Famed economist Arthur Laffer endorsed HB1439, the Mississippi Tax Freedom Act, legislation introduced by Mississippi House Speaker Philip Gunn that seeks to eliminate the income tax.
Laffer’s work played a foundational role in defining the economic policies that led to tremendous growth under the Reagan administration in the 1980s. His preeminent and lasting work is known as the Laffer Curve. This theory notes that, through taxation, government gains revenue until, at a certain point, the taxation discourages growth to the point that the government actually takes in less revenue.
In 2019, Laffer was awarded the Presidential Medal of Freedom by President Donald Trump for his accomplishments in and contributions to the study of economics.
In a press release sent out by Speaker Philip Gunn, Laffer stated:
“For decades, I’ve worked with state legislators to eliminate the tax that is the single greatest threat to state economic growth and prosperity—the income tax. My hat goes off to Mississippi Speaker of the House Philip Gunn and his colleagues for their bold plan to make Mississippi more prosperous through income tax elimination and fiscal discipline. America is watching. Mississippi has a once in a generation opportunity to re-position itself for economic growth.”
“I am very pleased to have Dr. Laffer’s support for HB1439,” noted Speaker Gunn. “Dr. Laffer’s leadership was a key inspiration for President Reagan’s transformative tax cuts, which set off an unprecedented boom in the American economy. There is no bigger name in tax reform circles nationally than Dr. Laffer. His support demonstrates the strength of HB1439. It is a credit to the hard work of Chairman Trey Lamar, Speaker Pro Tem Jason White, and our House members. As Dr. Laffer said, this is a once in a generation opportunity. I urge Lt. Governor Hosemann and our Senate to work with the House to bring transformative tax reform to Mississippi this session.”
A recent study by Dr. Joshua R. Hendrickson and Dr. Ronald Mau, economists at the University of Mississippi, showcased that the proposal would likely increase gross domestic product in the state by at least $371 million. This growth is in addition to the personal savings that individual taxpayers would experience because of the plan.
Our Senior Vice President for Policy, Dr. Jameson Taylor, interviewed Hendrickson and Mau to discuss their findings. You can read the full interview here.
HB1439 now awaits consideration in the Senate.
What tax plan is best for the people of Mississippi? What kinds of taxes are best for job growth and the economy? Why is tax policy important, in the first place?
Dr. Jameson Taylor recently interviewed two Mississippi economists for the answers. Dr. Joshua R. Hendrickson and Dr. Ronald Mau have studied the real-life effects of the Mississippi Tax Freedom Act (HB 1439) and produced a timely report on how the Tax Freedom Act would grow Mississippi’s economy.
Dr. Hendrickson holds a Ph.D. from Wayne State University and is an associate professor of economics at the University of Mississippi. Dr. Mau holds a Ph.D. from the University of Notre Dame and is an assistant professor of economics at the University of Mississippi.
Dr. Taylor: It seems like the income tax is not something most people think about. People see this money taken out of their paycheck, but don’t realize it’s actually part of their tax bill from the state and federal government. Why is tax policy important for the average Mississippian?
Drs. Hendrickson and Mau: Tax policy is important to the average Mississippian because it affects how much money they really bring home in their paycheck. It also affects the costs of the things that they buy. In addition to other taxes in the economy, these income and consumption taxes reduce household resources available to save or spend.
On a more macro level, tax policy is important because it affects economic activity in the state, a key measure being the total amount invested in the state. When investment income is taxed, investment returns are lower, and investment resources may flow elsewhere. Tax policy can also affect whether businesses want to locate here or workers want to live here.
Dr. Taylor: Tax policy differs quite a bit from state to state. Nine states essentially have no income tax. Five states have no state sales tax. Mississippi is in the middle of the pack in terms of its overall tax burden. How much does tax policy affect where people choose to move?
Drs. Hendrickson and Mau: Tax policy is important. While tax policy might not always be the most important determinant of where a firm or a particular person decides to move, it does matter at the margin. In other words, when a particular person or company is choosing between moving to one state or another, the taxes that one has to pay in each of those states will play a role in that decision.
Dr. Taylor: The Tax Freedom Act essentially eliminates the income tax in exchange for raising the sales tax, excepting a cut to the grocery sales tax. What does the research show is the best way to levy taxes and what are the tradeoffs between taxing income and taxing consumption/sales?
Drs. Hendrickson and Mau: In general, research shows that a consumption-based tax system is preferred to an income-based tax system on efficiency grounds. People have no doubt heard the phrase, “when you tax something, you get less of it.” This is what economists mean by inefficiency. The tax prevents economic activity that would have taken place without the tax.
All taxes create distortions in economic activity, but not all taxes create the same magnitude of inefficiency. When designing a tax system, one would like to generate as much revenue as possible with the smallest distortions possible.
Consumption-based tax systems are preferred to income-based tax systems because the former create fewer distortions—income taxes not only tax labor income but also tax income that comes from savings. A tax on savings income lowers the after-tax rate of return on savings. Due to the nature of compound interest, the costs of taxation increase with the duration of savings.
Think about why people save. They might save to buy a new car, to have money for a rainy day, or for their retirement. Thus, we can think of savings as a way to pay for future consumption. Since the cost of taxation increases with the duration of savings, taxing income from savings is like having a tax on future consumption where the tax rate is higher every subsequent year in the future.
As we said, the goal of tax policy is to raise as much revenue as possible while also trying to minimize the distortions in economic activity that come from taxes. A higher and higher tax rate on future consumption not only creates a distortion, but the distortion gets larger with time. People not only have the incentive to save less, but they have an incentive to save for shorter durations of time.
A consumption-based tax system also creates distortions. However, in contrast to a tax on income, a consumption-based tax system taxes consumption in each period equally. As a result, you get fewer distortions.
Dr. Taylor: Your study finds that the Mississippi Tax Freedom Act (HB 1439) would increase incomes and economic activity in Mississippi. Why is this the case? How would it affect incomes in Mississippi?
Drs. Hendrickson and Mau: Our analysis really highlights the benefits of a more efficient tax system. When it comes to tax reform, what policymakers would like to do is increase economic activity without reducing the amount of tax revenue that they bring in. Of course, that is not easy to do. When you eliminate a particular tax, you eliminate the distortions and increase economic activity. However, you also lose the revenue that tax generates. To make up for that lost revenue, you have to create a new tax or increase another existing tax. Doing so generates revenue but also creates new or bigger distortions. For tax reform to be successful by the terms we just described, the new tax regime would have to be more efficient than the existing regime.
Our analysis shows that eliminating the income tax and replacing the revenue with a higher sales tax increases economic efficiency. This is because the distortions of the sales tax are smaller than the distortions from the income tax. The reason is what we described in answer to the last question. Income taxes tend to discourage savings and investment. As a result, shifting away from the income tax provides greater incentives to save and invest. This is where the economic benefits come in. This increase in investment leads to more production, higher marginal productivity of workers, and higher labor income. Furthermore, as a sign that a more efficient tax system drives this, we find that consumption would increase, despite a higher sales tax. This demonstrates that the economic effects of eliminating inefficiencies more than offset the cost of the tax increases.
A bill that eliminates the income tax for most Mississippi workers has just passed the House, clearing a crucial hurdle in the process to becoming law. If the bill (HB 1439) passes, Mississippi workers would have thousands of extra dollars in their pocket each year.
The bill was authored by House Speaker Philip Gunn and co-authored by Rep. Trey Lamar, Rep. Jason White, Rep. Jeffrey Guice, Rep. Dan Eubanks, Rep. Brady Williamson, Rep. Steve Hopkins, Rep. Chris Brown, Rep. Dana Criswell, Rep. Gene Newman, Rep. Bill Kinkade, and Rep. Jansen Owen.
The bill was passed with a vote of 85 to 34.
HB 1439 will now move onto the Senate for further consideration.
Everybody on a payroll in Mississippi today pays $1 in state income tax out of every $20 they earn – on top of all the other taxes they have to pay. Speaker Gunn’s proposal would raise the threshold for income tax, meaning the first $47,700 earned is tax exempt. For married couples, the threshold would rise to $95,400.
The bill would seek to phase out the income tax over time. It would also cut our state’s extremely high grocery tax in half, from 7% to 3.5% over time. To offset the lost revenue, the bill would increase the sales tax rate by 2.5% from 7% to 9.5%.
“This is great news for Mississippi”, said President of the Mississippi Center for Public Policy, Douglas Carswell. “Giving workers a tax break will boost the state’s economy. It is also morally the right thing for folk to be free to keep more of what they’ve earned.”
“Instead of outright abolition of income tax, it looks like this proposal is a step towards phasing income tax out,” explained Carswell, whose think tank has been at the forefront of efforts to eliminate the tax.
“Instead of asking if we can afford to end the income tax, we ought to ask if we can afford not to. Fast growing southern states like Texas, Tennessee, and Florida don’t have income tax. That’s why incomes in those states are rising and job creation is flourishing. Mississippi could do the same, too.”
“This bill will increase sales tax, which is not normally something we would agree with. However, if taxes must be levied, they should be levied on consumption, rather than income.”
“We are also relieved that this bill proposes lowering taxes on groceries. That will help families struggling to make ends meet.”
“Mississippi needs bold action to grow. We welcome Speaker Gunn’s leadership and encourage swift action by Lt. Gov. Delbert Hosemann.”
If you are interested in signaling your support for income tax elimination, then be sure to sign this petition.
The Mississippi House is considering a bill (HB 1364) that would increase gas taxes and increase debt for the people of Mississippi. The bill caps new bond debt at a whopping $2.5 billion. The bill also indexes the state gas tax according to the U.S. inflation rate. This means that the state gas tax would go up whenever the U.S. inflation rate goes up. Many economists are expecting the U.S. inflation rate to go up in 2021.
HB 1364 has passed out of committee and is already on the House calendar. A vote by the full House is expected early this week.
Responding to the proposed gas tax increase, President & CEO of the Mississippi Center for Public Policy Douglas Carswell said, “It is wrong for politicians to be raising taxes on gas. History shows that these kinds of tax hikes are never temporary.”
“Making Mississippians pay more every time they fill up with gas means less money for them to spend on their own families. It will hit small businesses and folks who live in more rural areas especially hard.”
The gas tax bill also fails to fix a longstanding problem with how Mississippi funds transportation projects. A recent performance audit found that “a lack of competition in the bidding process has been proven to increase MDOT project costs.” More transparency is also needed so that the state prioritizes high-need projects that serve the most people and maximizes economic development opportunities.
“The idea behind this tax hike seems to be to create a pot of money to spend on infrastructure. Why not work out specifically what infrastructure we need, and set a budget for it, before taking more money from taxpayers? That way we might at least ensure we get value for money from any infrastructure projects.”
“Instead of figuring out ways to fleece taxpayers, we need politicians to focus on spending less, and spending it wisely.”
Mississippi lawmakers need to be able to control our own gas tax rate. This bill will tie our gas tax to the federal inflation rate, which is expected to go up. That means the gas tax will automatically go up, and Mississippi will not be able to do a thing about it. Why are we giving over control of our gas tax to Washington, D.C.?
A bill that eliminates the income tax for most Mississippi workers was unveiled today. If the law (HB 1439) passes, Mississippi workers would have thousands of extra dollars in their pocket each year.
Everybody on a payroll in Mississippi today pays $1 in state income tax out of every $20 they earn – on top of all the other taxes they have to pay. Speaker Gunn’s proposal would raise the threshold for income tax, meaning the first $47,700 earned is tax exempt. For married couples, the threshold would rise to $95,400.
“This is great news for Mississippi”, said President of the Mississippi Center for Public Policy, Douglas Carswell. “Giving workers a tax break will boost the state’s economy. It is also morally the right thing for folk to be free to keep more of what they’ve earned."
“Instead of outright abolition of income tax, it looks like this proposal is a step towards phasing income tax out,” explained Carswell, whose think tank has been at the forefront of efforts to eliminate the tax.
“Instead of asking if we can afford to end the income tax, we ought to ask if we can afford not to. Fast growing southern states like Texas, Tennessee, and Florida don’t have income tax. That’s why incomes in those states are rising and job creation is flourishing. Mississippi could do the same, too”.
“This bill will increase sales tax, which is not normally something we would agree with. However, if taxes must be levied, they should be levied on consumption, rather than income.”
“We are also relieved that this bill proposes lowering taxes on groceries. That will help families struggling to make ends meet."
“Mississippi needs bold action to grow. We welcome Speaker Gunn’s leadership."
Part II: The Mississippi Broadband Enabling Act of 2019
In February 2018, Mississippi Public Service Commissioner Brandon Presley announced an $11 million fiber infrastructure project aimed at spanning over 300 miles through 15 rural Mississippi counties. The project was a partnership between cable provider C-Spire and Entergy to bring the emerging fiber-to-the-home technology, which C-Spire had been offering to urban customers since 2013, to rural Mississippians.
Just one year later, Commissioner Presley lauded the strong bipartisan support for his new project, the Mississippi Broadband Enabling Act, which promised to bring fiber-to-the-home technology to the rest of rural Mississippi via the state’s rural electric cooperative associations (ECAs).
Presley told this author that the success of the legislation was the result of perfect timing. He cited the 2019 Mississippi statewide elections in which candidates (including incumbents) were well aware of the widespread support of Mississippians for universal broadband service availability.
Perhaps Presley was being modest. In reality, as reported by Geoff Pender in the Clarion-Ledger: “He created a task force that ended up with 1,310 members over 33 counties. … He got 60 county boards and 70 city councils to pass resolutions in favor of allowing rural co-ops to provide Internet service.”
Presley, in fact, succeeded in convincing lawmakers to reverse a 1942 law (enacted less than a decade after the state’s first rural electric cooperative association was established) that had barred ECAs from providing any product other than electric utility service to their customers. But beforehand, he had to win over enough of the state’s 26 ECAs to the idea that they could provide service even to the most remote customers (as they are required to do for electric utility service) without suffering financial losses.
At the time, only those with crystal balls could foresee the coming COVID-19 pandemic or that Congress – and the Mississippi Legislature – would authorize millions of dollars to make meeting their Internet service obligations that much easier – and less financially risky.
When HB 366 was passed, Presley called broadband “the electricity of the 21st Century,” and hoped for a day when children do not “have to sit in the McDonald’s parking lot to do their homework.” [Again, this was a year before COVID-19.]
Outgoing Mississippi Governor Phil Bryant boasted that, “If anyone wants to know how this bill got passed so quickly talk to the rural electric associations, because we do, and we listen to them.” Lawmakers passed the bill unanimously in the Senate after the House vote had just three “nays.” And with good reason – the ECAs serve 1.8 million of the state’s 3 million people and provide service to half of the state’s electric meters.
Similarly, Mississippi Farm Bureau Federation President Michael McCormick said farmers and ranchers in all 82 counties of Mississippi cited lack of connectivity as a top concern, along with the growing need for telemedicine and distance learning. Moreover, McCormick said, “I’ve talked to some real estate guys, and they tell me five or 10 years ago they would never have someone ask if high-speed Internet is available on a property. Now almost everyone asks the question.”
The 2019 law enables ECAs to establish or allow a separate broadband provider to use their systems to provide service. They can invest or use loans to cover startup costs, but cannot dip into revenues from providing electricity service to subsidize broadband. The law does not require ECAs to offer broadband, and several have so far not opted to do so.
No state funds were allocated for the ECAs, but some federal dollars were already available through existing programs. Then COVID-19 hit, and with it came a cornucopia of federal dollars and programs (see Part III of this series).
Responses by the state’s cooperatives varied widely. The Pontotoc Electric Power Association in February 2020 voted to discontinue its fiber-to-the-home project based on projected costs of $43 to $48 million and a paltry $1.9 million in currently available grant money. But by June 2020 (just before the Legislature voted to pass federal dollars to ECAs) 15 electric cooperatives were already working on plans to build fiber to the home in their coverage areas. All 15 were subsequently awarded one-to-one matching grants.
An elated Presley admitted that the ECA response “exceeds my wildest expectations. We had hoped we would have a couple step out there and then have a snowball effect.”
Part III of this report will discuss the federal CARES Act and federal funding for broadband stemming from the COVID-19 pandemic. Stay tuned.
Once You Buy In, You Can Never Leave
A few years ago, my wife and I wanted to take our kids to Disney World. As I was looking into hotel reservations, the sales agent asked if I’d be interested in listening to a “special offer.” I did and decided to purchase the 4-day/3-night package for $150.
I knew there would be a hard sell in exchange for this offer. I knew they’d be asking me to buy into a timeshare. Being a researcher, I did my homework and compiled my questions. To be honest, I wanted it to work. I like to travel, I like to stay at nice places, and I like to save money. So I went into it with an open mind.
The more I learned about the timeshare program, however, the more I realized it wasn’t such a good deal. I figured I probably wouldn’t get into the properties I wanted. I realized it would cost more than it seemed. In particular, there would be escalating annual fees that would soon make participation unaffordable. In the end, I discerned I would have more choice, at a more affordable price, if I didn’t buy into a timeshare.
I’m not saying timeshares can’t work for some people. For most consumers, though, they aren’t a good option.
I think you know where I am going by now. When I look at Medicaid expansion, even a Medicaid expansion like the Healthy Indiana Plan or the Mississippi Cares Plan, it looks a lot like a timeshare offer.
These are five reasons why this offer is not a good deal for Mississippi:
First, there is the price tag. Medicaid expansion has been much more expensive in every state than predicted, even Indiana. According to the Foundation for Government Accountability, Medicaid expansion has cost states, on average, 157 percent more than expected.
Their solid research is backed up by years of experience in other states. Consider that in 2014, then-governor Mike Pence promised:
“HIP 2.0 will not raise taxes and will be fully funded through Indiana’s existing cigarette tax revenue and Hospital Assessment Fee program, in addition to federal Medicaid funding.”
By 2019, hospitals were begging the state to raise taxes to pay for Medicaid expansion. Declared the Indiana Hospital Association:
“Hospitals support HIP by paying a state-based Hospital Assessment Fee (HAF). In 2019, the total HAF will surpass $1B. The hospitals’ share is increasing at an unsustainable rate, and increasing the cigarette tax can help provide necessary relief to hospitals.”
The Legislature responded by raising multiple taxes and creating new ones. Noted the nonpartisan Indiana Fiscal Policy Institute:
“Lawmakers had to adjust their final calculations to account for lower predicted sales and income taxes and higher-than-anticipated Medicaid costs. They looked to broaden the sales tax base by targeting online transactions through ‘market facilitators’ and hotel booking sites, and passed a massive gaming bill in the waning hours before adjournment to bring a jackpot of casino licensing fees and wagering taxes.”
In Mississippi, Medicaid expansion is going to cost at least $140 million a year, likely closer to $180 million. Some estimates are that we can expect additional enrollment as high as 360,000. This will cost us probably $200 million a year. One problem is that this population could be pretty expensive to cover, unlike children.
By the way, Medicaid expansion only applies to able-bodied, working-age adults. It does not cover kids (CHIP already does that). It does not cover the elderly (Medicare already does that). It does not cover the handicapped or disabled (We already do that with multiple programs). Medicaid expansion is about insuring adults who either are working or should be working.
Based on this fact, we might also wonder whether part of the intent in expanding Medicaid is to encourage people to drop private insurance in exchange for government-subsidized insurance. Nor should we be surprised that this seems to happen in every state that expands Medicaid. In Louisiana, some estimates found 3,000 to 5,000 people a month were dropping private insurance to get on Medicaid. Another study states that more than half of potential Medicaid enrollees already have private insurance.
The second reason Medicaid expansion is like a timeshare is because it is being pushed as a one-size-fits-all solution to multiple, complex problems. (No, that timeshare will not suddenly make vacationing with your in-laws more enjoyable.)
There is an economic principle called the Tinbergen Rule. This rule states that independent policy objectives should be resolved by independent policy instruments. A recent paper by the National Bureau of Economic Research (NBER) points out in this context that using hospital payments to finance care for the uninsured is just plain dumb – and expensive. (Another NBER paper also verifies that hospitals (not the poor) are the primary beneficiaries of Medicaid expansion.)
In other words, the problems Mississippi hospitals claim are going to be addressed by Medicaid expansion would be better dealt with by using more targeted solutions, whether it’s providing health care to low-income families or helping rural hospitals adapt to changing demographics.
Third, just like that timeshare you “own” is not really yours, Medicaid is not really under Mississippi’s control. Medicaid is largely controlled by the federal government. Under the current administration, this means there is virtually nothing Mississippi will be able to do to limit Medicaid enrollment and costs. Consider that we couldn’t even get the Trump administration to approve a mild work requirement. The Biden administration will be even less inclined to approve any such reforms. Consider, also, that so-called free-market Medicaid expansions, like Indiana’s, will require a waiver from the federal government. But it’s a very safe bet that the only waivers the Biden administration will be granting are for projects that expand Medicaid costs and enrollment.
The fourth reason Medicaid expansion is like a timeshare is because the quality of Medicaid is not very high. (Indeed, this is where my analogy fails because I’m sure many timeshares are comparatively better!)
No doubt, there are excellent providers in Mississippi’s Medicaid program. Overall, however, Medicaid outcomes are far worse than outcomes for patients with private insurance. Medicaid expansion doesn’t even improve physical health outcomes. This is one of the troubling findings from the Oregon Health Insurance Experiment (OHIE), now hosted at the National Bureau of Economic Research. Another finding, as indicated above, is that hospitals – not patients – are the real beneficiaries of Medicaid expansion.
We don’t have space here to explain why Medicaid outcomes are so poor. Part of the reason is because many health care professionals refuse to participate in the program because of low reimbursement rates. (The “fix” for that will be socialized medicine.) Part of the reason is that Medicaid patients themselves don’t value Medicaid coverage all that much, as the OHIE study also found, and don’t seem all that invested in their own health care outcomes.
The fifth and final reason expanding Medicaid is a lot like buying into a timeshare is because the timeshare model works best if you have a presumption of scarcity. Today, the timeshare model does not work very well because we can use the power of technology – the Internet – to find better properties at a better price. We can also use technology to access properties on sites like Airbnb. If we could not do that and if there was a scarcity of properties, the timeshare model might make more economic sense.
I want to dwell on this point a bit more because this attitude of scarcity is deeply ingrained in Mississippi’s psyche. Good and valid reasons explain this, but it is important to recognize it nonetheless.
Fortunately, the health care economy is not a finite pie. Both the potential and actual supply of health care in America is not as scarce as it might seem. In fact, there are multiple pies – not just one or two – and these pies can get bigger.
Let me give an example.
A few years ago, a South African carpenter named Richard van As lost four fingers during a woodworking accident. Unable to work, Richard needed a new hand, but couldn’t afford a prosthetic hand. Instead of giving up, he started searching for alternatives. His quest led him to Ivan Owen, a puppeteer in Washington State. Working together and crowd-sourcing the initial costs, they used a 3-D printing press to manufacture a new hand for Richard. Today, people, especially children, can obtain such prosthetic hands for a couple of hundred dollars, if not for free. Perhaps you’ve seen them: Transformer hands, Iron Man hands, Spider Man hands, all manner of customizations are possible.
These kids, you see, could not get a prosthetic hand through Medicaid or even through their private insurance plans. The hands were too expensive: a $40,000 investment for a hand that a child would soon outgrow.
The scarcity mindset only sees the $40,000 hand and presumes there are only two ways of paying for it: public insurance or private insurance. We must reject this scarcity mindset for health care and for Mississippi’s economy.
We are told we have to expand Medicaid for a variety of reasons. All of them are rooted in this scarcity mindset.
First, you will hear that we should expand Medicaid because the federal money is just too good. The federal match for the expansion population is 90 percent. This conclusion is a non sequitur for two reasons. It’s like the timeshare guy offering to sell you a $10 million condo at a 90 percent discount. Once you get past how good the deal seems, you have to determine whether you have $1 million dollars. Second, the argument presumes virtually no one in Mississippi pays or will ever pay federal income tax.
Insofar as we do pay federal taxes, doesn’t it matter whether we forgo this federal spending if the evidence shows Medicaid expansion does not meet our needs? It is not true that other states are going to get our share of the Medicaid money pot. Medicaid is a welfare entitlement, which means that every person who is statutorily entitled to get on Medicaid has a claim to such services. There is no cap on Medicaid spending and there is not a separate Medicaid funding pot.
Granted, it is tempting to conclude that we should just take the federal money. Congress has no budget and America is bankrupt anyway. We might as well get ours while we can get it. If you believe this, the logical conclusion is that our federal government is absolutely corrupt and the whole budgeting process is a complete scam. In turn, the best play for Mississippi is to get in on the scam. If this is what you believe about America, so be it. But this Machiavellian view is not the legacy I want to leave to my children.
The second way the scarcity mindset comes into play regarding Medicaid is when we are told that medicine is socialized anyway, and that Medicaid expansion will be a more efficient way to provide health care to the poor. The suggestion here is that if we fund Medicaid expansion, commercial insurance costs – for private payers – will decline. This suggestion is explicit in material put out by the Mississippi Hospital Association.
A 2019 study by the state of Colorado utterly debunks this claim. The premise is that if fewer patients are uninsured and Medicaid pays more, hospital prices – and insurance premiums – for privately insured patients will decline. Medicaid expansion, we are told, is thus a good deal for commercial payers because it will reduce their costs. Except this is not happening – at least not in Colorado and certainly not in Indiana.
Indeed, according to the executive director of the Colorado Department of Health Care Policy & Financing, the hospitals used the “Medicaid expansion windfall to build free-standing [emergency departments], acquire physician practices, and build new facilities where there was already sufficient capacity. … Hospitals had a fork in the road,” concluded the director, “to either use the money coming in to lower the cost shift to employers and consumers or use the money to fuel a health care arms race. With few exceptions, they chose the latter.”
As an aside, Colorado’s experience gives us every reason to believe that expanding Medicaid will not primarily benefit rural hospitals in Mississippi, but urban hospitals.
The point I am making here is this: Even framing health care for low-income patients as a competition between Medicaid and private insurance is wrong headed. We can provide health care to these patients using other payment models and tapping into other supplies.
There are not only two pies: government-funded insurance OR private insurance.
There are other supplies of health care we are only beginning to utilize: direct primary care and telemedicine are two of them. There are also other payment models out there, such as health care sharing ministries and Association Health Plans. In many cases, it is government regulations that are preventing the emergence of more affordable choices.
Another option is hospital charity care. Mississippi has 111 hospitals: 45 are government-controlled (state/local, plus 4 federal); 31 are nonprofit; and 31 are for-profit. Shouldn’t public and nonprofit hospitals, which account for a large majority of hospitals in Mississippi, be mission-oriented toward providing subsidized care? In order to retain their tax-exempt status, nonprofit hospitals must provide a “community benefit.” This benefit is largely undefined and not particularly enforced.
This goes to show, however, that there are a multitude of free markets for health care and health insurance rather than the monolithic, health care bureaucracy that sees only the inefficient and expensive systems of Medicaid/Medicare and employer-based insurance as the only options. Again, there are not only two pies. There are multiple pies. Mississippi would do well to stop fighting over the scraps from D.C.’s broken health care promises and look toward creating a better framework that can help our people rise.
The COVID-19 pandemic has demonstrated the need to update Mississippi’s K-12 education funding model, in particular the way that the school finance formula counts students.
Mississippi differs from most states in the fact that they currently use an average daily attendance (ADA) model to count kids. This way of counting students is not all bad, but the COVID-19 pandemic has brought to light the already existing deficiencies of the ADA model and some Mississippi school districts are at risk of losing a significant amount of funding because their ADA has declined during the COVID-19 outbreak.
Surprising variation exists in how states measure public school enrollment. These measurements are important because they ultimately affect how education dollars are allocated to students and schools. Every way of counting kids comes with important tradeoffs: some are more accurate than others; some impose a greater administrative burden; others result in more budget stability. This commentary will survey the current student counting methods used across states and make policy recommendations that Mississippi policymakers could employ to address funding shortfalls resulting from a decline in ADA counts.
Key Considerations: Accuracy, Predictability and Budget Stability
There are some key considerations states make when they take different approaches to counting students. Keep in mind that there are drawbacks to each of these considerations.
The first priority for legislators weighing different student count methodologies should be accuracy. Accuracy is the key to fair funding insofar as the entire point of counting student enrollment is to correlate enrollment with funding. To be funded, a student must be counted.
To the extent that any other factors obscure the principle that funding should be determined by the true number of students a district currently has enrolled, inequities will emerge. Concerns over accuracy and funding equity are the reason some states opt to use average daily membership (ADM). This way of counting differs from ADA in that ADM averages student enrollment numbers—rather than attendance numbers—over much of the school year. Enrollment is considered more accurate in this case because it counts the number of students a district expects to serve, not the number that show up on a given day. North Carolina, Tennessee, and West Virginia, along with many other states, use ADM.
Second, there is generally some acknowledgement that school districts must be able to reliably craft their yearly budgets. If state funding varies too much over the course of a year due to attendance fluctuations , districts won’t be able to make confident hiring or programmatic decisions. If, as it’s generally assumed, student bodies are largest at the beginning of a semester, districts must structure their staffing and budgets without good knowledge of which students and how many of them will end up withdrawing. These budget concerns are the reason some states use single-day enrollment counts at the beginning of the year (Colorado, Maryland, Massachusetts) or at only several points over the course of the year (Georgia, South Carolina, Louisiana).
A third key consideration for state lawmakers when deciding on a student counting system is that districts struggle to adjust their cost structures when student bodies are changing substantially over a short span of years. When student bodies are shrinking or growing rapidly, districts must make long-term decisions about consolidating or expanding school facilities. With staffing, they often can only downsize through attrition when populations are shrinking. Likewise, schools face additional hiring costs when student populations are growing. Because these long-term investments take time and often lag behind the speed at which student populations are changing, some states (Maine, Nevada, North Carolina) allow districts to incorporate older or projected student counts so that they have a financial cushion to accommodate substantial increases or decreases in student populations.
Lastly, many state policymakers believe funding decisions should emphasize school attendance metrics. Under this model, the reigning assumption is that time spent in a physical classroom directly translates into student achievement. A primary rationale for the small number of states (Mississippi, California, Illinois) that count students through attendance, rather than enrollment, is that they want to encourage districts to get students in their classrooms.
Click here to read the rest of this report.
The Magnolia state might be one of the most wonderful places to live, but there is no getting round the fact that it has some of the worst health outcomes in the country.
According to the Legatum Institute’s Prosperity Index, Mississippi ranks 49th out of 50 states in terms of health outcomes, health systems, and illness and risk factors.
“That’s easy to fix” some are now saying. “We just need to hose federal funds at the problem”. When it comes to health care, one thing Mississippi does not lack are those calling for us to accept federal funding to expand Medicaid.
Under the Obama administration’s Affordable Care Act, a number of states have already gone down that road, turning Medicaid – which was designed to provide health insurance coverage to low income seniors and mothers, and those with disabilities - into a system of generalized healthcare. Should we do the same?
No. Expanding Medicaid would be extremely costly, without necessarily improving health outcomes. Spraying federal funds in our direction does not mean that the money will end up going where it is actually needed. Another large handout from DC would likely hinder, not help, the chances of us achieving the kind of health reforms we actually need.
Pouring millions of dollars of federal funds into Mississippi’s health system sounds attractive, but you won’t be surprised to learn that it comes with a price tag; a $100 million a year price tag, according to recent estimates.
Who, it seems reasonable to ask, would have to pay that?
One way of generating an additional $100 million a year in revenue from tax-paying Mississippians would be to raise personal income tax or tax businesses even more. But Mississippi already has one of the heaviest state and local tax burdens of any state in America, and it is hard to see how our fragile economy could cope with an additional hike.
Some have suggested that we could find this additional $100 million a year from the hospitals. No plan I have yet seen has identified a way of conjuring up that kind of money without hospitals ultimately bumping up their costs to their patients.
I can see why some hospitals might be quite attracted to the idea of raising an additional $100 million a year from their patients, and in return getting a large dollop of federal funding thrown in their direction. But I can’t quite see what is in it for those hundreds of thousands of families in Mississippi who work hard to provide health care coverage for their families, who would find themselves being asked to provide even more – so other folk could get coverage for free.
If we want better health outcomes, we should not think only in terms of how much money we spend on health care. We need to think about the way that our health care system converts that money into improved outcomes for patients.
One low cost thing we could do would be to repeal laws that unnecessarily push up health costs, such as the 1979 Health Care Certificate of Need (CON) Law. This legislation means that it is illegal today in Mississippi for hospitals or other healthcare providers to expand their health care services without first getting a permit, known as a certificate of need.
It’s not just that permission is needed. The way our restrictive system works is that permission is often needed from established health care providers. They can file objections that keep the matter tied up, often for years. It is as if Papa John’s had to give approval before Domino Pizza was allowed to open a new restaurant in your neighborhood.
Additionally, rules on telemedicine mean that Mississippians are presently prevented from accessing health care online – unless the doctor they are dealing with happens to have Mississippi licensure.
Why can Mississippians not deal with a doctor from Birmingham or Memphis? Is what comprises good medical care different there? Of course not. The rules governing who can provide health care have been written in a way that hinders competition and limits choices, and is holding health care back for Mississippians.
These type of restrictions mean that instead of a free market in health care, with different providers competing to give patients services at a price they can afford, we have a rigged market. The rules are written to keep new entrants out, which in turn leaves prices high and customers captive. This, not a failure to sign up to Obamacare, is one of the reasons why Mississippi does not have better health outcomes.
Without reforming the way that our health system operates, throwing hundreds of millions of dollars at our state Medicaid system is not going to make things better.