Growth vs. Gimmicks Part IV: Health care and welfare reform
Long-term Growth vs. Short-term Gimmicks is a seven part series examining the impact of the COVID-19 pandemic on Maine’s economy, the corresponding effects on the state’s biennial budget, and reforms lawmakers should pursue to achieve real budget savings. Check back tomorrow for Part V.
REFORMING WELFARE
When attempting to address the largest cost drivers of Maine’s state budget, one must look at state spending on welfare programs. While legislators and Governor Mills are not facing a shortfall as deep as originally expected, it is prudent to review the largest programs in the budget in the shadow of the 2020 economic slump, as this is where the greatest savings are likely to be found. Below are various cost-saving options that Maine Policy believes would help right-size Maine state government and encourage greater overall labor force participation.
While many of these reforms touch on Maine’s welfare benefits system, it is important to prioritize the thousands of truly vulnerable people who are not able to support themselves without help from the state. These reforms will not affect those for whom these programs are vital, but rather those who are able to work. Combined with removing onerous regulatory barriers, Maine could incentivize business and job creation, opening doors for thousands who are currently trapped in a cycle of poverty and dependency.
As a percentage of total spending, Maine spends more on public assistance than 44 states, more than any in New England, and nearly double the national average of 1.2%. Maine spends more on the Temporary Assistance for Needy Families (TANF) program than 46 states, as much as California and New York, and more than double the national average of 0.7%.
During the LePage administration, the state set a 60-month lifetime limit on families accepting TANF. As a result, more than one-quarter of recipients left the program. A 2017 report from the Office of Policy and Management (OPM), which studied a cohort of 1,856 TANF recipients before and after the change, noted that the total wages of these individuals more than doubled from 2011 to 2012. Maine can still do more to build on this progress: limit this benefit for the truly needy and stem the tide of dependency that generous welfare programs can incentivize. Phasing down the lifetime TANF limit to 48 months could empower 10,000-20,000 individuals to leave the TANF program and pursue the dignity that comes with gaining personal financial stability. With $131 million total spent on TANF in 2019, this reform could save Maine’s General Fund up to $10 million over the biennium.
As of 2018, 16.8% of Maine residents received benefits from the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, the third-highest rate in the nation. Dubiously, Maine also has the second-highest food stamp error rate in the country at more than 19%; nearly one-in-five SNAP payments were made in error. Because of this high error rate, Maine taxpayers must reimburse the federal government about $3 million over the next biennium. There are likely many options to control costs, such as aligning Maine’s rates to national and regional averages. National and New England averages for SNAP participation are around 11%, with an error rate of about 7.7%. Legislators should call for an audit of the SNAP program to better understand why Maine’s SNAP program performs so poorly compared to the nation.
Empowering individuals to lift themselves and their families out of poverty should be a key goal of policymakers. Unfortunately, Governor Mills’ proposed budget does not set a goal to reduce the number of Mainers dependent on welfare benefits. Research shows a strong relationship between unemployment and depression, so any progress made toward a healthy economy and vibrant job market means ensuring a healthier future through sustainable prosperity.
MEDICAID & MEDICARE
In one of her first acts as governor, Mills implemented an expansion of MaineCare, Maine’s Medicaid program, after it was approved by voters in November 2018. MaineCare is an important public health insurance program that provides medical care to more than 320,000 Maine adults and children living in or just outside of poverty. However, its growing budget has crowded out other spending priorities, threatening Maine’s long-term fiscal stability.
As a percentage of its budget, Maine spends more on Medicaid than any other state in New England. In 2018, the percentage of state budget funds dedicated to MaineCare accounted for 34% of Maine’s total expenditures, or slightly more than one-third of all state spending. Spending on MaineCare increased by 6.4% from 2017 to 2018, then 5.3% more between 2018 and 2019, meaning that MaineCare spending has increased by more than 11.7% in the two years since voters approved Medicaid expansion at the ballot box.
Since the beginning of 2019, the expansion population has grown to more than 73,000 Mainers, of which more than 84% are childless, able-bodied adults. The Office of Fiscal and Program Review (OFPR) noted that MaineCare cases had been decreasing as January 2019 approached. That trend continued for traditional Medicaid populations until the advent of the COVID-19 pandemic in early 2020. Even during the pandemic and its aftermath, the caseload of the expansion population has grown significantly faster than traditional Medicaid patients, a nearly 50% higher rate of growth.
In September 2020, a representative from the OFPR confirmed to the Legislature’s Joint Committee on Appropriations and Financial Affairs that Medicaid expansion has been the largest cost driver within Medicaid over FY20.
OFPR reports that overall MaineCare spending rose by $280.1 million, or 9.1%, from FY19 to FY20. Approximately $250 million of that increase—or 88.3%—came from Medicaid expansion. Over those two fiscal years, taxpayer liabilities for Medicaid expansion exceeded $361.5 million. Amid a confluence of public health and budgetary crises, there is no doubt that the traditional Medicaid population should be the priority to receive MaineCare benefits before childless, able-bodied adults.
MaineCare is a healthcare program designed for the most vulnerable Mainers, not for those with no dependents and who are able to work. These adults should be participating in the labor force, and participating in the private market for health insurance. State leaders, to shore up potential budget gaps and minimize harm to the most needy, should instruct DHHS to freeze new cases with a goal of entirely removing all childless, able-bodied adults from the program.
A Kaiser Family Foundation study from 2009 showed a direct relationship between unemployment and Medicaid case rates, finding that with every 1% increase in the unemployment rate, the Medicaid caseload rises three-quarters of a percent. There is no substitute for a healthy economy, and while Maine should provide a safety net for those who truly cannot support themselves, providing benefits to able-bodied adults without children (especially those under 50 or 60) could have a significantly detrimental effect on labor force adaptability.
Limiting access to healthcare during a pandemic seems harsh, but it is important to understand that the state’s response to the pandemic, in the form of economic and societal shutdowns, carry their own suite of costs on individual well-being. Mental health is clearly linked to economic independence. Lawmakers must look beyond the short-term thinking of the last 12 months and chart a vibrant future for Maine.
By capping enrollment in Medicaid Expansion at current levels (around 70,000 cases), Maine taxpayers could save an estimated $50-100 million on MaineCare over the next biennium. This could be partially achieved by imposing MaineCare work requirements which Governor Mills deauthorized before implementation early in her term. Given that more than 80% of the expansion population is made up of able-bodied, childless adults, and over 70% of those are between the ages of 19 and 49, simply by limiting expanded MaineCare eligibility to those who are aged 50 and older, Maine could save nearly $70 million. By removing all childless, able-bodied, working-age adults from MaineCare, taxpayers could save nearly $250 million over the biennium.
Including federal dollars, which account for nearly two-thirds of the state’s spending on Medicaid, Maine offers $300 more per Medicaid recipient than the average U.S. state and the average of other rural peer states like Vermont, New Hampshire, South Dakota, Arkansas, and Iowa. Maine taxpayers could save nearly $32 million over the biennium by aligning benefit rates for all Medicaid recipients with those of other rural states. If only instituted for the expansion population, leaving overall eligibility rules unchanged, taxpayers could save $5 million.
To shore up funds for Maine’s most needy citizens, lawmakers should continue to redirect funds from the Fund for a Healthy Maine (FHM) to essential MaineCare services. Seeded by payments from the multi-state tobacco settlement, the Fund has received more than $1 billion in total, and spent more than $215 million since its creation in 1998. It received over $65 million in FY21 alone.
FHM largely funds efforts to discourage smoking among adults and children, but with little discernible results. Rates of smoking and tobacco use overall have been falling steadily since the 1970s, and will continue to do so, with or without state-funded marketing campaigns. These funds should go to where they can do the most good: providing direct healthcare to Maine’s most vulnerable populations.
There are many paths to budget savings through Medicaid reform. The missing variable is political will. By tackling some of the suggestions laid out here—restricting eligibility to the truly needy, aligning benefit disbursement rates to peer states, and making better use of existing funds—Maine lawmakers could deliver savings to taxpayers in excess of $250 million over the biennium, and ensure the state is not holding back the productive potential of working-age adults.
Check back tomorrow for Part V, which focuses on stimulating Maine’s economy by removing regulations that stifle growth and undermine the health and safety of its citizens.