Washington Policy Blog

Public versus private health care costs

Depending on your perspective, the decision yesterday by the Public Employees Benefits Board (PEBB) to raise premiums, deductibles, and co-pays for public employees is either a "travesty" or common sense reality.

In a 4-3 vote, the PEBB members decided:

"Due to the state’s budget shortfall, the HCA required that the medical plans meet a budget target that would keep the average employee contribution at around 12%. To do this, the plans increased the costs of certain benefits, deductibles, and out-of-pocket maximums. The employer will continue to pay 88% of the premium costs, based on enrollment across all PEBB medical plans."

This "average employee contribution at around 12%" compares very favorably to those in the private sector that still have jobs and health insurance. According to a 2008 study on state health care costs by the Washington Alliance for a Competitive Economy:

“State employee health care benefits are generous, and the 12 percent share of premiums paid by employees is low. A recent Towers Perrin survey of 200 large employers found that the average employee’s share of health care premiums was 22.6 percent in 2008, up from 20.1 percent in 2003 (Towers Perrin 2008).”

Despite this fact, PEBB member Greg Devereux (head of the Washington Federation of State Employees) had this to say about the vote:

“This today is an absolute travesty...They (the Legislature) won’t tax anybody else, but they’ll tax state employees…I think it’s a crime. The Legislature didn’t have the guts to provide the health care funds. They are destroying the quality of the workforce in this state.”

Needless to say Devereux was among the no votes.

Meanwhile the Seattle Times reports:

"In what is becoming an annual ordeal for policyholders, Regence BlueShield is raising premiums for 135,000 individual health-plan members in Washington by an average 17 percent on Aug. 1.

It is the third consecutive year that the state's largest provider of individual coverage has boosted rates by double digits. And it comes after two other insurers, Group Health Cooperative and LifeWise Health Plan of Washington, recently imposed similarly steep premium increases."

Considering the average public employee versus private employee health care costs, was the PEBB's decision "a crime" or instead grounded in economic reality?

It appears the only alternative would be taxes increases or additional service cuts to provide the benefits demanded by Devereux and others.

Sneak peak at supplemental budget

Although the new fiscal year and biennium are only 1 day old, it's not too early to start thinking about next year's supplemental budget. Based on yesterday's caseload forecast, the Governor is already hinting at what agencies can expect to be proposed.

Here are details on the caseload forecast as reported in The Olympian:

"More Washington residents will receive Medicaid and children’s health assistance in the next two years than earlier forecast, creating a $250 million shortfall in the state’s already-strained budget.

The new forecast was released Wednesday by the Caseload Forecast Council, and Gov. Chris Gregoire’s budget office released an analysis showing that $113.4 million of the expected increase is in aid to needy families that qualify for Medicaid.

An additional $69.6 million is for children’s health care, including some children whose families qualify for Medicaid and others whose citizenship has not been verified. General Assistance Unemployed costs also are up $12 million, and nursing-home costs are up by $6 million."

Coupled with last month's poor revenue forecast, the state's new budget is already projected to be in the red. In response, the Governor's budget office (OFM) sent a memo to agency directors yesterday detailing her strategy:

"On June 18, the Governor directed the following administrative actions by cabinet agencies:

• Full Time Equivalent (FTE) reductions equivalent to a 2 percent reduction in 2009-11 budgeted GFS FTEs.

• Continuation of specific GFS savings in out-of-state travel and training, personal services contracts, and equipment purchases.

• Spending restricted to only critically necessary activities.

She also has encouraged non-Cabinet agencies to impose similar measures.

The Governor’s reductions are intended to create savings that mitigate the effect of the June revenue drop. OFM will continue to watch revenue collections and caseload/enrollment projections as we approach the September and November forecast updates for GFS revenues. Ongoing expenditure and revenue pressures will very likely require further action, including revisions in a 2010 supplemental budget. The reductions in this memo represent the first steps toward supplemental budget changes for expenditures funded by the GFS."

Included in the memo are two tables showing the projected FTE and spending reductions. These figures are a good first look at what the Governor may propose in a supplemental budget.

If enacted by agencies, the Governor's proposal would reduce FTEs below budgeted numbers by approximately 642 and spending by $374 million.

While this is a good first step, additional spending corrections by the Legislature next session will be necessary to rebuild the state's rainy day account. Otherwise we may not be able to respond effectively to any future curve balls the struggling economy may throw our way.

The convergence of technology and democracy

There's no doubt that 2008 was an evolutionary leap forward in the use, and focus on, technology as a main driver of civic involvement in the democratic process. Then-candidate-Obama's masterful use of social networking for both messaging and fundraising took the nation, and the electorate, by storm. By comparison, the Republicans ramped up their focus on technology trends as well, but let's face it, the Democrats fired on all cylinders in this area.

But now that the Obama administration, whose messengers campaigned on "accountable" and "transparent" government, are now in the seat of power, how will they follow through with their campaign promises?

I recently attended the Personal Democracy Forum in New York and one of the guest speakers was Vivek Kundra, the U.S. Chief Information Officer. Vivek unveiled a new website aimed at opening up U.S. federal I.T. spending -- it.usaspending.gov. The website takes a dashboard approach to outlining major U.S. "investments" (aka spending). And while the site is still in a beta mode, the early results look good.

Eventually, anyone will be able to drill down into specific government projects (non-classified of course) and look at spending patters, contracts with private companies, link to GAO and other evaluative reports, and more.

We are seeing this here in Washington state as well. Last year the legislature passed a WPC recommendation for a fiscal transparency website, fiscal.wa.gov. It has been in operation for about a year now and is helping to make Washington state government more transparent and therefore accountable.

Efforts on both state and federal levels are to be applauded. But more needs to be done. More suggestions and ideas on government transparency.

Federal Transportation budget going broke....again

From AASHTO....

On June 24th Deputy Secretary of Transportation John D. Porcari sent a letter to the chief executive officers of every state department of transportation in the country advising them of an impending cash shortfall in the Highway Trust Fund (HTF). The HTF is the federal funding source for thousands of state highway projects, which support hundreds of thousands of jobs, across the country.

The Deputy Secretary's letter put all state DOTs on notice, warning that instead of sending states overnight reimbursements for transportation investments, the Federal Highway Administration could begin to ration state repayments; possibly shifting to weekly or bi-weekly payments in the event that state reimbursement requests exceed the cash available in the Highway Trust Fund.

Faced with the same crisis ten months ago, Congress transferred resources from the general fund back into the HTF to prevent a shutdown of the Federal Highway Program.

Using general fund dollars for the HTF can be dangerous at the federal level. Once the subsidy from the general fund reaches a certain amount, it triggers a provision that forces all future allocations to become subject to the regular budget process. This means transportation funding will have to compete with every other federal program, like defense and health care.

King County's sci-fi construction projects: Hulk, Jabba, Kahn and Kirk

Earlier this week the State Auditor's Office released an accountability audit on King County's compliance with state laws and regulations and its own policies and procedures. The results weren't pretty.

According to the audit:

"Our audit found County officials should improve oversight and safeguards over its cash receipts, expenditures and assets. In many instances, oversight and safeguards were impaired by a lack of sufficient monitoring to ensure policies are complete, followed and staff is adequately trained to operate within those policies.

Further, County officials do not consistently provide or enforce performance measures or expectations in holding staff accountable. As a result, the County exposes itself to greater risk of loss, less ability to control expenditures, and increases the risk for non-compliance with laws, regulations and contractual requirements. Consequently, our audit identified 12 findings."

The Auditor also attempted to conduct a performance audit of the County's construction management practices but terminated the audit "because the County was unable to provide complete and timely access to files and records related to construction projects" that the auditors requested.

Though a long list of problems was identified, perhaps the most curious finding of the audit concerned the County's management of construction records. From the audit (emphasis added):

"For the files we could access, we observed one file group where the naming conventions did not reflect what project or projects the file contained. The files observed were named after popular science fiction characters.

County personnel stated the County does not have standard procedures for naming, organizing and storing electronic records and does not have protocols for file protection or shared drive access and permissions.

Instead, individual project managers are permitted to name their files whatever they want, organize them however they want and establish whatever restrictions to access they want."

So what sci-fi projects was King County engaged in?

In response to an email inquiry the Auditor's office said the files referenced above were named: Hulk, Jabba, Kahn and Kirk.

Though the County may escape the Wrath of Kahn, the wrath of voters is another story. In light of this audit you may start hearing them channeling the Hulk: "Don't make me angry, you wouldn't like me when I'm angry."

Some sensible tax reform in Seattle?

Today's Seattle Times reports that Seattle Mayor Greg Nickels, along with City Councilmen Tim Burgess and Richard Conlin, are going to work towards abolishing the $25 per employee "head tax" within Seattle city limits.

While I and WPC mainly focus on state-based policy, with my work in the small business community I feel safe asserting that this "head tax" was one of the worst business tax policies I have ever seen. The level of frustration and outrage from small business owners regarding this tax was just about the same as, if not stronger than, their dislike of the state's Business and Occupation tax.

Really, the head tax was a punitive response against employers for the "privilege" of hiring employees within city limits. The reason? Because these employees commuted from outside the tax's jurisdiction, therefore employers are responsible for the damage done by their employees' commutes to the local environment. This is why exemptions were in place for employees who walked, rode the bus, carpooled or biked to work.

It's good to see policymakers in the Emerald City realize the tax made Seattle that much less competitive. Now, if the city would just come to its senses on the "square footage tax."  

Unemployment Trust Fund Draining Faster than Anticipated

This past legislative session, the legislature passed HB1906 which temporarily increases the amount of unemployment insurance (UI) checks by $45 as well as raised the minimum insurance benefit amounts by drawing down the state's health UI trust fund. The $45 is temporary, however, and only extends to the end of the year. At first this was part of the Governor's plan to help stimulate the economy. As I pointed out, however, raising unemployment insurance benefits doesn't fall under the category of economic stimulus. It's just increasing government benefits.

That being said, I was less concerned about this legislation because our state's UI trust fund was over $4 billion at the beginning of the year (which has since declined to about $3.7 billion). This means the state has about 18 months worth of benefits available in the trust fund. This is 50% more than the Department of Labor recommends (12 months).

The original fiscal notes on HB 1906 calculated the draw-down rate at 7.5% unemployment, but Washington's unemployment rate has not been below 7.5% since December 2008. Therefore, the state is drawing down from the UI trust fund faster than anticipated.

According to the Employment Security Department, the March forecast shows a 24% bump in the cost of the temporary benefit. The Department uses these forecasts to guesstimate costs and November's forecast showed a $187 million cost for the $45 temporary increase in UI benefits (through 2011) but now that has been updated to $231 million. Again, this is off of the March forecast, so the June forecast released last week will most likely increase these costs. ESD won't have that information available for a few weeks.

True, a $231 million hit to a reserve fund of $3.7 billion is not a huge amount. But the latest ESD Economic Update also contains information that based off of this year's 1906 and 5963 legislation, the trust fund could dip as low as 11.7 months by calendar year 2011 -- or $2.4 billion. This would put the trust fund below the DOL recommended levels.

Why is this a concern? Because unforeseen expenses can lead to tax increases. And since employers pay 100% of UI premiums do we really want to make the cost of labor even more expensive?

The tale of two Washingtons

Perhaps one of the things most taken for granted about today's state revenue forecast is the fact that no one is fighting over the numbers. When the state's nonpartisan revenue forecast committee issues its projections you don't see dueling press releases from partisans claiming that the numbers are wrong and the state should instead base its projections on the source of a political party's choosing.

Unfortunately the same can't be said about the debate occurring in Washington D.C. concerning the nonpartisan Congressional Budget Office's (CBO) projection on the cost of the health care reforms being considered. As noted by The Hill:

"Democratic leaders are growing frustrated with Senate Republicans and the Congressional Budget Office (CBO) for clouding prospects for timely passage of the healthcare overhaul by way of their critiques . . .

Democratic leaders have also grumbled about the CBO, which released an analysis Monday that may result in Senate Finance Committee Chairman Max Baucus (D-Mont.) delaying action on his panel. CBO has reportedly scored the Finance Committee’s proposals at $1.6 trillion, forcing Baucus to chop the package by $600 billion . . .

Growing frustrations with CBO have spurred some Democrats to consider shelving cost estimates from the agency and using projections from another source, such as the Office of Management and Budget (OMB), which is part of the Obama administration . . .

Peter Orszag, the director of Office of Management and Budget, however, has downplayed the possibility of using projections from his agency instead of CBO.

'CBO scoring is going to be used in this process,' Orszag said late Wednesday."

The whole point of nonpartisan forecasts is to help remove politics from the process and provide accurate information to the public and lawmakers. If those numbers get in the way of speedy action and instead force more thoughtful debate, the only losers are politicians --- not the taxpayers they serve.

Here are additional details on the CBO cost projections.

Has state economy hit bottom?

Despite a drop in projected revenue, the state's top economist Dr. Arun Raha believes the worst is over. According to Raha the "free fall in the economy is behind us . .. decline in revenue is moderating."

That said, today's news creates additional pressure on the state budget. For the first time since the 2001-03 biennium (impacted by the 9/11 terrorist attack), traditional General Fund revenue collections are projected to be negative biennium over biennium as shown here:

• 2001-03: $21,141 million (0.6% decrease)
• 2003-05: $23,389 million (10.6% increase)
• 2005-07: $27,772 million (18.7% increase)
• 2007-09: $27,706 million (0.2% decrease)
• 2009-11: $27,692 million (0.1% decrease)

The impact of this is a reduction in the amount of reserves available for the state to weather any unforeseen bad news. 2007-09 reserves are reduced to $218 million. 2009-11 reserves are reduced to a paltry $53 million, Both reserves are well below one percent of expenditures (a 10 percent reserve is recommended).This includes the constitutional rainy day account.

This past session the legislature changed the definition of the General Fund to include additional accounts. By adding those new accounts the revenue forecast is essentially flat as shown here:

• 2005-07: $29,785 million (17.3% increase)
• 2007-09: $29,812 million (0.1% increase)
• 2009-11: $29,834 million (0.1% increase)

Meanwhile, the Chair and ranking member of the House Ways and Means Committee told the Association of Washington Business (AWB) they see no reason for a special session. As reported by Jason Hagey:

"State Reps. Gary Alexander, R-Olympia, and Kelli Linville, D-Bellingham, agree that Washington legislators should not convene for a special session this year, despite growing budget woes.

Linville told a meeting of the AWB’s Governmental Affairs Council that Gov. Chris Gregoire should use her limited authority to trim the budget enough to get through until January when the Legislature meets again for a regular session."

One of the options for the Governor is found in RCW 43.88.110:

"If at any time during the fiscal period the governor projects a cash deficit in a particular fund or account as defined by RCW 43.88.050, the governor shall make across-the-board reductions in allotments for that particular fund or account so as to prevent a cash deficit, unless the legislature has directed the liquidation of the cash deficit over one or more fiscal periods . . ."

Whether or not the Governor takes this action it is clear that additional reforms to the state budget will be needed to help put the state back on a sustainable spending path.

Louisiana tries to tax Internet access even if the Feds prohibit it. How? Through a "fee"

For the last decade, the United States Congress has wisely chosen to prohibit states and local governments from imposing taxes on Internet access. As the Internet developed during the 1990s, one of the chief worries at the time, as established non-tech businesses integrated the world wide web into their daily activities was, "will we have to start paying for each email?" The idea of paying for individual emails, similar to snail mail, sounds absurd in 2009, but in the mid 90s it was a genuine concern. This was one of the reasons why Congress outlawed taxes on bytes, bandwidth etc. when it passed the Internet Tax Freedom Act (which later became the Internet Tax Nondiscrimination Act).

But the state of Louisiana is trying to circumvent this federal law by applying a "fee" to Internet access. As the Institute for Policy Innovation's Tom Giovanetti points out, the ITFA was specifically designed to prohibit such legislation. However, policymakers in LA are using the old "taxes vs. fee" argument. They are doing so by linking the revenue that would be raised through this Internet access "fee" to an account to fight cybercrimes. Obviously, fighting cybercrimes and protecting children from online predators is a laudatory goal, but so is keeping the Internet free of taxes the way Congress wanted.

It appears that this particular legislation is dead in Louisiana this year, but how many policymakers in other states are going to follow suit in their own states? Don't be surprised, particularly as many state budgets remain upside down.

For Washington state, the Lieutenant Governor's (see page 94) office describes a tax as something that "raises revenue for general government purposes. By contrast, a 'fee' is charged to a specific class of payors to provide for a specific service, program or facility." But how many times has a new "fee" been assigned to fund a specific account and then that same account ends up "loaning" its money towards a completely unrelated purpose?