Welfare Failure

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

Welfare’s Failure and
the Solution

Presentation
by
Gary D. Alexander
Secretary of Public Welfare
Commonwealth of Pennsylvania

The American Enterprise Institute
July 2012


• The Welfare Problem
– Chaos
– No Transparency
– The Welfare Cliff

– The President’s Healthcare Tax makes each of
these problems worse.

Welfare Chaos

“The U.S. welfare system would be an unlikely model for
anyone designing a welfare system from scratch. The
dozens of programs that make up the ‘system’ have
different (sometimes competing) goals, inconsistent
rules, and over-lapping groups of beneficiaries.”

-Concise Encyclopedia on Economics
Introductory sentences on the topic of “welfare” by Thomas MaCurdy and Jeffrey M. Jones. Thomas
MaCurdy is the Dean Witter Senior fellow at the Hoover Institution and a professor of economics at
Stanford University. He is a member of standing committees that advise the CBO, the U.S. Bureau of Labor
Statistics, and the U.S. Census. Jeffrey M. Jones is a research fellow at the Hoover Institution. He was
previously executive director of Promised Land Employment Service.

Chaos in the Federal-State Relationship

FBI
Audit /
Eligibility Federal DOJ MH
SSA Eligibility CMS
IRS SNAP FNS ACF
and HHS
School
Audit Meals
Data
Sharing

State
Counterparts

OIM ODP OLTL OMAP OCDEL OMHSAS OCYF
(dark blue) (red) (green) (brown) (pink) (purple) (yellow)

• For Families with Children • HealthChoices Behavioral • Youth Development Centers
• Consolidated Waiver
Medical • For the Aged and Disabled MR/ID: Attendant • Attendant Care Waiver Medical • Managed Care Certification Health (HC-BH) Program
• Youth Forestry Camps
• P/FDS Waiver •
• Child Care Certification Behavioral Juvenile
Assistance • Long Term Care HCBS Care Act 150
Assistance • Fee for Service Services • Fee-for-Service • County Juvenile Probation
• Base Services Health Justice
• Select Plan for Women • Behavioral Health Services Offices
& Substance Initiative (BHSI) Services
• Private Agency Delinquency
Abuse Services • Base Services

• Act 152
Supplemental • Adult Autism Waiver
Nutrition • Nutritional support for low- Autism: (AAW) Nursing Subsidy
• MA Nursing Facilities • Child Care Works
Assistance income families HCBS • Adult Community Autism Facilities Services
Program (SNAP) Program (ACAP) • Homemaker/Caretaker
Adult Service
Integration Education • Life Skills Education
• CHIPP
Programs
• A suite of programs that Intensive Care
Employment • Early Intervention,
provide job readiness,
Facilities/ • State Centers Early Infant/Toddler
and Training placement, retention AIDS • AIDS Waiver
Intervention
Programs training, and supportive Mental • Private Facilities • Early Intervention,
services Retardation Services Preschool
• Adoption Services
Adoption
• Adoption Assistance

• State Hospitals and
• Provides services to families Community Service
State Restoration Center
and children in immediate Programs for • Independence Waiver Facilities
Homeless • Keystone STARS • Other Initiatives
need of shelter and to those People with • COMMCARe Waiver
Assistance in imminent danger of Physical • Keystone Babies
• OBRA
becoming homeless Disabilities (CSPPPD)
• Pennsylvania Pre-K Counts • Information and Referral
Administration Services
• Full Day Kindergarten
& Oversight
Early • Service Planning
• Head Start State
• Temporary Assistance for
Learning Supplemental Assistance
Program
Cash Needy Families (TANF) Services
Aging • Aging Waiver • Early Head Start • Special Pharmacy Benefits
Assistance • General Assistance (GA)
• Parent-Child Home Program Pharmacy Program for Mental Health
• SSI State Supplement (SPBP-MH)
• Nurse-Family Partnership • Foster Family Service

• Children’s Trust Fund • Community Residential
Service and Group Home
Service
Low Income • Assistance to low-income • Supervised Independent
Home Energy families in need of LIFE • Life Program Placement Living Service
Assistance assistance with their
heating and cooling bill • Residential Service
Program (LIHEAP)
• Secure Residential Service
• Emergency Shelter Service

• Establishes paternity and
support orders and
Child Support
provides medical support
Enforcement and employment services
for non-custodial parents

Through • Protective Services (Child
Abuse)

• Provides free services to PA DOT Protective
Services
•
•
Protective Services (General)
Counseling/Intervention
Legal assist clients to resolve civil Services
legal problems
Assistance

Through •
State Day Services
•
Day Care Service
Day Treatment Service
PA L&I
Counterparts Through
PA DOH

SAMHSA
ICE OSEP HRSA AoA
Key
= indirect interaction
US DOT USDLI VA HHS OIG
2 2 = direct interaction

SNAPSHOT OF WHAT A STATE HAS TO DEAL WITH FROM THE FEDERAL GOVERNMENT
MYRIADS OF CONFLICTING RULES AND REGULATIONS FROM A MASSIVELY DISORGANIZED BUREAUCRACY

Lack of Transparency

• Health care consumers do not Median Price of Health Care Services
know the cost of medical services Selected Hospitals in Urban Settings, Southeastern
Pennsylvania
or if price is associated with Hospital A Hospital B Weighted Average
quality
• Health care costs vary dramatically Chest Pain (IP)

across the Commonwealth
without any apparent connection

Service
Colonscopy (OP)
to quality or the health status of
patients served
Knee Replacement (IP)
• In Philadelphia for example, a
colonoscopy at one hospital is Laparoscopic
over $3,000 and a few miles away Cholectystectomy (IP)
at a surgical center it is under
$800 Laparoscopic
Cholectystectomy (OP)
• Taxpayers cannot decipher the IP – Inpatient
OP – Outpatient $- $5 $10 $15 $20 $25
breadth of the problem Thousands
2011 DPW Data Median Paid
5

Welfare Cliff

Example Household Receiving Welfare Benefits:

• Single mom
• Two Children
• Lives in Pennsylvania
• No disabilities
• Children are 1 and 4
years old and placed in a
Star 4 childcare center

Household Benefits and Income Chart

80,000

75,000

70,000 • To understand the
problem, it’s best to look
65,000
at the family’s income
60,000 continuum.
Welfare Benefits + Wages

55,000
• This chart depicts the
50,000 family’s income on a
45,000 sliding scale.
40,000
Earned Income minus • A family making about
35,000
taxes $60,000 takes home
30,000 about $49,000.
25,000
• Despite the progressivity
20,000 of the income tax, this
15,000
family is always better off
making more money,
10,000 taking a better job.
5,000 Red Line Represents Net Income
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
90,000
95,000
100,000
-

Wages

Household Income and Benefits Chart

If we stack on welfare benefits, you can quickly see what happens. Welfare cliffs crop up in several spots.
80,000

75,000

70,000 Highest Welfare Cliff
65,000
Welfare Benefits + Wages

60,000

55,000

50,000

45,000

40,000 The single mom is better off earning
35,000 gross income of $29,000 with
30,000 $57,327 in net income & benefits
CHIP
25,000 MA
than to earn gross income of
Childcare $69,000 with net income & benefits
20,000
Energy of $57,045.
15,000 Housing
Food
10,000 Cash
5,000 Negative Income Tax
Earned Income minus taxes
-
5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000
-

Wages


Result: Out of control welfare spending.

Pennsylvania Growth Trends

40%
PA Welfare Budget 36.5%
35%

30%
Poverty 29.9%

25%

20%

15%
General Fund Revenue Economy
10%
7.4%
5%
1.3%
0%
FY 00-01 FY 01-02 FY 02-03 FY 03-04 FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11
-5%

• Adjusted for Inflation using the Consumer Price Index for the regional area of Philadelphia-Wilmington-Atlantic City, PA-NJ-DE-MD.
• Poverty Growth is the accumulated population growth since 2000 of those persons in poverty as defined by the Census Bureau.
• Economic Growth as indicated by State Personal Income as measured by the U.S. Bureau of Economic Analysis, and adjusted for inflation..
• PA’s Welfare budget GROWTH NOT adjusted for inflation stands at close to 80% over the past decade.
• Even after adjusting PA’s Welfare growth for inflation, it still far outpaces poverty growth.

U.S. Medicaid Expenditures
Official Forecast of the U.S.
Department of Health and
900

800

700
Forecasted State Medicaid Expenditures
Billions of Dollars

600
Forecasted Federal Medicaid Expenditures
500
State Medicaid Expenditures
400
Federal Medicaid Expenditures
300

200

100

0
1998
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996

2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020

U.S. Medicaid Enrollment
Official Forecast of the U.S.
Department of Health and Human
90 Services

Enrollment Due to ACA
80
Forecasted Enrollment
Enrollment
70

60
Millions of Recipients

50

40

30

20

10

0
1998
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996

2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020

PA: Growth in Medicaid Since 1979

110%
105% 100.7%
100%
95%
Growth in Medical Assistance enrollment has
90% outstripped both population growth and economic
85% growth.
80%
75%
70% 65.9%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10% 7.2%
5%
0%

Population Real Personal Income Medicaid 13

10 Year National Accumulative Growth

160% 158%

140%

120%
Food Stamps Enrollment

100% Medicaid Enrollment

Government Employment

80% Private Employment

60%
52%

40%

20%

6%
0% -2%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-20%

Number of Workers per Medicaid Recipient

18.0 17.9
17.0
16.0
15.0
14.0
13.0 13.0
12.0 Employment to Enrollee Ratio
11.0
Private Employment to Enrollee Ratio
10.0
9.0
8.0
7.0
6.0 4.8 5.2
5.1
5.0
4.0
3.9 2.6
3.0
4.2 3.8 4.0 2.5
2.0 3.2
1.0 2.0 1.9
-
1982
1966

1968

1970

1972

1974

1976

1978

1980

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Tax Burden on Wealth Producers

2011 National Data
Estimated Welfare Recipients 66.1 million

Government Employed Persons 21.2 million

Privately Employed Persons 109.3 million

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

For every 1.65 employed persons in the private For every 1.25 employed persons in the private sector, 1 person
sector, 1 person receives welfare assistance.1 receives welfare assistance or works for the government.1

1 Thesource for the privately employed persons and government employed persons is the U.S. Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages, September 2011.
The number of persons on welfare is calculated with national Medicaid and Food Stamps numbers and using a formula based Pennsylvania’s experience to remove duplicate counts estimated for October
2011.

Disability Growth Soaring

• A record 5.4 million workers
and their dependents have
signed up to collect federal
disability checks since
President Obama took office.

• Nearly 11 Million now on
Social Security Disability – up
53% over the past 10 years.

•The number of new disability
enrollees has climbed 19%
faster than the number of jobs
created during the sluggish
recovery.


State Based Solutions: Lessons from Rhode Island

Rhode Island Medicaid Reform

Rhode Island was granted an 1115 Medicaid Waiver in January of 2009
• RI first asked feds for: Block Grant with gain sharing based on Performance [measures]; to
reinvest a portion of savings from the “grant” back into preventive health care; to waive
onerous federal rules; and to align all welfare programs. DENIED by Washington
• Federal Government and RI settled on and agreed to:
 providing RI with a capped allotment of federal-state funds for Medicaid based on historic trends. This was the first
state ever granted an entire spending cap over an entitlement.
 Granting the state with unprecedented flexibility to change delivery systems, infuse competition, performance based
programs and change the culture from open ended spending to cost-effective quality design and expenditure
reduction.
 Granting a new streamlined administrative structure where Federal Government has to answer the state within 45
days.
 Up until the waiver, the Federal Government would often make the state wait months or years to receive an answer to a question.

 Allowing the ability to access additional federal funds for state funded programs that delay institutionalization and
are wellness and prevention focused [to further the goals of the waiver]
 Granting the state with IT funds to create the Health reporting system for recipients

• Obama administration revoked biggest parts of reform and agreement: Example
– HSA type account for each Medicaid recipient with incentives to improve health, behavior and performance
of each recipient and the goal of moving as many people off the system and into the economy as possible.

The Results…

• After 2 years, Rhode Island stayed $1.7 Billion under the federal-state cap of $12.075
Billion.
• Projections show that by the end of the 5 year waiver period, Rhode Island will be
over $3 Billion under the cap. In other words, spending was almost cut in half.

Budget Neutrality Performance

$3,000
$ 2,600
$ 2,400
Expenditures (millions)

$ 2,300 $ 2,300 $ 2,375
$2,500

$2,000 $1,746.2

$1,500 $1,332.1

$1,000

$500

$0
Year 1 Year 2 Year 3 Year 4 Year 5
Global Waiver Year

CMS Allocation Actual

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

More Results - RI Culture Change

The Main ingredient for success the SPENDING CAP forced CULTURE CHANGE

• Having one waiver, with a spending cap set below historical
spending patterns and in accordance with the federal
government, allowed Rhode Island to break down silos of care
and services.
• Spending cap forced the state to be financially responsible for
the first time in history.
• Before the Global Waiver, “if the State spends a dollar it can't
afford, the federal government is happy to match it with dollars
they don't have.”
• The RI Waiver changed the culture and incentives!

The Spending Cap Changed the culture and forced the state to reform, redesign and be cost-conscious.
Without an urgency to save, government will never be cost-effective and improve quality.

Recent News/Results…

Providence Journal
BREAKING NEWS
May 10, 2012 By Randal Edgar

PROVIDENCE, R.I. -- State budget analysts said Thursday that they expect
revenues for the fiscal year that ends June 30 to be $62 million greater than
predicted…They also said revenues for the coming year are now expected to
be $17.8 million greater than projected, based on trends that
suggest…Medicaid and cash assistance programs will be $27.8 million lower
than projected this year and $31.6 million lower next year.

The Lewin Group Study

In 2011, the Lewin Group performed an independent
study to test the RI reforms.
 The study found that the Ocean State's reform with a federal waiver had
been "highly effective in controlling Medicaid costs" and improving "access
to more appropriate services.”
 Lewin examined the state's shift to home and community-based care from
nursing homes for long-term care patients. Lewin found the reform helped
save $35.7 million. $15 million in 2010 alone.
 The Lewin study also "found evidence of lower emergency room utilization
and improved access to physician services" from "care management
programs" for Medicaid patients with asthma, diabetes, heart problems and
mental health disorders. Emergency room care is a major driver of Medicaid
costs.

The Medicaid Solution: A New Partnership

• Solutions
– Harness the Laboratories of Democracy
– Maximize Flexibility to States
– Forecasting Cost Savings
– Specific Reforms

DRAFT - version 6 24

Give States Flexibility

The Temporary Assistance for Needy Families (TANF) program, which allows
greater flexibility among the states has seen a 68% enrollment drop from
1990 to 2008. By contrast, Medicaid, which is layered with federal rules, has
seen an 110% explosion in the number of enrollees. Poverty has grown only
19% during the same time period.

25

Forecasting Cost Savings

• Innovation and creativity by the states will produce
savings.

• With freedom from federal rules, an Initial 10% savings
is very possible:
– Pennsylvania’s Actuary has run several financial models on
potential reforms for Medicaid and estimates total savings
between 7% and 16%.
– TANF resulted in 68% enrollment drop after flexibility was
given to the states (see previous slide.)

• The Federal Government can attain more than $1.5
trillion through a new federal-state partnership on
welfare reform.

Potential Savings by Capping Medicaid Growth

Estimated ten-year savings for taxpayers by just
capping Medicaid growth and allowing states to
innovate and manage within the cap: in billions of
dollars
Capped Growth Federal States Total
5% 605.4 388.5 993.9
4% 771.1 495.6 1,266.7
3% 927.1 596.5 1,523.6
2% 1,074.0 691.5 1,765.5
1% 1,212.4 781.0 1,993.4
0% 1,342.7 865.3 2,208.0
-1.0% 1,465.4 944.7 2,410.1
-1.3% 1,500.8 967.6 2,468.4
This was the goal of the Joint Select
Committee on Deficit Reduction goal
achieved.


Three Solutions for America

1. Rhode Island Global Waiver as implemented:
– Assumes the federal government will provide all states the same flexibility
given to Rhode island as implemented with the restrictions imposed by the
Obama administration.
2. Full Rhode Island Global Waiver:
– Assumes the federal government will provide the Rhode Island Global
Waiver as stated in the terms and conditions.
One and two above provide programmatic flexibility with a financial cap and gain
sharing to the states similar to what was given to Rhode Island in its Global Waiver.
No act of Congress is necessary and only involves approval from the Federal
Centers for Medicare and Medicaid [CMS].
3. Mega Grant:
– Assumes a New Social Compact where all social welfare program funds are
combined and delivered to the states with clear performance measures and
gain sharing.

NOTE: Projected Pennsylvania savings from super block grant: about $129.1 billion over 10 years. Pennsylvania is roughly 4% of U.S. population and spends roughly
5% of the welfare funding. Extrapolating from above: $2.5 trillion to $3.2 trillion total savings for all states and federal government. Assuming Federal share is
52.5%, the federal government saves $1.4 trillion to $1.7 trillion over ten years.

Welfare Failure

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