Other States Benefit From Closing the Coverage Gap – But not Virginia

It’s becoming clearer every day that there is a stark and growing contrast between states that have closed their coverage gaps and those – like Virginia – that stubbornly hold out against accepting federal funds to cover their low-income residents.

In other states the number of people with health insurance is going way up. And the costs to hospitals of taking care of people who don’t have insurance are going down. But not in Virginia.

States that have closed their coverage gaps have seen nearly a 38 percent reduction in their nonelderly uninsured population in less than a year, according to a recent Urban Institute study. Compare that with the paltry 9 percent drop in states that continue to refuse the federal funding – like Virginia.


And people using their new health coverage to help pay for medical treatment are helping hospitals avoid bad debt. States that have said yes to expanding coverage saw drastic declines in charity care and people paying out of pocket, while intransigent states – like Virginia – saw no improvement, according to a hospital industry analysis. For example, Arizona hospitals have seen a 30 percent reduction in their uncompensated care, which translates to $76 million saved in just the first four months of this year.

That’s the sort of help that many hospitals – especially in rural areas – could use. Without closing the coverage gap, hospitals across Virginia will lose out on hundreds of millions of dollars to care for uninsured people. And without that money, many hospitals will be forced to make tough decisions about cutting staff, closing off units, or shuttering entire facilities, as happened in Lee County.

Today Mayor Adam O’Neal from Belhaven, NC is walking through Richmond on his way to Washington, D.C to highlight the plight of his town. Like in Lee County, the hospital in Belhaven closed and terminated about 100 jobs, largely because his state legislature has also refused to close the coverage gap.

There is no more if and when.

Right now, too many Virginians struggling to get by in a still-tough economy can’t afford the quality health care they need. And many hospitals, which often are the largest employers around, face significant challenges from bearing the costs when people without insurance show up at the emergency room. It is time to close the coverage gap, so people can get help paying for the care they need and hospitals can avoid painful layoffs that will only compound the problem.

—Massey Whorley, Senior Policy Analyst

Closing the Coverage Gap Can Help Reduce Depression

There is growing evidence that closing the health insurance coverage gap could help thousands of Virginians who desperately need mental health care. The General Assembly has responded to the tragic events that befell one of their own — Sen. Creigh Deeds and his son who struggled with mental health issues — by taking small steps to address mental health crises. But now it’s time for the Commonwealth to take a more proactive approach to tackling the mental health challenges that affect so many Virginians.   

A recent report from the White House Council of Economic Advisers estimates that closing the coverage gap could reduce the number of Virginians experiencing depression by 17,000.  This estimate comes from applying data from an important study on Oregon’s expansion of health coverage to Virginia. The Oregon study found that people who gained health coverage through Medicaid were 31 percent less likely to show signs of depression than those who were unable to gain coverage.

About 553,000 Virginians experience depression every year, and people with low incomes are more likely to have symptoms of depression than those with higher incomes. Adults 45-64 years old whose income is below 100 percent Federal Poverty Level ($11,670 a year), have the highest rate of depression and would stand to gain access to the doctors and medication they need if Virginia closes the coverage gap.

The consequences of letting a mental illness go untreated can be devastating. Depression alone is known to increase morbidity, mortality, and reduce productivity. It’s thought to be responsible for up to 70 percent of psychiatric hospitalizations and around 40 percent of suicides. Depression can keep individuals with other chronic illnesses from seeking the treatment they need, reducing their quality of life, making the condition worse and potentially more expensive to treat. Individuals experiencing depression are as much as three times as likely to die from heart disease.

The most important thing for treating mental illnesses is receiving an accurate diagnosis. Unfortunately, many people go undiagnosed because they do not have health insurance and cannot afford to go to the doctor.  Closing the coverage gap would allow thousands of Virginians to gain access to the treatment and services they desperately need.

 —Asasi Francois, Research Intern

Down a hole, and still digging

Virginia’s level of investment in our schools, communities, and future will hit a new post-recession low next year.

How can that be, when the state’s total general fund spending — the pot of money that legislators have the most discretion in spending — is higher than in past years?

Because that’s not the whole story.

Virginia’s population grows every year, and with that growth comes a need for higher levels of investment in things like K-12 education, since we now have more students in our public schools than ever before. Plus, the costs of buying goods and services goes up every year for the state due to inflation, just like it does for you and me.

After adjusting for factors like growing school enrollment, the additional need for Medicaid due to the weak economy and loss of jobs and benefits, and inflation, the real level of investment for the fiscal year 2015 — which started July 1 — is $5.4 billion below 2007 levels. And it will be even worse next fiscal year at $6.1 billion below 2007 levels, a new post-recession low point.

These reductions in state investments may lead to larger class sizes, fewer educational services, and increased pressure on hospitals as they respond to these cuts.

Education has been particularly hard-hit. State funding for K-12 schools is down by about $1.5 billion per year compared to before the recession. Other state education spending — almost all of which goes to higher education — is down by $1.4 billion this year and $1.6 billion next year.

How did this happen?

When employment and consumer spending decreased during the recession it caused a deep dip in state revenue. Virginia legislators chose to close almost all of the resulting revenue gap with budget cuts, rather than raising significant new revenue. Now, with revenue again expected to be lower than both prior projections and the amount of money needed to maintain the current level of services to Virginia’s growing population, legislators are again closing almost all of the resulting gap with cuts rather than new revenue.

It doesn’t have to be this way. When the General Assembly returns in January to revise the current budget, they need to think about taking a more balanced approach – one that includes new revenues — as opposed to. this cuts only approach that threatens our economic health and prosperity.

—Laura Goren, Policy Analyst

The Budget Gimmick That Would Not Die

A budget gimmick lawmakers introduced four years ago to help balance the budget — and that was on its way out — has come back to life.

Four years ago, lawmakers used some voodoo economics to close looming budget shortfalls, creating 13 months of revenue in a 12-month year. They did this by changing the schedule for some retailers to remit sales taxes that customers pay at the register. It’s called the Accelerated Sales Tax, or AST.

Before the change, all retailers sent the tax revenue to the state once a month, after it was collected. AST required retailers with annual sales of over $1 million to estimate their future sales for one month and send that payment in a month early. Under this scheme, lawmakers booked a one-time cash bump of about $227.7 million.

But the gimmick is not without cost when it gets unraveled, which is why lawmakers intended to phase it out slowly beginning in 2013, with complete elimination by 2021. And they started to. They even accelerated the timeline. Right before leaving office, Governor McDonnell’s proposed budget reduced the number of businesses subject to AST to only those with taxable sales of $138.3 million or more in 2016.

Virginia was on the right track.

But we’re back in budget shortfall territory, again, without sufficient resources to meet the state’s needs for education, health care, public safety and other necessities. And, once again, lawmakers are relying on tricks like AST to make ends meet.

In fact, the budget just passed for this fiscal year and the next not only halts progress toward unwinding this gimmick, it actually rewinds it. Lawmakers expanded the number of retailers subject to AST to those with taxable sales of at least $26 million in 2015; in 2016, it narrows slightly to those with sales of $48.5 million or higher.

Once again, instead of dealing with the underlying challenges in the economy and considering a more balanced approach to shoring up the budget — one that includes modest new revenues — Virginia lawmakers conjured up a quick fix. And while ramping up the AST again may book dollars now, Virginians will pay for it later.

—Sara Okos, Policy Director

Healthy Graduation Rates

Virginia’s on-time graduation rate has steadily climbed for the past five years, to 89 percent in 2013 from 82 percent in 2008. That’s good and steady improvement. But what if there was more we could do? 

It turns out there is. National expansion of public health care in the 1980s and 1990s produced long-term educational benefits, according to a recent study from the National Bureau of Economic Research. There’s no reason why closing today’s coverage gap in Virginia could not produce similar benefits.

States that expanded their public health insurance coverage had lower high school dropout rates, increased college attendance, and more bachelor’s degrees, the study showed. A 10 percentage point increase in Medicaid eligibility translated into a 5.2 percent decline in high school dropouts; a 1.1 percent increase in college attendance; and a 3.2 percent increase in students completing bachelor’s degrees.

By closing the coverage gap, Virginia could have similar results because increased Medicaid eligibility leads to improved educational attainment. For example, children who receive Medicaid are healthier than those who remain uninsured, and healthier children often perform better in school.

Children in Virginia are eligible for Medicaid if their household income is up to about $47,700 for a family of four. But for their parents it’s another story. Virginia’s income eligibility rules for parents are among the most restrictive in the country. And that hurts kids because parents who don’t qualify often assume their kids don’t qualify either and do not sign them up. Allowing more parents to qualify would mean health care for more children who already are eligible but not enrolled.

There are other benefits to ending the coverage gap. For example, families with Medicaid are less likely to declare bankruptcy and having health insurance decreases out-of-pocket medical spending and debt, freeing resources that could be used for school supplies, tutors, and other education-related items.

State budget savings, a healthier economy, a healthier workforce, healthier kids, and now healthier educational attainment. The reasons to close the coverage gap in Virginia keep growing.

—Asasi Francois, Research Intern

From Bad to Worse

Virginia is about to pay top dollar for a corporate tax giveaway with a bad track record. At a time when the state is facing a billion-dollar shortfall, this sweetened deal will cost the state about $30 million in the 2015 fiscal year, which starts July 1. And it’s expected to cost more in future years.

It’s called the “single sales factor,” an obscure corporate tax provision that lets manufacturers lower the amount of tax they pay on corporate profits. First enacted in Virginia in 2009, it gets fully phased in this year.

Simply put, the provision allows multistate corporations with operations in Virginia to use the share of their nationwide sales occurring in the state as the sole basis for determining how much tax they owe to Virginia on their profits.

It was sold as a way to boost manufacturing jobs in the state. But it doesn’t work.

Looking at the experiences of all 50 states over the past 10 years, it’s clear that the way corporate income taxes are calculated doesn’t determine the rate of growth (or loss) in a state’s manufacturing employment. Only three states have even had job growth in the manufacturing sector since 2003, and of those, two – Alaska and North Dakota – use a more traditional method of calculating their corporate income tax called “equal weighting.” It is based on the share of a corporation’s total property, payroll, and sales in the state, giving equal weight to each.

Just looking at Virginia and its neighbors shows how factors other than the corporate income tax calculation influence the strength of manufacturing. All the states in our region have lost manufacturing jobs since 2003. But the best performer – Kentucky – counts the sales factor twice in corporate tax calculations, while the worst performer – Maryland – has a single sales factor. Virginia, which had used a method that counted the sales factor twice but also considered the corporation’s payroll and property location before it started phasing in its single-sales factor, is in the middle of the pack.

The fact is, there are lots of things businesses take into account when they’re considering where to build, expand, or shut down facilities: access to roads, rail lines, and ports; the availability of a skilled workforce; the condition of the power grid, water lines and other infrastructure; and proximity to markets all play a role.

What doesn’t appear to play a big role is the method used to calculate income tax on company profits. For Virginia to be giving up much-needed revenue, when there’s no evidence that doing so promotes economic growth, is wrong-headed and irresponsible.

—Laura Goren, Policy Analyst

Bursting the Bubble

Whether the DC regional economy is humming right along depends on your perspective.

For the region’s top earners, for example, things look pretty good: The wages of the highest-earning workers in the national capital region grew by an average of $4.11 per hour since 2007 — a gain of over $8,000 per year for a full-time, year-round worker — sending their average hourly wage to $43.

That’s nice work, if you can get it. But most workers in the region can’t.

Workers in the middle of the pack, earning the median wage of $22.07 per hour, saw a pay increase of just 16 cents per hour since 2007. And at the bottom, where people make less than $11.89 per hour, workers actually saw their hourly wages fall by 71 cents.

That means that for every dollar that a high-wage earner in the region makes, the lowest-wage earner makes just 16 cents.

This disparity makes the region’s wage gap bigger than that of any U.S. state.


Beyond income inequality, a host of other challenges confront those who live and work in the national capital region. Employment levels for people without a college education are far lower than before the recession. Unemployment rates for several groups of workers, including those without a college degree, remain high. Black workers and young workers 

were particularly hard hit by the recession, even when compared to other area residents with similar education levels. And the high cost of living in the region is pushing many families to spend more than they can afford on housing, while others trade more affordable housing for long and expensive commutes.

In a new report produced jointly with the DC Fiscal Policy Institute and the Maryland Center for Economic Policy, we take a deep dive into these trends in income, employment, and housing in the core, inner and outer suburban rings of DC, including Northern Virginia and Maryland.

You can get the whole report here.

The Story Behind the Shortfall

The budget shortfall confronting lawmakers – which they are rushing to close with short-sighted cuts to education, health care, and other priorities – didn’t just happen overnight. In fact, it has been building since the end of the last fiscal year in June 2013.

Virginia closed the books on 2013 with nearly $300 million more than expected in revenue from income taxes people paid on stocks, bonds and other investments. This is called “non-withholding” revenue since, unlike other tax revenue, it is not withheld from people’s paychecks.

But we’re likely to close the 2014 fiscal year, which ends this month, with non-withholding revenue not just below forecast, but below last year’s level.

Last year’s boost was largely the byproduct of wealthy taxpayers collecting bonuses or selling stocks at the last minute in 2012. They did this to avoid the higher tax rates they were anticipating in 2013 because of a federal budget dispute. The tax shifting by wealthy residents meant that states felt a one-time bump.

Combined with a strong 2013 stock market, this bump created challenges for forecasting non-withholding revenue in 2014. Forecasters got it wrong, and as a result the state has less revenue than it expected to pay for schools, health care and other needs for the current fiscal year that ends June 30.

Virginia is not alone in this boat. Of the 38 states that have an income tax and for which data is fully available, 33 had revenue declines over the winter and spring. They range from 31.1 percent in Ohio to 0.6 percent in Pennsylvania.

Beyond the problems with non-withholding forecasting, Virginia’s policymakers are concerned that growth in payroll withholdings – the state income tax that is withheld from workers’ paychecks – will continue to be very slow in the next two years. They’re probably right.

During a typical economic recovery, we’d see robust job growth as businesses began rebuilding and rehiring. And as employment rebounded, we’d see a tighter labor market lead to rising wages. More employed workers and higher wages would mean higher withholding tax revenues.

But this recovery has not been typical. Instead, for the last few years Virginia has seen relatively slow employment growth and stagnant-to-declining wages for most workers. As a result, revenue from paycheck withholdings has been growing at a relatively slow 3 percent per year . The revenue forecast for the upcoming fiscal years anticipated that the recovery would finally pick up steam over the next few years, leading to faster job growth and more robust increases in payroll withholding taxes.

But the number of jobs in Virginia in April – the most recent month for which data is available – was actually slightly below last year’s levels. The recent employment stagnation in Virginia has actually put us behind most other states and the country as a whole in recovering from the recession. That’s an economic reversal that Virginia cannot afford while too many workers are still searching for work after the Great Recession and state revenue is still off track.

This slow employment growth has tempered the expectations of faster employment and payroll withholding growth over the next two years. If payroll withholding continues to grow at the slower 3 percent pace in the 2015 and 2016 budget years, state revenue will be another several hundred million dollars below expectations over the biennium. Virginia policymakers are now building a cushion into the state budget to account for this possible slower growth in payroll withholding taxes.

Yet while lawmakers adjust their revenue forecast to reflect these realities, their response to the shortfall can’t be just to cut investments in the things that will actually build a strong economy in the long-term – better schools, affordable colleges, healthy workers, safe communities. At best, that kind of an approach will only keep Virginia stuck in neutral. At worst, it’ll have us sliding backward.

—Laura Goren, Policy Analyst, and Sara Okos, Policy Director

It Doesn’t Have To Be This Way

By clinging to their refusal to close Virginia’s health coverage gap, lawmakers are leaving hundreds of millions of dollars on the table that could be used to avert damaging cuts to schools and other vital services.

The state is staring down a potential budget shortfall of $1.45 billion over the next two years due to lower-than-expected revenues. To handle it the House and Senate are on the verge of cutting funding for pressing needs and tapping into the state’s rainy day fund. The cuts would hit K-12 and higher education, public safety, veterans, and water pollution grants.

But if lawmakers closed the coverage gap that is keeping hundreds of thousands of Virginians from getting available health insurance, the state could save $225 million during the next budget cycle. That’s because Virginia currently funds a wide range of services for the uninsured with state dollars. Federal money is available to the state to close the coverage gap, so the state wouldn’t have to be paying for those services with state dollars anymore. But Virginia lawmakers, particularly in the House, have stubbornly rejected the offer.

The money the state could save represents about 27 percent of the proposed cuts and could eliminate the need for the proposed $106 million in cuts to K-12 education, $34 million in cuts to public safety, and it could also help soften the blow to higher education and human services


Lawmakers have options about how to handle the savings from closing the coverage gap. If they invested the savings in a trust fund, for example, they could pay for the program through 2050 at no cost to the state. One approach – given the budget shortfall – would be to invest half the savings in the trust fund and use half to restore funding for the most pressing needs. Taking this approach, lawmakers could still close the coverage gap through about 2038 at no cost.

Lawmakers are claiming that their approach is financially responsible, but they have removed a sensible solution from the table. Instead of helping the people of Virginia by closing the coverage gap with federal tax dollars that are there for the taking, they would rather meet the budget challenge by cutting funding for services and using state tax dollars from the rainy day fund.

—Massey Whorley, Senior Policy Analyst


Playing With Our Future

School divisions throughout the commonwealth may have to cut the number of preschool opportunities they offer this fall, meaning children could lose a crucial year of early learning that would help set them up for success. But lawmakers can prevent this by taking steps to strengthen Virginia’s preschool program for at-risk kids when they finally come together to resolve the budget.

The Virginia Preschool Initiative (VPI) funds quality early education for four-year-olds from disadvantaged families who are at risk of falling behind their peers academically. Students who participate in VPI enter kindergarten and first grade better prepared than students from similar backgrounds who didn’t attend preschool, recent research from University of Virginia’s Curry School of Education shows.

Three key changes to the governor’s initial budget would help strengthen VPI. These changes are included in the Senate’s budget, but not yet in the House’s. Legislators should:

  • Ensure that children don’t miss their chance to participate in VPI next year. Access to VPI for 892 children in 32 communities across the state is threatened because two years ago the legislature changed the formula for counting the number of children eligible for the program in each school division. After the change, some divisions would have lost currently occupied preschool seats, but legislators agreed to hold those localities harmless. Lawmakers should extend that provision, which is set to expire, so that school divisions won’t have to cut the number of VPI preschoolers they serve.
  • Invest more in this successful program. The per-pupil funding amount in the VPI formula sets a ceiling on the cost the state shares with localities. It’s been stagnant since 2008, even as classroom costs have increased. The Senate budget provides a small but long-overdue funding increase in 2015-16 by adding $98 to the per-pupil cost, bringing it to $6,098. That’s still about $600 below what it would be if annual inflation adjustments had been made in recent years. And it doesn’t come close to the level needed to meet guidelines for what it takes to fund quality early education set by the National Institute for Early Education Research. By those standards, Virginia should be investing around $9,500 per child.                          
  • Use accurate head counts to figure out how many children in our communities are in need of VPI. The state allocates VPI slots by subtracting enrollment in Head Start early education, which is federally funded, from the overall estimate of at-risk four-year-olds in a community. Annually updating the data would account for recent federal cuts to Head Start, which left as many as 1,000 children in Virginia without access to a quality early learning program.

Adopting these measures to strengthen VPI would help ensure brighter futures for more children while laying the groundwork for our state’s future economic vitality. After all, today’s schoolchildren are tomorrow’s scientists and engineers.

Access to preschool – and the crucial early edge it can provide – hangs in the balance for nearly 900 of the Commonwealth’s children. It’s an opportunity we shouldn’t let them miss.

—Hope Richardson, Policy Analyst