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

Federal DOJ SSA

IRS
Audit Data Sharing

SNAP and School Meals

FNS
HHS

ACF

MH Eligibility

CMS

State Counterparts

OIM
(dark blue)
• For Families with Children For the Aged and Disabled Long Term Care Select Plan for Women

ODP
(red)
MR/ID: HCBS
• • • Consolidated Waiver P/FDS Waiver Base Services

OLTL
(green)
Attendant Care
• • Attendant Care Waiver Act 150

OMAP
(brown)
Medical Assistance
• • Managed Care Fee for Service

OCDEL
(pink)
Certification Services

OMHSAS
(purple)
• HealthChoices Behavioral Health (HC-BH) Program Fee-for-Service

OCYF
(yellow)
• Youth Development Centers
Youth Forestry Camps

Medical Assistance

• • •

Child Care Certification

Behavioral Health & Substance Abuse Services


• •

Behavioral Health Services Initiative (BHSI)
Base Act 152

Juvenile Justice Services

• •

County Juvenile Probation Offices Private Agency Delinquency Services

Supplemental Nutrition Assistance Program (SNAP)


• Nutritional support for lowincome families

Autism: HCBS

Adult Autism Waiver (AAW)
Adult Community Autism Program (ACAP)

Nursing Facilities

MA Nursing Facilities

Subsidy Services

Child Care Works

Integration Programs
Employment and Training Programs
• A suite of programs that provide job readiness, placement, retention training, and supportive services

Adult Education
CHIPP

• •

Homemaker/Caretaker Service Life Skills Education

Intensive Care Facilities/ Mental Retardation


State Centers
Private Facilities

AIDS

AIDS Waiver

Early Intervention Services

• •

Early Intervention, Infant/Toddler Early Intervention, Preschool

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

• •

Adoption Services Adoption Assistance

Homeless Assistance

Community Service Programs for People with Physical Disabilities (CSPPPD)

• • •

Independence Waiver COMMCARe Waiver OBRA


Keystone STARS
Keystone Babies

State Facilities


State Hospitals and Restoration Center
Other Initiatives


Pennsylvania Pre-K Counts
Full Day Kindergarten

Cash Assistance

Temporary Assistance for Needy Families (TANF) General Assistance (GA) SSI State Supplement

Early Learning Services
Aging
• Aging Waiver

Administration & Oversight

• •

Information and Referral Services Service Planning

Head Start State Supplemental Assistance Program Early Head Start
Parent-Child Home Program

• •


Pharmacy

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


Nurse-Family Partnership
Children’s Trust Fund

• •

Foster Family Service Community Residential Service and Group Home Service

Low Income Home Energy Assistance Program (LIHEAP)

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

LIFE

Life Program

Placement
• •

Supervised Independent Living Service Residential Service Secure Residential Service
Emergency Shelter Service

Child Support Enforcement

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

Legal Assistance

Provides free services to assist clients to resolve civil legal problems

Through PA DOT

Protective Services (Child Abuse)

Protective Services


Protective Services (General)
Counseling/Intervention Services

State Counterparts

Through PA L&I

Day Services

• •

Day Care Service Day Treatment Service

Through PA DOH

SAMHSA Key = indirect interaction
2

ICE

OSEP

HRSA

AoA

2

= direct interaction

US DOT

USDLI

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

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 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

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)

Laparoscopic Cholectystectomy (IP)

Laparoscopic Cholectystectomy (OP)

Taxpayers cannot decipher the breadth of the problem

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 70,000 65,000

Welfare Benefits + Wages

60,000 55,000

• To understand the problem, it’s best to look at the family’s income continuum. • This chart depicts the family’s income on a sliding scale.

50,000
45,000 40,000 35,000 30,000 25,000

Earned Income minus taxes

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

20,000
15,000 10,000 5,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000

• Despite the progressivity of the income tax, this family is always better off making more money, taking a better job.
Red Line Represents Net Income
-

Wages

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

70,000
65,000

Highest Welfare Cliff

Welfare Benefits + Wages

60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000 100,000 CHIP MA Childcare Energy Housing Food Cash Negative Income Tax Earned Income minus taxes

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.

Wages

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%

35% 30% 25%
20% 15% 10% 5% 0%
FY 00-01 FY 01-02 FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07

PA Welfare Budget Poverty

36.5%

29.9%

General Fund Revenue

Economy
7.4% 1.3%

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

900 800 700

Billions of Dollars

600

Forecasted State Medicaid Expenditures Forecasted Federal Medicaid Expenditures State Medicaid Expenditures Federal Medicaid Expenditures

500
400 300 200 100 0

1998

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

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

90
Enrollment Due to ACA

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

80 70

Forecasted Enrollment Enrollment

Millions of Recipients

60 50 40

30
20 10 0

1998

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

PA: Growth in Medicaid Since 1979
Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.us 110% 105% 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50%

100.7%
Growth in Medical Assistance enrollment has outstripped both population growth and economic growth.

65.9%

45% 40%
35% 30% 25% 20% 15% 10% 5% 0%

7.2%
Population Real Personal Income Medicaid
13

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

160% 140% 120%
Food Stamps Enrollment

158%

100% 80% 60%

Medicaid Enrollment Government Employment Private Employment

52%

40% 20% 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
6%

2011

-2%

-20%

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

18.0
17.0 16.0 15.0 14.0 13.0 12.0 11.0

17.9

13.0
Employment to Enrollee Ratio Private Employment to Enrollee Ratio

10.0
9.0 8.0 7.0 6.0 5.0 4.0 3.0

4.8 4.2

5.1
3.8

5.2 3.9 4.0 3.2
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

2.6

2.5

2.0
1.0 1982
1966 1968 1970 1972 1974 1976 1978 1980 1984 1986 1988 1990

2.0 1.9
2012

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

2011 National Data
Estimated Welfare Recipients Government Employed Persons Privately Employed Persons
20,000,000 40,000,000 60,000,000 80,000,000

66.1 million

21.2 million

109.3 million
100,000,000 120,000,000

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

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

1 The

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
$ 2,600

Expenditures (millions)

$2,500 $2,000 $1,500 $1,000 $500 $0
$1 ,746.2

$ 2,400

$ 2,300

$ 2,300

$ 2,375

$1 ,332.1

Year 1

Year 2

Year 3

Year 4

Year 5

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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24

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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27

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.

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