EITC is perfect vehicle for the governor

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Gov. Rick Snyder unveils his fourth executive budget Wednesday and worthy of applause is the fact that he has rejected the across-the-board rollback of Michigan’s personal income tax.

The governor indicated in his State of the State address last month that he wants a tax cut but one that is targeted to working families — those “hardworking Michiganders who get up every day and pack their lunch and go to work.”

The good news is that there is a vehicle already in place to deliver exactly what the governor is seeking: the Michigan Earned Income Tax Credit. As a new fact sheet from the League shows, the tax credit is one of Michigan’s most effective tools for supporting working families and reducing poverty.

Using the $100 million the Snyder administration has targeted for tax relief to increase the EITC would help the very workers the governor wants to help, and it would boost the economy. That could lift the EITC from 6% of the federal credit to 11% of the federal credit. For a working mom with four growing boys, like Paula Fekken of Traverse City, that would mean $300 more for car repairs and other necessities to keep her on the job.

A new report by the Center on Budget and Policy Priorities documents the benefits from state EITCs: They keep working parents on the job and children out of poverty.

Unfortunately, the income tax rollback is gathering steam in the Legislature with a Senate hearing. The tax cut fever is driven by higher-than-expected revenues, nearly $1 billion over three years. It’s a strong election-year temptation as GOP lawmakers look to defend their records for the damage done to working families and seniors in the Big Tax Shift of 2011.

Yet, as the League testified at the Senate hearing last month the income tax rollback disproportionately benefits upper-income households and threatens Michigan’s fragile recovery. In fact, $3 of every $5 would go to those in the top 20% of income.

Increasing the EITC or spending the higher-than-expected revenue to begin restoring Great Recession cuts to education and other key services would also be better economy-boosting routes than the across-the-board income tax cuts.

Either choice would help the governor reward hard-working folks in Michigan.

– Gilda Z. Jacobs

The kids are not all right

Whatever economic recovery has occurred in Michigan, it has not reached children and their families. Poverty continues to affect one of every four of the state’s youngsters. Over half a million of the children in Michigan lived in families with income below the federal poverty level ($18,000 for a single parent family of 3 and $22,000 for a family of four), according to this year’s annual Kids Count in Michigan overview of child well-being.

Economic security weakened in almost every county between 2005 and 2011, and the more affluent counties experienced the steepest increases: Oakland, Ottawa and Macomb counties saw their child poverty rates almost double over the trend period. (more…)

Mapping the facts

Did you know that Michigan has the longest freshwater shoreline in the world?  That would certainly explain why we have more lighthouses than any other state.  Michigan also has the largest state park and state forest system of any state and is the biggest producer of tart cherries in the United States.

Click here to go to Mapping the Facts

But it also has the 15th-highest poverty rate in the nation and the fourth-highest unemployment rate.  And while one in every four children in the state lives in poverty, it’s much higher in Lake County where almost half of all children live below the poverty line, the highest in the state.  And while you may know that Isabella County has the highest poverty rate in Michigan at 30%, did you know that Clare County has a higher poverty rate than Wayne County?  Or that Baraga County has the highest unemployment rate and Washtenaw County the lowest? (more…)

Cato gets it wrong

The Cato Institute recently released a report  purporting to prove that in most states, it pays more (and therefore it’s more rational) for low-skill workers to pursue government assistance rather than work. This is patently false.

According to the report, for a single mother with two kids in Michigan, the total “welfare benefits package” (which includes cash, food, housing and heating assistance, as well as Medicaid and other low-income programs) is $26,430 (or $12.71 per hour) in wage-equivalent terms, compared with just $15,390 in pretax annual wages from working full-time at a minimum wage ($7.40 per hour) job. The authors of the study then falsely conclude that this leads to a disincentive for work, and that the way to address this problem is to reduce assistance and tighten work and other requirements associated with this assistance. (more…)

An opportunity we can’t afford to waste

Last week’s Revenue Estimating Conference—the second meeting this year of the state’s best prognosticators on the ups and downs of Michigan’s economy and related tax revenues—brought some good news: Revenues are higher than expected.

Michigan, like other states around the country, has turned the corner following the national Great Recession, and revenues are inching up while unemployment slowly falls. The new revenue consensus by state fiscal experts is that Michigan will have an additional $702 million in combined revenues above earlier estimates for fiscal years 2013 and 2014—including a total of $579 million in state General Funds, and $123 million in the School Aid Fund.

(more…)

The 2014 State Budget: What’s at Stake for Low-Income Michigan Residents?

 Report in PDF

THE BIG PICTURE

List of child and family issues at stake in budgetThe Fiscal Year 2014 state budget has been moving quickly through the Legislature, with both the governor and the Legislature expressing a desire to complete work by the beginning of June.

The House of Representatives has passed all of its budgets for Fiscal Year 2014 through two omnibus budgets, including: (1) the Education Omnibus Budget ($15 billion), which funds School Aid ($13.2 billion), community colleges ($334.9 million), and higher education ($1.4 billion); and (2) the General Omnibus Budget ($33.9 billion), that funds all other state departments and services, including community health ($15.3 billion), human services ($5.9 billion), and transportation ($3.4 billion).

The Senate has also approved most of its budget bills in preparation for the joint House/Senate conference committees that will iron out differences between the two versions–utilizing the budget targets adopted based on projected revenues from the May Revenue Estimating Conference.

This aggressive timetable is being challenged by a number of major budget issues driving the debate, including:

Medicaid Expansion: The governor’s budget included 100% federal funds—available through the Affordable Care Act–to support the expansion of Medicaid coverage to very low-income parents and childless adults up to 133% of the federal poverty level.  This expansion would increase the number of Michigan residents covered by Medicaid from approximately 1.8 million to 2.2 million, reducing the number of uninsured adults by 46%. 

Medicaid expansion would result in savings in the state’s General Fund of $206 million in Fiscal Year 2014 alone by allowing the state to use federal funds to provide comprehensive services to a population that is currently eligible for very limited state-funded health benefits. Savings to the state’s General Fund would grow to $1.2 billion through 2020.

How the uninsured in Michigan could be helped by Medicaid expansionThe governor recommended that half of the savings in state funding be deposited in a newly created healthcare savings fund to offset any future costs related to Medicaid expansion. The remaining funds were to be used to fund vital services, or expansions, including the Healthy Kids Dental program.

To date, the Legislature has not endorsed the expansion of Medicaid, resulting in pressures throughout the state budget, and threatening the opportunity for healthcare coverage for hundreds of thousands of very low-income Michigan residents. House Republicans recently released HB 4714, a bill to expand Medicaid to 133% of poverty, but under onerous conditions, most notably a 48-month limit on Medicaid benefits for nondisabled adults (ages 21-65), as well as a requirement that recipients contribute up to 5% of annual income on copays, premiums and deductibles. The bill could not be implemented without a federal waiver that provides 100% federal funding for current and newly eligible nondisabled adults, as well as administrative costs. The bill also ends the Medicaid expansion when it is no longer 100% covered by federal dollars, which under the Affordable Care Act is scheduled to occur in 2017. 

Transportation Funding: The Fiscal Year 2014 budget debates are also being shaped by the governor’s proposal to increase funding for Michigan roads and transportation infrastructure by $1.2 billion. The governor proposed to fund the road improvements by taxing gasoline at the wholesale level, increasing vehicle registration fees, and local taxing options.

While there is general agreement that Michigan’s roads and bridges are in serious disrepair and new investments are needed, consensus on how to pay the bill has yet to be achieved. Legislative options have included increases in the general sales tax—an option that could affect other vital state services, including human services and schools.

Michigan Tax Changes and Expected Revenues:  In 2011, the Michigan Legislature adopted a major “tax shift” that reduced taxes on businesses by 83%, while increasing taxes on individuals by 23%.  As part of that shift, Michigan’s Earned Income Tax Credit, an effective anti-poverty tool that helps hardworking families whose incomes put them and their children below or moderately above the federal poverty line, was cut by 70%. EITC payments in 2011 statewide were $353.5 million; for the 2012 tax year, they are expected to fall to $106 million.

The new revenue consensus by state fiscal experts is that Michigan will have an additional $702 million in combined revenues above earlier estimates for fiscal years 2013 and 2014—including a total of $579 million in state General Funds, and $123 million in the School Aid Fund.  While encouraging, these increases follow years of steep revenue declines and related budget cuts, many of which disproportionately hurt low- and moderate-income working families, children and seniors.

In Fiscal Year 2014, the Legislature has an opportunity to use the potential infusion of federal Medicaid funds and unexpected state revenues to begin to reverse some of the policy decisions made to balance the budget and provide business tax cuts, as well as to invest in the educational and human services that have been shown to improve economic competitiveness. 

FISCAL YEAR 2014 BUDGET ISSUES AFFECTING LOW-INCOME RESIDENTS

Among the major issues affecting low-income Michigan residents in the proposed Fiscal Year 2014 budgets being considered by the Legislature are the following:

Access to health and mental health care:  As a result of the failure to date to expand Medicaid, both the House and Senate budgets restrict access to vital health and mental health services. 

Hundreds of thousands of currently uninsured Michigan residents will not have access to medical and mental healthcare that is fully federally funded. In addition to the budget hole of more than $200 million created by the Legislature’s failure to accept federal funds to expand Medicaid, the decision affects the state’s residents and communities in a number of ways:

  • At least 320,000 currently uninsured Michigan residents would be unable to receive coverage for both Medicaid healthcare and mental health services.  More than 1.8 million Michigan residents (19.4%) now rely on Medicaid for their basic health services. Further, the share of Michigan births covered by Medicaid has been growing—from 35% in 2003 to 51% in 2010.
  • By giving more women access to healthcare before and between pregnancies, Medicaid expansion would improve the preconception health of mothers and birth outcomes, including a reduction in infant deaths.
  • Expanded access to Medicaid family planning services could also mean significant cost savings for the state.  Approximately 60% of women eligible for Medicaid deliveries report that their pregnancies are unintended, compared with 27% of privately insured women.
  • Medicaid expansion could reduce employer healthcare costs, increase economic activity, and decrease the state’s long-term healthcare liabilities—with federal funds covering 100% of the costs through 2016, phasing down to 90% in 2020 and beyond.
  • The Department of Community Health estimates that Medicaid expansion would cut Michigan’s uncompensated care costs–caused by those who must turn to emergency rooms for their care—by a total of $320 million through 2022.

More than 70,500 children will not have access to dental care. The governor proposed to add $11.6 million in state General Funds to expand the Healthy Kids Dental program to cover an additional 70,500 children in three Michigan counties—part of a multi-year plan to cover all children in the state. The House rejected the governor’s plan.  The Senate agreed with the governor, but did not specify which counties would become part of the program in the upcoming fiscal year. A failure to move forward with the governor’s plan to expand the Healthy Kids Dental program statewide could have the following consequences:

  • Approximately 70,500 children in Ingham, Ottawa and Washtenaw counties would not have access to preventive oral health care. 
  • The governor’s plan to expand the Healthy Kids Dental program to the estimated 720,000 children not currently covered would be derailed. Currently, more than 440,000 children are covered by the program in 75 of Michigan’s 83 counties.  Many of the state’s most urban areas are not yet covered, including Oakland, Macomb, Washtenaw and Wayne counties—with a disproportionate impact on children of color.
  • Continued dental emergencies and related costs are likely.  Children enrolled in Healthy Kids Dental are 60% more likely to receive preventive dental care by age 3, and 25% less likely to have dental emergencies.  Trends in infant mortality chart

Michigan infants, and particularly infants of color, will continue to die unnecessarily. For Fiscal Year 2014, the governor recommended $2.5 million to begin to implement Michigan’s infant mortality reduction plan. The House rejected the governor’s proposal, while the Senate included a placeholder for further discussion in conference committee. Without additional funding:

  • Michigan will be less able to move ahead with its plan to reduce infant mortality, particularly for African American infants who are much more likely to die in the first year of life, including regional perinatal care, initiatives to reduce medically unnecessary deliveries before 39 weeks, the promotion of safe sleep practices for infants, and expanded home visiting programs.
  • Michigan’s infant mortality rates will continue to be higher than most states.  Michigan ranks 37th among the states in infant mortality, with rates for African American infants that are more than two-and-one-half times higher than white babies.Map of lead poisoning case rate

Many children will continue to be exposed to toxic lead poisoning. Last year, the Michigan Legislature approved an additional $2 million for Michigan’s lead abatement program, known as Healthy Homes, for total funding of $4.9 million.  The governor vetoed the expansion, and the program is funded at $2.9 million this year.  For Fiscal Year 2014, the governor maintains funding at $2.9 million.  The House added $1 million for total funding of $3.9 million next year, while the Senate included a placeholder to ensure discussion at the joint House/Senate Conference Committee.

  • Lead has a particularly devastating effect on young children when it can compromise the developing central nervous system and cause irreversible damage to cognitive capacity and behavior.
  • Of the nearly 69,000 children targeted for lead poisoning testing (who are insured by Medicaid or live in one of 14 targeted communities), 57% were tested in 2012.  Testing for lead poisoning peaked in 2010, and has  decreased slightly since.  Nearly 150,000 children under the age of six were tested in 2012.
  • Prevention works.  While, the number of children with confirmed elevated lead blood levels has declined dramatically, some areas of the state still have very high rates of lead poisoning.   The city of Detroit had over half the state’s lead poisoning cases in 2012.  The second highest total was in Grand Rapids.

Public assistance for low-income families, children and adults: The governor, House and Senate have recommended cuts in funding for the Department of Social Services of approximately 10-11% in Fiscal Year 2014, with most of the decline coming from continued steep drops in caseloads for basic assistance programs such as the Family Independence Program, FIP, and the Food Assistance Program , known as FAP. These caseload declines reflect policy changes over the last several years that have restricted eligibility for basic assistance programs. 

More very poor children will be denied access to basic income assistance The governor reduced funding for FIP by $15.8 million to a total of $239.4 million to reflect continued reduction in caseloads—projecting caseloads will fall from 53,298 in the current year to 49,226 in Fiscal Year 2014—a 7.6% reduction.  Both the House and the Senate agreed with the governor’s caseload projections.

  • FIP caseloads have been declining dramatically in recent years, in large part the result of policy decisions, including the adoption in 2011 of changes in lifetime limits for assistance. Between 2010 and the projections for 2014, caseloads will have fallen from 79,233 to 49,226—a drop of 38% in just five fiscal years. 
  • Approximately seven of every 10 FIP recipients are children, and 60% of those children are under the age of 9.
  • To be eligible for FIP, the average family of three must have an annual income of less than $9,800, and the maximum benefit is $492 per month.Chart shows drop in FIP caseloads

The number of Michigan residents with access to basic food assistance will continue to decline. The governor reduced funding for the Food Assistance program (formerly called the Food Stamp program) by $683.7 million in recognition of the loss of temporary federal funds, as well as caseload reductions—largely based on changes in FAP eligibility, including the adoption of an asset test.  The governor assumes that caseloads will fall from 1.1 million cases appropriated this year, to 876,650 in 2014—a 19.4% reduction.  The actual average monthly FAP caseload through March of this year was much lower than appropriated at 912,755. The House and Senate agreed with the governor’s caseload recommendations.

  • Between 2004 and 2011, FAP caseloads grew by 135%.  In 2011, Michigan adopted an asset limit for families receiving assistance, limiting access to food assistance for families, and turning away federal funds available to assist low-income families. Since that time, FAP caseloads have declined slightly.
  • Over 70% of FAP recipients receive no other state cash assistance, and the average monthly benefit for a two-person household is $267.

Low-income working families will continue to struggle after losing significant income with the 70% cut in the state’s Earned Income Tax Credit.  In 2011, the Michigan Legislature slashed the state Earned Income Tax Credit from 20% of the federal EITC to just 6%. The state EITC is a refundable tax credit for working families, designed to promote and reward work and offset other taxes paid by low wage workers that consume a higher percentage of their total income. The governor, House and Senate have not recommended EITC restorations.

  • The EITC is a proven tool in the fight against poverty.  Last year, at 20% of the federal credit, the state EITC kept 14,000 children from falling into poverty.  This year, at just 6%, only 5,000 children will escape poverty, leaving another 9,000 behind.
  • The EITC serves as a temporary income supplement for most families—three out of five use the credit for just 1 or 2 years while they get back on their feet.
  • The credit has been shown to increase employment, reduce the need for public assistance, boost local economies, and benefit businesses by helping low-wage workers cover work-related costs such as transportation and child care. 

Adequate funding for a top-notch cradle to career educational system:

More low-income 4-year-olds will benefit from early childhood education.  The governor increased funding for the Great Start Readiness Program by $65 million, from $109.3 million in the current year to $174.3 million in Fiscal Year 2014, while indicating his intention to expand the program by another $65 million in Fiscal Year 2015.  The governor’s proposal would open up approximately 16,000 new half-day slots for 4-year-olds, requiring that at least 90% of the children live in families with incomes below 300% of poverty (up from 75% this year).  The governor also increased the preschool slot payment from $3,400 to $3,624. 

The House provided only $38 million for the GSRP, increasing the per-slot amount to $3,500. The House requires that at least 80% of children served by GSRP live in families with incomes at 200% of poverty or less.  The Senate agreed with the governor on the funding increase ($65 million), but maintained the per-slot amount at $3,400. The Senate would require that all children served live in families with incomes at or below 300% of poverty, with the poorest children being enrolled first.

  • Evaluations of the GSRP show that participants are more likely to be ready when they enter kindergarten and pass 4th grade MEAP tests.  In addition, fewer GSRP participants are retained in grade and more graduate on time from high school.
  • A growing number of economists and business leaders, including heads of Fortune 500 companies, the Federal Reserve Bank, and Nobel Prize-winning economists agree that early childhood programs can generate government savings and produce returns that exceed public investments, with savings accruing from lower costs related to such public services as special and remedial education, high school graduation rates, lower unemployment, higher earnings and reductions in the need for public assistance.
  • An increase in the per-slot payment for GSRP is a priority.  The GSRP per-slot payment has not been increased since 2007, when it was raised by only $100. As a result, districts have been forced to subsidize their preschool programs even as overall district funds become increasingly tight. GSRP per-student funding has steadily lost ground to inflation over the past 10 years, and even the governor’s proposed increase to $3,625 per half-day slot only makes up for a small part of this decline in real funding. The result is less access to services and challenges in maintaining program quality, which is the key to school readiness. 

Michigan public schools will continue to struggle to balance their budgets.  The governor’s budget did not include an across-the-board increase in the per-pupil allowance received by public schools.  The governor instead recommended $24 million for equity payments of up to $34 per pupil to further close the foundation funding gap between districts by raising the per-pupil payments for the lowest funded districts receiving the minimum grant from $6,966 to $7,000 per-pupil. However, the governor reduced funding for “best practices” grants by 70% (from $80 million to $25 million), and kept performance funding for districts at the current year level of $30 million.

The House also did not fund an across-the-board increase in the per-pupil allotment for schools, but provided total funding of $36 million to bring the equity payment up to $50 per pupil for districts with foundation allowances below $7,016. The House did not fund best practices grants, but included a placeholder to further discuss them in conference committee.

The Senate included $24 million for a $9 increase in the basic foundation allowance for schools, as well as an $18 per pupil in the minimum foundation allowance.  The Senate did not include the equity payments, and eliminated funding ($80 million) for `best practices payments.    

  • In school year 2012-13, Michigan public schools suffered a cut of $470 per pupil in their foundation allowances, and this budget fails to offset those cuts. 
  • School districts not eligible for the equity payments could actually suffer additional cuts in their overall per-pupil allotments if they are affected by cuts in best practices grants.

As tuition skyrockets at public four-year universities, fewer people will be able to afford a college education. The governor’s budget provided $1.24 billion for university operations, including $24.9 million in new funding (a 2% increase) that would be allocated based on six performance metrics:  undergraduate completions in critical skills (science, technology, engineering, mathematics and health); research expenditures; six-year graduation rates; total completions; administrative costs as a percentage of core expenditures; and tuition restraint.

The House and Senate appropriated the same level of overall funding as the governor, but the House made tuition restraint a prerequisite for receiving performance funding, lowering the tuition threshold from 4% to 3%. The Senate also made tuition restraint a prerequisite for receiving performance funding, but retained the governor’s 4% tuition restraint threshold.

  • At most Michigan public universities, tuition for four years of college has more than doubled in the past 10 years; students graduating in 2013 will pay more than twice the amount paid by students who graduated in 2003.
  • The 2% increase for performance funding is below the current year increase of 3%.

Low-income adults will struggle most, as needs-based financial aid becomes more scarce. In 2009, the Michigan Legislature eliminated five needs-based grants for students, and the governor, House and Senate again failed to restore those grants in their Fiscal Year 2014 budgets.  The governor provided continuation funding for two of the remaining grant programs, including: (1) $31.7 million in federal TANF funding for the Michigan Tuition Grant, a needs-based grant; and (2) $18.4 million in TANF for the Michigan Competitive Scholarship, a merit-based scholarship with eligibility based on ACT scores. Under the governor’s budget, private colleges with students receiving Michigan Tuition grants would be required to participate in the state’s P-20 longitudinal data system, and report on the number of Tuition and Pell Grant students graduating, as well as the number taking remedial education classes.

In his Fiscal Year 2014 budget proposal, the governor increased funding for the Tuition Incentive Program by $3.2 million (7%) in state General Funds, adding to current spending of $43.8 million in federal TANF to bring total funding to $47 million. The TIP is available to students who are eligible for Medicaid, and the governor’s budget limits reimbursements to universities under the TIP to 300% of the average community college tuition rate.

The House agreed with the governor on funding levels, as well as the governor’s TIP policy changes, but did not require private colleges to participate in the P-20 data system.

The Senate also agreed with the governor on funding levels, but did not include the governor’s TIP policy changes or the Michigan Tuition Grant language requiring P-20 data system participation for private colleges.

  • Student loans often make up a large part of a student’s financial aid package, but the rising costs of tuition and high interest rates make it imperative that grant aid be available as well. Federal aid programs such as Pell Grants do not cover a large enough portion of costs by themselves to keep postsecondary education a?ordable for low-income students, so all states have state-funded programs that allocate some grants on the basis of income as opposed to merit or other factors.
  • Over the last 10 years, states across the country increased investments in need-based grants by an average of 84%.  Michigan, running counter to the national trend, decreased state funding by 20%–one of only two Midwest states to cut needs-based grant funding during that period.
  • In 2010-11, Michigan invested the least in grant dollars per student of all Midwestern states. Michigan spent 4.6% of its higher education budget on state grants in that year, while Pennsylvania, Indiana and Illinois all spent higher than the national average of 12.5%.
  • In 2010-2011, only 14% of Michigan’s full-time students received some kind of grant aid, ranking the state second to lowest in the Midwest, and 40th in the nation.

 

 

Right Start report

May 8, 2013
Contact: Jane Zehnder-Merrell or Judy Putnam at (517) 487-5436
 
Conference call at 10 a.m. today, May 8, Please call 1-866-210-1669 and enter 4385678#
 

A gift for Mother’s Day: Give babies the ‘Right Start’

LANSING, Mich. — Michigan has much work to do to give infants the “Right Start” in life, a new report concludes, with little progress made in improving maternal and infant health from 2005 to 2011. One immediate opportunity, using federal dollars for health care for low-income uninsured women in Michigan, could drive improvements.

The report, released today by the Michigan League for Public Policy’s Kids Count in Michigan project in time for Mother’s Day, ranks the state’s 54 Great Start Collaboratives, or GSCs, on eight maternal and infant health measures. Livingston GSC is No. 1, or best, while Genesee and Wayne GSCs tied for last.

Statewide, the largest increase in risk was in more births to unmarried women, rising from 36 percent of all births to 42 percent, an 18 percent jump. (more…)

Claiming all of your tax credits

Michigan League for Public Policy is happy to announce the release of the 2013 edition of Money Back in Michigan.

This packet describes seven state and federal tax credits that are available to lower-income individuals and families, and is used by several hundred agencies and individuals around the state that serve these populations.

We are not happy to announce that this year these individuals and families will be paying higher taxes. This is due to the Michigan Legislature cutting the state Earned Income Tax Credit from 20% of the federal credit to 6%, eliminating the child tax exemption (this will affect all families with children), and restricting the eligibility for claiming the Homestead Property Tax Credit to households with income under $50,000. (more…)

Behind closed doors

With the release of the governor’s budget earlier this month, lawmakers are tackling what is arguably their most important work—deciding how to carve up the state’s resources to fund important state services such as income supports for low-income children; child abuse and neglect prevention; early childhood, K-12 and higher education; and police and fire protection.

Never has there been a stronger need for Michigan residents to have their voices heard as the state budget is set. (more…)

Medicaid Expansion: Saved From the Cliff or Into the Chasm?

 Full Report

Now is the time for the Michigan Legislature to follow Gov. Rick Snyder’s lead and accept Michigan’s share of federal funds—about $2 billion a year—to provide comprehensive healthcare coverage to an estimated 400,000 to 600,000 uninsured Michigan residents and, at the same time, save state dollars. The public supports accepting federal funds to expand coverage, the provider community supports expanded coverage, and primary care doctors have the capacity and willingness to serve more patients, including those newly eligible under Medicaid.

In his special health and wellness message, the governor said: “Government and the private sector can and should empower Michiganders with the tools necessary to access quality health care and live a healthy lifestyle. We should act expeditiously and with compassion.”

The cost-effective Medicaid expansion presents the perfect opportunity to provide the tools low-income individuals and parents need to manage their healthcare needs and obtain needed healthcare. Everyone should be able to go to the doctor when they are sick, obtain the medications they need to restore health or manage chronic conditions, or obtain the mental health services they need and not be denied or placed on a waiting list. Thousands of very low-income working individuals and parents do not currently have access to healthcare coverage. Michigan residents should have the opportunity to thrive, not just survive, and not be saddled with medical debt.

Polling results recently released by the American Cancer Society Cancer Action Network show that Michigan voters support the expansion of coverage with the use of available federal funds by a 40-point margin. Survey results released by the Center for Healthcare Research and Transformation show that “81 percent of Michigan primary care physicians anticipate being able to accommodate patients who become newly insured in 2014. Of those physicians, nearly all indicated that they would accept newly eligible Medicaid patients.”

ACA PROVIDES GREAT OPPORTUNITY

Michigan policymakers have a rare opportunity to save state funds while improving the health of Michigan’s population through the cost-effective expansion of Medicaid. Increasing Medicaid eligibility would provide health and financial security and access to medical care, as well as comprehensive mental health services for an estimated 400,000 to 600,000 uninsured Michigan residents, resulting in a win-win situation—for the state and its low-income residents.

The Medicaid expansion can be financed without the investment of new state funds. The federal government will pay 100% of the cost for the first three years, resulting in significant General Fund savings to the state for the first decade. State funds currently spent on healthcare services for low-income individuals who would become eligible for Medicaid could be redirected to serve as the state’s Medicaid match when required in the future. Overall, modest savings are projected to continue, from 2020 onward, with the very favorable federal matching rate of 90%. An estimated $2 billion per year in new federal revenue would not only pay for needed healthcare services but would also provide significant economic stimulus.

SUPREME COURT RULING

The ACA, upheld by the Supreme Court in June 2012, requires states to expand their Medicaid programs in 2014 to low-income parents and for the first time to nonelderly childless individuals with incomes up to 133% of the federal poverty level (about $15,000 for an individual). Children are already covered up to 200% of the FPL. The Supreme Court ruled that the penalty included in the Act for not complying with the Medicaid expansion, the withholding of all federal funds for the Medicaid program, was too harsh and unduly coercive. The remedy put forth by the Court was elimination of the penalty for not expanding Medicaid. However, the portion of the law mandating the Medicaid expansion was not changed by the ruling; it is the law of the land.

POSITIVE FISCAL IMPACT OF EXPANDED COVERAGE IN MICHIGAN

Shortly after the Supreme Court ruling, both the House and Senate Fiscal Agencies released information documenting the fiscal benefits to the state for proceeding with the Medicaid expansion. The House Fiscal Agency memorandum concluded that the state would experience net savings in the first six years (2014–2019), and the expansion would be “roughly cost-neutral in the subsequent years” with small savings projected in the seventh through 10th years. The preliminary state savings estimates include more than $200 million in the first year and $1.1 billion over the 10-year period 2014–2023. New federal revenue to the state would range from $1.9 billion to $2.2 billion per year over the 10year period, for a total of $20.5 billion. This report presents an unprecedented long-range analysis of the impact of the Medicaid expansion.

The Senate Fiscal Agency memorandum similarly concluded that the Medicaid expansion would result in state General Fund savings of at least $200 million per year through the year 2017 when the state would be required to provide a 5% match. The memorandum asserts that the Medicaid expansion is “more of a policy issue than a fiscal issue.”

The savings projected by both fiscal agencies result from current state spending on limited healthcare services for individuals not currently Medicaid-eligible, but who would become eligible under the expansion. Their care would be financed by the federal government at 100% for the first three years, phasing down to 90% by 2020. Key programs where savings would occur are community mental health services for those not eligible for Medicaid and the Adult Benefits Waiver, which provides ambulatory benefits to a very low-income (34% FPL) and limited population. There may be additional state and local savings in other program areas, such a public health or corrections if the Medicaid expansion is implemented.

In October 2012, the Center for Healthcare Research and Transformation released a Michigan impact analysis of the Medicaid expansion and concluded “The total impact of the Medicaid expansion to the state of Michigan over 10 years is a net savings of approximately $1 billion.” CHRT’s fiscal impact is nearly identical to that concluded by the House Fiscal Agency.

The federal Centers for Medicare and Medicaid Services have indicated that there is no deadline for states to determine whether to expand their Medicaid programs. However, the federal matching rates are set in the law—100% federal funding 2014–2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% from 2020 onward. States that choose to delay the Medicaid expansion will miss out on 100% federal funding in the early years.

To provide a perspective of what the $200 million in projected savings could buy in Medicaid healthcare services for the newly eligible population, the graphic to the left includes the federal match rates for 2017 and 2020 as specified in the law.

Both the House and Senate Fiscal Agencies estimate a total cost of about $2 billion to cover the expanded population of about 400,000 in 2014. The House Fiscal Agency assumed a cost of $5,000 per new enrollee in 2014, which is an average cost for current full Medicaid benefits. Therefore, the state could readily expand Medicaid eligibility to 133% FPL in 2014, provide full benefits, and still experience significant General Fund savings. Because the current programs from which funds can be redirected are also projected to grow, the cost of the expansion in the seventh through 10th years, is projected to be “roughly cost neutral.”

FEDERAL FISCAL IMPACT OF EXPANDED COVERAGE

Because the law as initially enacted was paid for with increased revenue and spending reductions, the ACA was projected to result in a federal budget deficit reduction of $210 billion over the period 2012-2021. The Medicaid expansion will not add to the federal deficit. The federal cost of the Medicaid expansion was lowered by the Congressional Budget Office, following the Supreme Court decision, based on the assumption some states, because there is no penalty, would decline to expand their Medicaid programs.

Because the ACA assumes a dramatic reduction in the number of uninsured, in part due to the Medicaid expansion, the law includes provisions to reduce payments to hospitals for treating uninsured patients. These reduced hospital payments will occur regardless of whether a state expands Medicaid and will place an extreme stress on hospitals if they must continue providing high amounts of uncompensated care.

COVERAGE CHASM WITHOUT EXPANDED COVERAGE

Because the ACA expands Medicaid coverage for those with incomes up to 133% FPL, there is no other option in the law to provide affordable coverage to those with incomes below 100% FPL. Premium and cost-sharing subsidies, on a sliding scale for those with incomes between 100% – 400% FPL, will be available through the new healthcare marketplace, called the health insurance exchange.

For those with incomes between the state’s Medicaid eligibility level for childless adults and parents, both less than 50% FPL, there will be no opportunity for affordable coverage if the state chooses not to implement the Medicaid expansion. A coverage chasm will result. (See graphic.)

An Urban Institute report, released in August 2012, estimates the number of uninsured parents in Michigan with incomes below 100% FPL at 48,000, and the number of childless adults at 382,000. More than 400,000 Michigan residents could be left without an opportunity for affordable coverage, while those with higher incomes would have access to federal subsidies for their premiums and cost sharing.

POSITIVE HEALTH IMPACTS OF EXPANDED COVERAGE

The Medicaid program is designed to meet the needs of low-income populations who often have poorer health statuses and greater healthcare needs than the general population. The benefits are comprehensive to meet the healthcare needs with limited out-of-pocket expense. Comprehensive behavioral health benefits, including substance abuse treatment and case management, would become available to this low-income population who often report fair or poor behavioral health status. The 2011 Michigan Behavioral Risk Factor Survey found that of the adults who reported “poor mental health,” 25% had household incomes of less than $20,000. To provide optimum health outcomes, it is essential that the state provide the full range of Medicaid benefits to the new population. While a lesser benefit package is allowed under the ACA, it makes little sense to force individuals to go without needed care or be forced to seek care in the emergency room when benefits are not provided, but care is needed.

In addition to better health outcomes if full Medicaid benefits are provided, savings will accrue to those who purchase private coverage, when hospitals no longer pass uncompensated care costs, sometimes called the “hidden tax” on to them, a benefit to all Michiganians. The state will also benefit when uncompensated care costs are no longer passed on in the form of higher premium costs for state employees.

Recent studies have documented the positive health outcomes for populations enrolled in Medicaid. A study by Harvard researchers published in the New England Journal of Medicine found that in three states that voluntarily expanded Medicaid eligibility to nondisabled, low-income adults without children, fewer died compared to neighboring states that did not expand coverage. The study also found that those who enrolled in Medicaid reported better overall health status and fewer delays in seeking care because of cost concerns.

The landmark Oregon Health Study has also documented the benefits of enrollment in Medicaid. In a survey conducted one year after individuals were randomly selected from a waiting list to fill 10,000 slots in their Medicaid program for adults, researchers found that “enrollment in Medicaid substantially increases health care use, reduces financial strain, and improves self-reported health and well-being.”

In its report, CHRT noted “First and foremost, the public and policymakers will want to consider the health benefits of expanding Medicaid. A substantial body of research confirms what would seem to be common sense: not having health insurance is bad for your health. This work is summarized in a 2009 study by the Institute of Medicine.”

POSITIVE WORKFORCE IMPACTS OF EXPANDED COVERAGE

Both low-wage workers and their employers will experience significant benefits from the Medicaid expansion through a healthier workforce. In his health message, the governor called on employers to implement health and wellness programs to improve the health and productivity of the workforce. While important, it is access to medical care and preventive services that are the key components to improving workforce health and productivity. In addition, with employer-sponsored coverage continuing to decline, the expansion of Medicaid to those with incomes up to 133% FPL can fill a growing void.

In its report, The Uninsured in Michigan, the Department of Community Health found that Michigan’s low-income, nonelderly adults with incomes below 200% FPL, represented 30% of underage 65 adults but 53% of the uninsured. In addition, the study found that the majority of the uninsured, 51%, are in working households. The Medicaid expansion would greatly improve the lives of low-income working families and make Michigan a more competitive location for businesses.

UNANTICIPATED BUSINESS PENALTIES

The ACA mandates the Medicaid expansion up to 133% FPL. However, low-wage employees, not offered affordable employer coverage, will be able to seek coverage through the Exchange which will become operation in January 2014. Those with incomes above 100% FPL will qualify for premium tax credits and cost-sharing subsidies. Employers will be subject to unanticipated penalties for those with incomes between 100% and 133% FPL who obtain coverage and subsidies through the Exchange who had been expected under the law to receive coverage through Medicaid.

CONCLUSION

The ACA Medicaid expansion provides an unprecedented opportunity for Michigan to improve the health, both physical and mental, and health security of Michigan’s low-income residents. In 2011, the Legislature passed nearly $2 billion in tax cuts for business, shifting most of the burden to individuals, and disproportionately to lower-income individuals and families.

The ACA provides the opportunity to invest in Michigan residents to provide health security to lowincome parents and individuals who may have lost their jobs and healthcare coverage or who may be working at jobs that do not provide affordable coverage or they do not qualify for coverage. This critical investment can be accomplished with no new state funds.

In addition, refusing to accept the federal funds available to pay for the expansion will increase Michigan’s level of being a “donor state,” using Michigan taxpayer funds to expand Medicaid in other states. This was a key factor in the Arizona governor’s decision to expand Medicaid “The expansion of Medicaid coverage for low-income adults provides an opportunity to reinvest Arizonans’ federal tax dollars here at home rather than in competing states.”

The Legislature should act expeditiously and provide the leadership and tools necessary to improve the health status of Michigan’s low-income residents, promote economic development and activity with no new state funds investment by:

  • expanding Medicaid to 133% FPL, effective Jan. 1, 2014, with the full package of current Medicaid benefits to the newly eligible population;
  • taking full advantage of the 100% federal funding, available in calendar years 2014, 2015, 2016 for the expanded population while saving state funds currently spent for limited services for this population;
  • keeping Michigan taxpayer funds in Michigan to help its residents;
  • appropriating the federal funds needed to support the expansion.

—–  SOURCES  —–

 1.   Public Support Poll by American Cancer Society Cancer Action Network: http://www.acscan.org/content/media-center/medicaid-poll/

 2.   Provider Community Support Letter: http://www.mha.org/mha/weeklymailing/2013/012813/joint_medicaid_expansion_letter.pdf

 3.   Primary Care Doctor Survey results:  http://www.chrt.org/public-policy/policy-briefs/primary-care-capacity-and-health-reform-is-michigan-ready/

 4.   Governor’s health message:  http://www.michigan.gov/snyder/0,4668,7-277–262254–,00.html

 5.     House Fiscal Agency memorandum:  http://www.house.mi.gov/hfa/pdfs/medicaid%20expansion%20memo%20jul17.pdf

 6.     Senate Fiscal Agency memorandum:  http://www.senate.michigan.gov/sfa/Publications/Memos/mem062812.pdf

 7.     Center for Healthcare Research and Transformation Michigan impact analysis:   http://www.chrt.org/publications/price-of-care/aca-medicaid-expansion-michigan-impact

 8.     Federal budget deficit reduction:  http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/121xx/doc12119/03-30-healthcarelegislation.pdf

 9.     CBO analysis:  http://www.cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf

 10.   Urban Institute report:  http://www.urban.org/UploadedPDF/412630-opting-in-medicaid.pdf

 11.   A study by Harvard researchers:  http://www.nejm.org/doi/full/10.1056/NEJMsa1202099

 12.   Oregon Health Study:  http://www.oregonhealthstudy.org/en/home.php

 13.   Governor’s health message:  http://www.michigan.gov/snyder/0,4668,7-277–262254–,00.html

 14.   The Uninsured in Michigan:http://www.michigan.gov/documents/mdch/Uninsured2011FINAL_373354_7.pdf

 15.   Shifting tax burden:  http://www.milhs.org/wp-content/uploads/2010/07/TaxChangesHitLowIncomeFamiliestheHardest.pdf.

 16.   Arizona Governor’s decision to comply with Medicaid expansion:  http://azgovernor.gov/dms/upload/PR_011413_MedicaidBudgetMessage.pdf

 

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