Weigh more, pay more

North Carolina’s state employee health insurance plan needed a $675 million legislative rescue plan. Although health savings accounts (HSAs) are the best way to combine lower premiums and personal responsibility, they are not in the offing anytime soon.

Instead, the State Health Plan will offer more generous insurance for non-smokers and those with a BMI under 40. All employees will lose their current plan in exchange for a less generous plan unless they prove their smoking and BMI status. Some in the press have started calling this a “fat tax.” Whatever flaws this plan has – such as mistaking a low BMI for good health, dropping the BMI threshold over time, giving employees little choice – the basic concept is not bad. State employees should bear more of the cost of their care. The plan just goes about it the wrong way and continues to ignore the other looming problem – retiree health costs.

Not every bad idea is a tax. Calling this proposal a tax is as wrong as when President Obama tried to argue with George Stephanopoulos and the Merriam-Webster dictionary.

When A Tax is Not A Tax: President Obama Joins Orwellian World of Colorado Democrats

The Baucus bill calls the fine for not complying with its individual mandate to buy health insurance an "excise tax."

President Obama must have gone to school with Colorado Democrats.

This weekend, President Obama told George Staphanopoulos that the Baucus excise tax is really not a tax because to say you "have to take a responsibility to get health insurance is absolutely not a tax increase." [link]

This year the Colorado legislature, which is controlled by Democrats, decided that a measure which makes hospitals send a fixed percentage of billed patient charges to state government was not a tax either, and Colorado's Democrat governor, Bill Ritter, signed the bill.

The Colorado Constitution forbids tax increases without a vote of the population. The state needed money, a tax increase would have gone down in flames, so elected officials simply renamed a tax a "fee."

In Colorado, it appears that paying the state extra when you need hospital care absolutely isn't a tax increase either.

As Colorado Democrats and President Obama have discovered, life is much easier for elected officials who don't worry about the plain meaning of words or, apparently, the Constitutions and statutes that contain them.

Pelosi’s Fairy Tale: Unlimited Benefits, No Premium Increase

Nancy Pelosi, Speaker of the U.S. House of Representatives, displayed her vast knowledge of health insurance, life, the universe and everything one August day in Denver (as reported by Face the State, an online newspaper covering Colorado):

Pelosi promised any federal health care legislation would not add to the federal deficit, but also said that under a government-sponsored plan there would be no limit to the benefits paid out to any individual.

“Under this legislation, your premiums will be capped, but your benefits will not,” Pelosi said. “Don’t be afraid of the facts.”

Unlimited benefits, no premium increases, no borrowing. What’s left?

Taxes.

Or, as Democrats in Colorado prefer to call them, fees. Fees on health care services, income, property, cars, energy, internet telephones, gasoline, driving, working, purchasing, saving, eating, drinking… 

Future State Budget Deficits Worrisome

Over the past few years, many have watched state legislators grapple with how to reform their state’s health care system while balancing a state budget with ever-declining revenues. Regardless of political persuasion, it’s been a difficult task.

On 10 July, the National Conference of Insurance Legislators hosted a presentation by the Center on Budget and Policy Priorities. What they presented was stark and, frankly, worrisome. They project that 48 states will face budget shortfalls in fiscal 2010. The only two to avoid this moniker are Montana and North Dakota.

Just how bad is it? During the last recession from 2002-2005, the budget shortfalls from all 50 states totaled $40B (billion), $75B, $80B, and $45B, respectively. In fiscal 2009, the total state budget shortfall will be $111B; in 2010, $166B; and in 2011, an estimated $180B.

Even with federal recovery funding, states are still struggling to meet their budgets. The Center shared one example, Virginia, where federal dollars will only close slightly less than 40% of its FY2010 budget deficit.

While states are working to make ends meet, the US Congress is ignoring their woes as it figures out how to reform the health care system at the expense of the states. On 8 July, the US Senate Health, Education, Labor, and Pensions Committee (oxymoronically called the HELP Committee) continued marking up its health reform bill, written primarily by Democrats.

Committee member Sen. Lamar Alexander (R-Tenn.) noted that the bill includes a provision for increasing Medicaid limits to 150% of the federal poverty level with no federal funds to assist the states. He shared projections in the billions of dollars for what it would cost many states. Thinking this would be a travesty to burden them with this kind of unfunded mandate, he offered an amendment calling for the federal government to provide funding to pay for this increase. Unfortunately, it failed along party lines, 13-10.

While states are keeping one eye on their own backyards, they had better keep the other eye on Congress and their plans for additional financial burdens.

Worth a Look at NCPA…

The National Center for Policy Analysis has released an interesting pair of Brief Analyses. Click through to each one for more information on the topics listed.

Brief No. 651, "Exposing the Myths of Universal Health Coverage"

Myth No. 1: Employer Mandates Would Make Coverage Affordable.
Myth No. 2: Insurance Costs Can Be Limited to 10 Percent of Income.
Myth No. 3: Guaranteed Issue and Community Rating of Premiums Protect Consumers.
Myth No. 4: Expanding Government Insurance Improves Access to Care.

Brief No. 652, "The Folly of Health Insurance Mandates":

Problem: Employer Mandates Are a Tax on Employees.
Problem: Employer Mandates Are Limited by Federal Law.
Problem: Individual Mandates Are Difficult to Enforce.
Problem: Individual Mandates Are Vulnerable to Special Interests.
Problem: Mandated Acceptance Raises Premiums.
Right Solution: A National Insurance Market.

Recommendations to Help Erase Minnesota’s $4.6 Billion Deficit

Minnesota is one of 24 states projecting a budget deficit for 2010 that will exceed 10 percent of general fund revenues.  Erasing this substantial budget shortfall is, of course, the top priority for Minnesota lawmakers this year.  

The budget problem for Minnesota, and I expect other states, is not just a short-term problem caused by our present recession.  Financial forecasts project a similarly sized shortfall for Minnesota’s 2012-13 biennial budget.  Looking out further, a recent report to the Minnesota legislature projects that spending growth (5.4 % per year) will outpace revenue growth (3.9% per year) for the next 25 years.

Reducing growth in health care spending will be essential to keeping future budgets in balance.  Growth in health care spending, projected at 8.5% per year, is responsible for most of the projected discrepancy in spending versus revenue growth.  

To bring spending back in line with revenues, Minnesota needs to seriously reassess where taxpayer money is being spent.   As part of that reassessment, American Experiment just released a new report, Preparing For an Even More Demanding Future, that includes 25 specific recommendations to reform the way the state does business. 

On the health spending front, the report supports efforts by Gov. Tim Pawlenty to reign in health care spending by eliminating adults from MinnesotaCare (a health care program for working adults and families), reducing Medicaid benefits to better reflect benefits offered by employers, and replacing inpatient hospital benefits with clinic payments in a state-only funded health care program for indigent adults. 

The program offers two additional recommendations to bring health care costs under control.  First, it recommends converting “federal funding for Medicaid into a block grant in order to give Minnesota the flexibility and the incentives necessary to implement reforms that can control long-term spending growth.”  Second, it recommends converting MinnesotaCare into a premium subsidy program that enables enrollees afford insurance in the individual market.

In the current legislative session there is one promising proposal to remake MinnesotaCare into a health program that subsidizes a private catastrophic coverage.  As proposed, it would operate much like an employer-sponsored Health Reimbursement Arrangement where the the employer makes a promise to pay certain health care expenses below the deductible.  The insurance coverage would be catastrophic coverage with a $3,000 deductible.  The state would promise to pay the first $2,000 of the deductible through the HRA-type account and the enrollee would pay the final $1,000 of the deductible.  This arrangement should save the state a substantial amount of money over the nearly $500 is spends each month on the average MinnesotaCare enrollee.

April Fool: Colorado Healthcare Affordability Act

In a stunning example of the legislative fecklessness, the Colorado House of Representatives has voted to impose a secret tax of up to 5.5 percent on sick people, arguably violating the state Constitution in the process.

The tax will raise private sector health care costs by more than $600,000,000 a year by placing a “fee” on all hospital patient revenues. The money goes into a slush fund shared by hospitals and the state Department of Health Care Policy and Finance. Hospital revenues from sources other than patients are not taxed.

The bill ensures that the “fee” will be kept secret by making it illegal for hospitals to show the “fee” as a line item on anyone’s hospital bill.

To the rest of the world such “fees” are known as provider taxes.

In Colorado, such taxes are “fees” because the Colorado Constitution clearly states that the state must have voter approval, in advance, for “any new tax, tax rate increase, mill levy above that for the prior year, valuation for assessment ratio increase for a property class, or extension of an expiring tax or a tax policy change directly causing a net tax revenue gain to any district [defined as the state or any local government, excluding enterprises].”

The Democrats who control Colorado state government know very well that the electorate is in no mood to approve tax increases. As long as the "fee" fig leaf works for them, they figure they can ignore the voters.

The bill uses money from the sick tax to expand Medicaid, pulling in pregnant women up to the state’s median income and the disabled with household incomes of up to almost $90,000 for a family of four. If national figures are any guide, many of these people will drop private insurance to use the public program.

The bill is heartless in that it specifies that people lured into the Medicaid expansions can be summarily dropped from the rolls or have their benefits cut whenever the funds collected by the provider tax are insufficient. They are insufficient when there isn't enough to reimburse hospitals for 100 percent of their cost in caring for people on state medical assistance programs and pay the cost of complying with whatever the state is pleased to call quality initiatives. The funds from the sick tax must also be sufficient to reimburse the state Department of Health Care Policy and Financing for administrative costs including, in what appears to be an earmark, payments to an unnamed group facilitator.

Hospitals have historically played fast and loose with costs—charging the uninsured unimaginable amounts and producing bills that are so unreliable that a whole industry exists for the sole purpose of examining them for errors and inflated charges.

The legislature proposes to protect taxpayers from traditional hospital dishonesty about costs by creating an advisory committee that will almost certainly be controlled by hospitals. The Committee will determine what costs are by reviewing documents provided by hospitals. Those documents will not be open to public inspection.

After inspecting the secret documents, the committee will make recommendations concerning what the tax should be, which hospitals should get payments from the fund, and how much those payments should be. Different hospitals can be taxed at different rates, offering a variety of avenues through which pressure can be applied to hospitals that fail to adequately support the party line.

To add insult to injury, differential tax rates can be imposed that could drive patients from efficient hospitals to inefficient ones. The bill lets the state tax different hospitals at different rates, and leaves payouts to hospitals entirely at the state’s discretion. An efficient hospital that does not play ball with bureaucrats could be targeted with high taxes, making its overall costs higher than an inefficient one with good lobbyists.

Naturally, the people who introduced this monstrosity are claiming that adding more than $600,000,000 annually to hospital bills will make health care more affordable: the title of the bill is the Colorado Healthcare Affordability Act.

Private sector bails out government health care

A private insurance provider is stepping in to insure children the Hawaiian government cannot afford to cover, just seven months after starting the program. "A state official said families were dropping private coverage so their children would be eligible for the subsidized plan," reported the AP. the government's private sector partner, Hawaii Medical Service Association, will cover the 2,000 children already enrolled in Keiki (Hawaiian for child) Care through the end of the year.

Kids Count Can’t Count in Colorado

Colorado’s children are in trouble. They will be better off if state government takes more of their parents’ money. That’s the Colorado Children’s Campaign’s story, and it’s sticking to it.

In its 2008 KidsCount in Colorado! report, the Colorado Children’s Campaign claims that “poverty is the biggest obstacle to opportunity for children, and between 2000-2006, the number of children living in poverty in Colorado increased by 73 percent—the highest increase by far of any state in the nation.”

The Campaign’s estimates of 2006 child poverty match the 2006 Census Bureau estimates. So how does it get a 73 percent increase?

By serving up artificially low 2000 numbers.

Using the Current Population Survey and the 2000 Census, the Census Bureau suggests that the percentage of children in poverty in Colorado was 14.2 (±2.1) percent in 1998, 12.0 (±2.2) in 1999, and 12.2 (±1.3) percent in 2000.

But in 2000, the Colorado Children’s Campaign says that child poverty was 9 percent–a lot lower than the Census estimates. It got the number from the Annie E. Casey Foundation which says its contractor used the Census 2000 Supplementary survey.

According to the Census Bureau, the 2000 Supplementary Survey surveyed only a few Colorado counties. Those counties have relatively low child poverty rates. The limited survey may be the reason the Annie E. Casey estimate is so low. When the survey was made more representative in 2006, child poverty appeared to increase.

More representative data suggest that Colorado child poverty rates have likely increased a bit since 2000, a not unexpected result in a state with an expanding economy that has been attractive to immigrants, both legal and illegal, for much of the past decade.

Of course, neither the Children's Campaign or any one else really knows how poor children are doing in Colorado.

Official poverty statistics only measure money income. They ignore benefits like food stamps, housing subsidies, and Medicaid. They also ignore the Earned Income Tax Credit. It provided 1 in 6 taxpayers with an average of $1,800 in additional cash in 2004. Over at Welfare Reform Academy, demographer Nicholas Eberstadt calculates that with pretax incomes of $8,316, low-income Americans reported annual consumption expenditures of $19,061.

Tax freedom day for the average non-poor Coloradan is 113 days after the start of the year. This means that with a pretax income of $54,000, he will report annual consumption expenditures of roughly $37,300.

A little more taxing and spending and the children from an average Colorado household may enjoy about the same consumptions expenditures as children from a poor one.

Wisconsin’s Government Retiree Health Care Costs Spiraling Out of Control

Imagine you're a young guy who has just started dating the girl of your dreams. You get around to the discussion of how many people she has "been with." She says "two." (That's what girls always say, usually accompanied by an extensive story about how she dated some guy for years.)

Now imagine there was a Girlfriend Registration Service, where prospective girlfriends had to report their past exploits. Everything is on there – the Spring Break trip to Cancun and everything. When you go look up the new love of your life, you find out her number isn't two – it's 34.

Fortunately, for us, there's a Girlfriend Registration Service for local governments – called the Government Accounting Standards Board (GASB). A few years ago, GASB began requiring local governments start reporting the amount of health care costs they owe to retirees in the future. Previously, governments just paid these costs on a year-to-year basis. But now, they have begun reporting their future unfunded liabilities – and in many cases, they are stunning.

Today, the Wisconsin Policy Research Institute released a report detailing local government postemployment liabilities. A review of financial documents reveals that the Wisconsin governments required to report their liabilities carry nearly $6 billion in future retiree health care costs. Of this amount, the largest three liabilities are carried by governments in the Milwaukee area: the Milwaukee Public School (MPS) district at $2.2 billion, Milwaukee County at $1.5 billion, and the City of Milwaukee at $806.3 million. In many cases, these liabilities dwarf the annual budgets of these governments (for instance, the MPS budget is $1.2 billion, while their liability is $2.2 billion.)

Taxpayers are wondering why they pay more and more in taxes, yet see little direct benefit. This may be a reason why – a growing chunk of the taxes they pay go to people who don't even workfor the government anymore.

For think tanks looking for a big, juicy topic, this one is a grand slam. The WPRI report landed on the front page of the Milwaukee Journal Sentinel – the state's biggest paper. For anyone looking for guidance or direction on how to start putting these numbers together, feel free to e-mail me and I'll provide a step by step guide.