08/01/2011 07:41:00 AM EST
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
Montana initiated its own Medicaid-to-VA transfer program in 2008. And
California plans to go statewide with a pilot program under way in
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
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
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
"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
BUDGETS IN BRIEF:
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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