Gary Alexander Welfare Secretary's Presentation on PA

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Welfare’s Failure and the Solution

Presentation by

Gary D. Alexander Secretary of Public Welfare Commonwealth of Pennsylvania The American Enterprise Institute July 2012

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

• The Welfare Problem – Chaos – No Transparency – The Welfare Cliff – The President’s Healthcare Tax makes each of these problems worse.

Welfare Chaos Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

“The U.S. welfare system would be an unlikely model for

anyone designing a welfare system from scratch. The dozens of programs that make up the ‘system’ have different (sometimes competing) goals, inconsistent rules, and over-lapping groups of beneficiaries.”

-Concise Encyclopedia on Economics Introductory sentences on the topic of “welfare” by Thomas MaCurdy and Jeffrey M. Jones. Thomas MaCurdy is the Dean Witter Senior fellow at the Hoover Institution and a professor of economics at Stanford University. He is a member of standing committees that advise the CBO, the U.S. Bureau of Labor Statistics, and the U.S. Census. Jeffrey M. Jones is a research fellow at the Hoover Institution. He was previously executive director of Promised Land Employment Service.

Chaos in the Federal-State Relationship Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

FBI Audit / Eligibility

IRS

FNS

SNAP and School Meals

Audit Data Sharing

Federal DOJ SSA

ACF

MH Eligibility

CMS

HHS

State Counterparts

OIM

ODP

OLTL

OMAP

OCDEL

OMHSAS

OCYF

(dark blue)

(red)

(green)

(brown)

(pink)

(purple)

(yellow)

Medical Assistance

•

For Families with Children

•

For the Aged and Disabled

•

Long Term Care

•

Select Plan for Women

MR/ID: HCBS

•

Consolidated Waiver

•

P/FDS Waiver

•

Base Services

•

Supplemental Nutrition Assistance Program (SNAP)

•

Autism: HCBS

Nutritional support for lowincome families

Attendant Care

Adult Autism Waiver (AAW)

•

Adult Community Autism Program (ACAP)

•

State Centers

•

Private Facilities

Nursing Facilities

•

Attendant Care Waiver

•

Act 150

•

Medical Assistance

•

Managed Care

•

Fee for Service

Certification Services

Subsidy Services

MA Nursing Facilities

•

•

Child Care Certification

Behavioral Health & Substance Abuse Services

Intensive Care Facilities/ Mental Retardation

A suite of programs that provide job readiness, placement, retention training, and supportive services

AIDS

•

Early Intervention Services

AIDS Waiver

HealthChoices Behavioral Health (HC-BH) Program

•

Fee-for-Service

•

Behavioral Health Services Initiative (BHSI)

•

Base

•

Act 152

•

CHIPP

•

Early Intervention, Infant/Toddler

•

Early Intervention, Preschool

•

State Hospitals and Restoration Center

•

Other Initiatives

Adult Education

Adoption •

Homeless Assistance

Cash Assistance

Low Income Home Energy Assistance Program (LIHEAP)

•

Temporary Assistance for Needy Families (TANF)

•

General Assistance (GA)

•

SSI State Supplement

•

Assistance to low-income families in need of assistance with their heating and cooling bill

•

Child Support Enforcement

•

Legal Assistance

Provides services to families and children in immediate need of shelter and to those in imminent danger of becoming homeless

Community Service Programs for People with Physical Disabilities (CSPPPD)

Aging

•

COMMCARe Waiver

•

OBRA

•

LIFE

Establishes paternity and support orders and provides medical support and employment services for non-custodial parents

•

•

Aging Waiver

State Facilities

Keystone STARS

•

Keystone Babies

•

Pennsylvania Pre-K Counts

•

Full Day Kindergarten

•

Head Start State Supplemental Assistance Program

•

Early Head Start

•

Parent-Child Home Program

•

Nurse-Family Partnership

•

Children’s Trust Fund

Administration & Oversight

•

Pharmacy

Special Pharmacy Benefits Program for Mental Health (SPBP-MH)

Protective Services

Through PA L&I

SAMHSA

ICE

= indirect interaction = direct interaction

US DOT

Youth Forestry Camps

•

County Juvenile Probation Offices

•

Private Agency Delinquency Services

•

Homemaker/Caretaker Service

•

Life Skills Education

Adoption Services

•

Adoption Assistance

•

Information and Referral Services

•

Service Planning

•

Foster Family Service

•

Community Residential Service and Group Home Service

•

Supervised Independent Living Service

•

Residential Service

•

Secure Residential Service

•

Emergency Shelter Service

•

Protective Services (Child Abuse)

•

Protective Services (General)

•

Counseling/Intervention Services

Day Services

•

Day Care Service

•

Day Treatment Service

Through PA DOH

OSEP

USDLI

Youth Development Centers

•

•

Placement

Life Program

Through PA DOT

Provides free services to assist clients to resolve civil legal problems

Key

2

Independence Waiver

Early Learning Services

State Counterparts

2

•

•

Juvenile Justice Services

Child Care Works

Integration Programs •

Employment and Training Programs

•

HRSA

VA

HHS OIG

SNAPSHOT OF WHAT A STATE HAS TO DEAL WITH FROM THE FEDERAL GOVERNMENT MYRIADS OF CONFLICTING RULES AND REGULATIONS FROM A MASSIVELY DISORGANIZED BUREAUCRACY

AoA

Lack of Transparency Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

•

•

•

Health care consumers do not know the cost of medical services or if price is associated with quality Health care costs vary dramatically across the Commonwealth without any apparent connection to quality or the health status of patients served

Median Price of Health Care Services Selected Hospitals in Urban Settings, Southeastern Pennsylvania Hospital A

Hospital B

Weighted Average

Chest Pain (IP)

Service

•

Colonscopy (OP)

Knee Replacement (IP)

In Philadelphia for example, a colonoscopy at one hospital is over $3,000 and a few miles away at a surgical center it is under $800

Taxpayers cannot decipher the breadth of the problem

Laparoscopic Cholectystectomy (IP)

Laparoscopic Cholectystectomy (OP)

IP – Inpatient OP – Outpatient 2011 DPW Data

$-

$5

$10

$15

Median Paid

$20 $25 Thousands 5

Welfare Cliff Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Example Household Receiving Welfare Benefits: • • • • •

Single mom Two Children Lives in Pennsylvania No disabilities Children are 1 and 4 years old and placed in a Star 4 childcare center

Household Benefits and Income Chart Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

80,000 75,000

• To understand the problem, it’s best to look at the family’s income continuum.

70,000

60,000 55,000

• This chart depicts the family’s income on a sliding scale.

50,000 45,000 40,000

• A family making about $60,000 takes home about $49,000.

Earned Income minus taxes

35,000 30,000 25,000

• Despite the progressivity of the income tax, this family is always better off making more money, taking a better job.

20,000 15,000 10,000

Red Line Represents Net Income

5,000

Wages

100,000

95,000

90,000

85,000

80,000

75,000

70,000

65,000

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

-

-

Welfare Benefits + Wages

65,000

Household Income and Benefits Chart Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

If we stack on welfare benefits, you can quickly see what happens. Welfare cliffs crop up in several spots.

80,000 75,000

Highest Welfare Cliff

70,000

60,000 55,000 50,000 45,000

The single mom is better off earning gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income & benefits of $57,045.

40,000 35,000 30,000

CHIP MA Childcare Energy Housing Food Cash Negative Income Tax Earned Income minus taxes

25,000 20,000 15,000 10,000 5,000

Wages

100,000

95,000

90,000

85,000

80,000

75,000

70,000

65,000

60,000

55,000

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

-

Welfare Benefits + Wages

65,000

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Result: Out of control welfare spending.

Pennsylvania Growth Trends Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

40%

PA Welfare Budget

35% 30%

Poverty

36.5%

29.9%

25% 20% 15%

General Fund Revenue

10%

Economy 7.4%

5% 1.3%

0% FY 00-01

FY 01-02

FY 02-03

FY 03-04

FY 04-05

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

FY 10-11

-5% • • • • •

Adjusted for Inflation using the Consumer Price Index for the regional area of Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD. Poverty Growth is the accumulated population growth since 2000 of those persons in poverty as defined by the Census Bureau.

Economic Growth as indicated by State Personal Income as measured by the U.S. Bureau of Economic Analysis, and adjusted for inflation..

PA’s Welfare budget GROWTH NOT adjusted for inflation stands at close to 80% over the past decade.

Even after adjusting PA’s Welfare growth for inflation, it still far outpaces poverty growth.

U.S. Medicaid Expenditures Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Official Forecast of the U.S. Department of Health and

900 800

Forecasted State Medicaid Expenditures

600

Forecasted Federal Medicaid Expenditures

500

State Medicaid Expenditures

400

Federal Medicaid Expenditures

300 200

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0

1968

100

1966

Billions of Dollars

700

U.S. Medicaid Enrollment Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Official Forecast of the U.S. Department of Health and Human Services

90 Enrollment Due to ACA

80

Forecasted Enrollment Enrollment

60 50 40

30 20

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0

1968

10

1966

Millions of Recipients

70

PA: Growth in Medicaid Since 1979 Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 110%

100.7%

105% 100% 95% 90% 85%

Growth in Medical Assistance enrollment has outstripped both population growth and economic growth.

80% 75%

65.9%

70% 65% 60% 55% 50%

45% 40% 35% 30% 25% 20% 15% 10%

7.2%

5% 0%

Population

Real Personal Income

Medicaid

13

10 Year National Accumulative Growth Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

160%

158%

140% 120% Food Stamps Enrollment Medicaid Enrollment

100%

Government Employment

80%

Private Employment

60% 52%

40% 20% 6%

0% 2001

-20%

2002

2003

2004

2005

2006

2007

2008

2009

2010

-2%

2011

Number of Workers per Medicaid Recipient Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

17.9

18.0 17.0 16.0 15.0 14.0

13.0

13.0 12.0

Employment to Enrollee Ratio

11.0

Private Employment to Enrollee Ratio

10.0 9.0 8.0 7.0

4.8

6.0

5.2

5.1

5.0

3.9

4.0

4.2

3.0

4.0

3.8

2.6

3.2

2.0

2.5

2.0 1.9

1.0

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

-

Tax Burden on Wealth Producers Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

2011 National Data Estimated Welfare Recipients

66.1 million

Government Employed Persons

21.2 million

Privately Employed Persons

109.3 million -

20,000,000

For every 1.65 employed persons in the private sector, 1 person receives welfare assistance.1

1 The

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

For every 1.25 employed persons in the private sector, 1 person receives welfare assistance or works for the government.1

source for the privately employed persons and government employed persons is the U.S. Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages, September 2011.

The number of persons on welfare is calculated with national Medicaid and Food Stamps numbers and using a formula based Pennsylvania’s experience to remove duplicate counts estimated for October 2011.

Disability Growth Soaring Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

• A record 5.4 million workers and their dependents have signed up to collect federal disability checks since President Obama took office.

• Nearly 11 Million now on Social Security Disability – up 53% over the past 10 years.

•The number of new disability enrollees has climbed 19% faster than the number of jobs created during the sluggish recovery.

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

State Based Solutions: Lessons from Rhode Island

Rhode Island Medicaid Reform Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Rhode Island was granted an 1115 Medicaid Waiver in January of 2009 •

RI first asked feds for: Block Grant with gain sharing based on Performance [measures]; to reinvest a portion of savings from the “grant” back into preventive health care; to waive onerous federal rules; and to align all welfare programs.

DENIED by Washington

•

Federal Government and RI settled on and agreed to:  providing RI with a capped allotment of federal-state funds for Medicaid based on historic trends. This was the first state ever granted an entire spending cap over an entitlement.  Granting the state with unprecedented flexibility to change delivery systems, infuse competition, performance based programs and change the culture from open ended spending to cost-effective quality design and expenditure reduction.  Granting a new streamlined administrative structure where Federal Government has to answer the state within 45 days. 

Up until the waiver, the Federal Government would often make the state wait months or years to receive an answer to a question.

 Allowing the ability to access additional federal funds for state funded programs that delay institutionalization and are wellness and prevention focused [to further the goals of the waiver]  Granting the state with IT funds to create the Health reporting system for recipients

•

Obama administration revoked biggest parts of reform and agreement: Example –

HSA type account for each Medicaid recipient with incentives to improve health, behavior and performance of each recipient and the goal of moving as many people off the system and into the economy as possible.

The Results…

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

• •

After 2 years, Rhode Island stayed $1.7 Billion under the federal-state cap of $12.075 Billion.

Projections show that by the end of the 5 year waiver period, Rhode Island will be over $3 Billion under the cap. In other words, spending was almost cut in half.

Budget Neutrality Performance $3,000

Expenditures (millions)

$ 2,600 $ 2,400

$2,500 $2,000

$ 2,300

$ 2,300

$ 2,375

Year 3

Year 4

Year 5

$ 1,746.2 $ 1,332.1

$1,500 $1,000 $500 $0

Year 1

Year 2

Global Waiver Year

CMS Allocation

Actual

Source for chart: Rhode Island Executive Office of Health and Human Services December 2010.

More Results - RI Culture Change Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

The Main ingredient for success

the SPENDING CAP forced CULTURE CHANGE

• Having one waiver, with a spending cap set below historical spending patterns and in accordance with the federal government, allowed Rhode Island to break down silos of care and services.

• Spending cap forced the state to be financially responsible for the first time in history.

• Before the Global Waiver, “if the State spends a dollar it can't afford, the federal government is happy to match it with dollars they don't have.”

• The RI Waiver changed the culture and incentives!

The Spending Cap Changed the culture and forced the state to reform, redesign and be cost-conscious.

Without an urgency to save, government will never be cost-effective and improve quality.

Recent News/Results…

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Providence Journal BREAKING NEWS May 10, 2012 By Randal Edgar PROVIDENCE, R.I. -- State budget analysts said Thursday that they expect revenues for the fiscal year that ends June 30 to be $62 million greater than predicted…They also said revenues for the coming year are now expected to be $17.8 million greater than projected, based on trends that suggest…Medicaid and cash assistance programs will be $27.8 million lower than projected this year and $31.6 million lower next year.

The Lewin Group Study Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

In 2011, the Lewin Group performed an independent study to test the RI reforms.  The study found that the Ocean State's reform with a federal waiver had been "highly effective in controlling Medicaid costs" and improving "access to more appropriate services.”

 Lewin examined the state's shift to home and community-based care from nursing homes for long-term care patients. Lewin found the reform helped save $35.7 million. $15 million in 2010 alone.  The Lewin study also "found evidence of lower emergency room utilization and improved access to physician services" from "care management programs" for Medicaid patients with asthma, diabetes, heart problems and mental health disorders. Emergency room care is a major driver of Medicaid costs.

The Medicaid Solution: A New Partnership Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

• Solutions – Harness the Laboratories of Democracy – Maximize Flexibility to States – Forecasting Cost Savings – Specific Reforms

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Give States Flexibility Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

The Temporary Assistance for Needy Families (TANF) program, which allows greater flexibility among the states has seen a 68% enrollment drop from 1990 to 2008. By contrast, Medicaid, which is layered with federal rules, has seen an 110% explosion in the number of enrollees. Poverty has grown only 19% during the same time period.

25

Forecasting Cost Savings Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

• Innovation and creativity by the states will produce savings.

• With freedom from federal rules, an Initial 10% savings is very possible: – Pennsylvania’s Actuary has run several financial models on potential reforms for Medicaid and estimates total savings between 7% and 16%.

– TANF resulted in 68% enrollment drop after flexibility was given to the states (see previous slide.)

• The Federal Government can attain more than $1.5 trillion through a new federal-state partnership on welfare reform.

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Potential Savings by Capping Medicaid Growth Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

Estimated ten-year savings for taxpayers by just capping Medicaid growth and allowing states to innovate and manage within the cap: in billions of dollars Capped Growth Federal States Total 605.4 388.5 993.9 5% 771.1 495.6 1,266.7 4% 927.1 596.5 1,523.6 3% 1,074.0 691.5 1,765.5 2% 1,212.4 781.0 1,993.4 1% 1,342.7 865.3 2,208.0 0% 1,465.4 944.7 2,410.1 -1.0% 1,500.8 967.6 2,468.4 -1.3% This was the goal of the Joint Select Committee on Deficit Reduction goal achieved.

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Three Solutions for America Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us

1. Rhode Island Global Waiver as implemented: – Assumes the federal government will provide all states the same flexibility given to Rhode island as implemented with the restrictions imposed by the Obama administration.

2. Full Rhode Island Global Waiver: – Assumes the federal government will provide the Rhode Island Global Waiver as stated in the terms and conditions.

One and two above provide programmatic flexibility with a financial cap and gain sharing to the states similar to what was given to Rhode Island in its Global Waiver.

No act of Congress is necessary and only involves approval from the Federal Centers for Medicare and Medicaid [CMS].

3. Mega Grant: – Assumes a New Social Compact where all social welfare program funds are combined and delivered to the states with clear performance measures and gain sharing.

NOTE: Projected Pennsylvania savings from super block grant: about $129.1 billion over 10 years. Pennsylvania is roughly 4% of U.S. population and spends roughly 5% of the welfare funding. Extrapolating from above: $2.5 trillion to $3.2 trillion total savings for all states and federal government. Assuming Federal share is 52.5%, the federal government saves $1.4 trillion to $1.7 trillion over ten years.