Budget & Taxes – State Net, August 1st, 2011

STATES SHIFTING VETS' MEDICAID COSTS: Several years ago, the state of Washington came up with a clever idea to save money on Medicaid: shift veterans from its Medicaid rolls to the U.S. Department of Veterans Affairs'. 
 
Using a federal database designed to root out welfare fraud - the Public Assistance Reporting System, or PARIS - the state was able to determine which Medicaid recipients were also veterans. Since 2003, it has steered 9,500 veterans over to VA coverage. 
 
The veterans generally aren't complaining; the benefits offered through the VA are more generous than those available under Medicaid. And Bill Allman of the Washington State Health Care Authority, who conceived the plan, said veterans' benefits are also less likely to be viewed by veterans as a government handout. 
 
"Speaking as a Vietnam veteran, I would much rather collect benefits that I earned than to request state aid," he said. 
 
The state isn't complaining either; the program has spared it $27 million in Medicaid costs. 
 
"The fact that it saves Medicaid dollars is an added benefit," said Allman. 
 
The feds, who have the most reason to complain, haven't yet. But that could change soon. Of the 22.6 million veterans nationwide who qualify for veterans' benefits, only 8.3 million received health care from VA facilities in 2010, many because they didn't know they could, according to the U.S. Department of Veterans Affairs. And with federal stimulus dollars having dried up, other states are going after that potential savings source. 
 
Montana initiated its own Medicaid-to-VA transfer program in 2008. And California plans to go statewide with a pilot program under way in several counties. 
 
States have to spend money to set up and run a program like Washington's. But Allman calculates his state gets back $8 dollars in savings for every $1 spent on its program. Montana shaved $900,000 off its books in the first year of its program. And California's Legislative Analyst's Office estimates the state could save $250 million by shifting 144,000 of its veterans to VA health care. 
 
Even Tom Miller, a PARIS project officer at the U.S. Department of Health and Human Services, admits that for the states, "The benefits outweigh the cost of administering a program like the state of Washington's." (STATELINE.ORG) 
 
NE PENSION PLAN DRAWING ATTENTION: Nebraska doesn't offer many of its public employees a traditional defined-benefit pension plan when they retire. Instead, those hired since 2003 are enrolled in a hybrid of a defined-benefit plan and a 401(k), known as a "cash balance" retirement plan, which is drawing new attention from other states. 
 
In a typical defined benefit pension plan, both the state government and employees contribute at a fixed rate set by the legislature. The state manages the investments and assumes responsibility for the risks, and when employees retire, they receive monthly checks for life based on a formula that takes into account their final average salary, number of years of employment and age. 
 
In a typical 401(k), also referred to as a "defined contribution" plan, employees contribute a percentage of their salaries to individual accounts. The state also contributes to those accounts, but employees manage their own investments, assume the risk themselves, and when they retire, they receive only the money they've accumulated. If that money runs out, they receive no more. 
 
Nebraska's cash balance plan draws on both of those approaches. Workers and the state both contribute to individual accounts. The state chips in $1.56 for every dollar workers do. The state manages the investments and guarantees a minimum annual rate of return, at least 5 percent a year, known as the interest credit rate. When returns are strong, the state may pay a dividend, although the amount of the dividend and the interest credit rate together can't exceed 8 percent. 
 
The plan offers several advantages to workers, including a guaranteed rate of return, no risk that bad investment decisions could wipe out their savings and at least some shelter from the criticism that they earn overly generous retirement benefits. The state also benefits, by, among other things, having a predictable benefit rate year to year and avoiding the "spiking" of final salaries through overtime, promotions or eleventh-hour raises.  
 
For states with defined-benefit plans, cash balance plans can offer considerable cost savings. Maryland officials recently estimated that changing to a Nebraska-style plan could cut state pension contributions by nearly $1 billion a year by 2013. Nebraska officials can't say exactly what they've saved since implementing their cash balance plan eight years ago, because they switched from a 401(k)-style plan. But the state has kept its retirement costs lower than those of most states. 
 
The favored alternative for states looking to cut their public pension costs - switching to a 401(k)-style plan - also tends to draw strong opposition from politically powerful public employee unions. 
 
"It is a heavy lift from a policy standpoint," said Pennsylvania Rep. Scott Boyd (R), who is sponsoring legislation to implement a cash balance system for new workers in his state. 
 
Whether or not cash balance plans catch on in other states, however, may ultimately hinge on whether policymakers believe the plans will provide adequate retirement income. And there appears to be some question about that. A Maryland commission that looked at the cash balance system found that a state worker who earned $40,000 a year and saved the maximum amount allowed would run out of money just 13 years after retiring. 
 
"Cash balance plans save money for the state but at the expense of the employee," said Sue Esty, assistant director of Maryland's chapter of the American Federation of State, County and Municipal Employees. 
 
Still, some advocates of the plans say the likely alternative for future state workers, 401(k)s, are worse. According to Mark Paul, deputy director of the California program at the New America Foundation: "They leave public workers with all the investment risks. Managing the money is too hard. The cash balance plan has the best characteristics of both alternatives." (STATELINE.ORG) 
 
BUDGETS IN BRIEF: CALIFORNIA Senate President Pro Tem Darrell Steinberg (D) said last week he is tabling one of the year's most volatile legislative initiatives - a proposed law to grant cities, counties and school districts broad new taxing authority - until 2012. The bill, SB 23a, has already passed the Senate, but Steinberg said it might threaten the political alliance Democrats and Gov. Jerry Brown (D) are trying to forge with business groups to push for a statewide tax next year (LOS ANGELES TIMES). • CONNECTICUT Gov. Dannel P. Malloy (D) reached a deal last month with state employee unions that would guarantee no layoffs for four years and avoid deep cuts to many agencies. The agreement is a clarification of a previous deal that was rejected by rank-and-file state employees, threatening the layoffs of as many as 7,500 public employees and the closure of motor vehicle branches, welfare offices and courthouses (HARTFORD COURANT). • The City Council in Harrisburg, PENNSYLVANIA rejected the state's fiscal recovery plan for the city last month, arguing that it was a bad deal for taxpayers, who would be saddled with the bill for the trash incinerator whose more than $300 million in debt payments have crippled the city's finances (NEW YORK TIMES).

- Compiled by KOREY CLARK

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