alexander-presentation_ - aei.org · PDF fileGary D. Alexander, Secretary of Public Welfare | Welfare’s Failure and the Solution Presentation by Gary D. Alexander

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

http://www.dpw.state.pa.us/


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.



“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.

Welfare Chaos



Chaos in the Federal-State Relationship

2

Key

= indirect interaction

= direct interaction

• Aging WaiverAging

OCDEL(pink)

OIM(dark blue)

ODP(red)

OLTL(green)

OMAP(brown)

OMHSAS(purple)

OCYF(yellow)

• For Families with Children

• For the Aged and Disabled

• Long Term Care

• Select Plan for Women

Medical

Assistance

• Nutritional support for low-

income families

Supplemental

Nutrition

Assistance

Program (SNAP)

• A suite of programs that

provide job readiness,

placement, retention

training, and supportive

services

Employment

and Training

Programs

• Provides services to families

and children in immediate

need of shelter and to those

in imminent danger of

becoming homeless

Homeless

Assistance

• Temporary Assistance for

Needy Families (TANF)

• General Assistance (GA)

• SSI State Supplement

Cash

Assistance

• Assistance to low-income

families in need of

assistance with their

heating and cooling bill

Low Income

Home Energy

Assistance

Program (LIHEAP)

• Establishes paternity and

support orders and

provides medical support

and employment services

for non-custodial parents

Child Support

Enforcement

• Provides free services to

assist clients to resolve civil

legal problems Legal

Assistance

• Consolidated Waiver

• P/FDS Waiver

• Base Services

MR/ID:

HCBS

• Adult Autism Waiver

(AAW)

• Adult Community Autism

Program (ACAP)

Autism:

HCBS

• State Centers

• Private Facilities

Intensive Care

Facilities/ Mental

Retardation

• Attendant Care Waiver

• Act 150

Attendant

Care

• MA Nursing FacilitiesNursing

Facilities

• AIDS WaiverAIDS

• Independence Waiver

• COMMCARe Waiver

• OBRA

Community Service

Programs for

People with

Physical

Disabilities (CSPPPD)

• Managed Care

• Fee for Service

Medical

Assistance• Child Care Certification

Certification

Services

• Early Intervention,

Infant/Toddler

• Early Intervention,

Preschool

Early

Intervention Services

• Child Care WorksSubsidy

Services

• 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

Early

Learning Services

• Youth Development Centers

• Youth Forestry Camps

• County Juvenile Probation

Offices

• Private Agency Delinquency

Services

Juvenile

Justice Services

• Homemaker/Caretaker

Service

• Life Skills Education

Adult

Education

• Adoption Services

• Adoption AssistanceAdoption

• Information and Referral

Services

• Service Planning

Administration

& Oversight

• Foster Family Service

• Community Residential

Service and Group Home

Service

• Supervised Independent

Living Service

• Residential Service

• Secure Residential Service

• Emergency Shelter Service

Placement

• Protective Services (Child

Abuse)

• Protective Services (General)

• Counseling/Intervention

Services

Protective

Services

• Day Care Service

• Day Treatment Service Day Services

• Life ProgramLIFE

• HealthChoices Behavioral

Health (HC-BH) Program

• Fee-for-Service

• Behavioral Health Services

Initiative (BHSI)

• Base

• Act 152

Behavioral

Health & Substance

Abuse Services

• CHIPPIntegration

Programs

• State Hospitals and

Restoration Center

• Other Initiatives

State

Facilities

• Special Pharmacy Benefits

Program for Mental Health

(SPBP-MH)Pharmacy

FNS ACF SSA CMS

AoAHRSAOSEPSAMHSA

IRS

Audit

Data

Sharing

SNAP

and

School

Meals

ICE

VAUSDLIUS DOT

Through

PA DOT

Through

PA L&I

Audit /

Eligibility MH

Eligibility

HHS

Through

PA DOH

HHS OIG

State

Counterparts

State

Counterparts

Federal DOJ

FBI

2

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

5

$- $5 $10 $15 $20 $25

Laparoscopic Cholectystectomy (OP)

Laparoscopic Cholectystectomy (IP)

Knee Replacement (IP)

Colonscopy (OP)

Chest Pain (IP)

Median Paid Thousands

Serv

ice

Hospital A Hospital B Weighted Average

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

Pennsylvania

• 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

• Taxpayers cannot decipher the breadth of the problem

IP – Inpatient OP – Outpatient 2011 DPW Data



Welfare Cliff

• Single mom

• Two Children

• Lives in Pennsylvania

• No disabilities

• Children are 1 and 4 years old and placed in a Star 4 childcare center

Example Household Receiving Welfare Benefits:



-

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 -

5,0

00

10

,00

0

15

,00

0

20

,00

0

25

,00

0

30

,00

0

35

,00

0

40

,00

0

45

,00

0

50

,00

0

55

,00

0

60

,00

0

65

,00

0

70

,00

0

75

,00

0

80

,00

0

85

,00

0

90

,00

0

95

,00

0

10

0,0

00

Earned Income minus taxes

Wages

We

lfar

e B

en

efit

s +

Wag

es

Red Line Represents Net Income

• 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.

• A family making about

$60,000 takes home about $49,000.

• Despite the progressivity

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

Household Benefits and Income Chart



-

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

-

5,0

00

10

,00

0

15

,00

0

20

,00

0

25

,00

0

30

,00

0

35

,00

0

40

,00

0

45

,00

0

50

,00

0

55

,00

0

60

,00

0

65

,00

0

70

,00

0

75

,00

0

80

,00

0

85

,00

0

90

,00

0

95

,00

0

10

0,0

00

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.

Highest Welfare Cliff

We

lfar

e B

en

efit

s +

Wag

es

Wages

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

Household Income and Benefits Chart



Result: Out of control welfare spending.



Pennsylvania Growth Trends

36.5%

7.4%

29.9%

1.3%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

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

PA Welfare Budget

Economy

Poverty

General Fund Revenue

• 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.



0

100

200

300

400

500

600

700

800

900 1

96

6

19

68

19

70

19

72

19

74

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76

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78

19

80

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82

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90

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92

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00

20

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Forecasted State Medicaid Expenditures

Forecasted Federal Medicaid Expenditures

State Medicaid Expenditures

Federal Medicaid Expenditures

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

U.S. Medicaid Expenditures B

illio

ns

of

Do

llars



0

10

20

30

40

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60

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90 1

96

6

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Enrollment Due to ACA

Forecasted Enrollment

Enrollment

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

Services

U.S. Medicaid Enrollment M

illio

ns

of

Rec

ipie

nts



7.2%

65.9%

100.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

105%

110%

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

13

PA: Growth in Medicaid Since 1979

Real Personal Income Medicaid Population



158%

52%

6%

-2%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Food Stamps Enrollment

Medicaid Enrollment

Government Employment

Private Employment

10 Year National Accumulative Growth



17.9

4.8 5.1 5.2

3.9 2.6 2.5

13.0

4.2 3.8 4.0 3.2

2.0 1.9

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0 1

96

6

19

68

19

70

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00

20

02

20

04

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06

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08

20

10

20

12

Employment to Enrollee Ratio

Private Employment to Enrollee Ratio

Number of Workers per Medicaid Recipient



109.3 million

21.2 million

66.1 million

- 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000

Privately Employed Persons

Government Employed Persons

Estimated Welfare Recipients

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.

2011 National Data

Tax Burden on Wealth Producers



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



• 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.

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

Rhode Island Medicaid Reform



• 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.

$2,600

$1,746.2

$2,400

$1,332.1

$2,300 $2,300 $2,375

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Ex

pe

nd

itu

res

(m

illi

on

s)

Year 1 Year 2 Year 3 Year 4 Year 5

Global Waiver Year

Budget Neutrality Performance

CMS Allocation Actual

The Results…

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



• 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!

More Results - RI Culture Change

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.

The Main ingredient for success the SPENDING CAP forced CULTURE CHANGE



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.

Recent News/Results…



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 Lewin Group Study

In 2011, the Lewin Group performed an independent study to test the RI reforms.



The Medicaid Solution: A New Partnership

• Solutions

– Harness the Laboratories of Democracy

– Maximize Flexibility to States

– Forecasting Cost Savings

– Specific Reforms

24 DRAFT - version 6



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: – 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.

26 DRAFT - version 6



Potential Savings by Capping Medicaid Growth

27

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 5% 605.4 388.5 993.9

4% 771.1 495.6 1,266.7

3% 927.1 596.5 1,523.6

2% 1,074.0 691.5 1,765.5

1% 1,212.4 781.0 1,993.4

0% 1,342.7 865.3 2,208.0

-1.0% 1,465.4 944.7 2,410.1

-1.3% 1,500.8 967.6 2,468.4

This was the goal of the Joint Select Committee on Deficit Reduction goal achieved.

DRAFT - version 6



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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alexander-presentation_ - aei.org · PDF fileGary D. Alexander, Secretary of Public Welfare | Welfare’s Failure and the Solution Presentation by Gary D. Alexander