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Essential Benefits Are... Essential

Third and State - March 24, 2017 - 8:31am

The ACA repeal effort failed in the House on Thursday. But it will be voted on today. 

And the bill keeps getting worse and worse — and that one particular way in which it got worse today may ultimately kill it, even if it passes the House today. 

recent report by the Center for Budget and Policy Priorities, points to some of the ways the bill that emerged on Thursday morning deepens cuts to health care:

"The updated version makes additional changes to Medicaid that are even more damaging overall, including giving states the options to: convert their Medicaid programs into block grants; impose onerous work requirements on adult beneficiaries who are not elderly, disabled, or pregnant; and freeze enrollment in the ACA’s Medicaid expansion starting in 2020. These provisions would likely add to the millions of people who would have Medicaid coverage under the ACA but would become uninsured under this legislation."

I want, however, to focus on one somewhat arcane aspect of the deal that President Trump offered the right wing Republicans today in order to secure their votes for the proposal. Trump offered to repeal the essential benefits requirement for health insurance.

This proposal is, for two reasons, utterly incompatible with a decent health insurance system. And, as I point out at the end of this post, it’s not likely to be acceptable to Senate Republicans, not least because including it in a health care plan considered by the Senate this year would violate Senate rules.

Under the ACA, all health insurance plans must cover ten essential benefits:

• Ambulatory patient services (doctor’s visits)

• Emergency services

• Hospitalization

• Maternity and newborn care

• Mental health and substance abuse disorder services, including behavioral health treatment

• Prescription drugs

• Rehabilitative and habilitative services and devices

• Laboratory services

• Preventive and wellness services, and chronic disease management

• Pediatric services, including oral and vision care

Republicans argue that requiring these benefits in all plans makes them more expensive than they might otherwise be. And that is, in fact, somewhat true. But if one thinks through how health insurance works, it will be obvious that this requirement is essential to good health insurance and absolutely necessary in any health insurance system in which individuals receive a subsidy or tax credit from the federal government to purchase health insurance – which is how both the ACA and the Republican plans are work.

All (Real) health insurance is communal

Health insurance only helps us and is really insurance if we agree to share the costs and risks of illness. So when Republicans complain that the ACA requires people to pay for some benefits they may not use, they are showing that they simply don’t understand what insurance is.

I pay every year for car insurance, including all those years when I don’t have a car accident. My car insurance payments cover the benefits received by others who do have accidents. Does that mean my money is wasted? No, because I’m paying to have some of the money that other people pay for their insurance available to me if I need it. And thus, I am relieved of the worry and stress of the possible costs to me of getting into an accident.

(And yes, what we pay for car insurance varies depending on how likely we are to get into an accident given our driving record, just like what we pay for health insurance varies on whether we smoke. But very little other than smoking—or choosing our parents—determines the likelihood of our getting sick or not.)

So I benefit if I have health insurance even if I don’t use it. And I should pay for that benefit because what other people pay for their insurance will cover my health care bills if I do need care.

Now imagine what would happen if we didn’t require everyone to purchase insurance that provided for these essential benefits.

Insurance companies would offer limited polices that didn’t cover a lot of health care costs. Many people would buy them. Some would do so because they didn’t read the fine print and didn’t recognize how limited the policies were. Others would do so because they aren’t thinking ahead about the risks they are running by buying limited policies – say, policies that don’t cover prescription drugs or mental health care. Some would do so because they can’t afford anything better.

Whatever the reason, the more people who opt out of comprehensive health insurance policies, the more expensive they will become since the only people who always get such insurance are people who are already sick. And as these policies become more expensive, even more people will drop them.

Then, pretty soon, no one will have good, comprehensive insurance because no one will be able to afford it.

And that assumes any health insurance companies actually selll comprehensive individual plans. For most of them won't want to do so beause they will only be bought by people who are unhealthy. And that's precisely who insurance companies do not want to insure. 

Allowing people to buy inadequate health insurance policies that don’t meet minimal standards isn’t a way of tailoring health insurance to the needs of individuals. It is a way of undermining the very notion of health insurance. There is no such thing as health insurance tailored to individual needs. By its nature, health insurance is a communal good.

When Republicans say they want us to make our own decisions about what health insurance we buy, they show that they don’t understand what health insurance is.

The only way to make sure we all can afford comprehensive health insurance is, first, to make sure we all buy a policy that is comprehensive and, second, to give people who can’t afford such a policy subsidies or tax credits to buy it.

And that’s what the ACA model does. The only alternative to the ACA model that works is single payer, which is another communal form of insurance.

If we provide credits for insurance, we must have an essential benefits requirement

That we provide tax credits under the ACA – and would do so in a much more stingy way under the Republican plan – is another reason we need a list of essential health benefits.

Again, imagine what could happen if we didn’t have those required benefits. A twenty year old who got a $2,000 tax credit for health insurance could buy a policy that costs $2,500 a year that covers only one kind of treatment, medical marijuana. Your tax dollars would insure that this young man stayed perpetually high.

That’s a joke, but it points to a fundamental truth. If we are going to subsidize the costs of health insurance communally – and, as we have seen, there is no alternative – then there has to be some regulations on what we pay for. No one wants our tax dollars used for health insurance that only covers one remedy. (Nor would we want our tax dollars to be used for insurance that only supports many remedies if they are all recommended by quacks.)

Finally, repealing the essential benefits provision make a mockery of the requirement that insurance companies insure people  despite their pre-existing conditions. Even if insurance companies are required to offer everyone the same policy without adjusting the cost based on an individuals health status, the only policies they offer that cover costly medical conditions will be extremely expensive. 

So, any real health insurance program can’t get rid of a list of essential benefits that all insurance must meet.

While the far-right Republicans in the House doesn’t understand how insurance works, most Republican Senators do understand it. So I don’t think they would ever vote for a proposal that eliminates the essential benefit requirement. So if an ACA repeal bill ultimately passes the House that eliminates essential benefits, it would run into a Senate road block. If the Senate passed a bill that maintained the essential benefit requirement, an extremely difficult set of negotiations would be required to reconcile the House and Senate bills.

The essential benefits package can’t be removed under reconciliation

But, we are not likely to get to that point, and not only because the House can’t seem to pass an ACA repeal bill and the Senate won’t pass one that takes away the essential benefits requirement. There is a further problem: Republicans can’t legitimately enact a law to remove the essential benefits requirement under the reconciliation procedure they have to use in the Senate to pass the AHCA without any Democratic votes.

To remind you: under normal procedure, an ACA repeal or replacement bill would face a Democratic filibuster and would need 60 votes to be enacted in the Senate. Republicans, however, only have 52 Senators. So they have chosen to try to enact the ACA replacement through a procedure called “reconciliation” that is part of the budget process. Under this procedure, no filibuster is possible and only 51 votes are need to pass legislation. But there is one caveat. Under the Byrd rule, such legislation has to have U.S. budgetary implications.

Changing or removing the essential benefits package would have no such implications and, thus, it can’t be part of legislation enacted through reconciliation.

Republicans are talking about finding a new interpretation of the Byrd rule that would allow them to use reconciliation to remove the essential benefits package. Following this path, however, would be the greatest violation of Senate rules of procedure in the history of that body. It would be, and would be seen by any fair-minded observer of our politics, and certainly by any Democrat, as a despicable act, that contravenes the basic norms of our politics.

Republicans have pushed the limit on observing the rules of our politics, for example, by denying the nomination of Merrick Garland a vote. But violating the Byrd rule would be an unprecedented violation of those rules that would create total warfare between the parties in Congress.

I can’t imagine the Senate majority leader, Mitch McConnell, taking such an action. And I can’t imagine how much more divisive and broken legislative politics would be if he did so.

So, as a matter of politics and policy, the deal Trump offered the right-wing Republicans in the House makes no sense.

The right wingers don’t get the policy. But they get the politics and know that what Trump offered can’t get through the Senate. And that’s one reason the Republicans are stuck today.

(Another is, as I put it, somewhat facetiously on Facebook today, the current bill doesn’t cause enough people to lose their health insurance to satisfy the far right.)

Repeal of the Affordable Care Act: A $31 billion tax cut for a handful of the wealthiest taxpayers

Third and State - March 20, 2017 - 3:34pm

In Pennsylvania, the top 1% of families have captured just over half of all the growth in market incomes between 1979 and 2013 (Figure A above). As we have argued, this imbalance is largely the result of policy choices that have favored financial executives and CEOs over working families.

Now, Congressional Republicans have proposed eliminating the net investment tax and additional Medicare tax, which were enacted to pay for the Affordable Care Act (ACA). The Institute on Taxation and Economic Policy has estimated that 86% of these tax cuts would flow to the top 1% of families (Figure B above).

The Affordable Care Act provides critical access to health care to over a million Pennsylvanians, with a portion of that extended coverage paid for by high-income families, the primary beneficiaries of economic policy in the last 36 years.  We think that's a fair tradeoff.

Trump Budget Slashes State and Local Grants at Tough Time for States

Third and State - March 20, 2017 - 1:59pm

This post, written by Iris J. Lav, originally appeared on the Center on Budget and Policy Priorities blog on March 17, 2017. You can view the original post here.

President Trump’s new budget would push huge additional costs to states at a time when most of them lack the revenue to pay for current services.  Low-income families would be particularly hard hit, as the budget eliminates or deeply cuts funding for a wide array of state programs and services that help these families overcome hard times and rise into the middle class. 

The budget includes roughly $18 billion of specific cuts in federal discretionary (annually appropriated) grants to state and local governments for fiscal year 2018. Among the state and local programs it would eliminate or sharply cut are more than $3.9 billion in K-12 education grants that, among other things, promote more effective teaching and support after-school enrichment programs.  It also cuts $4.2 billion by eliminating both the Low Income Home Energy Assistance Program, which helps low-income households, including many poor seniors, pay for heat, and the Community Services Block Grant, which provides anti-poverty services through states, localities, and nonprofits. 

In addition, the budget eliminates two important housing block grants, reducing funding by another $4.2 billion: the Community Development Block Grant, which rehabilitates affordable housing and supports related services in low-income neighborhoods, and the HOME program, which develops and preserves affordable housing.  It also includes other specified cuts in environmental, job training, and emergency readiness grants.

Overall, the budget cuts non-defense discretionary (NDD) spending — outside Veterans Affairs and Homeland Security, the two non-defense departments that the budget would increase — by 15 percent.  Since support for state and local programs makes up a significant portion of NDD spending, there will undoubtedly be additional cuts to state and local grants outside those that the budget specifies.  This part of the budget is already at very low levels in historical terms, with discretionary grants to states and localities totaling just over 1 percent of gross domestic product.

The President hasn’t specified his plans for state and local grants that lie outside of NDD, but he supports a House bill that would eliminate federal funding for the Affordable Care Act’s Medicaid expansion over time and cap federal funding for all of Medicaid, thereby shifting costs to states and forcing large and growing cuts to the program over time.  States rely on Medicaid to provide medical services to low-income people who can’t afford needed care. 

This is a bad time to shift large new costs to states.  Despite the relatively healthy economy, two-thirds of states face a revenue shortfall either this year or next.  Mid-year 2017 shortfalls equal $16 billion and projected 2018 shortfalls total $30 billion. The President’s budget justifies several of its cuts by stating that states or localities could better provide the services but, without adequate resources, that’s highly unlikely.    

 

Iris J. Lav is a Senior Fellow at the Center on Budget and Policy Priorities

Health care must be provided communally

Third and State - March 19, 2017 - 4:53pm

This piece originally ran in Newsworks on January 26, 2017. You can find the original here

Every once in a while, when I write something in defense of the Affordable Care Act, or point out, as the Pennsylvania Budget and Policy Center recent reported, that repealing it will lead 1.1 million Pennsylvanians to lose their insurance and 3,425 to die each year as a result, someone comments, “I pay for my own health insurance. Why should I pay taxes for anyone else’s?”

I often ignore those comments for two reasons. First, unless the writer has an individual income over $200,000, or a family income over $250,000, he or she is not paying taxes for the ACA. And, second, if someone doesn’t share the notion that we all have a moral responsibility to guarantee that everyone has access to high-quality, affordable health care, I’m not sure what I can say to change their mind. If Matthew 25, where Jesus proclaims “I say to you, as you did it to one of the least of these my brothers, you did it to me,” can’t convince them, what can I say that will move them?

But there is another, slightly more complicated, way to look at this issue that might do so. No one really pays for their own health care in the United States or any other advanced country. Health care is always provided in large part by social insurance.

Consider that:

1. The federal government spends an enormous amount of money supporting research on health care. That research has led to many new pharmaceutical and surgical treatments for disease.

2. The federal government supports the training of doctors through its support of teaching hospitals and grants and loans to doctors in training.

3. Most of the hospitals in the country, especially in rural areas, would not exist in their current form, or at all, without federal support.

4. And most importantly, the almost 60 percent of people who get health insurance through their employer receive a massive tax break, because unlike their wages, the benefits of receiving health insurance are not taxed. If you have to purchase health insurance on your own, you do it with after-tax, not pre-tax dollars. The cost of that tax break is $250 billion a year, which is 2.5 times the cost of the ACA.

5. And because of that tax break, 60 percent of Americans buy health insurance as a part of a large group, which means that they can secure it even if they have a pre-existing condition.

Why do we have all these programs? Because the risk of serious and costly illness is so severe, yet the likelihood of any of us getting a particular illness is so small, that we simply can't insure ourselves against all possible threats to our health by ourselves. To see that, imagine what health care would look if none of those federal programs that support health care and health insurance existed.

1. There would be no employer-based, group insurance. We would all have to buy insurance on our own. The cost of that insurance would vary with our medical condition. So almost no one with serious medical problems would be able to afford health insurance. Anyone who got a serious medical condition would be dropped from their insurance. That would especially be true for people who have diseases that are unusual or costly to treat.

2. There would be far fewer major medical centers, and none would be found outside our major cities.

3. While there would likely be hospitals and doctors available to treat the diseases that afflict large numbers of people — heart disease, diabetes, COPD, some cancers — there would be little or no financial incentive for doctors and hospitals to develop the expertise to treat unusual diseases or conditions or for pharmaceutical companies to develop drugs for them. That would, by the way, include the majority of diseases, including the majority of cancers.

4. Private research institutes and drug companies would have little incentive to undertake the risky research that sometimes leads to a medical breakthrough, but often leads to knowledge that brings no immediate financial return.

Social insurance, in which we as a community take on a large part of the cost for uncertain research, hospitals, and physician training, and provide the subsidies for health insurance, is the only way we can guarantee that all of us have access to high-quality, affordable health care.

The ACA isn't the first program that asks people to pay for health care of for other people (as well as themselves). It is, however, the one that extends the full benefits that 85 percent of our fellow citizens already receive from our taxes to the 15 percent who do not.

If you oppose the ACA and are in a very high income bracket, you’re not trying to stop the government from spending your taxes on the health care of other people. That’s already happening. You certainly don't oppose spending my tax money — and the tax money of the uninsured, since they all pay taxes — to pay for your health care. That’s also already happening. What you oppose is using your tax money to help the uninsured take advantage of what we collectively provide to those of us who already have insurance.

The ACA is about including everyone in the social insurance that you and most Americans receive and that all of us already pay for as a community. How dare you tell me that you have no obligation to pay your share?

New Report Confirms Assumptions About PA Coverage Losses Under GOP Health Care Plan

Third and State - March 17, 2017 - 7:00pm

A new study from the Center for America Progress estimates that 970,000 fewer Pennsylvanians will have health insurance if the GOP health care plan is adopted by Congress. The study also provides detailed estimates for how many fewer people will be covered by Congressional district for each kind of health insurance (traditional Medicaid, Medicaid expansion, marketplace, and employer-based insurance.)

(CLICK THE IMAGE ABOVE TO ENLARGE)

The CAP estimates are broadly similar to those we at PBPC have put forward. However, we believe that the CAP study underestimates the number of Pennsylvanians who will lose insurance under the Medicaid expansion by 2026. The CBO estimates that only 5% of Americans will still have insurance under the Medicaid Expansion by 2026. That estimate, applied to Pennsylvania, would mean that only 35,000 people will remain on the Medicaid Expansion by 2026 in our state, while the new CAP study assumes that 450,000 will still have insurance under the program. That conclusion rests on the assumption that Pennsylvania will pick up some part of the $4-5 billion in costs of the Medicaid Expansion. Given the difficult budget situation Pennsyvlania already faces and the political makeup of the General Assembly, we believe that this is extremely unlikely. Thus, we expect that 555,750 Pennsylvanians will lose health insurance under the Medicaid Expansion program by 2026 which means that the statewide total will be 1.3 million.

Did your state rep vote make Betsy DeVos proud?

Third and State - March 16, 2017 - 11:00am

The following is a guest post from Susan Spicka, Executive Director of Education Voters of Pennsylvania. It was originally posted on their blog here.

Budgets are about priorities and yesterday 147 members of the PA House made it clear that funding scholarships for students to attend unaccountable private/religious schools is one of their top budget priorities this year. They made school privatizer Betsy DeVos proud.

See how your state representative voted on HB 250.

The PA House voted overwhelmingly in favor of HB 250, which would increase funding for private school scholarships to $180 MILLION/year by providing $55 million in NEW tax breaks for businesses that contribute to the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC) programs. HB 250 also provides an additional $20 million for educational improvement and pre-K organizations (a total increase of $75 million for the EITC and OSTC programs).

Read our Myth busting PA’s EITC and OSTC programs fact sheet to learn more about how these programs funnel tax dollars into private/religious schools with NO fiscal or academic performance accountability.

Before HB 250 becomes law, the PA Senate will need to approve it and then it will need Governor Wolf’s signature or, if he vetoes it, a veto override in both houses. In addition, in order to pay for $75 million in new EITC/OSTC tax credits, state lawmakers will need to either cut $75 million from other programs/services in the budget or raise revenue.

We have time to educate our senators and our communities about these programs through legislative visits and letters to editor in local newspapers to help suppress the appetite for HB 250 in the Senate.

If you are interested in participating in a conference call to learn more about how you can help, click HERE and I will contact you with more information.

Let’s put HB 250 in perspective in terms of funding for PA’s K-12 students.

Governor Wolf’s budget proposes a $100 million increase in Basic Education Funding and a $25 million increase for special education funding for a total of $125 million. His budget also proposes a $50 million CUT in funding for student transportation, leaving a net $75 million increase in the 2017-2018 budget for PA’s K-12 public school students.

The PA House voted for a $55 million increase in funding for private/religious school scholarships.

Lawmakers have a constitutional obligation to fund a “thorough and efficient” system of public education in Pennsylvania. PA has the most inequitable school funding system in the nation and school districts throughout the Commonwealth continue to struggle to offer students even the most basic educational opportunities because state funding is inadequate.

A majority of PA state representatives voted to provide $55 million in new funding for unaccountable private/religious schools that educate about 250,000 students. These private/religious schools can discriminate against student for any reason and are NOT obliged to enroll any new students or any students living in poverty if they receive new EITC/OSTC scholarship money. The current budget proposal would provide just $75 million additional dollars for more than 1.7 million students who attend PA’s public schools.

Let that sink in. This is what the privatization of public education looks like.

Please fill out this form if you are interested in participating in a conference call to learn more about how you can help push back against our state government funneling more tax dollars into private/religious schools through the EITC/OSTC programs and read our fact sheet Myth busting PA’s EITC and OSTC programs.

Listen to our interview with the Public News Service about HB 250 HERE.

PBPC on CBO Score for GOP Healthcare Plan

Third and State - March 13, 2017 - 7:29pm

Marc Stier, Director of the Pennsylvania Budget and Policy Center, made the following statement following the release of the Congressional Budget Office (CBO) scoring for the "American Health Care Act," the GOP House healthcare proposal:

The Congressional Budget Office released its evaluation of the Republican replacement for the Affordable Act (ACA), the American Health Care Act (AHCA) today and, not surprisingly, the news is grim for the nation, and by extrapolation, for Pennsylvania.

The most disturbing information in the new report is the prediction that 24 million Americans will lose health insurance by 2026. That high number reinforces our tentative estimate that at least 1.1 million Pennsylvanians, and probably more, will lose health care coverage when the AHCA goes fully into effect. It also lends support to our view that 4,000 Pennsylvanians will die prematurely because a lack of insurance will make it impossible for them to get the health care they need.

The CBO report does predict that health insurance premiums in the individual market will grow more slowly under the AHCA than currently projected. Yet, the reason for that slower growth is troubling: The repeal of the actual value requirements of the ACA will mean that health insurance typically covers less of the cost of health care, leading to higher out of pocket costs. And while the CBO predicts that premiums will be 20% lower for a 20 year old, and 8-10% percent lower for a 40-year old, they will be 20-25% higher for a 60 year old. This is bad news for Pennsylvanians, in part because, as we pointed out last week, the tax credits for purchasing health insurance on the exchanges in the AHCA are far less generous than those in the ACA and do not grow with the cost of health insurance. We now estimate that the average person receiving tax credit in Pennsylvania will see their credit reduced by 43% or $2,188. The tax credit reduction will be far higher for people who are older—precisely the group whose premiums will increase as a result of the AHCA. For example:

  • In Philadelphia, a 60 year old with an income of $40,000 will see a decline in their tax credit from $8,470 to $4,000.
  • In Centre County, a 60 year old with an income of $40,000 will see their tax credit decline form $10,700 to $4,000.

Finally, the CBO predicts that, once the incentives in the ACA for businesses to insure their employers are eliminated, seven million people who now get employer-based insurance in the country will lose it. This will be especially problematic in Pennsylvania, which has the 9th highest rate of employer-based insurance of all 50 states. Our rough estimate is that 300,000 people will lose employer based insurance in our state.

Did I Miss a Contribution from the Arnold Foundation to the New York Times?

Third and State - March 9, 2017 - 4:47pm
Over the past half-dozen years, former Enron billionaire John Arnold has spent up to $50 million for research and communications aimed at eliminating guaranteed pensions for public sector workers.   Much of this money has gone to pillars of liberal America, such as the Pew Trust, the Urban Institute (recipient of almost $15 million), and even public television (which gave $3.5 million back as reported in The New York TimesLA Times, and by the PBS Ombudsman).   Given this background, when I read this New York Times story on public pensions today, the first thought that popped into my head: did I miss a contribution from the Arnold Foundation to The New York Times?   The Times story by Mary Williams Walsh relied on research and quotes from the Urban Institute's Richard Johnson, funded by Arnold. Johnson specializes in studies that use overgenerous assumptions about the returns to nontraditional pensions (401(k)-style savings plans and Cash Balance plans). These assumptions make it seem like most teachers benefit from the end of guaranteed pensions. But the assumptions are inconsistent with the facts showing that traditional pensions have higher returns, lower fees, and lower-cost annunities than 401(k)-style savings accounts. As well as Johnson, The Times story cites five other researchers, all on the same side in the public pension debates. So much for journalistic balance.   More insidious, Walsh's story fuels the narrative that the public sector pension issue is a case of a transfer from younger workers (and taxpayers) to older workers (to pay for unfunded pensions) — what self-proclaimed free-market think tanks like to call "intergenerational theft."    Actually, the crisis of public sector pensions is another aspect of the rising economic inequality that exists in every state. Despite this inequality and record corporate profits, states give away enormous amounts of revenue in unaffordable corporate tax breaks. Most states also have low tax rates on those with high incomes — and fail to capture needed revenue achievable by taxing the top at higher rates. This double whammy of low top-end tax rates and expensive corporate giveaways means states don't have the money for education, infrastructure, and other essential services — or to make required contributions to public sector pensions. The failure to make those contributions is the main reason pension systems end up with significant debt.   Here's another way to see that economic inequality, or what you could call "intragenerational theft," which is the real problem faced by workers of all ages, including young teachers, nurses, firefighters and private sector workers of all stripes. I'm going to use numbers from Pennsylvania, but the basic idea generalizes. In Pennsylvania, the richest 5% received about three quarters of the increase in income in the state between the late 1970s and 2012-13 (the latest state numbers available). As a result, the bottom 95% receive about $50 billion less in income each year than if the increase in Pennsylvania income was distributed the same way as 1979 income. Even though Pennsylvania is a state with a big pension debt, that $50 billion is almost as big as the cumulative debt of Pennsylvania's two big state pension plans (about $57 billion), which can be paid back over 30 years. To be sure, paying back that debt is a genuine public policy challenge. But the real threat to the future pensions of young teachers, and to the future wages and benefits of all young workers, private and public, is that the benefits of economic growth in future decades will be as skewed to the top as they have been since 1979.    If John Arnold would put his money, and Mary Williams Walsh her journalistic energy, into calling attention to economic inequality, maybe they could actually help young teachers. At the moment, whatever stories they tell themselves, they are distracting policymakers and the public from the real source of economic struggle for the middle class. They are also diviiding workers public and private, young and old, from one another. And if Walsh has no interest in anything but propagating a distorted, Arnold-financed world view, perhaps it's time for The New York Times ombudsman to take a closer look at her reporting.

Analysis of Effects of House GOP Health Care Plan on Pennsylvania

Third and State - March 7, 2017 - 11:24am

The following is an analysis of how the recently-released House GOP proposal, the "American Health Care Act," would affect Pennsylvanians:

The health care legislation introduced by the House Republicans late yesterday is a devastating and dishonest attack on not only the Affordable Care Act, but on the Medicaid program. When fully implemented, it will have horrible consequences not only for the health of low- and moderate- income Pennsylvanians, but on long-term care for all but our wealthiest senior citizens.

We will be providing a thorough analysis of the legislation soon. But our preliminary analysis suggests that when the program is fully implemented, around 1 million low- and moderate- income Pennsylvanians will lose health insurance; the state budget will lose at least $2.5 to $3 billion in funding; at least 60,000 Pennsylvanians will lose their jobs, and over 4,000 Pennsylvanians per year will die prematurely.

Some key points:

  • The bill would end new enrollments in the Medicaid Expansion program in 2020. Because incomes rise and fall, by the end of five years, most of the almost 700,000 Pennsylvanians who received health insurance through the Medicaid expansion will lose it. Our preliminary estimate is that the reduction in federal spending in Pennsylvania on the Medicaid expansion will be roughly $4 billion per year.
  • The bill would create per-capita caps on traditional Medicaid spending. Because those caps do not take into account changes in the age and health status of Medicaid beneficiaries or above average increases in health care costs due in part to the development of new and costly procedures and pharmaceuticals, federal support for Medicaid will decline by a huge amount. That will cost Pennsylvania another $10 billion to $15 billion over ten years or $1.1 billion to $1.5 billion per year.
  • The bill would have a devastating impact on Pennsylvania’s state budget. To maintain traditional and expanded Medicaid would cost the state roughly $5 billion per year. Even if the state declines to support expanded Medicaid, Pennsylvania-specific health care programs already on the books are required to pick up some of the those who lose insurance. That cost to Pennsylvania will be $1.1 billion a year. Thus, even without continuing to pay for expanded Medicaid, the state will need $2.6 billion to $3.0 billion a year to maintain traditional Medicaid.
  • The bill would force states, most likely including Pennsylvania, that are unable or unwilling to make up the difference in federal support for traditional Medicaid to reduce Medicaid benefits. Eligibility for the program will be restricted, and coverage of medical procedures will be limited. Waiting lists will be created. Work requirements, that have little or no impact on work effort, but create additional paperwork that make it hard for people to secure benefits, will be created.
  • The bill would force states to reduce Medicaid support for long-term care, which currently benefits middle-income as well as low-income seniors.
  • The bill would replace the tax credits in the Affordable Care Act—which are adjusted for income and for the cost of health insurance—with new fixed tax credits that vary only with age. This shift benefits those who are younger and have higher incomes while hurting those who are older or have lower-incomes. Most of the 321,000 Pennsylvanians who use tax credits to purchase health insurance on the health care exchange marketplace will be able to afford insurance under the Republican proposal.
    • We estimate that in Philadelphia, for example, a 40 year-old who has an income of $20,000 will see their health insurance tax credit decline from $4,950 to $3,000. The tax credit for a 60 year-old at the same income level would drop from $11,600 to $4,000. But a 40 year-old with an income of $40,000 will see a tax-credit increase from $1,830 to $3,000 and a 40-year old with an income of $75,000 who does not receive a tax-credit now will get one of $3,000.
    • In Centre County, a 40-year old with an income of $20,000 will see their tax credit decline from $4,950 to $3,000. A 60-year old with an income of $40,000 will see their tax credit drop from $10,700 to $4,000.
    • Similar results will be found in other parts of the state.
  • Tax credits under the Republican plan, unlike those under the ACA, do not increase as the cost of insurance goes up. And we expect dramatic increases in the cost of insurance in the individual market. The "death spiral" that Republicans keep expecting in the ACA will become a reality in many markets, most likely including some in Pennsylvania. Because the individual mandate will be abandonded, and the penalty for securing insurance after a break are quite small, young, healthy people will not purchase health insurance, forcing costs dramatically up, leading others to drop their insurance. In many cases, the relatively small tax credits in the GOP plan will not make up for those increased costs. 
     
  • The only health insurance that will be cheaper will be health insurance that covers less an dthat has far higher  deductibles and  co-pays as ACA rules for health insurance are abandoned.
  • The loss in federal funding in the bill would cost Pennsylvania at least 40,000 jobs, not only in the health care field but in other areas as well.
  • We estimate that there will be at least 4,000 pre-mature deaths per year in Pennsylvania when the program is fully implemented in 2025.

The bill would lead to an increase in health insurance costs in the individual market as younger and healthier people delay getting health insurance until they become sick. The new tax credits for those with moderate incomes may not even offset the increase in health insurance costs.

Enactment of this proposed legislation would be a shameful episode in our history, as we turn our backs on providing health care and long-term care for millions of Americans and Pennsylvanians.

On Retirement Security, Senators Casey and Toomey, Which Side Are You On?

Third and State - February 26, 2017 - 7:15pm

There's another "which side are you on?" issue under consideration in Washington D.C., and it could come before Senators Casey and Toomey in a vote as early as this week.

The issue is retirement security in the private sector.

Every one of Pennsylvania's 13 Republicans in the U.S. House of Representatives has already spoken. They are against it—retirement security in the private sector that is. That means they are also against Main Street and for Wall Street. Good to know. 

This week (or soon), unless Senate leaders have second thoughts, we will find out which side our U.S. Senators are on.

Here are the details. Over several decades, retirement security in the U.S. private sector has collapsed. Today, according to the Requirement Equity Lab at the New School for Social Research, more than half the workforce nationally—87 million workers—do not have access to a retirement plan at work, not even a lousy 401(k) plan. In Pennsylvania alone, 3.3 million workers do not have access to a retirement plan at work.

Recognizing the need do SOMETHING to bolster private sector retirement security, a Washington state think tank over 15 years ago began advocating having states make it possible for workers at businesses with no retirement plan to have a retirement savings account. Recognizing a good idea when we saw one, we advocated this concept in 2002 (see p. 56 of The State of Working Pennsylvania 2002). A legislative staffer adapted the Washington state legislation into a Pennsylvania bill that was introduced for several legislative sessions, but never passed.

In the last five years, the common-sense idea that states should make it possible for private sector workers to save for retirement has gathered momenum. California, in 2012, and now four other states (Oregon, Illinois, Connecticut and Maryland) have begun to study, and set up, so-called "Secure Choice" or "Retirement Security for All" plans. The city of New York and Philadelphia are also exploring such plans. Philadelphia City Council has a Task Force on the Retirement Security of Private Sector Employees, which is developing recommendations, co-chaired by Democratic council member Cherelle Parker and Repulican Bill Taubenberger. (Full disclosure: I'm a member of the Task Force.)

The first operational state plans will give private workers who currently have no retirement plan access to "individual retirement accounts" that include no employer contributions. Workers will automatically contribute, unless they explicitly opt not to do so. Making the default that workers contribute can increase participation rates to over 90%, compared to low participation in traditional 401(k) plans under which the default is that workers do not contribute.

These plans are not a panacea for middle-class retirement insecurity—it's hard to save enough for retirement with no employer contribution, especially for moderate-income workers. But these plans are a start.

The Obama Administration gave a green light to states and big cities taking the initiative on private sector retirement last year by enacting new U.S. Department of Labor regulations. These regulations clarified how states and cities can set up plans in coordination with the federal ERISA law. The regulations confirmed that businesses that offer Individual Retirement Accounts (IRAs) as part of mandatory state/city programs are exempt from ERISA requirements.

With other states providing a model, and with the new federal regulations, interest in retirement security for all plans has increased in the Pennsylvania legislature. A co-sponsorship memo is being circulated in the Pennsylvania Senate by Republican Pat Browne and Democrat Art Haywood and staff members of House members are also gathering information on the models in other states. In late 2015, a member of the Republican leadership in the Pennsylvania Senate referred to this basic approach as a "no brainer," addding "who could be against it?"

Who indeed?

Answer: the 2017 Republican majority in the U.S. House of Representatives.

On February 15, 230 of the 246 Republican members of Congress voted to block the Obama regulations (three voted no, five abstained, and six weren't there) on H.J. Res 66, which removes the green light for states to set up retirement plans; 233 voted yes on HJ Res 67, which removes the green light for cities to set up retirement savings plans, with one no, and four abstentions. As noted above, every one of the 13 Pennsylvania Republicans in Congress voted in favor of blocking the Obama regulations while the five Democratic members of Congress voted to retain the new regulations clarifying how states and big cities can move forward to empower private workers to save for retirement. 

Even in these polarized times, I found this vote depressing. Among the Republicans we know in Pennsylvania, this is a very bipartisan idea. It is consistent with ideas of self-reliance—you're making it easier for people to use their own contributions to save for retirement. It's fiscally prudent and should make people less reliant on social programs in retirement. It's consistent with the idea of states' rights. It's also a boon for small business. It relieves them of responsibility for setting up a retirement plan, but still leaves the option of setting up their own if they want to do so. Perhaps this is why 86 percent of small business owners support such plans. Perhaps this is also why Small Busines Majority "urges Congress to uphold the Labor Department's rule and allow states to decide how best to serve their small businesses and private sector workers."

The organizations that want to block states and big cities from empowering more private workers to save for retirement include the U.S. Chamber of Commerce and a coalition that includes securities and financial services firms—to use a shorthand, Wall Street. Feel free to try to decipher the Chamber's arguments yourself. In our view, they are a lot of smoke and mirrors (reiminiscent of the arguments made by payday lenders in Pennsylvania for the past several years).

The real objections? It's possible that the right-wing business lobby doesn't want government doing something (else) helpful to families. Second, states and cities may negoitate lower fees for investment options than individual savers can get on their own. They may also limit the number of investment options so that individuals are not tricked into making poor choices. In both ways, state and local plans may make it harder for Wall Street financial firms to rip off Main State retirement savers. Of course, since these people aren't saving now, these state and city plans will actually create more business for financial firms than no business. But apparently that upside doesn't count for any more with the U.S. Chamber and its allies than the positive impact the state and city initiatives would have on tens of millions of people's lives.

So which side are you on Senators Casey and Toomey?

Main Street or Wall Street?

Early Returns Look Good in Philadelphia's Nation-leading Fight for a Soda Tax

Third and State - February 23, 2017 - 12:56pm

I wasn't surprised by the substantial revenues that the soda tax is bringing in, even while there is some reason to believe that soda consumption is down in the city, as we predicted it would be.

For me, the soda tax has two aims--to bring in revenue and to discourage the over-consumption of soda, which contribute  to diabetes and heart disease. The second aim will  over five or ten years become more important as the tax plus public education teaches people consume to a lot less soda. Revenues will decline then, and our healthier city will need to replace some of them  raised by the tax. But at present, it looks like  revenues will be substantial to pay for the expansion of pre-K education and the community playgrounds and recreation centers for which the tax is dedicted.

It will  take a month or two for these new revenues  to ramp up fully because (1) Not every distributor is aware they have to pay the tax or has made arrangements to do so; (2) Distributors had inventory on which they did not pay the tax and probably stocked up in December in save some money; and (3) iI the first month sticker shock and protest trips across the city line probably reduced soda purchases more than will be seen in the future. 

All of those factors, including the sticker shock  going to decline in importance. Critics of the soda tax among distributors and owners of supper markets keep saying that because of the tax people will buy a lot of soda outside the city and that will be substantial job loss  among soda distributors and / or supermarkets.

I don't find that plausible and here is why: When I was the president of a neighbrhood association, West Mt. Airy Neighbors in 2002 and 2003, I worked to bring  a new supermarket about to the Mt. Airy of Philadelphia.  I talked then to a lot of folks who ran supermarkets to understand how their business worked. The one thing everyone told me is that people shop locally for groceries. If that's true, people are not going to drastically change where they shop because of the soda tax.

Industry folks are saying something else now but it's hard to see why a tax on one, non-essential good could change the long standing nature of the supermarket business.  I'm much more inclined to believe what people in the industry told me in 20013, when they had no reason to tell me anything than the truth, than what they are saying now when they are campaigning against the soda tax.

In addition, the  tax is on soda, not thirst. If people drink less soda, they will drink other beverages and wholesalers will distribute those other beverages. There will be some shift to tap water and some ornery folks will cross the city line to shop for soad. Distributors and retailers will lose some business. But as they shift to selling healthier drinks they will be fine.

Perhaps eventually they will save even more money when they stop spending millions to fight the tax in public and in an absurd legal case that I believe they have no chance of winning. 

But that won't happen soon. The conflict over the Philadelphia soda tax is not just about what happens in the largest city in our state. Philadelphia is ground zero in a nationwide  fight between big soda and the  public good. State and local governments all over the country are watching what is happening in Philadelphia and planning their own soda tax. Big soda is not just fighting to kill Philadelphia's soda tax but to stop it from spreading to other states and cities. 

And  that's why all of us who recognize both the revenue potential and public health benefits of the soda tax should thank  Mayor Kenney and his staff for leading the way in this nation-wide fight.

Impact of Repeal on the Number of Insured Pennsylvanians

Third and State - February 6, 2017 - 3:12pm

The below blog post is take from the PBPC report, “Devastation, Death, and Deficits: The Impact of ACA Repeal on Pennsylvania.”   

The first, and most important, aim of the Affordable Care Act was to reduce the number of uninsured Americans by means of two different policies. Americans with incomes too high to receive Medicaid but at or below 138% of the federal poverty line ($16,242 for a single individual and $33,465 for a family of four) can receive health insurance if their state expands Medicaid. Americans with incomes above 138% of the federal poverty line can purchase health insurance on a state or federally-run health care exchange, also known as a health care marketplace. Individuals and families with incomes up to 400% of the federal poverty line ($47,520 for a single individual and $97,200 for a family of four) are eligible to receive tax credits that reduce the costs of insurance purchased on the exchange. Those with lower incomes in this range are also eligible to receive cost-sharing reductions that limit their out of pocket health care costs. 

Reduction in the Uninsured Rate in 2015

One indication of the success of the Affordable Care Act is the decline in the rate of uninsured Pennsylvanians. As chart 1, which relies on Census Bureau data shows, in 2011, 11.1% of Pennsylvanians were uninsured. The rate declined to 9.7% in 2013, 8.5% in 2014 and then fell to 6.4% by 2015. [1]

The rate dropped slowly in part because the state was slow to embrace the expansion of Medicaid, and our examination below of the details of who received health insurance through the ACA in Pennsylvania suggests that it continued to drop through 2016 (although full-year data to confirm this are not yet available).

Chart 1

Repeal of the ACA is likely to reverse this decline in the uninsured rate entirely. To understand why, we have to look at the details of who receives health insurance under the ACA and how they do so.

Medicaid Expansion

The Pennsylvania Department of Human Services estimates that roughly 685,000 Pennsylvanians receive health insurance as a result of Medicaid expansion.[2] Table 1 breaks the numbers down by Congressional districts and shows that Pennsylvanians in every corner of the state and in both urban and rural districts benefit from this program.

   

Table 1

 

 

Individuals Newly Eligible for Medicaid Due to Medicaid Expansion By Congressional District

District

Member of Congress

Number

1

Brady

72,218

2

Evans

70,463

3

Kelly

37,965

4

Perry

31,678

5

Thompson

32,214

6

Costello

21,001

7

Meehan

31,712

8

Fitzpatrick

21,676

9

Shuster

40,333

10

Marino

34,016

11

Barletta

35,432

12

Rothfus

34,904

13

Boyle

42,738

14

Doyle

38,137

15

Dent

34,775

16

Pitts

29,948

17

Cartwright

39,701

18

Murphy

23,816

Total

 

672,727

Source: Pennsylvania Department of Human Services, November 2016

     

 

    Some of the Pennsylvanians who receive health insurance under Medicaid expansion would still receive insurance under programs that existed in Pennsylvania prior to enactment of the Affordable Care Act, albeit at far greater cost to the state. We estimate that after repeal, roughly 80,000 people of those who have health insurance under the Medicaid expansion would be insured through the General Assistance program, 10,000 would be insured under the Medical Assistance for Workers with Disabilities program, and roughly 10,000 would be insured under the Medically Needy Only program.
Thus the net increase in uninsured Pennsylvanians due to repeal of the Medicaid Expansion would be about 585,000 people.
Health Care Exchange / Marketplace

The second largest group of Pennsylvanians who receive health insurance under the Affordable Care Act are those who purchase health insurance in the exchange/marketplace.

In the first quarter of 2016, 412,347 Pennsylvanians received health insurance in the ACA marketplace. Of those people, 321,345 received a tax credit that averaged $248 a month. Of those receiving tax credits, 227,304 also received cost-sharing reductions that limited their out-of-pocket costs.

We believe it is likely that all of the 321,000 people who receive support from the federal government to purchase health insurance will lose their insurance if the ACA is repealed. Without subsidies through tax credits and cost-sharing reductions, almost all of these people will be unable to purchase insurance. A small number may be able to secure more expensive, yet affordable, insurance through their workplace or that of their spouse.

What about the 91,000 Pennsylvanians who do not receive any federal support for purchasing health insurance in the ACA marketplace? Changes in the non-group insurance market brought about by the partial repeal of the ACA might make it difficult for them to receive coverage.

The Non-group Health Insurance Market

In addition to the 91,000 people who do not receive any government support to purchase health insurance in the ACA marketplace. Another 427,172 Pennsylvanians purchase non-group insurance with no subsidy outside the ACA marketplace. For reasons we explain in Appendix 2, we expect that the non-group health insurance market will largely collapse in Pennsylvania and that 75% of these 518,000 people will lose their insurance if the ACA is repealed.

How Many Pennsylvanians Will Lose Health Insurance if the ACA is Repealed?

Chart 2 and Table 2 summarize our analysis of the number of people we expect to lose their health insurance if major parts of the ACA are repealed through the reconciliation process.

As explained above, we expect 585,000 of the 685,000 who receive health insurance under Medicaid expansion to lose their insurance as a result of repeal. We expect all 321,000 of those who secure health insurance through the marketplace with tax credits (and in some cases cost sharing reductions) to lose their insurance. We expect 75% of both the 91,000 who are insured through the marketplace without tax credits and the 472,000 who purchase insurance through the non-group market to lose their insurance. This gives us a sub-total of 1,294,500 Pennsylvanians who would lose insurance. We expect that a small portion of these losses will be offset by a number of people returning to employer-provided insurance either because they or their spouse were already eligible for such insurance at their job or secured a new job that included insurance. Our estimate of 150,000 is based on the two observation that between 2013 and 2015, the number of Pennsylvanians securing insurance through their employer declined by roughly 300,000. Looking at the previous rate of decline in employer based insurance, we attribute half of that decline to a reduction in the number of businesses offering insurance and the other half to employees who purchased cheaper insurance in the marketplace. Thus we assume that half of those people might return to employer-based insurance.[3]

Adding our estimate of the number of Pennsylvanians who return to employer-based insurance, we project that that over 1.1 million Pennsylvanians will lose health insurance as a result of partial repeal of the ACA.[4]

  Chart 2   Table 2  

 

 

Loss of Health Insurance Among Pennsylvanians if the ACA is Repealed

Source of health insurance under the ACA

Number insured in 2015/2016

Number likely to lose insurance

Medicaid Expansion

685,000

585,000

Marketplace / Receive tax credit

321,000

321,000

Marketplace / Do not receive tax credit

91,000

 68,250

Off-marketplace

427,000

 320,250

Sub-total

1,524,000

1,294,500

Likely to return to employer based insurance

 

-150,000

Total

 

1,144,500

Source: PBPC estimates based on US Census and Urban Institute (see footnotes for details)


The Impact on Children

The data available from government agencies does not allow us to replicate our approach to estimating the impact of ACA repeal on health insurance for children. We can, instead, rely on the simulation conducted by the Urban Institute. I found that repeal of the Medicaid expansion and tax credits and subsidies for marketplace insurance will lead to a more than doubling of the number of children who are uninsured in Pennsylvania from 95,000 to 202,000. The uninsurance rate would climb from 3.4% to 7.2%. These results presume that Pennsylvania would make no changes in its Medicaid and CHIP coverage for children. If repeal of the ACA includes repeal of the provision requiring states to maintain their effort providing health care to children, and the state reduced its commitment to children to the minimum level, 546,000 children would be uninsured and the uninsurance rate for children would rise to 19.4%.

Maintaining insurance for children is crucial to the future of our Commonwealth. A substantial body of research shows that there are long-term benefits of providing health insurance for children. Not only do they have better health, but they do better in school and complete more education, and have higher life-time earnings. Those benefits ultimately flow to all of us.[5]

The Impact on Health

We do not have space to discuss in detail the impact on the health of the previously uninsured who have secured health insurance under the ACA. But it is important to recognize that health insurance matters, and enables people to live healthier and financially more stable lives. A study of the Medicaid expansion in Oregon showed that those who had secured health insurance self-reported that their health and mental status improved.[6] A study of Massachusetts health care reform showed that the new insurance led not only to self-reported improvements in physical and mental health but a decline in mortality.[7] Other research has shown that the proportion of non-elderly adults who say that they are in fair or poor health, or say that their activities are limited by health problems, drops as coverage is expanded.[8] Studies of other state Medicaid expansion that took place before the ACA all lead to the same conclusion.[9] Research on the impact of CHIP has shown that access to health insurance in childhood reduces later life risk of hospitalization and death.[10]

All these studies, and others as well, provide us with evidence that expanding health insurance coverage improves health, well-being, and longevity. Other provisions of the ACA besides expansion of insurance coverage have led to improvements in health. The provision that allows young adults to stay on their parent’s health care plan has been shown to lead to improvements in self-reported health status.[11] 

How Many Will Die Prematurely?

The impact of lack of health insurance on premature death has been a subject of great controversy over the last few years, with early studies that claimed a substantial impact coming under scrutiny for their methodological flaws.[12] That some states have embraced Medicaid expansion and others have not has created a natural experiment that has allowed researchers to look at the impact of health insurance on mortality by comparing the experience of states that expanded Medicaid with those that did not.[13] This study found that mortality rates in states that did not expand Medicaid were higher by 19.6 deaths per 100,000 people. Applied to Pennsylvania, that means expanding Medicaid in the Commonwealth reduces the number of deaths in the state by 2,350 people. About half as many people received health insurance in Pennsylvania by receiving a tax credit in the marketplace as through Medicaid expansion. Thus, it is reasonable to suppose that another 1,175 premature deaths are prevented each year by that part of the ACA. And note that this study looks at the impact of providing insurance to people in only one year. It does not take into account the long-term effect of people being insured consistently on treatment for chronic diseases that get worse when not treated.

Repeal of the ACA without a replacement as good is likely to lead to at least an additional 3,525 deaths per year in the Commonwealth.

 



[1] United States Census Bureau, 2015 American Community Survey, 1-Year Estimates. https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_15_1YR_CP03&prodType=table, accessed January 17, 2017.

[2] The disparity between the estimate that 685,000 people statewide receive health insurance under expanded Medicaid and the total for 18 Congressional districts of 672,000 is due to the difficulty in determining in which Congressional district a small number of Medicaid recipients live.

[3] The Urban Institute estimates that in the wake of repeal of the ACA the percentage of Americans securing insurance through their employer would increase by 1%. Our estimate doubles that percentage partly on the grounds that Pennsylvania has a higher percentage (58% vs 54%) than the nation as a whole of people who receive insurance through their employer We also adopt a more conservative approach in order to give the reader more confidence in our approach. The Urban Institute projection can be found in Linda J. Blumberg, Matthew Buettgens, and John Holahan, Implication of the Partial Repeal of the ACA Through Reconciliation, Urban Institute, December 2016. http://www.urban.org/research/publication/implications-partial-repeal-aca-through-reconciliation, accessed January 14, 2017.

[4] While there are many elements in our projection that are uncertain, we note that we are in the same ballpark as the Urban Institute, which estimates that 956,000 Pennsylvanians would lose health insurance as a result of repeal of the ACA. We believe that our more fine-grained and Pennsylvania-specific approach, which relies largely on administrative information about actual enrollments in Medicaid and the health insurance marketplace, gives us more a more accurate tally of who received health insurance as a result of the ACA than the Urban Institute’s numbers, which rely on their micro-simulation health care model which that generates estimates for all 50 states. That our results are still quite close to those the Urban Institute does increase our confidence in them.

[5] For summaries of this research see: “Medicaid at 50: Covering Children Has Long-term Educational Benefits,” Center on Budget and Policy Priorities, July 7, 2015, http://www.cbpp.org/blog/medicaid-at-50- covering-children-has-long-term-educational-benefits, “Medicaid at 50: Cuts Poverty, Boosts Financial Health,” Center on Budget and Policy Priorities, July 27, 2015, http://www.cbpp.org/blog/medicaid-at-50-cuts- poverty-boosts-financial-health, and “Medicaid’s Long-Term Earnings and Health Benefits,” Center on Budget and Policy Priorities, May 12, 2015, http://www.cbpp.org/blog/medicaids-long-term-earnings-and-health- benefits. These summaries include direct links to the original research papers for more detailed information.

[6] Finkelstein, Amy, et al. 2012. “The Oregon Health Insurance Experiment: Evidence from the First Year.” The Quarterly Journal of Economics 127(3): 1057-106, 2012 and Baicker, Katherine, et al. “The Oregon Experiment – Effects of Medicaid on Clinical Outcomes.” New England Journal of Medicine 368(18): 1713-22, 2013.

[7] Van der Wees, Philip J., Alan M. Zaslavsky, and John Z. Ayanian. “Improvements in Health Status after Massachusetts Health Care Reform.” The Milbank Quarterly 91(4): 663-89, 2013 and Sommers, Benjamin D., Sharon K. Long, and Katherine Baicker. “Changes in Mortality After Massachusetts Health Care Reform: A Quasi-Experimental Study.” Annals of Internal Medicine 160(9): 585-93, 2014.

[8] Sommers, Benjamin D., et al. 2015. “Changes in Self-Reported Insurance Coverage, Access to Care, and Health Under the Affordable Care Act.” The Journal of the American Medical Association 314(4): 366-74.

[9] Sommers, Benjamin D., Katherine Baicker, and Arnold M. Epstein. “Mortality and Access to Care Among Adults After State Medicaid Expansions.” The New England Journal of Medicine 367(11): 1025-34, 2012. http://www.nejm.org/doi/full/10.1056/NEJMsa1202099#t=article, accessed January 18, 2017.

[10] Wherry, Laura R., et al. “Childhood Medicaid Coverage and Later Life Health Care Utilization.” NBER Working Paper 20929. Cambridge, MA: National Bureau of Economic Research, 2015; Brown, David W., Amanda E. Kowalski, and Ithai Z. Lurie. “Medicaid as an Investment in Children: What Is the Long-Term Impact on Tax Receipts?” NBER Working Paper 20835. Cambridge, MA: National Bureau of Economic Research, 2015; and Wherry, Laura R., and Bruce Meyer. “Saving Teens: Using a Policy Discontinuity to Estimate the Effects of Medicaid Eligibility.” Journal of Human Resources 51(3): 556-88, 2016.

[11] Barbaresco, Silvia, Charles J. Courtemanche, Yanling Qi. “Impacts of the Affordable Care Act Dependent Coverage Provision on Health-Related Outcomes of Young Adults.” Journal of Health Economics 40(C): 54-68, 2015.

[12] Richard Kronick, Health Insurance Coverage and Mortality Revisited, Health Serv Res. 2009 Aug; 44(4): 1211–1231.
http://onlinelibrary.wiley.com/store/10.1111/j.1475-6773.2009.00973.x/asset/j.1475-6773.2009.00973.x.pdf;jsessionid=3D3D2B5F029AD090F8F4173E548AF45E.f01t02?v=1&t=iy2tyx03&s=3543d1e540e14c30b89a2a03a8685f684bef21d4, accessed January 18, 2017.

[13] Benjamin D. Sommers, M.D., Ph.D., Katherine Baicker, Ph.D., and Arnold M. Epstein, M.D. Mortality and Access to Care among Adults after State Medicaid Expansion.

The Obamacare repeal is a state budget time bomb

Third and State - January 26, 2017 - 4:23pm

This piece originally ran in Pennlive on January 26, 2017.

You think Pennsylvania has budget problems now? Wait until the Affordable Care Act is gone. 

That's probably a parochial, Harrisburg-centric way of looking at the consequences of repealing Obamacare.

The ACA has benefited Pennsylvanians in so many ways that its eventual repeal will be terribly painful.

We recently released a report that shows that 1.1 million Pennsylvanians will lose insurance and additional 3,250 deaths will occur each year as a result.

We pointed to almost $1.6 billion in revenues that hospitals will lose, which may lead some of them--especially in urban centers and rural areas—to close.

And we showed that repeal of the ACA will cost over 137,000 Pennsylvanians their jobs, while reducing the state's gross domestic product (GDP) by over $75 billion.

All those consequences are striking. But there is another consequence that is particularly important for Pennsylvanians to recognize.

Put simply, if an ACA repeal were to go into effect next year, a budget deficit that the IFO conservatively estimates at be $1.7 billion dollars will, instead, reach $3.1. billion.

If repeal is put off until 2019, when the IFO projects the budget deficit to be 2.6 billion, the budget deficit will instead reach roughly $3.8 billion.

Why will ACA repeal have such a dramatic effect on the state budget?

One part of the story is that the impact of ACA repeal on the Pennsylvania economy will be felt on state tax revenues. We estimate that the state will lose roughly $300 million in revenues per year when repeal goes into effect. 

The other part of the story is that the ACA has been saving the state huge sums of money every year in three different ways, all of which will be lost if the ACA is repealed.

First, the ACA created either new mechanism to save money in, or new funding for existing federal and state programs. 

One example is the Medicaid Drug Rebate Program, which created a national drug rebate for Medicaid. Until the passage of the ACA, the program only applied to fee-for-service care.

Because the ACA allows Pennsylvania to take advantage of these discounts in its traditional Medicaid Managed Care program, the state saves at least $500 million per year.

Another example is the Children's Health Insurance Program (CHIP). The ACA increased the federal match rate for CHIP, and for some other Medicaid services for children, up to 89 percent.

That is saving the state $90 million in the 2016-17 fiscal year. 

Second, the expansion of Medicaid enabled many Pennsylvanians to move from traditional Medicaid, which is reimbursed at a rate of about 52 percent by the federal government, into expanded Medicaid, which is reimbursed at a rate of 95% next year and 90 percent starting in 2019.

This includes two groups of people: those with severe health difficulties covered under the Medically Needy Only and those who fall under the Medical Assistance for Workers with Disabilities Program. Together, these programs cost the state about $100 million annually.

Third, the ACA paid for health care received by many individuals and families who had previously received care through one or another state program. 

One example is PACE and PACENET, which draws on the lottery fund to help low-income seniors purchase prescription drugs. PACE and PACENET expenditures were reduced by the Medicare Part D Prescription Drug Program, but that program has a notorious coverage gap—the "donut hole."

The Affordable Care Act has a number of provisions that will gradually close the donut hole by 2020. They save the state roughly $70 million per year in PACE and PACENET right now.

Another example is the Medical Assistance—General Assistance program, which provided health insurance for 80,000 adults at a cost of $600 million per year prior to the ACA. The Medicaid expansion portion of the ACA now covers those 80,000 Pennsylvanians. If the ACA is repealed, they go back to the MA-GA program and the state is on the hook for that $600 million once again.

Add up all these ways in which the state has saved money under the ACA and the total is $1.36 billion. Add the $300 loss in tax revenues, and the impact on the budget is $1.66 billion in 2017—and given a health care inflation rate that continues to run higher than the general rate, much more by 2019. 

The ACA does place some burden on the state, as it must fund a small part of the Medicaid expansion. In 2017 and 2018, only 5% of the Medicaid expansion or about $230 million, is paid for by the state, while in subsequent years 10%, or about $460 million has to be covered by Pennsylvania. But even when one subtracts the cost to the state of expanding Medicaid, the benefit of the ACA to the state budget is substantial.

So the potential repeal of the ACA should scare all of us in Harrisburg, and across the state, who care about finding our way out of the state's fiscal morass. ACA repeal will put us deeper in the hole. Political leaders in our state--of both parties--need to stand up and tell the federal government to stop the movement to repeal the ACA until an adequate replacement is in place.

How did the Pennsylvania Labor Market Perform in 2016

Third and State - January 24, 2017 - 8:28am

Last Friday, The Pennsylvania Department of Labor and Industry released preliminary estimates of December payrolls which show Pennsylvania created 32,000 jobs in the last 12 months. Payroll growth was especially weak in the 2nd half of 2016, which is likely one reason state revenue collections through December are $300 million below projections. Despite this weakness, payrolls still grew more in 2016 than they did in 2012 and 2013 when deep budget cuts weighed on job growth in Pennsylvania.

With the overall U.S. economy still in the midst of a broad economic expansion that is generating rising wages (though that growth is still slower than we would like to see), the relative weakness in Pennsylvania in the last few months is likely temporary.

A breakdown of employment trends by industry over the last seven years reveals where job growth has underperformed recently:

  • The inevitable bust that follows a natural resource extraction boom has, since 2015, cost Mining and Logging just over 15,000 jobs.  Employment in this sector is now near its levels that prevailed before the start of fracking in Pennsylvania. In a sign that we may be at the bottom of this bust the Energy Information Agency (EIA) is predicting natural gas prices will move higher in 2017 and 2018, and energy exports and rising consumer demand will outstrip production and imports. Rig counts in the U.S. and Pennsylvania in the last several months are also rising, suggesting that more wells are being drilled in response to recent natural gas price increases (here are annual average rig counts which provide another picture of the shale bust).
  • Weakness in Wholesale and Retail trade weighed on job growth in the last 12 months as these sectors combined shed 4,000 jobs.
  • In 2016, growth was present (4,100 jobs), but at a slower pace in Transportation, Warehousing & Utilities (the six year average gain is 6,600 jobs). 
  • Information (publishing and telecommunications) had a worse year than normal shedding 3,100 jobs.  
  • Leisure and Hospitality added 6,400 jobs this year, but that growth was well off the six-year annual average for this sector of 11,000 jobs.
  • Accommodation & Food Services, which on average generated 9,200 jobs a year in the previous six years, lost 900 jobs in 2016.
  • The public sector shed 4,600 jobs, with most of those losses coming from a combination of state government and school district employment. The public sector in Pennsylvania is the only major sector to have lost jobs every year for the last seven years. Something to remember every time the purveyors of “alternate facts” claim public spending is out of control.

Much of the weakness in Pennsylvania job growth in the last year looks to be part of national patterns—weakness in energy, a broad shake out in retail and wholesale trade, weakness in publishing (2016 saw hundreds of layoffs at the Pittsburgh Tribune-Review), consolidation in Accommodation & Food Service after years of very healthy growth, and finally tight public sector budgets pushing down on public employment. 

The only other statistic of note is the Pennsylvania Labor Force, which grew by 72,900 in the last 12 months. That spike is a mixed bag. It’s good that people are being drawn into the labor force, likely by a combination of rising wages and employers recruiting for new workers more aggressively. But on the downside, labor force growth was much faster than employment growth, and that helped drive the unemployment rate up from 4.7% last December to 5.6% in this December (the U.S. unemployment rate was 4.7% in December). The rapid run up in the Pennsylvania labor force stopped in June of this year, so the unemployment rate will likely start falling again if the national economy remains in an expansion.

The outcome of the election has introduced a fair amount of uncertainty, as President Trump appears to be somewhat unpredictable. If his stated priorities, infrastructure spending and tax cuts, become law this year we can expect to see labor markets tighten, which given where we are in the expansion should further boost job and wage growth. We prefer deficit spending for infrastructure to deficit spending for tax cuts aimed largely at high-income households and corporations, but in the short run the economy doesn’t care who spends the money that pushes up demand. Trump’s unpredictability could also hurt the economy, so we would put a little more weight on how the next couple of months in Washington unfold than we normally would in evaluating the outlook for the economy over the next year.

What ACA Repeal Means in Pennsylvania

Third and State - January 14, 2017 - 11:54am

We have seen politics in America take strange turns in the last few years, turns that often seem to reflect an almost total disregard of the basic facts of political and economic life. It is critical that we don’t allow this to happen in the debate about the Affordable Care Act. The consequences of repealing the ACA in Pennsylvania will be not only devastating, but deadly.

We at PBPC are working on a detailed report about the consequences of repealing the ACA in our state. It will be ready soon. But the preliminary information we have compiled is so horrifying that we don’t want to wait to give you the broad outlines of what we are finding:

  • ACA repeal will cause over 1 million Pennsylvanians to lose health insurance. Many of our fellow citizens will face dire health consequences for lack of health insurance as a result.
  • ACA repeal will be very costly for the hospitals—and especially the community hospitals—that will be required to provide health care to the newly uninsured. Some of those community hospitals will close as s result. 
  • ACA repeal will be very damaging to our economy. Over 100,000 Pennsylvanians will lose their jobs due to repeal. The state’s gross domestic product will drop by around $75 billion dollars.
  • ACA repeal will add a great deal to state and local budget difficulties. State and local tax revenues will drop over $2 billion. Between the loss of tax revenue and the additional required expenditures the state will have to make to replace ACA funding, the state’s budget deficit in the next five years, which already is approaching $2 billion a year, will grow by an additional $1.25 billion a year.

These are preliminary numbers. We will be refining them in the next few days. The final numbers are almost certain to be worse.

It is important to keep these facts in mind now that the United States House and Senate have taken the first steps towards repealing the Affordable Care Act by passing budget resolutions calling for legislation that would roll back many of the provisions of the law. This would not eliminate all provisions of the ACA, but it would end the Medicaid expansion and subsidies for individuals and families buying health insurance on the health insurance exchanges.

This is only the first step in a longer process, and there is no guarantee that the process will be complete. Indeed, if more of us recognize just how devastating the consequences of ACA repeal are for our ourselves, our friends and neighbors, our communities, and our state and then mobilize to stop repeal before there is a replacement that attains the same goals, we can stop it.

One thing you can do to help stop the repeal of the ACA is sign our petition against it. When you do so, we will forward your names to our legislators. And we will know to be sure to keep you informed about the ACA and how you can best take action to protect it.

The State and Local Government Workforce in Pennsylvania is the 2nd Smallest in the Country

Third and State - January 11, 2017 - 1:26pm

As we begin to debate the 2017-18 state budget, the anti-government spin merchants will (yet again) paint a picture of a menacing, out-of-control public sector in Pennsylvania eating up taxpayers like a great Kraken.

But facts do matter. And the picture they will paint is the opposite of the true picture, shown above. 

When you add up all the workers employed both by the state of Pennsylvania and those workers employed by all of our local governments, including school districts and community colleges, and consider them relative to all employment in the Commonwealth, Pennsylvania has the second smallest public workforce in the country: for every 100 workers in the state only about 10 are state and local government employees. For typical states, 13-15 workers out of every 100 are state and local government employees. For all but three other states, at least 12 of every 100 workers are state and local government employees. This suggests one or both of two things. First, the public sector in Pennsylvania is more efficient than average. This is a good thing that we should all celebrate. Second, it raises the question: “is our state and local government too small?” (i.e., do our rural areas need colleges, or was laying off tens of thousands of workers in schools in 2011-13 such a great idea?)

Despite an efficient (and possibly anorexic) public sector, the state budget has a structural deficit now creeping towards $2 billion. A key driver of the structural budget deficit are past decisions by lawmakers of both parties to cut corporate taxes. For instance, the Capital Stock and Foreign Franchise Tax (at 2.89 mills, its level in 2011-12) would have raised almost a billion dollars for the 2016-17 state budget.[1] Instead, when policymakers take up the 2017-18 budget, their first task will be to close the budget deficit (which is now $367 milllion) that has emerged since the budget agreement was reached last July.

Some of you, like us, may be struggling to get your bearings at a strange time in national politics. Part of our response, as well as organizing to fight policies that harm most people, must be to double down on the facts. We can’t let people get away with just making stuff up. We’re here to help with that.

 



[1] The final phase out of the Capital Stock and Foreign Franchise Tax has cost the Pennsylvania treasury $2.7 billion since 2012-13.

OP-ED: Combine spending restraint with new revenue

Third and State - January 5, 2017 - 11:05am

This piece originally appeared in the Erie Times-News, December 28, 2016.

Pennsylvania has been struggling with persistent budget deficits since the start of the Great Recession in 2008. And we at the Pennsylvania Budget and Policy Center have been recommending a "balanced approach" to resolving the deficit from the beginning, one that combines restraint in spending with new revenues.

But since 2010, under Govs. Tom Corbett and Tom Wolf, the General Assembly has adopted an unbalanced approach. Spending has gone down but revenues have gone down faster. From 1994 to 2011, under both Democratic and Republican governors, the state spent 4.7 percent of the state's gross domestic product. During the Corbett years that fell to 4.3 percent as spending on education and human services were sharply cut. And while, thanks to Wolf, the state has been able to restore some of those cuts, spending in the last two years remains at the same level as in the Corbett years.

Revenues have gone down partly because the state has been reducing corporate taxes for many years. They once accounted for over 30 percent of general fund revenues. Today they are at 17 percent. If corporate taxes brought in the 22.5 percent of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion.

And, in more recent years, the General Assembly has plugged holes in the budget with short-term fixes. This year they closed a $1.3 billion deficit with a combination of tobacco taxes - which decline over time - overestimates of revenues, and other one-time revenue sources. They borrowed money from other funds (which needs to be repaid). They shifted expenditures forward a year. They sold licenses to new outlets for gaming and liquor. And they instituted a tax amnesty that mostly benefits the wealthy and creates incentives to not pay taxes.

There is no doubt that the state can be more efficient. The current administration has found millions of dollars in savings and, by working with the public-sector unions, can find millions more. But the deficit now approaches five percent of yearly spending. There is little fat to be cut. Drastic reductions in state spending would require the kinds of deep cuts in education and human service spending instituted by Corbett and rejected by the voters in 2014. Erie is one among many cities in the state still suffering from those cuts.

So now, to balance our path to solving the state's fiscal crisis, it is time to fix our upside-down tax system. So long as Pennsylvania is one of what the Institute on Tax and Economic Policy calls the "terrible 10" states, which tax those with low incomes at higher rates than those with high incomes, we will never be able to raise the revenues we need to balance our budgets.

No one wants to raise taxes on working people and the middle class, especially when their incomes have barely budged in the last twenty years. But the "Fair Share Tax Plan" released by the Pennsylvania Budget and Policy Center shows us how to raise revenues from those whose incomes have gone up a great deal during that period.

Because the state Constitution contains a uniformity clause that makes it impossible to tax those with higher incomes at higher rates, this is difficult to do. But it is not impossible. Central to the plan is splitting Pennsylvania's personal income tax in order to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates - which we call "income from wealth" - to 4.5 percent. Over two-thirds of the revenue raised by this tax would fall on the top 5 percent, while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures - expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling, including an impact fee refund; corporate tax reform that would lower rates while taxing the 71 percent of mostly out of state corporations that now pay nothing; and raising the minimum wage, which would increase revenues while reduce expenditures - our proposal would generate $2.5 billion, going far to overcome the two-year deficit. And because income for families in the top 1 percent are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

The best, most balanced way forward for the Pennsylvania budget is to fix our tax system and make everyone pay their fair share.

OP-ED: Pennsylvania needs a fairer tax system

Third and State - January 4, 2017 - 5:44pm

This piece originally appeared in the Pittsburgh Post-Gazette, December 26, 2016.

Pennsylvania faces another budget crisis. The combined deficit for this year and next is roughly $3 billion. It’s time all Pennsylvanians — and especially the members of our General Assembly — recognize that recurrent budget crises won’t stop until we fix our upside-down tax system.

Federal tax rates are higher for those with higher incomes than those with lower incomes. However, combined state and local taxes, because they rely on property taxes, sales taxes and income taxes that do not have steeply graduated rates, often tax those with low incomes at roughly the same percentage as those with high incomes.

Pennsylvania is worse than most states on this score. It is one of what the Institute on Tax and Economic Policy calls the “terrible 10” when it comes to tax fairness.

Pennsylvania taxes those with high incomes at a far lower rate than those with low incomes. State and local taxes take 12 percent of the income of families in the bottom 20 percent of the income scale, 10.3 percent of the income of the middle 20 percent of families, but only 4.2 percent of the income of the top 1 percent of families.

A tax system that treated rich and poor Pennsylvanians alike would bring in far more money, close the deficit and give us the resources we need to invest in education, human services, strong communities and clean air and water.

The uniformity clause of our state constitution prohibits any class of income from being taxed at more than one rate. So, rates that rise with income are prohibited. There are ways around the uniformity clause, but the General Assembly has never been willing to embrace them.

Instead, Pennsylvania has made matters worse by reducing taxes on corporations. Those taxes once accounted for more than 30 percent of general-fund revenue. Today they account for 17 percent. If corporate taxes brought in even the 22.5 percent of revenue they did in 2002-2003, overall revenues would increase by $2.3 billion. There would be no budget deficit in Pennsylvania, and legislators could debate which programs to invest in, not which programs to cut. 

Rather than fixing our broken tax system, our legislators have continually put off the day of reckoning. This year, they closed a $1.3 billion deficit with tobacco taxes, revenue overestimates and short-term fixes: borrowing money (from other funds, which needs to be repaid), shifting expenditures forward a year, selling licenses to new outlets for gaming and liquor, and instituting a tax amnesty that benefits mostly the wealthy and creates incentives not to pay taxes.

What’s more, while avoiding the real problem, legislators complain about spending — which as a percentage of the state GDP remains as low as it was in the Tom Corbett years. Or they try to change the subject to pensions, while never putting forward a pension proposal that actually would reduce the deficit, because such a plan does not exist.

No one wants to close deficits by increasing the tax obligations of working people and members of the middle class, whose incomes have stagnated for the past 20 years while the incomes of families high on the income scale have skyrocketed. 

There is a better way forward: the “Fair Share Tax Plan” released by the Pennsylvania Budget and Policy Center last week.

Central to our plan is splitting Pennsylvania’s personal income tax to tax different classes of income at different rates, which the uniformity clause allows. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes.) But we would raise the tax rate on dividends, capital gains, business profits, royalties and estates — which we call “income from wealth” — to 4.5 percent. More than two-thirds of the revenue raised by this tax would fall on the top 5 percent, while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures, our proposal would generate $2.5 billion, going far to overcome the two-year deficit. Those other measures include extending the sales tax to services that are mostly purchased by those with higher incomes while offering a sales-tax credit for those with lower incomes, a modest severance tax on natural gas drilling, corporate tax reform that would lower rates while taxing the 71 percent of the mostly-out-of-state corporations that now pay nothing, and raising the minimum wage, which would increase revenues while reducing expenditures. And because income for families in the top 1 percent are growing rapidly and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

Turning our tax system right-side-up not only would be fairer to all Pennsylvanians, it is the only path to raising the revenues needed to fix our budget problems and invest in communities across the state in the long term.

OP-ED: Time to fix our upside-down tax system

Third and State - January 4, 2017 - 5:37pm

This piece originally appeared in the York Dispatch, December 23, 2016.

Pennsylvania has been struggling with persistent budget deficits since the start of the Great Recession in 2008. And we at the Pennsylvania Budget and Policy Center have been recommending a “balanced approach” to resolving the deficit from the beginning, one that combines restraint in spending with new revenues.

But since 2010, under Gov. Tom Corbett and Gov. Tom Wolf, the General Assembly has adopted an unbalanced approach. Spending has gone down but revenues have gone down faster. From 1994 to 2011, under both Democratic and Republican governors, the state spent 4.7 percent of the state’s GDP. During the Corbett years, that fell to 4.3 percent as spending on education and human services were sharply cut. And while, thanks to Wolf, the state has been able to restore some of those cuts, spending in the last two years remains at the same level as in the Corbett years.

Revenues have gone down partly because the state has been reducing corporate taxes for many years. They once accounted for over 30 percent of general fund revenues. Today they are at 17 percent. If corporate taxes brought in the 22.5 percent of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion.

And, in more recent years, the General Assembly has plugged holes in the budget with short-term fixes. This year they closed a $1.3 billion deficit with a combination of tobacco taxes — which decline over time — over-estimates of revenues, and other one-time revenue sources. They borrowed money from other funds (which needs to be repaid). They shifted expenditures forward a year. They sold licenses to new outlets for gaming and liquor. And they instituted a tax amnesty that mostly benefits the wealthy and creates incentives to not pay taxes.

There is no doubt that the state can be more efficient. The current administration has found millions of dollars in savings and, by working with the public-sector unions, can find millions more. But the deficit now approaches five percent of yearly spending. There is little fat to be cut. Drastic reductions in state spending would require the kinds of deep cuts in education and human service spending instituted by Corbett and rejected by the voters in 2014. York is one among many cities in the state still suffering from those cuts.

So now, to balance our path to solving the state’s fiscal crisis, it is time to fix our upside-down tax system. So long as Pennsylvania is one of what the Institute on Tax and Economic Policy calls the “terrible ten” states that taxes those with low incomes at higher rates than those with high incomes, we will never be able to raise the revenues we need to balance our budgets.

No one wants to raise taxes on working people and the middle class, especially when their incomes have barely budged in the last twenty years. But the “Fair Share Tax Plan” released by the Pennsylvania Budget and Policy Center shows us how to raise revenues from those whose incomes have gone up a great deal during that period.

Because our Constitution contains a uniformity clause that makes it impossible to tax those with higher incomes at higher rates, this is difficult to do. But it is not impossible. Central to the plan is splitting Pennsylvania’s personal income tax in order to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates — which we call “income from wealth”—to 4.5 percent. Over two-thirds of the revenue raised by this tax would fall on the top 5 percent, while 82 percent would be paid by families with incomes above $95,000.

Combined with some other measures — expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling, including an impact fee refund; corporate tax reform that would lower rates while taxing the 71 percent of mostly out of state corporations that now pay nothing; and raising the minimum wage, which would increase revenues while reduce expenditures — our proposal would generate $2.5 billion, going far to overcome the two-year deficit. And because income for families in the top 1 percent are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

The best, most balanced way forward for the Pennsylvania Budget is to fix our tax system and make everyone pay their fair share.

OP-ED: The rich can take the hit - to fix the budget, they should pay their fair share

Third and State - January 4, 2017 - 5:32pm

This piece originally appeared on Pennlive, December 23, 2016.

You remember how Lucille Ball would work her way into some kind of predicament and then look around and wonder how she got there? That’s how our state legislators seem to look at the budget deficit we are stuck with right now. They are looking around wondering how the current Pennsylvania budget deficit, which approaches $3 billion for this year and next year together, happened. 

But it didn’t just happen. It was the product of a series of long-term and short-term decisions made by legislators, sometimes with the help of our governors.

Let’s start, however, with what did not cause the budget deficit, because too many of our legislators, like Lucy, want to blame someone else for the mess they have made. 

Growth in state spending is not the cause of budget deficits.

From 1994 to 2011, under both Democratic and Republican Governors, the state spent 4.7% of the its GDP. During the Corbett years, that fell to 4.3% as spending on education and human services were sharply cut. And while the state has been able to restore some of those cuts under Governor Wolf, overall spending remains at the same level as in the Corbett years.

To reiterate, we do not have a problem of government spending too much, as so many legislators would like you to believe. Can we find efficiencies? Sure. And we should. Are there ways to be smarter about how dollars are allocated across the state? Absolutely. And Governor Wolf has been more than willing to engage in that conversation with legislators. But the size of government is not driving our deficit problem.

Nor are pensions for state workers and teachers the problem. An effort to finally address the pension problem has led to rising costs in the last few years. But the future deficits projected by the Independent Fiscal Office will occur even though state pension costs are leveling off. And no one has put forward a Constitutional plan to actually reduce already-contracted pension costs in the short term.

So why do we face deficits year after year?

The root of the problem is that we have cut corporate taxes. They once accounted for over 30% of general fund revenues. Today they are at 17%. If corporate taxes brought in the 22.5% of revenues they did in 2002-03, overall revenues would be higher by $2.3 billion for this year’s budget. That would have eliminated our budget deficit.

The more recent problem is that year after year, the General Assembly balances the general fund budget by overestimating revenues and adopting one-time fixes which only make the hole deeper.

The only solution to the budget crisis—besides another round of billion-dollar-plus cuts in both education and human services, which Pennsylvanians rejected in 2014—is to fix our upside-down tax system. So long as Pennsylvania is one of what the Institute on Tax and Economic Policy calls the “terrible ten” states that taxes those with low incomes at higher rates than those with high incomes, we will never be able to raise the revenues we need to balance our budgets. 

No one wants to raise taxes on working people and the middle class, especially when their incomes have barely budged in the last twenty years. But our “Fair Share Tax Plan” shows how Pennsylvania can raise revenues from those whose incomes have gone up a great deal.

Central to the plan is the splitting of Pennsylvania’s personal income tax to tax different classes of income at different rates. We would keep the tax on wages and interest close to its current rate (while increasing tax forgiveness for those with low incomes). But we would raise the tax rate on dividends, capital gains, business profits, royalties, and estates—which we call “income from wealth”—to 4.5%. Over two-thirds of the revenue raised by this tax would fall on the top 5%, while 82% would be paid by families with incomes above $95,000.

Combined with some other measures—expanding the sales tax base to services that are mostly purchased by those with higher incomes while offering a sales tax credit for those with lower incomes; a modest severance tax on natural gas drilling ; corporate tax reform that would lower rates while taxing the 71% of mostly-out-of-state corporations that now pay nothing; and raising the minimum wage, which would increase revenues while reduce expenditures—our proposal would generate $2.5 billion, going far to overcome the two year deficit. And because income for families in the top 1% are growing rapidly (while that of other families stagnate) and natural gas prices will rise again, our proposal would generate growing revenues long into the future.

Lucy could always get out of her messes once she realized that she brought them on herself and had the power to fix them. We need our legislators to come to the same realization and fix our budget mess.

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