HealthSource and Pensions: The Center Was Right (Predictably)

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A few articles in the Sunday Providence Journal made me wish decision-makers would heed the suggestions and warnings of the RI Center for Freedom & Prosperity.  For instance, we warned about the problems of the ObamaCare health benefits exchange model before there was one, years before this Sunday’s headline “Slow to Grow: Study finds lagging enrollment in HealthSource RI“:

In most markets, when prices decline, sales increase. But while the average premium cost on Rhode Island’s exchange from 2014 to 2015 fell nearly 11 percent, sales during the same period grew just 10 percent — the fourth lowest in the country, and lower than every other New England state except New Hampshire.

The slow growth is troubling because HealthSource RI relies on just two sources of revenue: premiums and taxpayer funds. And as the $150.5 million in federal funding for the exchange has dwindled, the cost of running Rhode Island’s exchange now falls more heavily on state taxpayers.

In March 2011, before the exchange was implemented, Rhode Island officials expected more than 200,000 paying customers in short order.  A less delusional estimate in May 2013 was for over 75,000.  Now in 2016, the exchange has enrolled around 40,000, who skew older and 88% of whom are subsidized.  It looks like taxpayer funds (including the HealthSource tax charged to all insurance plans whether sold through the exchange or not) will be more in demand going forward, unless the state government takes the Center’s advice and gets rid of this albatross, which has mostly succeeded in driving up the number of Rhode Islanders dependent on Medicaid.

Another notable Sunday headline comes from the unsigned editorial, “Still behind on pensions“:

What the [2011] overhaul did not do, however, is change the fact that Rhode Island has a big pension problem. Today, the unfunded pension liability is about $4.8 billion, and even that very large number is based on a premise that is looking more and more as if it is too optimistic. State officials assume that the fund, over the long haul, will earn annual investment returns of 7.5 percent. Those returns are critical, because along with contributions from taxpayers and employees, they replenish the fund as it pays out tens of millions of dollars each year to retirees.

Some of my first work with the Center, in 2011, was exploring this very problem.  The reform was not adequate and was built on an improbably high estimate of returns.  This is no surprise, and it looks like we’re on schedule to learn within a decade of the reform what happens when the pension board starts deciding whether to modify benefits again or tax Rhode Islanders more when the plan enters “endangered status” and the board gives legislators their constitutionally suspect two options and says, “Pick one.”

At that point, we’ll find out whether retired Providence police officer Amos Varan is correct to ask, “Why is it that every time a pension system gets in trouble, it is the retirees who are called on to make sacrifices?”  Varan complains that retirees are “having to make sacrifices for other people’s mistakes,” but the pension problems are union members’ mistake as much as anybody’s.  The writing has always been on the wall for these issues, but the employees and decision makers in government have been content to pretend that impossible systems would miraculously work while quietly expecting that somebody else would have to pay.



  • royr

    you are spot on with both the Health source info and the pension issue. the unions know when they come up with these pension plans they aren’t sustainable.

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