Quick Links: download a printable PDF of this brief here; go to our Healthcare home page here ; read our policy brief about a Healthcare Freedom Act here;
News Coverage: GoLocalProv article – good discussion in the comments section
High Cost of State Implementation
The federal government’s healthcare law — the Patient Protection and Affordable Care Act (PPACA) — if fully implemented in Rhode Island, will impose a high cost for the Ocean State in terms of budgets, jobs, dependency, and privacy. In upholding the law as constitutional, the Supreme Court alleviated one very narrow area of uncertainty but did nothing to repair problems with the policy.
Rhode Island will experience multiple negative ramifications if a state-based exchange and the Medicaid expansion options are put into practice, including:
- Unfunded budget costs that Rhode Island does not have the capacity to absorb
- Job-killing employer mandates and penalties that would otherwise be avoided
- Increased dependency on government for health care and other services
- Government intrusion on privacy in the highly personal areas of healthcare and family finances
Despite its lofty claims, PPACA will not lower health care and insurance costs and will do nothing to increase the supply of quality healthcare services in our state. The law will also lead to new federal and state taxes and cost the economy even more jobs.
State officials are already envisioning the exchange as what might be termed a dependency portal. Using information that residents enter for the purpose of determining health program eligibility, the exchange will alert users to a menu of other benefits for which they qualify, expanding Rhode Island’s public welfare system to an unknowable degree.
Policy Recommendation
The RI Center for Freedom & Prosperity recommends that the state of Rhode Island halt its headlong lunge into expensive and intrusive policy changes concocted in Washington, D.C., and join with other states that have taken a more skeptical view of the promises of the poorly vetted health care reform.
- Repeal the executive order creating RI’s health benefit exchange and replace it with patient-centered, market-based reforms, as described in the Center’s Healthcare Freedom Act policy brief.
- Opt out of the Medicaid expansion program, declining partial federal funding that would increase dependency on publicly financed health care and lead to increased budget deficits.
The Health Care End Game
Within two hours of the Supreme Court’s determination that the Patient Protection and Affordable Care Act (PPACA) is constitutional, three Rhode Island public officials held a related press conference. Lieutenant Governor Elizabeth Roberts has made health care a focus of her time in office; Secretary Steven Costantino heads the Executive Office of Health & Human Services; and Christine Ferguson is the newly appointed director of the Rhode Island Health Benefits Exchange.
During the conference, the trio promoted the inchoate exchange as more than a Web site for comparing products. Rather, they described what small-government advocates might see as a dependency portal. Based on information that users provide in order to determine eligibility for health premium subsidies, the site would also offer other forms of public assistance and subsidies that they could claim.
The prudence of government’s promoting its services as if they were private-sector products is a matter of legitimate debate. But the idea of a dependency portal does highlight one critical fact: The exchange, and PPACA generally, will expand the size, cost, and scope of state government.
Compounding Government Costs
Much has been made of the federal government’s 100% coverage of direct expenses for expanding Medicaid under PPACA. All childless, able-bodied residents with household income below 133% of the federal poverty level (i.e., individuals below $14,856 in 2012) will for the first time be eligible for health care through Medicaid.
Under the assumption that the state and federal governments will be somewhat aggressive in promoting enrollment, the Kaiser Family Foundation estimates that these new Medicaid recipients in Rhode Island will cost an additional $1.8 billion from 2014 to 2019, or about $301 million per year. However, costs will not be evenly distributed across those years, with increasing participation as time goes on. In 2019, the total cost for these newly eligible Medicaid recipients will be approximately $414.0 million.
The federal aid covering the Medicaid expansion will have phased down from 100% in 2014 to 90% in 2020. Therefore, in the unlikely event that total Medicaid spending does not increase from 2019 to 2020, the annual cost to Rhode Island taxpayers that year will be about $41.4 million. (The RI Center for Freedom & Prosperity inferred this annual total using the ratio of total state and federal spending in 2019 to total state and federal spending for 2014-2019, as provided in Table 4 on page 38 of the Kaiser report.)
But that total doesn’t account for the “woodwork” effect, which suggests that people who are currently eligible for Medicaid but have not applied will do so as implementation of the reform draws attention to the program. In Rhode Island, this population includes:
- All children under 19 and pregnant women in house-holds at 250% of the poverty level, as well as all parents with children under 18 and household income below 175% of the poverty level.
- Seniors (over 65) and disabled adults who qualify for Supplemental Security Income (SSI) or have income below the federal poverty level and have limited resources.
The federal government will assist with this new spending at its standard rate, which Kaiser estimates at 53-1/8% for Rhode Island over the six years, leaving the state to cover $30 million of the $64 million tab. (Note that the latest RI Executive Office of Health and Human Services Annual Medicaid Expenditure Report puts the federal contribution “typically” at 52.47%.)
Again, this spending will not be evenly distributed by year. With the same assumptions for 2020 as above, the annual cost to the state at the end of the examined period will be $6.9 million. In total, therefore, the Medicaid expansion portion of PPACA will represent new annual service costs to the Rhode Island taxpayer in the neighborhood of $48.3 million.
A third cost component that must be added to the total is administration. A 2010 Heritage Foundation study found that “administrative expenses add an average of 5.5 percent in addition to total (federal and state) benefit costs, and that, on average, the federal government pays 55 percent of total administrative costs.”
Taking all of these factors into account, the push for expanded enrollment will result in around $452.3 million in annual Medicaid spending. Of that, the State of Rhode Island will be responsible for $58.9 million in 2020. At that time, about one in four Rhode Islanders will be directly dependent on the Medi-caid program for health care.
The good news, from the Supreme Court’s ruling, is that states cannot be forced to participate in the expansion through the threatened loss of all federal Medicaid assistance.
Exchanges: More Costs
Where Medicaid leaves off, at 133% of the federal poverty level, subsidized premiums through the health care exchange will pick up, providing public money to families up to 400% of the poverty level. That’s $92,200 for a family of four, in 2012. The subsidies will come via advance federal tax credits, but there are five major cost factors of concern at the state level.
First, federal assistance toward start-up and operation expenditures for exchanges will end after 2014. Stan Dorn, of the Urban Institute, notes that states will thereafter have to come up with some reliable funding source — perhaps “surcharging insurance premiums; assessing health plans, employers, or individuals; appropriating state General Fund dollars; or otherwise.”
In Massachusetts, as part of its recent state-based health care reform, the exchange charges participating insurers a fee equivalent to 3% of premiums. Writes Dorn, “The insurers then pass on this cost to purchasers of coverage.”
Second, Rhode Island taxpayers will have to subsidize costs, through the exchange, associated with benefits that the state requires plans to offer beyond federally designated “essential benefits.” According to the RI Center for Freedom & Prosperity, Rhode Island leads the nation in health care mandates.
Third, state-based exchanges will be the mechanism for imposing penalties against “large” businesses (those with 50 or more employees) that either do not offer health benefits or that require employees to share more than a federally designated maximum amount of their cost.
Consider a business with 50 employees who work at least 30 hours per week, but that is unable to provide health care benefits beyond its other compensation. If a single employee acquires a subsidy through a state-based health benefit exchange, the employer will be responsible for $40,000 in annual penalties. For many, that will be substantially higher than the costs of hiring an additional employee.
Fourth, PPACA imposes tighter “community rating” standards on the individual and small group markets, within and outside of exchanges. Broadly speaking, in the “small group” market (employers with 100 or fewer employees), Rhode Island’s already-restrictive statutes forbid insurers from varying their premium costs by more than four times. That is, one family plan covering a spouse and children cannot differ by more than four times another such plan. PPACA reduces the differential to three times and limits family types to “individual” and “family.”
Plainly put, community rating lowers prices for plan members who actuarially should pay higher premiums by increasing them on those who should pay lower premiums.
This relates to the exchanges because, if Rhode Island decides to open its exchange to large groups, then the community rating scheme will apply to all such plans in the state for the first time ever. This rule apparently applies even if no insurers utilize the exchange for this purpose.
Finally, state officials’ vision of an expanded dependency portal will produce an unknowable increase in recipients of food stamps, cash payments, and other forms of public welfare whom the exchanges rope in as a bonus feature. These costs will span multiple layers of government and will be compounded to the extent that they require additional expenses to administer and maintain.
None of these five cost drivers applies if the state does not initiate and maintain a health benefit exchange.*
Danger Cubed: More Regulation, Less Freedom, Lost Privacy
Arguably more substantial than the direct financial costs of the Medicaid expansion and health benefits exchange is the danger created through the new authority that PPACA grants to the state and federal governments.
That danger comes first through dependency. Under the Medicaid expansion, 25% of Rhode Islanders will be direct wards of the state, when it comes to health care. Under the state exchange, up to 57% of Rhode Islanders will be eligible for health care handouts. And the expanded menu of the dependency portal will deepen families’ reliance on the state.
The danger comes second through a new ease of regulation. As health benefit exchanges absorb a greater percentage of the industry, local and national bureaucrats will be able to introduce new mandates and requirements not as legislation passed by duly elected members of the General Assembly or Congress, but simply as new requirements in order for plans to qualify for the exchange. Alternatives will be increasingly diffi-cult to procure, and costs will be forced upwards.
The danger comes third through the loss of privacy and financial intrusion. In order to qualify for Medicaid coverage and health care subsidies, Rhode Islanders will regularly have to inform the state about minute details of their lives. Indeed, it is likely that even families that receive no assistance at all will be faced with the same standardized application process.
In this way, two of the most intimate aspects of a person’s life — finances and health — will be collected through a single agency in a single location for the great majority of Rhode Islanders.
Conclusion
For all of this expense and intrusion, the state will not likely experience any reduction in the overall cost of health care, and Rhode Islanders will likely see the quality and availability of the care that they receive worsening. A Beacon Hill Institute study of Massachusetts’ health care reform, after which much of PPACA was modeled, found cost increases across the board — in and out of government, in an out of public assistance programs, and across tiers of government.
The reason, according to the researchers, was that the reform increased the demand for health care services without increasing the supply. The most alarming manifestation of this dynamic appeared in the state’s emergency rooms.
Across the country, there has been a noticeable decline in enthusiasm for exchanges among states that had begun work on them shortly after PPACA passed Congress. North Dakota, New Hampshire, Idaho, and South Carolina are among the states resisting the federal timetable to implement these insurance “marketplaces.” Kaiser Health News reports that, by the end of June, “only 14 states and the District of Columbia have so far passed legislation authorizing the exchanges.”
At Rhode Island Lt. Governor Roberts’s June 28 press conference, the three public officials made the familiar point that the availability of preventative, regular care might reduce the utilization of more-expensive emergency services. To the contrary, with wait times likely to increase for family physicians, and with greater portions of the population accessing subsidies for premiums and other expenses, the savings for which Rhode Islanders are being asked to sacrifice privacy and self-reliance may never materialize.
* Whether employer penalties ultimately depend on state-initiated exchanges is likely to be the subject of political dispute and litigation. However, the penalties are triggered by employees’ receipt of premium assistance, and PPACA Sec. 1401, which creates those subsidies, refers to “an Exchange established by the State under 1311.” Sec. 1311 describes state-initiated exchanges, but not federally initiated exchanges. It is Sec. 1321 that empowers the Secretary of Health and Human Services to create a federal exchange for use in a state.
Policy Reform: Eliminate the Sales Tax
/in Blog, Prosperity Agenda, Taxes/by RI Center for Freedom.
Rhode Islanders want more financial security and control over their own lives. Increased job opportunities, higher wages, and enhanced job security can all be achieved in a robust economy.
Phase out or immediately eliminate the sales tax. This tax reform policy will produce an immediate boost to the RI economy and will produce more jobs than any other solution on the table, creating 20,000+ new jobs in the Ocean State!
Imagine the renewed sense of security you and your children will feel, knowing that there are more career opportunities to choose from and knowing that your employer is more likely to remain in business, as well as the opportunity to earn higher wages in a more competitive economy.
View the Zero.Zero report here …
Visit the Zero.Zero home page here …
75-38-400 or 68-0.0-5000 ?
Consider the $75 million the state wasted on 38 Studios, chasing after just 400 jobs. Compare that with first year budget cuts of $68 million to pay for Zero.Zero, producing 5,000 jobs that year alone!
Rhode Island Employment Snapshot, July 2012
/in Blog, Recent Posts/by Justin KatzRhode Island’s unemployment rate fell a tenth of a point in July, to 10.8%, still second only to Nevada. But the results are far from positive; they aren’t even “mixed.” More people lost their jobs, and even more gave up looking for work.
The first chart below shows the trends in labor force (employed and looking for work) and employment since the beginning of the recession in January 2007. The second chart shows the labor force and employment pictures for Rhode Island, Massachusetts, and Connecticut as each state’s current percentage of January 2007.
R.I. Creating an Expressway to Dependency
/in Blog, Featured, Health Care, Policy, Recent Posts/by RI Center for FreedomThe Issue. Rhode Island is leading the nation in the advancement of a larger entitlement culture via its planned expansion of social services through a health benefits exchange, a component of the controversial federal healthcare law. When collecting detailed personal financial and household information from individuals seeking health insurance support, the state intends to proactively enroll participants in other state programs for which they are eligible. Will this create and expanded culture of dependency?
Statement from CEO, Mike Stenhouse. “This is an extreme case of misguided public policy. The expansion of government and special interest control over our personal healthcare decisions, along with the culture of dependency being freely advocated by this administration, should be viewed as an assault on our deeply held American value of self-reliance.
“Imagine turning to the RI health benefits portal because your employer cancelled your insurance and finding yourself on a government-created expressway to a life of dependency. Wouldn’t we all be better off, instead, if the state encouraged residents to become independent, productive members of society?”
Related Links: Mike Stenhouse discusses the ‘Dependency Portal’ on the Helen Glover radio show … click here; Dependency Portal Pieces in Place;What the Center is calling a “dependency portal.” The dependency portal is a not-so-hidden goal of Rhode Island’s version of the health benefits exchanges described in the Patient Protection and Affordable Care Act (PPACA, commonly known as ObamaCare).
Although the final design has not been developed in specific detail, the idea of the exchanges is to enable healthcare consumers to use a government Web site to review their available options for insurance and to determine their eligibility for public subsidies. Most likely, a series of Web-based forms will ask the user for a variety of highly personal information regarding health, income, and family circumstances in order to determine what health plans and public assistance amounts he or she is eligible for.
Whether such information will be requested of all residents who seek to use the site or only of those explicitly seeking subsidies remains an open question.
The exchange will become a dependency portal when other forms of public assistance — from food stamps to cash-payment welfare to child-care subsidies — are integrated into the system and promoted to the exchange user based on information that he or she provides while seeking health coverage — perhaps automatically enrolling people with the merest expression of consent.
At a recent press conference, Rhode Island Health and Human Services Secretary Steven Costantino referred to this “hidden element” of the exchanges as “one-stop shopping.”
Why is that bad? As a free market think tank, the Center is certainly not opposed to practices that encourage efficiency and the use of technology to improve the access that customers and clients have to services. Information technology, in particular, has empowered individuals to accomplish easily and inexpensively tasks that once required expert consultants.
From a business perspective, the Internet and the proliferating technologies that use it, now including smartphones and tablets, smooth the path from a potential customer’s initial interest all the way to final purchase. Technology enhances businesses’ ability to market and sell their products and services, and they seek to accomplish those ends in order to grow their revenue and expand their market share.
That model is not appropriate to government in dispensing taxpayer-funded services.
In the private sector, bundling of services has become commonplace, and it is easy to understand why companies would pursue the strategy. Think of the merging technologies of television, Internet, and telephone; it makes sense for a company with an advantage in, say, television, to use various marketing techniques, such as reduced-price packages, cross advertising, and one-stop shopping, to gain an edge in other markets.
However, the public clearly has a sense that these methods can go too far. Indeed, at the turn of the millennium, the federal government sued Microsoft on the grounds that it was hindering competition by using its operating system dominance (with Windows) to gain an insurmountable advantage in the Web browser market (with Internet Explorer).
In the case of government, all of the same incentives exist for the organization to expand its reach. The difference is that government has three inherent competitive advantages:
Over time, government programs are therefore less and less “public services” that taxpayers agree to support through the people whom they elect and more and more bureaucratic offerings that use the enrollment of some citizens as justification for claiming more authority and confiscating more money from others.
One can see evidence of this intention in the process by which Rhode Island’s exchange was initiated. In the face of (to be mild) public uncertainty about the PPACA, the Democrat president and Congress pushed it through. It creates financial incentive for states to build the exchanges (by making taxpayers from other states pay for it), and it hands an astonishing amount of policy discretion to the unelected Secretary of Health and Human Services.
In Rhode Island, Governor Lincoln Chafee broke with common understanding of separation of powers in order to create the exchange by means of executive order, committing the state to pay for the site’s maintenance once it is operational. Similarly, the state executive branch has simply determined to agree to a related Medicaid waiver, expanding free healthcare services in the state and adding to its expenses. No legislative input; no public hearings; in short, no public statement of agreement with the programs being developed in the people’s name.
As the government exchanges claim increasing shares of the market nationally, unelected state and federal officers will be authorized to determine everything from minimum benefits to price controls to payment schedules. The board that Governor Chafee appointed to initiate the exchange illustrates that special interests will have an outsized role, as well.
With the addition of other welfare programs to the mix, it will be even more difficult for the people of the state to change course.
What it means for you. Losing control of activities done in the public’s name may not be the most dire consequence of the dependency portal approach. Rather, the fatal part of the trap is the fast lane to a culture of universal reliance on government and a pervasive sense of entitlement.
Whenever the topic of welfare arises, conversation turns toward those who “know how to work the system” and thus become the fabled “welfare queens.” For them, incentives toward good behavior have been reduced or reversed, and democracy has devolved into an exchange of political power for handouts.
The real danger of the dependency portal is that it sets up a chute so that previously self-reliant Rhode Islanders will increasingly fall into an entitlement existence. Why else would the exchanges offer health care subsidies to a family of four with income of $92,200?
Just as technology has simplified tasks that once required expert consultants, the dependency portal will make “working the system” a simple matter of clicking a few buttons.
Tracing the progress of the portal in Rhode Island. RI Health & Human Services Secretary Steven Costantino, Health Benefits Exchange Director Christine Ferguson, and Lt. Governor Elizabeth Roberts describe Rhode Island’s nation-leading steps toward the dependency portal (June 28, 2012):
Elaboration on why Rhode Island and the United States should resist the pull toward dependency portals:
RI Center for Freedom & Prosperity first identifies the dependency-portal dynamic as one reason to reject the health benefit exchange and the Medicaid expansion:
The pieces needed to turn the exchange into a dependency portal are being put into place:
RI officials acknowledge intention to implement Medicaid expansion, without any indication of legislative or public input:
Documents related to the dependency portal begin to reveal the direct connection between those pushing the concept and those involved with Rhode Island’s health benefits exchange:
The dependency portal in concert with eliminated work requirements for welfare may mark the return of the “welfare queen” and a “majority coalition” for big-government activists:
Documents. The federal government and national non-profits describe the dependency portal and the related “express lane eligibility”:
Rhode Islanders must act if they want better life
/in Blog, Commentary, Policy, Recent Posts/by Mike StenhouseDo we want to be an Entitlement State or a State of Prosperity?
OpEd by Mike Stenhouse; as published in the Providence Journal (7-29-12)
What kind of state do Rhode Islanders really want? Who will provide the vision and leadership that will lead to renewed opportunities and prosperity for our citizens?
Rhode Island has the second highest unemployment rate in the nation, yet our political leaders do nothing about it.
Ours is the worst ranked state in terms of business climate, yet our business leaders do not cry out.
We have one of the highest state and local tax burdens in the country, yet citizens remain silent.
We have dangerously high unfunded pension and benefit liabilities, yet the political class does nothing to help our municipalities.
We are losing population and wealth to neighboring states and throughout the country, yet the defenders of the status quo stick their heads in the sand and say “it isn’t so.”
We have the most burdensome level of health-insurance mandates in the nation, yet the Chafee administration is pushing us towards even more government control of our personal health-care decisions.
We have the highest sales tax in New England, yet our political class actually voted to expand the tax, even to some of the poorest among us.
Soon, research from our center will show that Rhode Island is uniquely positioned in the nation as a failing economic state, yet most members of the local media do not raise awareness or seek accountability from our public officials.
The list could go on and on, but the real question is whether Rhode Islanders really want to continue down the same path that has failed our state so miserably or if we can find the willpower to tear down the barriers that have prevented us from increasing our quality of life.
Do we as a people want to live in an entitlement state or in a state of prosperity? One could reasonably assume, based on the above pattern of apathy, that we collectively want the former. But I doubt that.
So what is a concerned citizen to do? Especially when there is no leadership coming from policy-makers?
With the 2012 election rapidly approaching full campaign mode, the choice cannot be clearer for voters. There are two starkly different visions for our state: one that defends a status quo that tries to centrally engineer our society; and one that promotes bold reforms that restore individual control of our lives and a positive sense of self-determination to our citizens.
Whether you are an average Joe (or Joe-Ann), a business owner or a student, it is important that you understand your duty as a vigilant citizen and that you are empowered to make a difference. First, you can think about and develop a core set of political principles that will guide you. Second, you can become educated about the issues and encourage discussion and debate within your various circles of friends, family and colleagues. Third, you can become actively engaged by supporting organizations, campaigns, or policy initiatives that are consistent with your core principles.
This summer and fall, you can stand up where others have fallen down. Demand of candidates who knock on your door, call your home, or conduct town-hall-type meetings to clearly tell you whether they will defend the status quo or whether they will openly support the bold reform initiatives that our state so desperately needs.
Reforms like: lowering sales, income and corporate taxes; like providing school choice for students condemned to a failing school; like implementing patient-centered health-care reforms vs. government-centered; like constructive collective bargaining reform for government workers.
As a state we can choose to perpetuate our downward spiral by allowing to stand the government regulations that infringe upon our freedoms and limit our capacity to thrive; or, we can choose to begin to rebuild our economy by unleashing the great potential within each of us. The choice is indeed yours — and ours — to make; especially when most everyone else is afraid or incapable of leading!
Mike Stenhouse is the chief executive of the Rhode Island Center for Freedom and Prosperity, a conservative think tank.
Related Commentary: 2013 Budget Fails to be Bold
Teen Employment Sinking in the Ocean State
/in Blog, Labor, Minimum Wage, Policy, Recent Posts, Regulatory Environment, Studies and Reports, Youth Issues/by RI Center for FreedomQuick links: to download the printable PDF of this study click here. See Media Release at end.
Related stories: Research Director Justin Katz discusses the issue on the Dan Yorke Show.
Abstract
Gainful employment is disappearing from the experience of the American teenager (ages 16 to 19), and increasing minimum wages are part of the problem. In Rhode Island, teen unemployment was 28.3% in 2011, more than double its 2007 low of 12.9%, and hours worked per week had fallen from 10.0 to 6.1.
Rhode Island’s minimum wage climb from $6.75 in 2004 to $7.75 for 2013 will have cost 597 teenage jobs. As teenagers’ employment has fallen and their average hours worked per week have decreased, the weekly working hours per 100 teens in the population has dropped 62% — and 79% for those without high school diplomas. Because 70% of working teens are in the retail or leisure/hospitality industries, a bold policy change such as eliminating the state sales tax would be especially beneficial to them.
Getting Teenagers Accustomed to Working
Chores and a lemonade stand become a newspaper route and a summer job in retail, then a professional trade following high school graduation. If college is in the picture, retail transitions to on-campus service work followed by some sort of internship, which lands the young adult at the entrance of a career path, degree in hand. Such is the classic progression of young Americans’ easing into the workforce, with the adventurous and innovative breaking off to build their own companies or invent new industries.
The United States’ extended jobs recession appears to have accelerated a disruption of this pattern. The change has been acutely felt in states that have trailed the nation’s meager recovery, such as Rhode Island. From 2003 to 2011, teenagers’ share of employment in all Ocean State industries fell from 5.7% to 4.3%, despite the fact that their overall percentage of the population held steady.
In 2011, states with minimum wages that exceeded the federal rate tended to have higher unemployment. High minimum wages disproportionately harm teenagers’ employment prospects. So, not only are young adults in such states operating in dampened economies, but the jobs that they would typically seek are even harder to come by.
Policy Recommendation
With Rhode Island in desperate need of an economic turnaround, and because dedicated and well-rounded young adults will be critical toward that end, the state must reverse the working plight of its teenagers. The RI Center for Freedom & Prosperity recommends that the General Assembly and Governor Chafee:
Minimum Wage & Teen Employment
The effect of minimum wages on unemployment rates is a contentious issue among economists. Until the 1990s, they broadly understood increased minimum wages to harm employment. Since then, various studies have muddied the waters.
Given the myriad variables involved in a modern economy, small-scale policy changes can disappear in the data, and incremental minimum wage hikes may not register. Consensus is still strong, however, that low-skill, low-pay groups like teens are adversely affected by such increases.
Of the 24 states with unemployment over 8.0% for 2011, 11 had set their minimum wages above the federal $7.25 per hour. Of the 26 states with 8.0% unemployment or lower, only six had elevated minimums. The average unemployment rate for former was 9.0%, compared with 7.7% for those in which the federal rate applied.
That gap doubles for teenagers (16-19 years old). In states where the $7.25 minimum applied, teens’ unemployment rate was 21.7%. In the elevated-rate states, it was 24.3%. Chart 1 illustrates the point, narrowing the focus to the eight states with minimum wages over $8.00 per hour.
Rhode Island
In 2011, the Ocean State’s teen unemployment was 28.3%, the worst in New England, and more than double its 2007 low of 12.9%. Meanwhile, the weekly hours of the average employed RI teen dropped from 10.0 to 6.1.
Putting Rhode Island in context requires an acknowledgment that it simultaneously has the most-sickly economy in New England and the second lowest minimum wage, in 2011. The $7.40 per hour the state mandated for the lowest-paid employees within its borders was higher than only New Hampshire’s rate, regionally. Increasing the rate to $7.75 this past legislative session pushed the Ocean State past Maine, as well.
At first glance, these comparisons would seem to contradict the notion that high minimum wages are associated with higher unemployment. As suggested above, however, minimum wage is a secondary factor and is not sufficient to save a state economy that is already failing.
In an update for the RI Center for Freedom & Prosperity of their 2010 study, “The Teen Unemployment Crisis,” economists David Macpherson (Trinity University) and William Even (Miami University) found that Rhode Island’s increase from $6.75 in 2005 to $7.40 cost the state’s teens 397 jobs in 2011. Of that total, 306 were lost to those without high school diplomas. As the Center reported in June, Macpherson and Even estimate that the additional hike, to $7.75 per hour, will cost Rhode Island’s teenagers another 200 job opportunities.
In total, that $1 raise will have cost about 2.7% of employed teens valuable work experience, increasing to about a 7.1% loss among those without high school diplomas.
Table 1 shows the dramatic drop in teen employment from 2002 to 2011. For perspective, the 2010 Census found 66,423 Rhode Islanders 16-19 years old — about 32,663 without high school diplomas.
Not only are fewer teens working, but those who have jobs are spending less time on them. The weekly hours worked per 100 teens in the total population captures the combined effects of these trends. Employment is evaporating from teens’ experience in Rhode Island.
Massachusetts shows that a high minimum wage doesn’t always correspond with high teen unemployment (see Chart 2). But if Rhode Island insists on imposing a high rate, it must take even more dramatic steps to improve its economy to counter-balance the downward pressure on employment.
One Solution: Eliminate Sales Tax
In early June, the RI Center for Freedom & Prosperity proposed its Zero.Zero plan to eliminate the state sales tax in Rhode Island. Such a policy would be especially beneficial for teens.
The Center found that immediate elimination of Rhode Island’s sales tax would create 23,873 jobs. The data did not differentiate between industries or the demographic qualities of the newly hired workers, but it would be reasonable to predict that teenagers and other low-wage workers would benefit disproportionately and more immediately.
By far, Rhode Island teenagers are more active in the very industries that most feel the effects of the sales tax: retail and leisure and hospitality. Of teens who were working in 2011, 23.5% were in the retail industry, where they accounted for 8.8% of the workforce. Another 46.4% worked in the leisure and hospitality industry, accounting for 17.8% of all employees.
Altogether, 69.9% of working teens were in these two industries. Clearly, the healthier retail and leisure market in a zero percent sales tax environment would benefit the lowest-paid workers first, including Rhode Island’s young adults.
Conclusion
As with all of the challenges that it faces, Rhode Island has a choice between paths: the one we’ve been following and one that shifts decision-making back toward individuals working together in a less-regulated private economy. The first shifts resources under the control of government planners, and the second would allow Rhode Islanders to keep their money and make decisions in accordance with their own interests.
For all of the emphasis that the state has been placing on developing a “knowledge economy,” it has paid precious little attention to the need to foster work ethic and experience in its youth. Meanwhile, lavish public-school funding and special deals toward government-approved economic development have been requiring increasingly high tax burdens — in the form of the incrementally broadening sales tax, of ballooning property taxes, and of expanding licensing requirements and fees.
Instead, Rhode Island’s emphasis should be on getting people, especially young people, back to work, regardless of their field or pay scale.
***
MEDIA RELEASE: July 24, 2012
A 28.3% teen unemployment rate is sinking career building opportunities for Ocean State youth according to a report released today by the Rhode Island Center for Freedom and Prosperity. This unemployment rate has more than doubled in recent years to become the worst in New England, and demonstrating even further weakness in the teen sector, the report also highlights that the number of hours worked has dropped by over 40%.
“If our state is to rebound in the long term, we need our working-age youth to learn to become productive. As part of their transition into a career that fosters self-reliance, teens are looking for valuable workplace experience and resume building, in addition to a little pocket change”, said Mike Stenhouse, CEO for the Center. “Unfortunately our overly burdensome regulatory and tax structure, along with statewide minimum wage increases, are resulting in fewer opportunities for everyone and disproportionately harm our teens. This category would grade-out at yet another F for our state,” continued Stenhouse, referring to the Competitiveness Report Card published earlier this year by the Center.
According to the report, high minimum wage states had a 24.3% teen unemployment rate, compared with 21.7% for states at the federally mandated rate. Further, Rhode Island’s recent minimum wage hikes will cost almost 600 area teenagers a chance at an entry level job. Even for those young adults who were fortunate enough to find work, the average hours worked plummeted to 6.1 per week from 10.7.
As about 70% of working teens are hired in the retail or leisure/hospitality industries, the Center recommends two policy changes: lowering the state minimum wage rate to federal levels; and a phase-out the the state sales tax, which would not only reinvigorate the state’s economy, but would be especially favorable for the retail industry, creating new job opportunities for younger Rhode Islanders.
Today, July 24, is the National Day of Action to Raise the Minimum Wage. “The RI Center for Freedom & Prosperity categorically rejects this ill-informed policy push. A minimum wage hike is yet another regulation that strangles businesses; our report provides clear evidence of the negative, unintended consequences that meddling in complex economic issues can often bring about,” concluded Stenhouse.
The complete teen unemployment report can be downloaded from the Center’s website at www.RIFreedom.org .
Earlier this year, the Center published a policy brief detailing the negative effects of the state’s occupational licensing policies on opportunities for low income and entry level workers. Another report – Zero.Zero – detailed the positive economic effects of eliminating the state sales tax.
The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.
County Out-Migration Should Be Alarm to Municipalities
/in Education, Featured, Infrastructure, Migration, Pension Reform, Recent Posts, Studies and Reports, Taxes/by RI Center for FreedomFor nearly a decade, taxpayers have been leaving Rhode Island. With cities and towns facing wave after wave of difficult decisions, a change of policy course is critical. Between 2003 and 2010, the net migration out of the state has left Rhode Island with 24,455 fewer income-tax-paying households with a total of $1.2 billion of annual income.
Why RI Should Opt Out of Exchanges and Medicaid Expansion
/in Blog, Health Care, Recent Posts, Regulatory Environment/by RI Center for FreedomQuick Links: download a printable PDF of this brief here; go to our Healthcare home page here ; read our policy brief about a Healthcare Freedom Act here;
News Coverage: GoLocalProv article – good discussion in the comments section
High Cost of State Implementation
The federal government’s healthcare law — the Patient Protection and Affordable Care Act (PPACA) — if fully implemented in Rhode Island, will impose a high cost for the Ocean State in terms of budgets, jobs, dependency, and privacy. In upholding the law as constitutional, the Supreme Court alleviated one very narrow area of uncertainty but did nothing to repair problems with the policy.
Rhode Island will experience multiple negative ramifications if a state-based exchange and the Medicaid expansion options are put into practice, including:
Despite its lofty claims, PPACA will not lower health care and insurance costs and will do nothing to increase the supply of quality healthcare services in our state. The law will also lead to new federal and state taxes and cost the economy even more jobs.
State officials are already envisioning the exchange as what might be termed a dependency portal. Using information that residents enter for the purpose of determining health program eligibility, the exchange will alert users to a menu of other benefits for which they qualify, expanding Rhode Island’s public welfare system to an unknowable degree.
Policy Recommendation
The RI Center for Freedom & Prosperity recommends that the state of Rhode Island halt its headlong lunge into expensive and intrusive policy changes concocted in Washington, D.C., and join with other states that have taken a more skeptical view of the promises of the poorly vetted health care reform.
The Health Care End Game
Within two hours of the Supreme Court’s determination that the Patient Protection and Affordable Care Act (PPACA) is constitutional, three Rhode Island public officials held a related press conference. Lieutenant Governor Elizabeth Roberts has made health care a focus of her time in office; Secretary Steven Costantino heads the Executive Office of Health & Human Services; and Christine Ferguson is the newly appointed director of the Rhode Island Health Benefits Exchange.
During the conference, the trio promoted the inchoate exchange as more than a Web site for comparing products. Rather, they described what small-government advocates might see as a dependency portal. Based on information that users provide in order to determine eligibility for health premium subsidies, the site would also offer other forms of public assistance and subsidies that they could claim.
The prudence of government’s promoting its services as if they were private-sector products is a matter of legitimate debate. But the idea of a dependency portal does highlight one critical fact: The exchange, and PPACA generally, will expand the size, cost, and scope of state government.
Compounding Government Costs
Much has been made of the federal government’s 100% coverage of direct expenses for expanding Medicaid under PPACA. All childless, able-bodied residents with household income below 133% of the federal poverty level (i.e., individuals below $14,856 in 2012) will for the first time be eligible for health care through Medicaid.
Under the assumption that the state and federal governments will be somewhat aggressive in promoting enrollment, the Kaiser Family Foundation estimates that these new Medicaid recipients in Rhode Island will cost an additional $1.8 billion from 2014 to 2019, or about $301 million per year. However, costs will not be evenly distributed across those years, with increasing participation as time goes on. In 2019, the total cost for these newly eligible Medicaid recipients will be approximately $414.0 million.
The federal aid covering the Medicaid expansion will have phased down from 100% in 2014 to 90% in 2020. Therefore, in the unlikely event that total Medicaid spending does not increase from 2019 to 2020, the annual cost to Rhode Island taxpayers that year will be about $41.4 million. (The RI Center for Freedom & Prosperity inferred this annual total using the ratio of total state and federal spending in 2019 to total state and federal spending for 2014-2019, as provided in Table 4 on page 38 of the Kaiser report.)
But that total doesn’t account for the “woodwork” effect, which suggests that people who are currently eligible for Medicaid but have not applied will do so as implementation of the reform draws attention to the program. In Rhode Island, this population includes:
The federal government will assist with this new spending at its standard rate, which Kaiser estimates at 53-1/8% for Rhode Island over the six years, leaving the state to cover $30 million of the $64 million tab. (Note that the latest RI Executive Office of Health and Human Services Annual Medicaid Expenditure Report puts the federal contribution “typically” at 52.47%.)
Again, this spending will not be evenly distributed by year. With the same assumptions for 2020 as above, the annual cost to the state at the end of the examined period will be $6.9 million. In total, therefore, the Medicaid expansion portion of PPACA will represent new annual service costs to the Rhode Island taxpayer in the neighborhood of $48.3 million.
A third cost component that must be added to the total is administration. A 2010 Heritage Foundation study found that “administrative expenses add an average of 5.5 percent in addition to total (federal and state) benefit costs, and that, on average, the federal government pays 55 percent of total administrative costs.”
Taking all of these factors into account, the push for expanded enrollment will result in around $452.3 million in annual Medicaid spending. Of that, the State of Rhode Island will be responsible for $58.9 million in 2020. At that time, about one in four Rhode Islanders will be directly dependent on the Medi-caid program for health care.
The good news, from the Supreme Court’s ruling, is that states cannot be forced to participate in the expansion through the threatened loss of all federal Medicaid assistance.
Exchanges: More Costs
Where Medicaid leaves off, at 133% of the federal poverty level, subsidized premiums through the health care exchange will pick up, providing public money to families up to 400% of the poverty level. That’s $92,200 for a family of four, in 2012. The subsidies will come via advance federal tax credits, but there are five major cost factors of concern at the state level.
First, federal assistance toward start-up and operation expenditures for exchanges will end after 2014. Stan Dorn, of the Urban Institute, notes that states will thereafter have to come up with some reliable funding source — perhaps “surcharging insurance premiums; assessing health plans, employers, or individuals; appropriating state General Fund dollars; or otherwise.”
In Massachusetts, as part of its recent state-based health care reform, the exchange charges participating insurers a fee equivalent to 3% of premiums. Writes Dorn, “The insurers then pass on this cost to purchasers of coverage.”
Second, Rhode Island taxpayers will have to subsidize costs, through the exchange, associated with benefits that the state requires plans to offer beyond federally designated “essential benefits.” According to the RI Center for Freedom & Prosperity, Rhode Island leads the nation in health care mandates.
Third, state-based exchanges will be the mechanism for imposing penalties against “large” businesses (those with 50 or more employees) that either do not offer health benefits or that require employees to share more than a federally designated maximum amount of their cost.
Consider a business with 50 employees who work at least 30 hours per week, but that is unable to provide health care benefits beyond its other compensation. If a single employee acquires a subsidy through a state-based health benefit exchange, the employer will be responsible for $40,000 in annual penalties. For many, that will be substantially higher than the costs of hiring an additional employee.
Fourth, PPACA imposes tighter “community rating” standards on the individual and small group markets, within and outside of exchanges. Broadly speaking, in the “small group” market (employers with 100 or fewer employees), Rhode Island’s already-restrictive statutes forbid insurers from varying their premium costs by more than four times. That is, one family plan covering a spouse and children cannot differ by more than four times another such plan. PPACA reduces the differential to three times and limits family types to “individual” and “family.”
Plainly put, community rating lowers prices for plan members who actuarially should pay higher premiums by increasing them on those who should pay lower premiums.
This relates to the exchanges because, if Rhode Island decides to open its exchange to large groups, then the community rating scheme will apply to all such plans in the state for the first time ever. This rule apparently applies even if no insurers utilize the exchange for this purpose.
Finally, state officials’ vision of an expanded dependency portal will produce an unknowable increase in recipients of food stamps, cash payments, and other forms of public welfare whom the exchanges rope in as a bonus feature. These costs will span multiple layers of government and will be compounded to the extent that they require additional expenses to administer and maintain.
None of these five cost drivers applies if the state does not initiate and maintain a health benefit exchange.*
Danger Cubed: More Regulation, Less Freedom, Lost Privacy
Arguably more substantial than the direct financial costs of the Medicaid expansion and health benefits exchange is the danger created through the new authority that PPACA grants to the state and federal governments.
That danger comes first through dependency. Under the Medicaid expansion, 25% of Rhode Islanders will be direct wards of the state, when it comes to health care. Under the state exchange, up to 57% of Rhode Islanders will be eligible for health care handouts. And the expanded menu of the dependency portal will deepen families’ reliance on the state.
The danger comes second through a new ease of regulation. As health benefit exchanges absorb a greater percentage of the industry, local and national bureaucrats will be able to introduce new mandates and requirements not as legislation passed by duly elected members of the General Assembly or Congress, but simply as new requirements in order for plans to qualify for the exchange. Alternatives will be increasingly diffi-cult to procure, and costs will be forced upwards.
The danger comes third through the loss of privacy and financial intrusion. In order to qualify for Medicaid coverage and health care subsidies, Rhode Islanders will regularly have to inform the state about minute details of their lives. Indeed, it is likely that even families that receive no assistance at all will be faced with the same standardized application process.
In this way, two of the most intimate aspects of a person’s life — finances and health — will be collected through a single agency in a single location for the great majority of Rhode Islanders.
Conclusion
For all of this expense and intrusion, the state will not likely experience any reduction in the overall cost of health care, and Rhode Islanders will likely see the quality and availability of the care that they receive worsening. A Beacon Hill Institute study of Massachusetts’ health care reform, after which much of PPACA was modeled, found cost increases across the board — in and out of government, in an out of public assistance programs, and across tiers of government.
The reason, according to the researchers, was that the reform increased the demand for health care services without increasing the supply. The most alarming manifestation of this dynamic appeared in the state’s emergency rooms.
Across the country, there has been a noticeable decline in enthusiasm for exchanges among states that had begun work on them shortly after PPACA passed Congress. North Dakota, New Hampshire, Idaho, and South Carolina are among the states resisting the federal timetable to implement these insurance “marketplaces.” Kaiser Health News reports that, by the end of June, “only 14 states and the District of Columbia have so far passed legislation authorizing the exchanges.”
At Rhode Island Lt. Governor Roberts’s June 28 press conference, the three public officials made the familiar point that the availability of preventative, regular care might reduce the utilization of more-expensive emergency services. To the contrary, with wait times likely to increase for family physicians, and with greater portions of the population accessing subsidies for premiums and other expenses, the savings for which Rhode Islanders are being asked to sacrifice privacy and self-reliance may never materialize.
* Whether employer penalties ultimately depend on state-initiated exchanges is likely to be the subject of political dispute and litigation. However, the penalties are triggered by employees’ receipt of premium assistance, and PPACA Sec. 1401, which creates those subsidies, refers to “an Exchange established by the State under 1311.” Sec. 1311 describes state-initiated exchanges, but not federally initiated exchanges. It is Sec. 1321 that empowers the Secretary of Health and Human Services to create a federal exchange for use in a state.
RI Exchange Director does not Understand Free-Markets
/in Health Care, Recent Posts/by RI Center for FreedomClick this link to hear the clip: press conference-wpromentions-clip
At the State’s press conference following the Supreme Court’s decision, WPRO’s Steve Klamkin brings up our Healthcare Freedom Act proposal to Healthcare Exchange Director, Christine Ferguson, who responded by claiming that the current state exchange is already market based.
Ms. Ferguson does not apparently understand what a free-market is. While she and the Governor may believe they are setting up some kind of market-based “exchange”, it is a far cry from what a true free-market exchange would look like:
In summary, the FREE-MARKET is an exchange in and of itself. It needs no funding, no regulations, and no bureaucracy … consumers choose!
Rhode Islanders want to control their own, very personal healthcare decisions, including:
The only way to achieve these goals is to unleash market forces by removing restrictions and regulations and introducing competition and consumer/patient choices. Our Center’s Policy Brief explains in some detail.
Read the entire policy recommendation here.
Go to our Healthcare homepage here …
Healthcare Exchanges in RI Should be Replaced with a Healthcare Freedom Act
/in Blog, Health Care, Recent Posts/by RI Center for FreedomDownload a PDF of the complete policy brief here; go to Healthcare home page here
In 2010, Congress passed and President Obama signed the Patient Protection and Affordable Care Act (PPACA) amid great controversy. Passage of the bill did not resolve the dispute, and the law has been a source of uncertainty for state governments around the country. Moreover, the Supreme Court’s ruling that the law is constitutional did not resolve the instability:
Therefore, Rhode Island must take the lead — as it has with pension reform and the Global Medicaid Waiver — in ensuring that its residents maintain access to health care service through the maintenance of choices, control of costs through free-market mechanisms, and confidence in the quality of care provided.
Changing Rhode Island’s current arrangement, vis-à-vis health care, must be a top priority for public officials and engaged citizens, alike. The state leads the country in the number of mandates that it imposes on all health plans within its reach. Partially as a result, only three insurers are willing to operate within its borders, and only one of those offers individual plans for direct sale to consumers.
Policy Recommendation: Enact a Health Care Freedom Act for RI Citizens
While there are many policy reforms to consider, the recommendations in a Health Care Freedom Act will put the Ocean State’s health insurance sector back on a path that produces higher levels of competition, provides more choices for consumers, and shields Rhode Island from current and future federal mandates.
Rhode Island faces an important decision: whether or not to continue down the path of creating an exchange as described by the Patient Protection and Affordable Care Act. Beyond that, Rhode Island must decide whether to rely on the promises of the legislation’s supporters that such policies serve to correct the problems American citizens face in finding affordable health insurance.
Download a PDF of the complete policy brief here …
Minimum Wage Hike Will Cause Loss of 200 Teen Jobs in RI
/in Blog, Jobs, Minimum Wage, Recent Posts, Regulatory Environment, Youth Issues/by RI Center for FreedomWatch this video by LearnLiberty.org to see how increasing the minimum wage increases unemployment among low-skilled workers
On the heels of a national report that painted a bleak employment picture for teens, the Rhode Island Center for Freedom and Prosperity issued a policy note today that shows that the Rhode Island General Assembly has made the teen jobs situation even worse in the Ocean State when it raised the state minimum wage by 35 cents to $7.75.
Rhode Island’s teen unemployment rate in 2011 (28.3%) is already 3.4 percentage points higher than the national average of 24.9%. The minimum wage increase will make this discrepancy even worse.
The data, which will be part of a more comprehensive teen employment report the Center plans to release in July, is “yet another example of the death-by-a-thousand-cuts syndrome that is depressing our state’s growth,” said Mike Stenhouse, CEO for the Center. Continual small increases in taxes and regulations are often implemented for compassionate reasons, but it is the contention of the Center that the cumulative effect of these polices has been devastating for area businesses, for the state’s economy, and especially for those seeking work.
“Imagine that because of this minimum wage increase two hundred more Rhode Island teens are not going to have the chance to earn a paycheck, to learn important business skills, or to build their personal résumés,” concluded Stenhouse.
(i) “Update of Evan and Macpherson, 2010.” Economists David Macpherson (Trinity University) and William Even (Miami University) released a study in 2010 that examined the impact of the federal minimum wage increase between 2007 and 2009. Media Coverage: 6/19/2012: Prov. Business News, Minimum Wage Bump Will Cost 200 Jobs 6/19/2012: GoLocalProv, Minimum Wage Hike Will Cost 200 Teen Jobs, Group Says