Welfare Failure

Gary D. Alexander, Secretary of Public Welfare | www.dpw.state.pa.
us
Welfares 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 Presidents Healthcare Tax makes each of these problems worse.
Welfare Chaos
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

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
Childrens 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
= 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
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
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

80,000
75,000 70,000 65,000
Welfare Benefits + Wages
60,000 55,000
To understand the problem, its best to look at the familys income continuum. This chart depicts the familys 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

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
Result: Out of control welfare spending.
Pennsylvania Growth Trends

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.. PAs Welfare budget GROWTH NOT adjusted for inflation stands at close to 80% over the past decade. Even after adjusting PAs Welfare growth for inflation, it still far outpaces poverty growth.
U.S. Medicaid Expenditures

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

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

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

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

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 Pennsylvanias experience to remove duplicate counts estimated for October 2011.
Disability Growth Soaring

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.
State Based Solutions: Lessons from Rhode Island
Rhode Island Medicaid Reform

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
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

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
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 predictedThey also said revenues for the coming year are now expected to be $17.8 million greater than projected, based on trends that suggestMedicaid 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

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

Solutions
Harness the Laboratories of Democracy Maximize Flexibility to States Forecasting Cost Savings Specific Reforms
DRAFT - version 6
24
Give States Flexibility

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

Innovation and creativity by the states will produce savings. With freedom from federal rules, an Initial 10% savings is very possible:
Pennsylvanias 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.
DRAFT - version 6 26
Potential Savings by Capping Medicaid Growth

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.
DRAFT - version 6
27
Three Solutions for America

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

Welfares Failure and the Solution

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

The Welfare Problem

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

Chaos in the Federal-State Relationship

Federal DOJ SSA

SNAP and School Meals

Child Care Certification

Behavioral Health & Substance Abuse Services

Behavioral Health Services Initiative (BHSI)

Juvenile Justice Services

County Juvenile Probation Offices Private Agency Delinquency Services

Supplemental Nutrition Assistance Program (SNAP)

Nutritional support for lowincome families

Adult Autism Waiver (AAW)

Child Care Works

Homemaker/Caretaker Service Life Skills Education

Intensive Care Facilities/ Mental Retardation

Early Intervention Services

Early Intervention, Infant/Toddler Early Intervention, Preschool

Adoption Services Adoption Assistance

Community Service Programs for People with Physical Disabilities (CSPPPD)

Independence Waiver COMMCARe Waiver OBRA

State Hospitals and Restoration Center

Pennsylvania Pre-K Counts

Early Learning Services

Administration & Oversight

Information and Referral Services Service Planning

Head Start State Supplemental Assistance Program Early Head Start

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

Low Income Home Energy Assistance Program (LIHEAP)

Supervised Independent Living Service Residential Service Secure Residential Service

Child Support Enforcement

Provides free services to assist clients to resolve civil legal problems

Protective Services (Child Abuse)

Protective Services (General)

Day Care Service Day Treatment Service

SAMHSA Key = indirect interaction

Median Price of Health Care Services

Chest Pain (IP)

Knee Replacement (IP)

Laparoscopic Cholectystectomy (IP)

Laparoscopic Cholectystectomy (OP)

Taxpayers cannot decipher the breadth of the problem

IP Inpatient OP Outpatient 2011 DPW Data

$20 $25 Thousands 5

Household Benefits and Income Chart

Welfare Benefits + Wages

Earned Income minus taxes

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

Household Income and Benefits Chart

Highest Welfare Cliff

Welfare Benefits + Wages

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

Result: Out of control welfare spending.

Pennsylvania Growth Trends

35% 30% 25%

PA Welfare Budget Poverty

General Fund Revenue

U.S. Medicaid Expenditures

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

900 800 700