Post on 18-Apr-2017
CALIFORNIA
Presented by Valentina Forsythe, Neel Mehta, Sriram Prakash, Joanne Reinhard, Andy Soltani
A Troubled Fiscal Future
The Problems:Introduction
Present:Fiscal challenges exist for the present, short-term, and long-term futures
What if We Do Nothing?Introduction
Present:Maintaining current liabilities will grow to become more striking problems
• Decrease in credit rating• Collapse of pension and healthcare systems• Drastic cuts of programs and services• Compounding debt to future generations
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-1670
80
90
100
110
120
130
Total Revenues and Transfers (Dollars in Billions) Total Expenditures (Dollars in Billions)
Medi-Cal Spending as a Percentage of the General Fund
What if We Do Nothing?Introduction
Present:Maintaining current liabilities will grow to become more striking problems
• Decrease in credit rating• Collapse of pension and healthcare systems• Drastic cuts of programs and services• Compounding debt to future generations
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-1670
80
90
100
110
120
130
Total Revenues and Transfers (Dollars in Billions) Total Expenditures (Dollars in Billions)
Medi-Cal Spending as a Percentage of the General Fund
$20 Billion Gap
ProposalsIntroduction
Present:California must act now and make drastic changes across the board
• Appeal to US Government to ease restrictions or subsidize Medi-Cal • Restructure retiree healthcare benefits• Reduce pension obligations for new state employees
State Workers Health ObligationsH
ealthcare
Present:GAO estimates that healthcare costs will drive future budget problems
• Current $52 Billion unfunded liabilities• Costs to increase 6.7% per year• Retirees to increase 1.2% per year• Obligation to cover regardless of cost
Annual Growth of Healthcare Costs Hospital Care 8.20%Physician Services 5.50%Drug Costs 3.40%Overall Cost per Retiree 6.70% Number of retirees 1.30%
California’s Medi-CrisisHealthcare
Medi-Cal will become unaffordable if left at current growth rate in 30 years
• End of ARRA stimulus increases yearly costs from $10 to $23 Billion• Affordable Care Act to increase coverage, costs $2 Billion annually• Current expense growth rate = 8%• Unsustainable by 2040
Medi-Cal Spending as a Percentage of the General Fund
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-1610%
12%
14%
16%
18%
20%
22%
24%
California’s Medi-CrisisHealthcare
Medi-Cal will become unaffordable if left at current growth rate in 30 years
• End of ARRA stimulus increases yearly costs from $10 to $23 Billion• Affordable Care Act to increase coverage, costs $2 Billion annually• Current expense growth rate = 8%• Unsustainable by 2040
Medi-Cal Spending as a Percentage of the General Fund
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-1610%
12%
14%
16%
18%
20%
22%
24%
ARRA Stimulus
Recommendation: Medi-CalHealthcare – Proposal I
Present:Appeal to US Government to ease restrictions or subsidize Medi-Cal
2Make Medi-Cal
Flexible
Increase Federal Contribution
Federal Take-Over of Medi-Cal
13
• Present fiscal problems to Federal Government• Leverage California’s ability to opt out
• Opt out of Medicaid• Allow Federal Government to take over
• Decide which optional Medi-Caid programs to take
Recommendation: Retiree HealthPresent:Restructure retiree healthcare benefits
2Create a Retiree Healthcare Fund
Reduce Retiree Healthcare Benefits
Make Retroactive Changes
13
Healthcare – Proposal II
• Cap annual payments• Shift risk of higher premiums to retirees• Require longer service for health benefits
• Acknowledge that health benefits are not a right• Consider the removal of all retiree healthcare
• Start gathering assets for the fund• Actuarial estimation of liabilities and their growth
Painsion ProblemPensions
Present:Pensions provide overly-generous compensation to state employees
• Public guaranteed 250% more the retirement benefits of private workers
• Pension loopholes:• Pension-Spiking• Double Dipping
• Retroactively grown from bills and translations:
• SB400• Safety Pensions
CA Pension Benefit Formulas Before and After SB 400
Employee Category Before SB 400 After SB 400 (Eff. Jan. 1, 2000)
Miscellaneous/Industrial 2% at 60 2% at 55
Safety 2% at 55 2.5% at 55
Peace Officer/Firefighter 2.5% at 55 3% at 55
Highway Patrol 2% at 50 3% at 50
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Public Private
Benefit
Contribution
Hourly Benefit Compensation
Pension TrendsPensions
Present:Pension liabilities are increasing while assets have decreased
Change in Public Benefits over Last Decade
• Assets have declined by 25% or $100 Billion and will run out by 2030 • Discount rates skew these liability projections from $55 to $500 Billion
Source: Reason Foundation
Recommendation: PensionsPensions – Proposal III
Present:Reduce pension obligations for new state employees
2Prevent Cheating
the System
Prevent Against Beneficiary Increases
Shift to Defined-Contribution plan
13
• Stop retroactive increases like SB 400• Control state employee growth• Prevent translation of benefits
• Give new employees defined contribution plans• Equalize benefits between public, private sectors
• Average multiple years for pension sample• Deduct post-retirement income from pensions
Resistance to ChangeComplications
Present:• Ethical Issues
• Placing a Price on Life• Lowering Standard of Living for State
Employees• Opting out of Medi-Cal will place entire
burden on Federal Government• Legal Issues
• Contractual rights cannot be revoked• Technical Issues
• Comparisons are often imperfect» Private and Public Sector
• Cannot institute overarching systems» Judgment calls required for
healthcare
Ethical, legal, technical challenges arise with the institution of proposals
ConclusionConclusion
Present:California’s fiscal future needs drastic action to be taken in the present
• California cannot sustain its current expenditure level• Pension Liability is 5 times greater than outstanding debt• Upcoming Medi-Cal cost growth is 50% of budget deficit
• California must reform its programs:– Medi-Cal
• Appeal to Federal Government– Retiree heath care
• Fund or lessen benefits– Pensions
• Change to Defined-Contribution structure
References1. Legislative Analyst’s Office;
http://www.lao.ca.gov/laoapp/PubDetails.aspx?id=23652. The 2011-2012 Budget: California’s Fiscal Outlook;
http://www.lao.ca.gov/reports/2010/bud/fiscal_outlook/fiscal_outlook_2010.pdf3. Going For Broke: Reforming California’s Public Employee Pension Systems;
http://siepr.stanford.edu/system/files/shared/GoingforBroke_pb.pdf4. Medicaid Meltdown: Dropping Medicaid Could Save States $1 Trillion;
http://www.heritage.org/Research/Reports/2009/11/Medicaid-Meltdown-Dropping-Medicaid-Could-Save-States-1-Trillion
5. California Bond Woe Bodes Ill for States; http://online.wsj.com/article/SB10001424052748703688704575620912858864200.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsForth
6. $10-billion Medicaid plan approved for California; http://articles.latimes.com/2010/nov/03/nation/la-na-california-medicaid-rules-20101103
7. S. R. Collins, How the Affordable Care Act of 2010 Will Help Low and Moderate Income Families, The Commonwealth Fund Blog, July 2010.
8. Addressing California’s Pension Shortfalls: The Role of Demographics in Designing Solutions; http://www.milkeninstitute.org/publications/publications.taf?function=detail&ID=38801252&cat=resrep
AppendixCA Retirement Benefits Compared to Selected Other States
Employee Retiring in 2004*Employee
ContributionState Benefits at Age 55
Benefits at Age 60
Benefits at Age 62
Benefits at Age 65
California $25,200 $36,098 $40,958 $46,500 5%Florida $11,914 $20,424 $24,439 $28,410 -Illinois ** $24,250 $26,115 $28,913 4%Oregon $15,242 $24,831 $26,741 $29,606 6%Texas ** $34,199 $36,829 $40,775 6%
* Assumes employee started working for the state at age 34 and has earned $60,000 in salary in the last year before retirement.** Not eligible for retirement at this age.
Source: CA Legislative Analyst's Office
LAO General Fund Forecast (Dollars in Millions)
Fiscal Year 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16Total Revenues and Transfers
$ 87,041 $ 93,283 $ 83,530 $ 88,723 $ 94,708 $ 100,478 $ 106,197
Total Expenditures $ 87,037 $ 92,505 $ 102,756 $ 111,167 $ 115,149 $ 120,683 $ 125,631 Mide-Cal Spending $ 10,136 $ 12,595 $ 17,642 $ 18,831 $ 20,291 $ 22,101 $ 23,976