Social Security Keeps 132,000 West Virginians Out of Poverty

Social Security continues to play vital role in reducing poverty in West Virginia. According to the latest Census data, in 2014-2015 there were approximately 318,000 West Virginians living in poverty, including 40,000 seniors. Without Social Security, 132,000 more West Virginians would live in poverty.

Most people aged 65 and older receive the majority of their income from Social Security. Without Social Security benefits, 52% of elderly West Virginians would have incomes below the official poverty line, all else being equal; with Social Security benefits, only 12% do. These benefits lift 132,000 elderly West Virginians above the poverty line.

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Nationally, Social Security lifted more than 1 million children out of poverty. About 6.5 million children under age 18 (9 percent of all U.S. children) lived in families that received income from Social Security in 2015, according to Census data. This figure includes children who received their own benefits as dependents of retired, disabled, or deceased workers, as well as those who lived with parents or relatives who received Social Security. In all, Social Security lifts 1.1 million children out of poverty.

For more information, and to see how Social Security reduced poverty in all 50 states, check out this blog post from the Center on Budget and Policy Priorities.

West Virginia’s Top Medicare Billers

The Centers for Medicare and Medicaid Services (CMS) announced the release of a bunch of Medicare data today, the biggest release in CMS history, in fact.  The data include information for nearly 900,000 distinct health care providers across the country who received over $77 billion in Medicare payments in 2012.  This is the second big step in Medicare transparency in the past year as this release comes on the heels of last May’s release of the cost of the most common in-patient procedures at every hospital around the country.

What makes these data so interesting and potentially useful is that they include payment information broken down by individual physician and the services they provided. 

The Wall Street Journal has a neat user-friendly database of the top 200 providers in each state. Playing around with the data shows a few noteworthy trends in West Virginia.  For example, five of the 10 providers who received the most Medicare payments were ambulance service providers.  This was led by the Kanawha County Emergency Ambulance Authority, which received $6.3 million in Medicare payments. Of individual providers, we’re able to see that the physician in West Virginia with the most Medicare payments was Dr. Craig Morgan, an ophthalmologist in Huntington who received almost $5 million in Medicare reimbursement.

Table 1: The 20 health care providers, by type, in West Virginia receiving the most in Medicare payments in 2012

Top 20 Medicare Providers in WV

Ophthalmology and oncology are the two medical specialties receiving the most Medicare dollars in West Virginia, in line with national trends. Specialties that, as the Wall Street Journal notes, were singled out by the inspector general of the Department of Health and Human Services urging greater scrutiny of doctors receiving large Medicare payments. In all, fourteen physicians in West Virginia received more than $1 million in Medicare payments in 2012.

Table 2: These 20 physicians received the most in Medicare payments in West Virginia in 2012

Top 20 Medicare Physicians WV

While it’s important to recognize that this is simply raw data and there is no context of patients’ diagnoses or reasons for treatment, it’s a huge step forward in providing consumers (and researchers) more transparency. It should also help push physicians to reconsider low-value, high-cost procedures or to choose cheaper, generic alternatives instead of costlier brand name drugs.

11% of West Virginia Seniors Living in Poverty Under New Measure

A new report from the Kaiser Family Foundation looks at the poverty rate of seniors across the country. The report uses the new supplemental poverty measure from the Census Bureau to estimate poverty rates. According to the Census Bureau, poverty rates among elderly West Virginians are slightly higher under the supplemental poverty measure (11%) than under the official poverty measure (9%).

The supplemental poverty measure differs from the official measure in a number of ways. The official poverty threshold is set at three times the subsistence food budget from 1963, adjusted for inflation. The official measure counts all pre-tax monetary income, which includes wages and social security benefits. The official poverty threshold is lower for households with elderly members.

The supplemental poverty measure bases the thresholds on more recent measures of expenditures, and adjusts them for home ownership status and regional housing prices. The supplemental measure does not differentiate between adults above and below the age of 65. The supplemental measure adds the value of tax credits and  in-kind government benefits (like food stamps) to income, while deducting job-related expenses, taxes, and out-of-pocket expenses for health care. 

The deduction of out-of-pocket expenses for health care from income is the biggest difference maker when it comes to comparing senior poverty rates. In 2009, half of seniors spent at least 16% of their income on health care.

West Virginia actually saw one of the smallest jumps in senior poverty rates under the new measure. Nationwide, the senior poverty rate jumped from 9% to 15% under the new measure, compared to West Virginia’s increase from 9% to 11%.

The percentage of seniors at 200% of the poverty threshold or below also increased in West Virginia, from 38% to 43%, while it increased from 34% to 48% nationwide. 

While the supplemental measure shows an increase in the number of West Virginia seniors living in poverty over the official measure, West Virginia was one of the few states where the increase was actually not statistically significant. 

Chained CPI: A Bad Deal for West Virginia Seniors

Over the last several months, federal policymakers have been considering changing the inflation measure used to calculate the annual cost-of-living-adjustment (COLA) of Social Security payments from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) with the chained-CPI.  On Friday, the U.S. Senate voiced opposition  to adopting the chained-CPI, although President Obama and a lot of powerful groups are pushing it as a way to shore up Social Security and reduce the federal deficit.  

The problem with this logic is that Social Security does not face any real short-term solvency problems (nor does it contribute to the deficit) and that adopting the chained-CPI would reduce benefits while failing to capture price changes on the goods and services seniors most likely consume. 

While the chained-CPI might be a more realistic measure of price changes for the population as a whole, it is not a more accurate measure of the cost of living for seniors. That’s because seniors tend to devote a larger share of their income to health care, which has grown more rapidly than other services and goods that the general population consumes. If policymakers are interested in indexing Social Security to a more realistic measure of changes in expenses among seniors they could adopt the experimental elderly price index (CPI-E) that the Bureau of Labor Statistics (BLS) has constructed for seniors over the age of 62. According to economist Dean Baker, over a 10-year period, adopting the chained-CPI would reduce benefits by roughly three percent, after 20 years six percent, and after 30 years nine percent.

It is also important to recognize that while Social Security benefits are quite modest  – the average benefit was $13,381 in 2010 in West Virginia – they are a large source of income for the state. In fact, they are a larger share of West Virginia’s personal income (9.5%) than any other state in the country. Therefore, any reductions to the benefit would greatly impact the state’s income base and its large share of seniors.

A lot of West Virginians depend on Social Security for their retirement. In fact, approximately 31 percent of seniors on Social Security in West Virginia rely solely on Social Security for their retirement income and two-thirds of seniors rely on it for at least 50 percent of their income.

Social Security is also the central reason why so many West Virginia seniors are not in poverty. As the chart below shows, over half of all seniors in West Virginia would be considered poor (less than $10,788 annually) without income from Social Security. All together, it lifts 113,000 West Virginia seniors out of poverty.

While the chained-CPI may sound like a small technical change to some folks in Washington, it is not something that is in the best interest of West Virginia seniors or the state’s economy.

What Does Raising the Social Security Retirement Age Mean for West Virginia?

As part of the “fiscal cliff” and “grand bargain” deficit negotiations, some CEOs, politicians, and pundits are saying that raising the retirement age of Social Security should be on the deficit chopping block despite the fact that it does not contribute to the federal budget deficit. Raising the retirement age is usually premised on the idea that everyone is living longer and that we can afford to raise the age at which we receive Social Security.

The problem with this argument is that some are living much longer than others. As Ezra Klein (and others previously) noted last week in the Washington Post, life expectancy is largely a function of income.

As the above chart shows, male earners in the top half  (top 50%) have seen their life expectancy at 65 rise about 5 years over the last three decades while the bottom half saw their life expectancy at 65 rise barely a year. This is a crucial point for those advocating for an increase in the eligibility age of Social Security because clearly not “everyone” is living longer.

This could be a particularly acute problem in West Virginia, especially since it ranks as one of the poorest states in the country and it benefits more than any other state from Social Security for its income. While we cannot separate life expectancy based on income in the state, we can look at how average life expectancy rates in West Virginia compare to other states.  In 2009, West Virginia had the second lowest life expectancy in the nation at 75.2 years compared to 78.6 nationally. Factors contributing to our state’s low life expectancy is the disproportionally high number of disabled people,  our low per capita and median incomes, and a heavy concentration of workers in physically demanding jobs such as coal mining.  While the average life expectancy for males in the state was 72.3, it was just 78.1 for females, which was the lowest in the nation in 2009.

Looking more closely at individual counties in West Virginia you see even more evidence that females are not living longer. Among the state’s 55 counties, 18 saw a decline in female life expectancy over the last two decades. In McDowell County, which is one of the poorest counties in the state and nation,  female life expectancy declined by 1.7 years, from 75.8 in 1987 to 74.1 in 2009. 

There is also a large racial gap in life expectancy. In 2009, the average life expectancy for black males was nearly three years shorter than white males, 69.6 compared to 72.5. White females are living nearly three in a half years longer than black females in the state (78.1 compared to 74.7) . As the graph below shows, black females have also witnessed a decline in life expectancy over the last two decades, from 75.1 to 74.7.

It also important to keep in mind that the above life expectancy rates are “averages.” This means that a majority of folks in the state are below the average, especially lower-income folks who tend to not live as long. Because of the state’s low life expectancy and income, raising the retirement age of Social Security means that the state – and especially the high number workers in low wage jobs – will benefit far less from Social Security than other states and those with higher incomes. 

Raising the retirement will also hurt workers in the state that work in physically demanding jobs that tend to retire before 65, such as coal miners and construction workers. In contrast, people with desk jobs, like me, are likely to work well beyond 65.

Keeping all of this mind when debating whether to raise the Social Security retirement age is not only important to our state’s working families and economy, but it is also important if we want to live longer and keep more of our seniors out of poverty.

 

 

 

Romney/Ryan Budgets: How Would They Impact West Virginia?

While there has been a lot of debate about how President Obama’s environmental policies would hurt West Virginia’s coal industry and economy, there has been very little discussion about the impact of  Governor Romney and Representative Paul Ryan‘s proposed policies on the Mountain State.

Both Romney and Ryan have proposed drastic changes to federal spending and programs that could dramatically impact families in West Virginia. These policies could especially impact elders and low-wage workers in the state.  While both Romney and Ryan have proposed repealing the Affordable Care Act, they have also outlined specific budget proposals that would cut federal programs such as Medicare, Medicaid, Social Security, and non-discretionary federal spending.

West Virginia’s economy is especially vulnerable to cuts in Medicare, Medicaid and Social Security because of its growing elder population and the high number of low-income families in the state. In fact, West Virginia relies more heavily on Medicare, Medicaid and Social Security for its personal income than any other state in the country. 

For example, in 2011 approximately $12.7 billion or 20.5 percent of the state’s $62 billion in personal income came from Medicare, Medicaid, and Social Security. The U.S. average was 12.8 percent.  Among the 50 states and the District of Columbia, West Virginia relies more heavily on these three programs for personal income than any other state in the country (see chart below). As mentioned above, the central reason why West Virginia relies heavily on these three programs is because the state has the second highest share of people over 65 years old in the country. Another reason is our state’s lack of economic diversity and opportunity, the high number of low-wage jobs (Wal-Mart is our #1 employer), and the long history of poverty associated with the booms and busts of the extractive industry. 

For comparison, only 5.5 percent or $3.4 billion of personal income in 2011 was derived from coal mining and natural gas extraction – two of the largest industries in the state. Medicaid comprised 4.4 percent, Medicare 6.6 percent, and Social Security 9.5 percent. Approximately 1 out of 4 state residents (24 percent or 443,911) received Social Security benefits in 2010 and 1 out of 5 (20.5 percent or 373,450) were insured by Medicare and 17.4 percent or 416, 858 were insured through Medicaid in 2009. A total of 113,00 seniors in West Virginia were lifted out of poverty by Social Security.

So how would Romney and Ryan’s proposed federal budget policies would impact the Mountain State? Let first look at the three programs discussed above.

Medicare: Rep. Ryan’s 2012 budget (which passed the House in March of 2012) would raise the eligibility age of Medicare from 65 to 67 and would replace Medicare’s guarantee of health coverage with premium-support payments (sometimes called vouchers) to seniors starting in 2023. The first change would mean many our state residents who are 65 or 66 years-old would lose health coverage because they would not have access to Medicare, employer-based plan (or PEIA if they are state employees or school teachers), or the health care exchanges. They would be forced to buy coverage in the individual market, which many could not afford. Because of the limited growth in premium support payments in the Ryan budget, the Congressional Budget Office projects that by 2022 an average 67-year-old beneficiary would see their out-of-pocket expenses nearly double – from $6,150 to $12,500 – compared to traditional Medicare. The Romney budget to cap total federal government spending at 20 percent  would reduce Medicare by $1 trillion from 2014-2022, according to a recent report by the Center on Budget and Policy Priorities. In 2011, WV received $4.1 billion in Medicare transfers or about 0.75% of total U.S. Medicare transfers. Assuming the same share of US costs, this would amount to $7.5 billion of lost Medicare payments in WV from 2014-2022.

Medicaid: Rep. Ryan’s budget would repeal the Affordable Care Act, thereby repealing the ACA Medicaid expansion, and turn Medicaid into a block grant program. According to a recent Kaiser Family Foundation report, this would reduce federal Medicaid spending by $1.7 trillion between 2013 and 2022. All together, this would reduce Medicaid spending in West Virginia by 38% or $15.9 billion over this time period. The report also points out that this would reduce enrollment in Medicaid between 216,000 and 259,000. If WV wants to avoid the cuts due to the block grant it will have to spend an additional $1.2 to $2 billion from 2013 to 2022.  An analysis of Romney’s budget shows that federal Medicaid spending would be reduced between 44 percent and 61 percent or $1.5 and $1.9 trillion from 2014 to 2022. 

Social Security: While Ryan is on record of supporting the privatization of Social Security and his Road Map for American’s Future  includes plans to partially privatize the program, his budget proposal did not include any drastic changes to Social Security. Romney has been on record advocating for raising the retirement age, indexing benefits, and not increasing the payroll tax to shore up the solvency of the program. A recent report from the Center for Economic and Policy Research shows that this would hit low-income families the hardest and would increase income inequality.

Romney and Ryan’s budget would also dramatically reduce spending on a whole host of other federal programs. For example, under Romney’s budget would require deep cuts in SNAP (food stamps), Children’s Health Insurance Program (SCHIP), and  non-discretionary programs such as aid to elementary and secondary education, veterans’ health care, law enforcement, highways and mass transit, national parks, environmental protection, biomedical and scientific research, housing assistance, the weather service, and air traffic controllers. A recent analysis of Ryan’s budget shows that it would make deep cuts in SNAP that would impact WV. Of the proposed $134 billion in SNAP cuts in Ryan’s budget from 2013-2022, it would cost WV approximately $840 million over this ten year period. Under Ryan’s budget  plan, West Virginia would also lose an estimated 22 percent or $195 million in federal funding for education, clean water, law enforcement, and other state and local services in 2014 alone. Ryan’s plan also would shift other very large costs to West Virginia  by reducing sharply federal funding for highway construction and other transportation projects.

While it is unclear how these policies would unfold if Romney and Ryan are elected in November, it is very clear that they would have a dramatic impact on West Virginia’s economy and especially the state’s  elderly and working families.  While Obama’s proposed regulations on air-pollution and green house gases will impact  the state’s coal economy, it is abundantly clear that Romney/Ryan plans to repeal the Affordable Care Act, drastically reduce federal spending over the coming decades, turn Medicaid into a block grant, and replace Medicare with a voucher plan will have a far greater and pervasive impact on working families in the Mountain State.

More Seniors Working in West Virginia

On Friday, Floyd Norris of the New York Times had a piece on the increase in seniors working since 2006.  In West Virginia, we’ve seen a similar pattern. In 2011, approximately 13.2 percent of those 65 and older were employed compared to just 9.0 percent in 2006. In comparison, in 2011 49.9 percent of all West Virginians 16 and older were employed, compared to 53.0 percent in 2006. So while overall, fewer West Virginians are working since the recession, more seniors are. 


Source: WVCBP analysis of BLS data

Source: WVCBP analysis of BLS data

While the increase in seniors working spiked during the recession, it is actually part of a longer term trend in West Virginia. The percentage of those 65 and older working in West Virginia has been growing steadily for over a decade.
 

Source: WVCBP analysis of BLS data

One of the reasons cited for the increase in workers working past retirement age is the loss of wealth created by the bursting housing bubble. As economist David Rosenberg puts it in the linked article, “The fact of the matter is that this aging-but-not-yet-aged segment of the baby boomer class can’t afford to retire. Dreams of the 5,000-square-foot McMansion being a viable retirement asset have morphed into nightmares of a deflationary ball and chain.”

While the housing bubble was less severe in West Virginia, its effects and those of the rest of the financial crisis continue to have an impact on our workforce.

Welfare Not the Source of West Virginia’s High-Income Transfer Payments

West Virginia has one of the lowest per capita incomes in the country, and nearly 25 percent of personal income in West Virginia comes from government transfer payments. The national average is just under 15 percent. Transfer payments are mainly made up of  payments by the government for various social benefit programs. These programs include Social Security, Medicare, Medicaid, unemployment insurance, public assistance and others. Transfer payments make up a larger share of personal income in West Virginia than in any other state.

 
Source: Bureau of Economic Analysis
 
 
To understand why transfer payments make up such a large share of personal income in West Virginia, first it helps to understand what makes up the payments, and where West Virginia differs from the rest of the country. This next chart shows transfer payments by county in West Virginia and also breaks the payments down by category.
 
Source: Bureau of Economic Analysis

Unemployment insurance, income maintenance programs, social security, and medical benefits appear to be the main drivers behind West Virginia’s transfer payments. Now the question is how West Virginia differs from the rest of the country and why.
 
 
Unemployment benefits have  made up less than 1 percent of West Virginia’s personal income since 1990, which is roughly equal to the national average. Unemployment benefits are not creating the difference.
 
 
Income maintenance benefits include welfare benefits like supplemental security income, food stamps, and other forms of family and income assistance. These benefits have made up between 2 and 2.5 percent of personal income in West Virginia since 1990, roughly 1 point higher than the national average. Since West Virginia is a poorer state, you could expect this number to be higher, but it still doesn’t fully explain the overall difference. Something other than welfare gives West Virginia its large share of transfer payments.
 
 
With social security, we are starting to see some real differences. Social security benefits have consistently made up 9 percent of West Virginia’s personal income since 1990, about 4 points higher than the national average. The reason for this is simple, West Virginia has the second oldest population in the country. An older population means more retired persons, which leads to more social security payments.
 
 
With medical benefits, which mainly include Medicare and Medicaid, the picture becomes even more clear. Medical benefits make up almost 10.5 percent of West Virginia’s personal income, compared to the national average of just under 7 percent. Even more important, that number has grown substantially since 1990 for the state and the country overall. This is due to the rising costs of healthcare, and the growing number of seniors drawing Medicare benefits. Also playing a role is the poor health of West Virginians.
 
West Virginia ranks in the top three in the following categories among the states: 
  • prevalence of smoking (1)
  • cancer deaths (2)
  • cardiovascular deaths (3)
  • high cholesterol (1)
  • high blood pressure (2)
  • diabetes (1)
  • obesity (2)
West Virginia also has high levels of air pollution and high levels of preventable hospitalizations.
With an older, unhealthy population, its no surprise that transfer payments make up such a large percentage of West Virginian’s personal income. As the population continues to age, that number will grow, unless we begin to invest in our future population and take steps to control healthcare costs.

OPEB Part Deux

On Friday, State Senator McCabe had a nicely written retort to my op-ed last week on OPEB . Senator McCabe is a friend and I value his opinion greatly and I think he takes a well reasoned and balanced approach. I just wish I was as optimistic as McCabe about addressing OPEB and our long-term investment needs. The only statement that misrepresents what I wrote is when McCabe suggests I want to reduce or eliminate the retiree health care subsidy for employees. I do not and would not suggest this, especially since they’ve already eliminated it for all new hires and you’d risk a major lawsuit if you reduced the benefit.

While I agree with many of his points, I think our central disagreement is that I think reining in health care costs is a completely different issue from trying to prefund health care trusts rather than investing in workforce development. McCabe’s argument hinges on the discount rate – will the state get a better return on investment handing the money to Wall Street or will WV get a better return by investing in the education of the workforce, which will lead to higher incomes and more taxes paid in the future. Personally, I think the latter is a better investment, but I do recognize that this is a very debatable point.

I also do not agree – and this was a major point of my op-ed – that the $650 million reflects reality. I think the accrual measure is fundamentally flawed  – and even if it turns out to be true in 15 years that health costs rise to this extent than the whole country will be having far more serious problems – and is based on a worse-case scenario. However, I do recognize that many believe we have to use the numbers the actuaries give us, even if they are faulty.

Regarding health care costs, I agree wholeheartedly that this is the number ONE issue affecting our state and federal government’s long-term fiscal health. And I agree that to address this will require mostly federal action, but there are many things we can do at the state level. Sen. Rockefeller introduced a bill last year to allow people below age 55 to buy into Medicare. This could have put a nice dent in the projected OPEB liability. We should be putting pressure on DC for this proposal. There have also been dozens of other proposals at the federal level to specifically lower Rx drug bills. (It’s also important to keep in mind that if we had the per-capita health care costs of Canada, we wouldn’t even be discussing OPEB or the US debt problem.) At the state level, there are dozens of policy ideas to reduce costs and very few have been implemented.

I think we should be very concerned about our public pension debt (And I commend the Governor and Legislature on addressing this issue), which is real and in comparatively poor shape, and not be so worried about OPEB. If PEIA retiree health care costs rise to $650 million in 15 years, essentially quadrupling in size,  none of us will have health care. I know I would not be able to provide it to our employees if this happens. This is a major crisis! (It’s important to keep in mind that 22 states have appropriated ZERO funds toward their respective OPEB liability.)

My gravest concern is the state will not have the will or ability to make the important investments we need in education and workforce development and put $600 million into the OPEB Trust Fund. This is because state fiscal policy decisions are a zero-sum game – we can’t borrow like the federal government and resources are scarce – based on priority or what’s highest on the agenda. It’s about choices and we can rarely do everything that’s needed. If OPEB is a bigger concern than having an underdeveloped workforce and low-incomes, than it will get the investment. Rarely will both receive equal investment. I hope I’m wrong and McCabe is right.

More "Gray" Equals Less "Green"

As I mentioned in my last post , the Census projects that by 2030 one in four West Virginians will be over age 65. As a result, it could cost state and local governments a lot revenue. This is because seniors, in general, are not part of the labor force. This means they pay less in taxes and demand more services.  Today, I want to talk about just one of those potential costs – the loss of property tax revenue due to the Homestead Exemption. 

The Homestead Exemption provides an exemption of up to $20,000 of assessed property value based on age (65 and older) and disability.  If the Census’s estimates are correct,  then counties can expect a sizable reduction in property tax revenue because the number of home owners over 65 will have also increased. My calculation* says that the loss of property tax revenues will cost an additional $20.3 million dollars by 2030. 

   

 

Two-thirds of the expected property tax revenue loss ($13.4 million) will affect state school board budgets while one-fourth of the loss ($5.2 million) will come from county budgets.  Municipalities’ budgets will be reduced by  nearly 8% ($1.6 million) and the state’s budget less than 4/10 of 1%.  The good news for counties is that most of it could be made up via the school aid formula. The bad news is that the state will have to find the additional dollars to send to the counties. This means raising taxes, reducing the exemption, or cutting the budget. 

 

So, for state and local officials more “gray”could equal less “green.” Next time I’ll look at some other tax credits and preferences for seniors, including the Senior Citizens Credit for Property Tax Paid ( -$7.7 million),  the Senior Citizen Property Tax Payment Deferment (-$900,000), and the Decreasing Modification for Senior Citizens which results in a current revenue loss of (-$39.6 million).


 

 

*The West Virginia Tax Department reports the total value of Homestead Exemptions in CY 2008 was $44 million dollars, which included tax filers who qualified based on both aged and disability.  County assessor and state tax department officials estimate that 88% of the total Homestead Exemption revenue lost in the state was due to age, while 12% was based on a qualifying disability. In CY 2008, approximately 185,000 West Virginia tax filers  received $38.7 million dollars in property tax relief under the Homestead Exemption as a result of their age.  According to population data of the US Census, in 2008, there are 285,000 West Virginians aged 65 and older.  The US Census projects the number of residents aged 65 and older will increase to 435,000, an addition of 150,000, or 53% additional “grays” to West Virginia’s population.  Part of this phenomenon is the result of a negative population trend for younger West Virginians (see, The “Graying” of West Virginia’s Population).  A 53% proportional increase in Homestead Exemptions will increase the revenue lost by an additional $20.3 million dollars by 2030, ($38.7 X .526 = $20.3).