Roubein
by Melissa Patrick and Al Cross
Kentucky ended the 2017 fiscal year with $138.5 million less in General Fund revenue than economists predicted would be collected. The shortfall puts slightly more pressure on investments in our schools, universities and community colleges, health and human services and other building blocks of Kentucky communities. And its details reinforce the need to generate more revenue in ways that will work.
Total General Fund receipts in FY 2017 totaled $10.5 billion. Receipts did grow compared to FY 2016 by $138.9 million (1.3 percent), but the forecast predicted twice as much growth (2.7 percent). In general, year-over-year revenue growth is to be expected and has been the case historically in Kentucky, with total General Fund receipts growing 8 out of the last 10 years despite a major recession from which we’re still recovering.
A shortfall occurs when actual revenue does not meet the revenues estimated by the Consensus Forecasting Group. Those estimates are based on past revenue performance of the various taxes and fees levied by the commonwealth, and a review of general economic conditions in Kentucky and the nation. The estimates against which 2017 revenues are compared were made in late 2015. To put the shortfall in context, the amount actually generated is only 1.3 percent less than was predicted, which, given the length of time and number of factors considered, is pretty close. The governor has the ability to address the shortfall through a reduction plan that includes an already-ordered cut to agency spending of 1 percent, transfer of unspent funds and use of up to $59 million from the already-modest rainy day fund.
Even though the estimates were close and the deficit is not large, when considered in the context of Kentucky’s overall fiscal health, the shortfall underscores the inadequacy of our current tax structure to meet the needs of the commonwealth. We simply do not have the resources necessary to pay down the state’s unfunded pension liability, meaningfully respond to the opioid addiction or child protection crisis or recover from 16 rounds of budget cuts since 2007.
Kentucky’s main revenue sources – the individual income tax and the sales and use tax which comprise 41.9 percent and 33.2 percent, respectively, of total General Fund revenue in 2017 – both underperformed and contributed to the shortfall. The individual income tax was 0.4 percent below predictions and sales tax receipts were 1.5 percent lower than expected.
When comparing the overall strength of the individual income tax and the sales tax over time, it is important to note that since 2007, the individual income tax has grown by 44.5 percent while the sales tax has only grown 23.7 percent. The relative strength of the income tax showed up this year as well, as income tax receipts grew by 2.6 percent and generated $112 million more than the year before, while the sales tax grew by only 0.7 percent and generated $23 million more than 2016.
A major reason for the stronger growth in the income tax – which is more progressive (people with more income generally pay a larger share of their income in taxes than low- and middle-income people do) – is that it better aligns with the rapid income growth at the top in today’s increasingly unequal economy. The sales tax, on the other hand, asks more of middle and low-income people who have not seen their income or their purchasing power grow in decades. The sales tax also suffers from a relatively narrow base because it doesn’t generally apply to services, a faster growing sector of our economy.
Other revenue sources also contributed to lackluster overall growth in receipts: corporate income taxes, which are inherently volatile, fell 5.5 percent relative to 2016 and brought in 14.1 percent less than predicted. In fact, at $81.9 million less than was forecast, corporate income taxes were the largest nominal contributor to the shortfall. Factoring limited liability entity taxes (which businesses also pay) into corporate income taxes, these receipts grew by 1.8 percent compared to 2016 but underperformed estimates by 7.5 percent. Coal severance revenue fell for the 6th consecutive year to just a 1/3 of 2012 receipts, and cigarette taxes fell by 1.3 percent since last year.
Later this month, the state will close out the expenditure side of the budget and we will have an overall picture of where we stand fiscally. Later this year, in preparation for the 2018 budget session, the Consensus Forecasting Group will begin developing revenue estimates and agency heads will develop budget proposals for the 2018-2020 biennium. In addition to these processes moving forward, the governor has indicated that he plans to call a special session to address tax reform and pension reform – all further opportunities to examine Kentucky’s fiscal health.
As legislators consider the needs of the commonwealth and the ability of our tax code to generate sufficient revenues to meet them, the shortfall for 2017 should serve as a warning. Cutting income taxes for those at the top and shifting to heavier reliance on slower-growing sales taxes – which some Kentucky’s leaders are falsely promoting as a solution to not only budgetary but also economic woes – would deepen the fiscal challenges we face today. The real solution lies in cleaning up expensive special interest tax breaks that provide little to no benefit to the commonwealth. Real tax reform wouldn’t prevent shortfalls, but it would greatly improve the context in which they must be addressed.
At the same time our state is increasing criminal penalties for heroin, a new analysis further bolsters existing research showing such an approach is not an effective way to address Kentucky’s drug problems.
House Bill 333, which the Kentucky legislature passed earlier this year, increases penalties for low-level heroin and fentanyl trafficking — rolling back the drug sentencing reforms in 2011’s House Bill 463. The new law makes trafficking in heroin in less than 2 grams a Class C felony, with a 5 to 10 year sentence and no eligibility for parole until 50 percent of the sentence is served. This increase is a big jump from the crime’s former classification as a Class D felony with a 1 to 5 year sentence and parole eligibility after serving 20 percent of the sentence. Kentucky’s broad definition of trafficking means those charged with trafficking in these small amounts may be sharing drugs or selling just enough to support their habit, rather than engaging in large-scale dealing.
Despite compounding evidence to the contrary, legislators involved in passing HB 333 cited the need to do something about the state’s devastating opioid epidemic. But the new study by Pew adds to the large body of research showing harsher penalties for drug crimes do not reduce substance abuse. They are, however, costly to individuals and families as well as the state.
Pew set out to understand “whether and to what degree high rates of drug imprisonment affect the nature and extent of the nation’s drug problems” by comparing publicly available data from law enforcement, corrections and health agencies. If imprisonment was an effective deterrent to drug use and crime, then states with higher rates of imprisonment for drug offenses would have lower rates of drug use among their residents — other things held constant. However, when Pew compared state drug offender imprisonment rates with three important measures of state drug problems — self-reported drug use rates (excluding marijuana), drug arrest rates and drug overdose death rates — no statistically significant relationship was found. These results account for variation in states‘ education level, unemployment rate, racial diversity and median household income.
According to Pew: “What research does make clear is that some ways of reducing drug use and crime are more effective than others — and that imprisonment ranks near the bottom of the list. Putting more drug offenders behind bars — for longer periods of time — has not yielded a convincing public safety return. What it has generated, without doubt, is an enormous cost for taxpayers.” The increased costs associated with greater imprisonment for drug offenders means less funds for “programs, practices and policies that have been proven to reduce drug use and crime” — which is a net loss for public safety.
Kentucky is clearly heading in the wrong direction with its drug laws — a trend that is especially troubling given recent reports of jail overcrowding, plans to reopen private prisons and a Department of Corrections budget that is $43 million over projections for this year alone, according to the Justice Cabinet.
This column originally ran in the Courier-Journal on July 10, 2017.
In a recent press conference and op-ed “Make the consumer king” in the Courier-Journal, Sen. Rand Paul proposed expanding the “association health plan” (AHP) provision in the Senate health repeal bill, claiming it would help ensure “every Kentuckian” can have “good, inexpensive coverage” and protections like those for pre-existing conditions.
In fact, his proposal would create a race to the bottom on such protections that would worsen problems with affordability and leave more Kentuckians at risk in plans that do not cover the treatments they need for better health.
The Senate bill, as currently drafted, would allow groups such as trade associations and chambers of commerce to sponsor health plans, which small businesses and self-employed people could then enroll in. These plans would be able to set premiums based on health status and be subject to fewer consumer protections and standards.
Few details are available, but Paul has indicated he wants to broaden the AHP provision in the Senate bill to make AHPs available to more individuals and small groups, and to allow AHPs to avoid “Obamacare regulations.”
Paul’s idea would only amplify the serious problems with the Senate’s AHP provision:
Premiums would rise in regular individual-market and small-group plans
AHPs could be far less comprehensive than regular insurance coverage in a state’s individual and small-group markets, and AHP enrollee premiums could be set based on people’s health status and risk. This creates a sharp disparity that would lead healthier people and small groups to flock to the AHPs, in order to get cheaper premiums. Meanwhile, sicker and more costly people and small groups would be left behind in the traditional insurance markets, and their premiums would rise. Plus, if an AHP enrollee were to get sick, the cost of remaining in the AHP would rise sharply in the future.
Undermines states’ ability to protect consumers
AHPs as envisioned by Sen. Paul would be largely exempt from state regulation, such as benefit requirements and financial stability standards. This could put consumers in these plans at risk and they wouldn’t be able to rely on state oversight – the usual “cop on the beat” to deal with complaints or problems that arise.
AHPs don’t improve pooling, they destroy it
Sen. Paul’s op-ed says that individuals and small businesses signing up for coverage today have to “go it alone” and that AHPs would be a new way for people to pool together in order to get “more leverage to get protections against pre-existing conditions and high prices.” But under current rules no one has to “go it alone.”
In both the individual and small-group insurance markets, individuals are part of larger pools; premiums are set based on everyone a given insurer covers in that market — not just one small firm, or family, or individual. Moreover, under current rules no one in Affordable Care Act plans in the individual and small-group markets can be charged higher premiums due to their health status or past medical treatments. They have a full complement of protections against problematic insurer practices from the past. AHPs would bring many of those practices back.
Far from an innovative solution to coverage, Sen. Paul’s idea unravels the protections now in place and threatens to destabilize insurance markets. Just like the ideas contained in the Senate repeal plan, it would set the nation back on the goal of affordable, quality health care for all.