July 2007 Archives

Milton Friedman, who developed the idea for school vouchers and who would have turned 95 on Tuesday, would be disappointed with the following news story from the Washington Times, which reports that Congressional Democrats intend to take aim at the highly successful school voucher program in the District of Columbia. More money needs to go to DC schools, not vouchers, they say, despite the fact that DC spends more per pupil than any state in the nation and probably has the worst schools in America.

Future of D.C. school vouchers worries parents

But now many families are beginning to worry that the change of power in Congress means the end of the scholarship program, and some parents say they're willing to fight to keep that from happening.

Read the full article here.

The Government Accountability Office (GAO) recently issued a report on fiscal pressures states will face over the next few decades. The report is helpful for those interested in responsible budgeting/spending and reasonable taxes.

The report notes "As is true for the federal sector, it is the growth in health-related costs that is a primary driver of the fiscal challenges facing the state and local government sector. In particular, two types of state and local expenditures will likely rise quickly because of escalating medical costs. The first is Medicaid expenditures, and the second is the cost of health insurance for state and local employees and retirees. Conversely, we [GAO] found that other types of expenditures of state and local governments—such as wages and salaries of state and local workers, pension contributions, and investments in capital goods—are expected to grow slightly less than gross domestic product (GDP). At the same time, most revenue growth is expected to be approximately flat as a percentage of GDP. As such, the projected rise in health-related costs is the root of the fiscal difficulties these simulations suggest will occur."

State tax revenue in Maine is projected to grow less than inflation over the next few years, assuming no tax increases (we already are second highest in state and local tax burden). That means in Maine, government-financed health care spending pressures will be even greater, given the slower than average revenue growth and greater than average Medicaid demand, with our large Medicaid program and our aging population. Nationally, non-health expenditures for state and local governments are projected to drop as a share of GDP (or an individual state's Gross State Product - GSP). However, health expenditures funded by state and local governments are projected to double by 2030 and triple by 2050.

Maine already ranks second highest in terms of health care spending as a percent of GSP, at 19.4% of the economy just slightly behind West Virigina and 46% higher than the US average of 13.3%, according to the Kaiser Family Foundation. Maine also ranks second highest in state government-financed health expenditures (Medicaid, state employees and other state-funded health programs) as a percent of the economy, at 5.3% of the economy only behind Mississippi and 61% higher than the US average of 3.3%. That also makes Maine the state with the highest percent of the economy funded by non-state financed health care spending (mostly private insurance, out of pocket spending and Medicare).

Again, according to the GAO, future state and local spending and tax pressures will be focused solely on health care. Therefore, getting Maine Medicaid and state employee health benefits under control is paramount if we are to deal with Maine's tax burden.

Now we know. Time to get started, as it only will become more difficult with each passing year.

The Ellsworth American, just about the only newspaper in the state interested in smaller government, had this to say in an editorial today on the University of Maine system:

"There are legitimate arguments to be made about the need for Maine salaries to be competitive when seeking to attract the best and the brightest to essential positions. But the newly released list of state positions and salaries that pay more than twice the state average also calls into question whether all of those high-paying posts are essential to the efficient functioning of Maine’s various government agencies and institutions.

The University of Maine System is a case in point. Three years ago, the system was predicting an $85 million shortfall in its own budget by 2008. There was general consensus that business as usual no longer could be sustained. But proposals for major restructuring went nowhere and now we are three years further down the road.

The time has come for a full-blown restructuring of the UMS to achieve the same goals ascribed to the Governor’s hastily-drawn reorganization plan for Maine’s elementary and secondary school systems."

Read the entire editorial here.

The latest fiscal fiasco surrounding the Portland School Budget highlights the need for greater accountability. Clearly, $2.5 million is no chump-change and such a deficit needs an immediate and effective remedy.

Perhaps what is even more disturbing than the deficit is how no one in the school department is taking responsibility for the mismanagement. School budget managers said that they were “blindsided� by the deficit. Yet, an audit report on October 6, 2006 outlined a series of school budget flaws.

According to the Lincoln County News, many small schools and small school districts are coming to realize that the ultimate result of school district consolidation will indeed be the closure of small schools. From the article:

“I haven’t come to tell you what you want to hear,� said Senator Dana Dow (R-Waldoboro) to the SAD 40 board of directors on Thursday night. “I’ve come to tell you what you need to hear.�

As bureaucrats in Augusta push for consolidation of schools and services, districts such as SAD 40 are scrambling to bring budgets in line with a state funding formula that appears to be operating more as a cost efficiency measure than a mechanism to ensure quality of education.

Despite claims that the Essential Programs and Services school funding formula is about quality of education said Dow, the discussion in Augusta was only about one thing: money.

The problem is that money is being taken away from schools, said Dow, before the efficiencies of consolidation have become a reality.

With state budget shortfalls close to half a billion dollars, Governor John Baldacci announced earlier this year his plan for consolidated “Super Districts� around the state.

“The state can’t close a school,� said Dow. “But they’re going to take so much money away from you that you won’t have much choice.�

No doubt folks in small towns all over the state are coming to the same conclusion.

Read the full article here.

So I finally got my first experience of fishing in Maine this past weekend. Of course, before I could make my first cast, I had to buy a fishing license. Which got me thinking. Why is it called a "fishing license?" Unlike a "drivers license," I did not have to take any kind of test. We all have to know our driving laws before getting our driving license, but apparently knowledge of Maine's fishing laws is not a criteria for getting a fishing license. All I had to do was give some identification, which was copied onto my "fishing license," and $21. I did not even have to have my picture taken!

My final conclusion: the whole licensing thing is a ruse to cover up the truth. The truth is that this is a tax--a "fishing tax." Someone in Augusta probably thinks that calling it a "license" makes it less offensive than calling it a "tax." They are probably right . . . but if it walks like a duck and quacks like a duck, it is a duck. And to make sure those "from away" pay more than their fair share, a non-resident one-year fishing license costs $52 while a resident one-year license costs $21. Heck, even a 3-day fishing license costs $23--who do you think buys those?

Often I write about innovations in private health insurance that are happening in other states but not allowed here in Maine due to our oppressive and costly private insurance regulations. Today, I want to highlight an innovation that could happen here but is not, to my knowledge.

Recently, USA Today highlighted a plan offered by UnitedHealth to mid-sized businesses in Rhode Island, Pennsylvania, Ohio and Colorado. The plan features a $2,500 deductible but employees can receive up to $2,000 in credits to use against the deductible if they don't smoke, monitor and improve their blood pressure, cholesterol and weight ($500 credit for each). In short, take care of yourself and get a $500 deductible. Don't and get a $2,500 deductible.

The article highlighted an Indiana company with 120 employees that offered a similar plan in partnership with Benicomp, a wellness and supplemental plan carrier. The company's experience is eye-opening. A high 72% of employees earned three or more credits (at least $1,500). In three years, health insurance costs have dropped to 7.5% of wages from 11.5% of wages, under the former traditional plan. Amazingly, health insurance premiums have not increased in three years. You read that correct - no increase in three years. What is great is the Benicomp is a fully-insured supplement health plan that 'buys" down the deductible and can be added to a business' fixed $2,500 deductible plan with any insurer.

Recently, MHPC hosted author Regina Herzlinger, who talked about the power of consumer-driven health care. This is a real world example of putting the consumer in charge and getting the incentives right and reducing the costs of health insurance at the same time.

It would be great if these type of plans expanded to Maine.

The most recent issue of Education Next, a publication of the Hoover Institute at Stanford University, features an extensive interview with former Florida governor Jeb Bush, soon to be visiting us at the Freedom and Opportunity Luncheon.

The first two paragraphs alone give you a sense of the extent of his achievements as governor in the education arena:

"Governors from New York to California aspire to be known as the “education governor.� Few hold better claim to the title than Florida governor Jeb Bush, who left office in January after two action-packed terms.

During his eight years in Tallahassee, the governor established a far-reaching accountability system, including limits on social promotion in elementary school; introduced a plethora of school choice initiatives (vouchers for the disabled, vouchers for those in failing schools, tax-credit funded scholarships for the needy, virtual education, and a growing number of charter schools); asked school districts to pay teachers according to merit; promoted a “Just Read� initiative; ensured parental choice among providers of preschool services; and created a highly regarded system for tracking student achievement."

Read the entire article here to get some sense of what is possible with the right leadership in the Governor's mansion.

Recently the WSJ reported on a 2006 study by the Center for Studying Health System Change that "almost half of all physicians polled said they had stopped accepting or were limiting the number of new Medicaid beneficiaries they will see." In all the discussion both within Maine and nationally regarding expanding Medicaid or SCHIP (the State's Children's Health Insurance Program), why isn't someone talking about ensuring that kids in low-income families can actually get into see a pediatrician before trying to give kids in middle-income families a Medicaid card as well?

I guess it is just a case of politicians wanting to feel good. Give out more Medicaid cards with little thought of whether or not individuals actually have access to health care.

It is ironic that in Canada (single payor), coverage does not equal access. In fact, it often equals a waiting list. In the US, Medicaid coverage does not even get one on a waiting list for half of primary care physicians and certain specialists.

Recently, Blue Cross Blue Shield of Massachusetts announced that they would lower their minimum employer contribution from 50% of the employee-only premium to 33%. As you likely know, the Mass employer mandate requires the employer have 25% of eligible employees enrolled in a health plan (take-up rate) OR pay 33% of the premium, to avoid the $295 per employee play-or-pay assessment. Blue Cross said that many small businesses struggled to afford the 50% requirement and that 33% would make them aligned with the employer mandate.

Well, in a follow up story, Mass Gov. Patrick put pressure on Blue Cross to maintain their 50% requirement and abandon lowering the employer premium contribution to 33%. The Mass Senate Chair of the Health Care Financing Committee stated that he would like the requirement raised to 50%.

Think about it. An employer must provide insurance in order to reach the 25% take-up rate threshold. If no insurer will sell to small businesses unless they pay 50% of the premium, then that in effect is the law. Gov. Patrick and other realize that.

Now the only step is to raise the $295 assessment (in regulation) to the equivalent of 50% of the employee-only premium. Then maybe a Mass employer will challenge the employer mandate as it likely violates ERISA.

The Mass experience should serve as an example of mission creep and the art of (speedy) incrementialism and what happens when legislators and bureaucrats get even a little more control over health insurance (more than they already have).

See what happens when some actual reporting is done by one of the state's newspapers?

An article in Saturday's Bangor Daily contained a fascinating list of the hundreds of state employees who make a higher salary than the governor. Nine of the ten highest paid state employees, the article revealed, work for the University of Maine system, including "former University of Maine System Chancellor Joseph Westphal" who is "now a full-time professor earning $208,382 a year." Your tuition dollars at work!

Today's BDN reports that the salary list has prompted calls in Augusta for, what else, a study of some kind to be done by the Governor or the Legislature. My experience tells me to beware of such a study. They usually find that public employees in Maine, like the rest of us, are paid less than peers elsewhere. Proposed solution? Raise salaries!

By the way, today's article ends with a line that tells you all you need to know about how folks in Augusta think jobs get created:

"Another group, yet to be appointed by Edmonds and House Speaker Glenn Cummings, D-Portland, is the Prosperity Committee that is supposed to find savings in state spending that can be used to invest in programs aimed at increasing jobs in the private sector."

See? If we only spent more tax dollars on more state programs "aimed at creating jobs" we'd be all set!

Although missed in all the conversation about the uninsured, many insurers are announcing innovative and affordable new products in the individual insurance market. For example, Humana just announced their new HumanaOne individual insurance products which include "a broad spectrum of benefits – with three in-network coinsurance levels and 17 annual deductible choices – organized into three, consumer-friendly packages:

* HumanaOne PortraitTM is for people who are security-minded and want benefits like those provided by big employers.
* HumanaOne AutographTM is for people who want flexibility to fit their financial plan. Three of five Autograph plans are HSA-qualified.
* monogramTM from HumanaOne is for the young and invincible at heart who want a low-cost plan with a safety net 'just in case.'"

While I would not have responded positively in the focus group testing the names, I do like the products and premiums. I looked up a quote for myself, assuming I lived in the magic kingdom (Orlando). An HSA-compatible plan with a $2,500 deductible and comprehensive benefits and a $5 million lifetime max has a base premium of just $91 a month.

Sadly, I live in Maine with an uncompetitive individual market and costly guaranteed issue and community rating regulations. My $2,500 deductible HSA-compatible plan through Anthem (WellPoint) costs $368 a month, or $3,324 more a year (more than the entire deductible).

Maybe if I bought my health insurance from Florida, I could afford to take our eleven-month-old son Wyatt to Disney. Even if he wouldn't remember it, I would have a blast spending the money I wasn't sending to the insurance company!

Congress is currently debating an expansion of the State Children’s Health Insurance Program (SCHIP). While the program may be well intentioned, such an expansion will have a dramatic impact on private health insurance premiums.

A new report, “Maine’s Near-Universal Coverage for Children Makes SCHIP Expansion Unnecessary,� outlines the impact on health insurance premiums.

Consider this excerpt from the report:

First, be sure to check out our new Medicaid/SCHIP report on why SCHIP expansion is bad for Maine.

However, this blog relates to a different issue. Recently, the Tax Foundation released a study examining how states would fare under SCHIP expansion as proposed by Senator Gordon Smith. His proposal would expand SCHIP by $46.5 billion and would pay for it with a 61 cent increase in the federal cigarette tax.

The study finds that Maine would pay $450 million in higher cigarette taxes, but would only receive $343 million in additional SCHIP funding. As a result, $107 million would be sucked out of the Maine economy by the federal government.

Of course, one has to wonder if Senator Snowe was aware of such facts when she co-sponsored similar SCHIP expansion bills?

In a new paper by economist David Romer and Christina Romer, both professors at the University of California, Berkeley, find that "tax increases are highly contractionary." The paper, "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," was just published by the National Bureau of Economic Research and is available here. However, you need a subscription to view it, though an earlier version is available free here.

The paper succinctly states that: "The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increase on investment."

Thanks to Dr. Tyler Cowen's blog "Marginal Revolution" for the source--he is a professor at George Mason University. Here is what he has to say about the paper.

These results also supports the topic of another blog--the deadweight loss of taxation. Put simply, a one dollar increase in taxes may result in up to two dollars in lost economic output.

How much one spends on everyday living expenses, or cost of living, is generally determined by what town, city, or state that individual’s residence is established. Until recently, tracking these varying costs in Maine posed a challenge. However, with its participation in the ACCRA Cost of Living Index© (ACCRA-COLI), The Maine Heritage Policy Center has made cost of living data readily available to the public.

The ACCRA-COLI is the country’s longest running cost of living index, published every quarter since 1968. Used widely by both the private and government sector, ACCRA-COLI is regarded as the most respected cost of living index.

Forbes magazine released today their second annual "Best States for Business" rankings. Unfortunately, Maine does miserably coming in as the 48th worst state for business--just ahead of Louisiana and West Virginia. To add insult to injury, Maine actually fell two spots from the 2006 ranking where we ranked 46th.

New Hampshire leads New England coming it at the 14th spot, up from 18th the year before. Connecticut comes in at 31, Vermont at 32 and Massachusetts at 36.

The great aspect about this index is that it examines 32 criteria in order to make these determinations--clustered into 6 categories. Here is how Maine does in each: Business Costs (43), Labor (27), Regulatory Environment (46), Economic Climate (30), Growth Prospects (42) and Quality of Life (16). We fare poorly pretty much across the board.

In an interesting article by Dr. Edward L. Glaeser--Harvard Professor and Director of the Kennedy School of Government's Taubman Center for State and Local Government--he found that taxes matter to city growth. The article is titled: "Smart Growth: Education, Skilled Workers, and the Future of Cold-Weather Cities" and states that "Cities, however, must be careful about turning to taxes as their seed corn for growth, because high levies can drive away businesses and high-skill residents . . . specifically, cities with a tax rate that was 1 percent higher relative to income grew 6 percent more slowly than otherwise comparable cities."

A recent review of the Maine State Employees Association “Labor Organization Annual Report� revealed that union employees are compensated at a higher rate than both state government employees and private sector workers.

We know from the MHPC report The State Government Gravy Train that on average state government employees receive higher overall compensation than private sector employees--$51,003 versus $38,617.

Included below is the labor report. Of the 16 listed employees, on average they are compensated at $62,437.75 per year. Union employees are compensated at a greater level than the government workers paying the dues to support their employment and the private sector employees who are working to support the government workers.