Dissolve Local School Districts with Care

Reflecting on the recent dissolutions of the Buena Vista and Inkster public school districts, the Detroit News cautions state officials, acting under a new law, to take heed of problems created when the state considers future dissolutions.  These concerns were the subject of  CRC’s recent report, School District Dissolutions, and highlighted in the Detroit News’ opinion piece.  The paper recommends that the state should proceed with caution and reserve the new law’s authority for extreme emergencies only.

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“Re-voting” on Michigan’s Medicaid Expansion: What’s Behind the Medicaid Budget Shortfall?

With the legislature perhaps only days away from adjourning for 2013, legislative leaders are busy making decisions on final agenda items for the year.   One of the more significant pending matters involves a supplemental appropriation to address a budget shortfall that developed following enactment in August of legislation that expanded Michigan’s Medicaid program.

The issue first came to light in October, when the Department of Community Health (DCH) revealed that the failure to garner immediate effect on the Medicaid expansion legislation created a $70 million shortfall in the FY2014 budget.  A number of news outlets reported that the Legislature would need to “re-vote” on the contentious Medicaid expansion, and some opponents of the expansion suggested that this “re-vote” presented a second opportunity to block the expansion.

With the Senate signaling that action on the supplemental is possible this week, CRC looks at a three key questions related to the vote and what it means (and doesn’t mean) regarding the state’s Medicaid expansion.

Question 1:  What exactly happened?   Why does the Legislature need to vote again in the first place?

After contentious debate in both the House and Senate, the legislature passed House Bill 4714 in late August.   The bill authorized the expansion of Medicaid eligibility to adults less than 65 years of age with annual incomes up to 133% of the federal poverty guidelines.   The expansion is contingent on the eventual approval by the federal government of two waiver requests that would essentially: (a) require the establishment of enrollee cost-sharing account; (b) increase cost-sharing requirements for enrollees with incomes between 100% and 133% of federal poverty guidelines (with offsetting credits for meeting healthy behavior standards); and (c) require these same enrollees to either leave Medicaid and purchase health insurance through the health care exchange or face a further increase in their cost sharing once they have received Medicaid coverage for 48 months.

The bill also made adjustments to the state budget to reflect the Medicaid expansion, including $1.7 billion in new budget authorization to spend the federal funds that will cover the actual costs of the expansion as well as another $192 million in statewide GF/GP savings tied to the expansion.   These savings arise within programs that currently use state dollars to provide medical and mental health services to adults who will now be shifted into federally-funded Medicaid under the expansion.

However, both the federal costs and state savings assumed in the bill were based on 9 months of expanded Medicaid in FY2014 starting this January.   The Senate withheld immediate effect from the bill, which delayed implementation until late March.   With that, both the budgeted costs and assumed savings from the expansion were no longer accurate; thus the need for corrective action.

Question 2:  So, if there’s no “re-vote” or the “re-vote” fails, does that stop the Medicaid expansion?

No.   The actual shortfall in the budget isn’t related to the appropriation of federal dollars to support the Medicaid expansion.   In fact, there’s more than enough money appropriated to take care of the added Medicaid caseload.   With only six months of expanded enrollment during FY2014, total costs of the Medicaid expansion in FY2014 will be smaller than what were anticipated when the bill was passed by the legislature.

So, in an odd twist, the corrective action needed on the budget may well reduce the appropriations to cover Medicaid expansion, effectively eliminating the surplus appropriations that won’t be needed because the Medicaid expansion will be pushed back.  Of the $1.7 billion included in HB 4714 to finance the expansion, CRC calculations suggest that only $1.1 billion will actually be needed.  Fortunately, this surplus isn’t really much of a problem.  If these excess federal appropriations aren’t directly reduced through a supplemental, they’ll simply go unused and lapse at the end of the fiscal year.

The real budget problem isn’t the excess federal appropriation; it is the lost state GF/GP savings from the delayed expansion.   As illustrated in the table below, House Bill 4714 assumed $168 million in net savings within the DCH budget and another $24 million in savings within the Corrections budget.  The bulk of the savings in the DCH budget is related to adults who receive state-funded mental health services, who will now instead be eligible for Medicaid services funded with federal dollars.   Likewise, the costs of off-site medical services for prisoners as well as substance abuse and other health services provided on behalf of parolees exiting the correctional system will now be met using federal funds under Medicaid, reducing GF/GP costs within the Corrections budget.   With only six months of expansion, however, these savings are reduced by $73 million in total according a recent House Fiscal Agency memo.   It is this GF/GP shortfall that must eventually be addressed to put the state budget back into balance.

Medicaid savings 2

But the key fact is this:   Regardless of whether or when any budgetary adjustment is implemented, there is more than enough appropriation authority to facilitate the added spending of federal funds that will be needed to cover the new Medicaid enrollees under the expanded eligibility provisions.

Question 3:  If the Medicaid expansion isn’t at risk, what’s the hurry on “re-voting”?

Strictly from a budgeting standpoint, there is no particular hurry.   The Legislature had added intent language to HB 4714 earmarking the expansion-related GF/GP savings to a new Roads and Risks Reserve Fund to help finance road repairs.   While the reduced savings mean less will be available in the fund, it also means other program cuts won’t be needed in order to fill the budget hole.   In the end, budget adjustments of some form to clear up the GF/GP shortfall are needed prior to the end of the fiscal year.  Technically, action could wait until closer to book closing next fall.

However, from a political perspective, action this year has one important advantage: an immediate effect vote is no longer relevant to passing the budget legislation.   If a supplemental appropriation bill is passed this week without immediate effect, it will still become effective in late March, well before the end of FY2014.   However, if the budget adjustments are implemented next year through an appropriations bill, immediate effect will become necessary once again.   Without it, the supplemental budget act wouldn’t actually become effective until late March 2015, months after state closes its books on FY2014.

If both the House and the Senate are prepared to grant immediate effect to whatever corrective action hits their desks, then the “hurry” goes away.   But if proponents of Medicaid expansion still have reason to worry about getting the votes needed for immediate effect, they’d be well advised to take care of this issue in 2013.

 

 

 

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The Role of Cost Shifting in No-Fault Policy Reforms

The Citizens Research Council of Michigan recently released the report Medical Costs of No-fault Automobile Insurance, which identifies a number of reform options policymakers could use to address medical prices and usage rates associated with auto accidents in Michigan.  The reform options presented in the paper range in how they impact the current features of no-fault and whom will be most affected.  Several policy options would reduce the prices paid by auto insurers and, if prices are set at reasonable levels, should not impact auto accident victims’ access to medical benefits in addition to maintaining most, if not all, of the other major features of Michigan’s current no-fault system.

However, even though the major features of no-fault are not impacted by some of these reform options, there will still likely be repercussions elsewhere in the health care system.  Reductions in prices would reduce the revenues received by providers, including hospitals.  The majority of health care claims are not due to auto accidents and the portion of revenues provided by auto insurance reimbursement will vary considerably by provider type and other factors.  How providers respond to reduced revenues will vary by provider but may include several scenarios.

First, in response to lower revenues from auto insurers, providers could reduce capacity which may include layoffs of staff, service reductions, or reductions in staff wages.  The scale of these reductions will be determined by the degree to which providers’ revenues are affected by lower prices or other policy reforms.

Second, providers may attempt to replace lost revenues through other means.  Cost-shifting, the practice of charging some customers more in order to cover lower rates paid by other customers, is often borne by private health insurers.  Providers are often unable to collect higher prices from public health insurers, such as Medicare and Medicaid, and from other insurers that pay according to a fee schedule, such as workers’ compensation.  Therefore, they may look to private health insurers as an avenue for recouping lost revenues.  If costs are shifted to private health insurers then it is possible that private health insurers will in turn raise premiums resulting in increased costs for employers and employees.  Each health insurer will have a different response based on their unique circumstances.

Policymakers should be aware of these potential impacts should they consider reforms to Michigan’s no-fault insurance.

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Public Sector Employment Trends In Michigan and the U.S.

Following the publication of our most recent report, Michigan’s Single-State Recession and its Effects on Public Employment, we received an inquiry about Michigan public sector employment trends compared to the trends in other states.  Although there is a brief mention in our report about Michigan’s public sector employment trends relative to the nation, we believe a more thorough look is warranted.

A report from The Nelson A. Rockefeller Institute of Government sheds some light on the question we received, but it did not go into the level of detail requested about Michigan’s experience relative to other states.  The Rockefeller Institute’s report looks at trends in total employment by level of government (state and local) and by broad category (education and non-education) in the wake of the Great Recession. The report also highlighted total public sector employment changes for each state from August 2008 to November 2012 (August 2008 was chosen because it was the peak employment level).  The CRC report focused on changes in public sector employment over a longer period, going back to early 2001.

Over the nearly four and one-half year period examined by the Rockefeller Institute, Michigan had the third largest slide in public sector employment (7.4 percent), behind Nevada (10.1 percent) and Rhode Island (8.3 percent).  In percentage terms, Michigan’s decline was nearly three times as large as the total U.S. public sector employment decline over this period (2.7 percent).  As documented in the CRC report, and confirmed by the Rockefeller Institute, job losses in the local government sector (11.4 percent – second largest decline behind Nevada) fueled the overall public sector decline in Michigan, as was the case for the nation as a whole (3.2 percent).  The local government sector is generally two to three times as large as state government in most states.

Changes in public sector employment by level of government for Michigan and the nation as a whole are shown in the chart below.  The chart displays the total change in monthly employment compared to the December 2007 (official start of the Great Recession) employment level for state and local government.

State and Local Government Employment: MI and U.S.

Slide1

Comparing Michigan’s experience with that of the U.S. public sector as a whole yields a few noteworthy observations.  First, for the U.S. public sector, state and local government employment trends behaved remarkably similar throughout the time period.  In the case of Michigan, the trends followed completely opposite paths from the start; state government employment increased while local government decreased. For the U.S., employment levels in both sectors increased following the onset of the Great Recession and peaked in August 2008.  Since that time, both sectors have continuously shed jobs at more or less the same rate, hitting pre-recession levels in mid-2009 and then falling even more through April 2013.  Compared to the start of the Great Recession, state employment across the U.S. is down about 1.9 percent and local employment is down almost 3.0 percent as of April 2013.  In Michigan, state employment is up almost 7.0 percent, but local government employment is down nearly 13.0 percent.

The second observation has to do with the magnitude of the employment changes in Michigan compared to the U.S.  In the case of state government employment, what accounts for Michigan substantial increase?  And, for local government employment, why did Michigan realize such a massive percentage decline vis-à-vis the U.S. as a whole?  Some insights to these questions can be gleaned from disaggregating the data by sector and by broad category, which is done for state government in the chart below.

State Government Education and Non-Education Employment: MI and U.S.

Slide1Non-education state employment in Michigan (about one-third of the total state category) and in the U.S. overall, responded similarly during economic downturn with a few minor exceptions. Although the Michigan pattern was a little more up and down initially, both Michigan and the U.S. trends have shown steady declines in non-education employment since mid-2009.  As of April 2013, both are roughly five percent below their pre-recession levels.

The changes in education employment at the state level differ significantly.  With 15 public universities, and three of them very large institutions, the Michigan higher education segment represents a larger share of total state employment than in the U.S. as a whole.  Michigan’s employment rise in this sub-sector has been meteoric, increasing non-stop since December 2007 and landing at a level 13.5 percent above its pre-recession level.  CRC attributes the increase in higher education employment to ballooning enrollments, increases in part-time workers, and expanding budgets.  For the U.S., state education employment increased initially following the onset of the economic downturn, but unlike Michigan, remained at this level (between two and three percent above the December 2007 level) for the entire period.  Because of its minority role in the U.S. state education sector, the added education jobs were not sufficient to offset the non-education job losses; therefore, overall state government employment in the U.S. declined slightly since December 2007.

A third and final observation relates to the magnitude of Michigan’s local government employment losses and its potential causes.  Michigan’s job losses in this sector have been much more severe (more than a factor of four) compared to the U.S. total during the Great Recession.  As shown in the chart below, the losses have been fueled by the consistent plunge in education jobs (primarily K-12 education).  Education employment for the U.S. declined more than non-education, but the difference between the two sub-sectors was not as significant as the decline in Michigan.  For the U.S., education lost about 3.5 percent of the jobs in existence in December 2007, compared to a loss of about 2.0 percent of the non-education jobs.  Michigan, in stark contrast, shed over 17.8 percent of the jobs in education compared to the December 2007 level.  Non-education local government employment, which is dominated by public safety, is 6.8 percent below the December 2007.  This job loss is nearly three times as large as the loss in the U.S. for this sector.

Local Government Education and Non-Education Employment: MI and U.S.

Slide1

There is little doubt that Michigan’s public sector has contracted substantially in the wake of Great Recession. What is striking from analyzing the data is the fact that Michigan’s employment contraction in this sector has well exceeded the contraction experienced in the U.S. overall.   The job losses have been most acute in the local government sector, especially education.  The local government slide, which began in the early 2000s and accelerated through the Great Recession, shows little sign of changing course without policy changes at the state level.  Local governments may begin adding jobs with the gradual improvement in property values in the state (local governments depend largely on property tax); however, given the significant employment losses and the dim prospects for rapid improvement in local government budgets, regaining pre-recession employment levels is unlikely for some time, if ever.

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Higher Education Employment Bucking the Trend in Michigan

The Citizens Research Council of Michigan recently published Michigan’s Single-State Recession and its Effects on Public Employment, an in-depth analysis of private and public sector employment levels since 2001.  In particular, the report examines employment changes since the end of the 2008-09 Great Recession.  A key finding about recent job activity is that while private sector employment has enjoyed a moderate rebound from the trough of the Great Recession in June 2009 (nearly 9 percent increase), public sector employment has declined by nearly six percent over the same period.  The slide in public sector employment has been fueled by job losses in the local government sub-sector, which has been shedding jobs continuously since early 2002, with the job losses accelerating prior to the onset of the Great Recession.  These losses show few signs of abating.  On the other hand, state government, which is about one-third the size of the local government sector, experienced an upsurge in employment coinciding with the beginning of the Great Recession and has seen additional job gains in the time since (see Chart below).

HE employ chart 1The public sector is not a monolith, as evidenced by the differences observed in state and local government employment.  Further disaggregating public sector employment by category reveals even more contrasts in the data.  Specifically, the CRC report segregates the employment data by various education categories, breaking it down into two broad categories across both levels of government; K-12 and higher education.  The results are presented in the chart below, which tells two very different stories.

HE employ chart 2Employment in higher education, which includes staff at Michigan’s 15 public universities and 28 community colleges, increased by almost 23 percent since March 2001. The story for K-12 education is completely the opposite; employment in this sector fell by 27 percent over the same period.

The CRC report offers three factors to account for the differences.  First, enrollments at Michigan community colleges and universities ballooned during this period causing institutions to grow with the increased demand.  In contrast, statewide K-12 enrollments have declined each year since 2003.  Second, higher education institutions have access to revenue sources (e.g., dedicated property tax for community colleges and tuition for both colleges and universities) that K-12 districts don’t.  These sources helped higher education institutions shore up their budgets (i.e., maintain or increase personnel levels) when state aid was rolled back or held constant.  Finally, data from the Integrated Postsecondary Education Data System points to a change in employment composition over this period; a shift from full-time to part-time employees at both the college and university level.  Because the Bureau of Labor Statistics data counts the number of jobs and not full-time equivalents, the shift away from full- to more part-time workers drove overall growth in the sub-sector.

The CRC report clearly shows that employment levels in all sectors of the state’s economy do not move in lockstep with the ups and downs of the business cycle.  Private sector employment has seen marked improvement since the end of the Great Recession in June 2009, increasing by nearly nine percent.  Over the same period, overall public sector employment has experienced a decline, led by huge losses in the local government arena, particularly the large sub-sectors of K-12 education (55 percent of local government sector) and public safety (11 percent of local government sector).  Within the public sector, wide variations exist, such as the education sector generally.  At the same time that the K-12 education sub-sector shed jobs, the higher education sub-sector (both the local and state government components) bucked the overall public sector trend and increased after the 2001 recession and again, much more significantly, during the Great Recession.

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What did the Drafters of Michigan’s Constitution Intend with Article IX, Section 24?

Detroit Emergency Manager Kevyn Orr’s possible solution of cutting benefits for pensioners of the City of Detroit has highlighted Article IX, Section 24 of the 1963 Michigan Constitution.  To better understand what the drafters of this constitutional provision intended with its inclusion, CRC reviewed the proceedings of the delegates’ debate in the “State of Michigan 1961 Constitutional Convention Official Record.”

This provision was new to this iteration of the Michigan Constitution, as there had not been similar provisions in the 1835, 1850, nor 1908 Michigan Constitutions.  It was initiated for debate among delegates to the 1961 constitutional convention as Proposal 40.  As introduced to the convention and debated on February 6, 1962, the exact proposal was as follows:

The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof, which shall not be diminished or impaired thereby.

All such benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be usable for financing unfunded accrued liabilities.

Drafters Intentions

There were two primary objectives of this proposal, as the members of the finance and taxation committee (“committee”) put forth.  The first objective was to secure accrued pension benefits for public employees, which the committee felt was not being accomplished at the time.  Previous Supreme Court decisions had regarded pension benefits as a gratuity rather than a form of deferred compensation.  The committee asserted that this provision did not prevent a municipality or public employer from changing pension benefit structures for future employment, but instead, it guaranteed accrued pension benefits for an employee once he or she fulfilled the respective service requirements.  The committee believed that such employees have a contractual right to these benefits, and this concept was reiterated throughout the debate.

The second objective was to require public employers to annually contribute enough money to its pension fund to provide benefits for service rendered by employees in the current year.  All pension plans and retirement systems of the state and its political subdivisions were considered subject to this provision: schools, the state, municipalities, the courts, etc.  The committee deliberately did not require public employers to fully fund benefits accrued during prior years of service as they anticipated it would be an overwhelming financial burden.  However, they wanted to ensure that going forward, the financial burdens for funding pension benefits were not passed onto future generations.  They also wanted to prevent “back door” borrowing, which was considered to be diverting funds appropriated for pensions to general operating expenditures.

The committee did not believe that this provision was all inclusive of what ought to be done in order to keep retirement systems solvent, but felt that it is the maximum of what ought to be included in a state constitution.

The Discussion

The discussion of the proposal (read the proceedings for Proposal 40) primarily included of clarifying questions, rather than any debate with dissenting arguments.  One noteworthy question was the clarification of the term “accrued financial benefits.”  The intent of using this specific terminology was to avoid litigation by individual participants in retirement systems regarding general benefits structure or other grievances besides his/her right to receive benefits.  The committee believed that the contractual right of the employee was limited to the deferred compensation embodied in a pension plan.

Rather than using a “pay-as-you-go” system, the committee envisioned that public employers would develop a funded pension system in which the money could not be used for any other purpose.  If this was violated, an individual employee could defer to the court system, such as an injunction or mandamus, to prevent the employee from diverting the pension funds.  When asked if a public employer would not be able to invoke immunity from legal action if it failed to provide pension benefits when they became due, a delegate from the committee affirmed that this was his understanding.

It was asked whether an employee or employee’s organization could compel a public employer to put aside enough money each year to fully fund pension benefits if they did not do so.  The committee was not aware of any recourse available to compel a legislature or city council to appropriate more money.  Again, it was not intended to require the public employer to actuarially fund benefits accrued during past service, but rather require the public employer to provide the benefits when they become due.  (The actuarial funding of benefits dictates that the amounts that employers contribute each year will be based on estimates and these estimates assume a rate of return on the invested funds.  If investments fall short of the assumed rate of return, an unfunded liability can accrue.  The constitution would only require public employers to make the payments for the benefit earned in the current year, not the shortfall that is potentially building due to annually not making the assumed rate of return.)

Another delegate inquired as to whether this proposal would “hurt” units who have been borrowing from pension funds.  The committee stated that it was designed to prevent cities from using funds designated for pensions for any other purpose.  The provision would “hurt” cities to the extent that they had borrowed against their pension funds.  However, it would not prevent the pension fund from investing in a city’s special assessments, revenue or general obligation bonds.

Four of the delegates who spoke during the proceedings expressed that they had initial reservations about the proposal and were later satisfied by the answers provided.  The only dissenting comments pertained to the language that was used.  The delegate petitioned that committee to re-write it such that it would be “readily comprehensible to a high school graduate.”  That delegate claimed that one of the criticisms of the 1908 Michigan Constitution was that people without a law degree could not understand it.  The committee said that, although they could enlarge the proposal with non-technical vocabulary, their aim was to make it concise, a quality they believed that a constitution should possess.  They maintained that the vocabulary was well-understood by accountants and actuaries, the parties who would primarily deal with these issues.

Conclusion

Proposal 40, with some minor adjustments to the second paragraph, was adopted by the convention on April 19, 1962 with a 117-1 vote.

§ 24 Public pension plans and retirement systems, obligation.

The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.

Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.

The debates over the this provision and its ability to protect pension promises under Chapter 9 bankruptcy proceedings will be a primary focus of the courts and the public over the next several months and years.  The implications of whether the section is held to mean what it says could affect the ability of the state to permit municipal bankruptcies; the City of Detroit to get out from under its unfunded liabilities; and the financial well being of current and past city employees.  The implications of diminishing its meaning, even if only in the limited circumstances of municipal bankruptcy, extend far beyond Michigan’s boundaries.

Michigan is one of seven states with constitutional provisions that expressly prevent the state or its subdivisions from reducing benefits that public employees understood to be in place at the time of their employment.  The Center for Retirement Research at Boston College identifies 34 other states have statutes that expressly define pension benefits as contractual obligations of the governments or have had previous judicial decisions that have ruled the relationships to be contractual.  As such, these states rely upon the Contract Clause in the U.S. Constitution and similar provisions in their state constitutions.

A fundamental question before the bankruptcy court is a determination of whether the constitutional and statutory definitions of accrued financial benefits of their pension plans as contracts between the governments and the workers carry the same weight.  Does the inclusion in a state constitution afford the contract greater protection than inclusion in statutes?  Are public pensions afforded all of the protections of contracts, no more or no less, and so in bankruptcy they should be treated as such and put together with all other contractual obligations of the city?  Or does the wording in the Michigan Constitution “shall not be diminished or impaired thereby” imply some sort of additional protection above and beyond the standard legal protections for contracts?

With the daunting task of writing a new state constitution before the convention delegates and the relative scarcity of municipal bankruptcies in the period leading to the early 1960s, we cannot presume that the delegates had any idea that this would be an issue for consideration in that regard.  In the general context, we can conclude that the constitutional convention delegates clearly intended that the provision should ensure that public employers keep the promises they make to their employees and retirees based on the discussion that followed introduction of Proposal 40 to the drafting what was to become the 1963 Michigan Constitution.  They believed that pension benefits are not just a gratuity, but are part of an employee’s compensation package and should be protected as such.

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Michigan’s Economy Continuing to Grow

The U.S. Bureau of Economic Analysis released state GDP data for 2012 today. Michigan’s 2012 real GDP growth of 2.2 percent was slightly lower than the U.S. average of 2.5 percent, and  Michigan ranked 18th among the 50 states and Washington D.C.  Michigan had beaten the U.S. average in both 2010 and 2011, after posting the slowest growth in 2008 and 2009.  In 2010, real GDP in Michigan grew 4.9 percent (ranking 7th) compared to U.S. growth of 2.4 percent, while in 2011, Michigan grew 3.5 percent (ranking 5th) compared to U.S. growth of just 1.6 percent.

Michigan’s slow population growth means that Michigan tends to rank better in per capita measures.  In terms of real per-capita GDP growth, 2012 was Michigan’s third straight year in the top 10.  Michigan real per-capita GDP growth ranked 4th in 2010, 3rd in 2011, and 10th in 2012.

Michigan’s recovery is being driven in part by the recovery in the auto industry.  After posting an inflation adjusted 19.8 percent decline in 2008, and a shocking 41.5 percent decline in 2009, Michigan durable goods manufacturing grew 48.7 percent, 15.2 percent, and 8.5 percent in 2010, 2011, and 2012 respectively.  The manufacturing recovery still has a long way to go, with the level of durable goods manufacturing in 2012 registering 12.8 percent below the 2007 level in inflation adjusted terms.

 

For most citizens, state GDP is not the economic statistic that matters most.  People care much more about employment growth.  Michigan has seen some improving news here as well.  After a decade of employment declines, Michigan added 89,000 jobs in 2011.  This total is slightly above the average of 88,000 jobs per year that Michigan added during the 1990s.  This growth continued in 2012 with Michigan adding an additional 72,000 jobs.  The state’s May Consensus forecast calls for continued but slower employment growth with Michigan projected to add 53,000 jobs in 2013 and 48,000 jobs in 2014. 

 

By the end of 2014, Michigan is projected to have added 262,000 jobs or roughly one-third of what was lost in the prior decade.  Clearly Michigan has a long way to go, but it does appear that Michigan’s economic fortunes are beginning to change for the better.

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How Much are Health Insurance Premiums Costing Michigan’s Residents and Businesses?

Michigan individuals, families, and businesses are paying a growing portion of their incomes and revenues toward health care expenses, including insurance premiums, deductibles, and other out-of-pocket expenses.  Between 2006 and 2011, the cost of a private sector employer sponsored family premium in Michigan rose an average of 2.1 percent per year, adjusting for inflation.  In 2003, the combined employee and employer share of health insurance premiums in Michigan were 14.6 percent of household income and by 2011, this figure rose to 20.0 percent.  This means that health care costs are growing faster than wages.

According to data from the Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends, in 2011, single coverage health insurance premiums cost Michigan’s private sector employees and employers an average of $5,061, compared to a national average of $5,222.   While Michigan employers paid an average of $3,960 toward single premiums, 25 percent of companies paid at least $4,900.

Table 1. Average Single Premium per Enrolled Employee for
Employer-Based Health Insurance, 2011

Premium Blog Table 1

In 2011, employee contributions for family coverage averaged $3,470.  More than 25 percent of private sector employees enrolled in family coverage paid more than $4,500 toward their premium.  The total employee and employer share averaged $14,458 compared to a national average of $15,022.

Table 2. Average Family Premium per Enrolled Employee for
Employer-Based Health Insurance, 2011Premium Blog Table 2

The price of private sector health insurance premiums vary within the state with the Detroit-Warren-Livonia metro area paying 6 percent more than the remainder of the state for single premiums, six percent less for employee-plus-one premiums, and two percent more for family premiums.

Michigan employees and employers are paying below the national average in health insurance premiums, so does that mean premiums are relatively affordable in Michigan?  Probably not.  Unfortunately, Michigan’s median household income is $48,281, which is below the national average of $50,443, and the 32nd highest median annual income among the 50 states and the District of Columbia.  So while premium prices are relatively lower, they are roughly of the same proportion to household incomes as they are throughout the rest of the country.

So what do these higher costs mean for businesses, individuals, and families?  Because many studies have failed to show that higher prices translate into better health care, or better economic productivity, there is very little demonstrated value to these higher prices.  Therefore, if the burden on businesses and families was alleviated they could put those dollars toward more productive uses and provide a positive impact to the economy.  CRC’s new paper Health Care Costs in Michigan: Drivers and Policy Options discusses in more detail the implications of and solutions to rising health care cost in Michigan.

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Is there a Shortage of Health Care Professionals in Michigan?

The Association of American Medical Colleges estimates that by 2020, there will be a shortage of more than 90,000 physicians, split evenly between primary care physicians and specialists.  Data from the U.S. Census Bureau indicate that there are already many geographic regions within Michigan that are facing physician shortages as well as some low income and migrant farm workers around that state that are unable to access care.  At the same time that baby-boomer aged physicians and health care professionals begin to retire, Michigan’s aging baby-boomers will demand more health care.  And beginning in January 2014, 32 million more Americans will have health care through the federal Affordable Care Act; these newly insured populations will increase overall demand for health care services, especially those for general practitioners.

The current health care professional shortage is not as dramatic in Michigan compared to the national average.  As measured by the number of physicians, registered nurses, and physician assistants per 100,000 population, Michigan is nearly average or near the national median.  However, the number of nurse practitioners throughout the state is lower than average and the state has the 43rd most nurse practitioners per 100,000 in 2011.

The number of health professionals is perhaps not as important as where they practice and which populations they serve.  By using the U.S. Department of Health and Human Services designation for primary care professional shortages areas, 18.2% of Michigan’s population has insufficient access to primary care.  In order for a geographic region to be defined as a HPSA, there must be less than one full-time equivalent primary care provider for every 3,500 population.  Compared to the rest of the country, Michigan has a smaller under-served population (10.2 percent, 28th highest).

Table 1. Primary Care Health Professional Shortage Areas (HPSAs), 2012Health Professional Shortage Table 1A search on the Health Resources and Services Administration database of the United States Department of Health and Human Services reveals that 270 geographic primary medical care HPSAs exist in 16 of Michigan’s 83 counties.[i]  Only 44 of the HPSA designations are outside of Wayne County; the majority of HPSAs are within census tracts in the city of Detroit.  There are 215 population group HPSAs in 48 of Michigan’s counties.  Low income groups are most impacted by primary care shortages followed by migrant farm workers.

Is the health care professional shortage as bad in Michigan as it is in the rest of the country? No.  Is it something that policymakers should be concerned about?  Yes.  Because health care professionals require many years of training, particularly nurse practitioners, physicians assistants, and physicians, policymakers should be keeping tabs on the workforce, and geographic and population shortages, and be taking precautions now to ensure that all residents in the state have access to necessary health care.  CRC’s new paper Health Care Costs in Michigan: Drivers and Policy Options discusses in more detail the implications of and solutions to health care professional shortages in Michigan.

 


[i] http://hpsafind.hrsa.gov/HPSASearch.aspx.  Accessed April 14, 2013.

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The Impact of Michigan’s No-fault Auto Insurance on Health Care Costs

Currently, the Michigan legislature is considering legislation that would reduce medical costs related to no-fault auto insurance (namely, HB 4612).  CRC’s new report Health Care Costs in Michigan: Drivers and Policy Options examines various health care cost drivers and solutions, including those for no-fault auto insurance.  Medical costs related to no-fault auto insurance are being driven by several factors including unlimited lifetime medical benefits, greater use of medical services by auto accident victims, and the payment structure for these medical services.

A study by the RAND Institute for Civil Justice looked at data over a 25 year period and found that auto accident related medical expenditures were higher in states with no-fault auto insurance systems compared to tort-based systems.  Auto accident victims in no-fault states utilize more medical services, and specifically, more specialty services.  However, more concerning is that medical cost inflation appears to be higher in no-fault states, which means that while more services are being used, residents in no-fault states are on average paying higher prices for those services.

The higher price inflation in no-fault states is correlated with, and not necessary caused by, no-fault auto insurance.  One explanation could be that under no-fault systems, auto insurers are the primary payers for medical care related to auto accidents and they tend to pay higher prices than health insurers for the same services.  Health insurers often negotiate prices with providers, and auto insurers may either have not enough experience in these negotiations or not enough market power to obtain lower prices.  Therefore, they end up paying higher prices than health insurers for the same medical services.

Several policies may circumvent these issues.  Policy can either intervene to make the health insurer the primary payer for auto accident related medical claims or require that the prices paid to providers are the same, regardless of the payer.  The impact of either of these changes should be lower auto insurance premiums.  In the either case the cost savings for auto insurance companies and auto insurance consumers will likely materialize in other markets or be shifted to other payers.

In the case where the health insurer is the primary payer, health insurance premiums may rise to cover these new medical expenses.  However, because health insurers are paying lower prices for the same services when compared to auto insurers, the subsequent rise in health premiums prices should theoretically be smaller than the savings in auto insurance premiums- resulting in a net consumer savings.  In both policy cases, providers will now receive less revenue.  In making up for lost revenue, providers may raise prices overall, or for a specific group of payers, typically private insurers (this practice is known as cost-shifting).  If cost-shifting occurs in this case, health insurance premiums may rise even more.  Whether or not any net benefit for consumers who have lower auto insurance premiums remains is difficult to ascertain.

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