The MC: The Mackinac Center Blog

Schoolchildren, Teachers, Taxpayers Harmed When Pension Managers Assume Too Much

The realities of Michigan's $26.5 billion pension liability

State law requires the managers of Michigan’s school employee retirement system to base annual pension contributions on an assumption that its investments will generate an average return of around 8 percent per year. If the actual returns don’t reliably meet or beat that level over time, it means contributions into the pension fund will be insufficient to pay for the retirement benefits of employees. The result is a long term unfunded liability that taxpayers eventually have to pay.

Michigan’s school pension system has put taxpayers on the hook for a $26.5 billion unfunded liability. The 6.5 percent return earned by its investments over the 12 months that ended June 30 means the hole got a little deeper last year.

Several state pension officials quoted in a recent MIRS News article about the shortfall noted that missing investment targets for one year is not a big deal.

They’re right, but what they didn’t mention is that this is not just a one-year problem. A 2014 auditor general report examined and found problems in some of the key assumptions used to estimate how much is needed each year to adequately fund the pension system. Failing to reach assumed investment return rates was the largest contributor to pension underfunding over the 10-year period examined.

This is hardly a surprise. Even before the 2008 recession, funding assumptions were not working to fully fund pensions. In fact, in 2003 Warren Buffett suggested that 6 percent is more realistic, and others routinely recommend 5 percent.

At their current $26.5 billion level, Michigan’s unfunded school pension liabilities are 13-times the total amount of state government debt owed to every general obligation bond holder. It’s equivalent to 88 percent of all the money the state will spend this year on schools, prisons, welfare and everything else (not including federal dollars). It would require an additional payment of $6,900 from every household in Michigan to satisfy this liability.

However, don’t expect state and school political leaders to say much about failing to meet the system’s Pollyanna funding assumptions, which were placed in statute by their predecessors in previous legislatures. Realistic assumptions would expose the entire system as an increasingly unsustainable house of cards. More to the point, current legislators would then have to find more money to make the much higher annual contributions that better assumptions would make necessary.

The system is still a mess even with overly optimistic assumptions helping to mask the gaps. The state has saved only 60 percent of every dollar’s worth of pension benefit that employees have earned. The underfunding has caused annual contribution rates to swell to 33.41 percent of school payroll, with 86 percent of this needed just to catch up on the past underfunding — underfunding enabled by the unrealistic assumptions.

In other words, taxpayers today are devoting more than a billion dollars each year to pay for previously earned pension benefits — money that would otherwise be spent on other important needs.

To put that 33.41 percent figure in text, private-sector retirement benefits tend to cost 5 to 7 percent of payroll.

Going forward, the problem and solution are clear: Governments cannot be trusted to run a defined-benefit pension system, and Michigan’s should be wound down as quickly as possible.

For starters, that means closing the system to new employees, who would instead receive employer contributions to individual retirement savings accounts. This would contain the underfunding problem.

Unfortunately, whenever this is proposed pension managers are the first to object. In addition to downplaying missed assumptions, they bring up illusory “transition costs” as a barrier to converting.

Missing funding assumptions is a big deal and state officials should not shrug off this failure. Pension underfunding hurts taxpayers and threatens the retirement of hundreds of thousands of people. It harms schoolchildren by draining other classroom resources. The underfunding problem cannot be quickly or easily solved but the damage can be contained by not enrolling new employees in the current plan.

August 28, 2015 MichiganVotes Weekly Roll Call

Recently introduced bills of interest

Now with one click you can approve or disapprove of key votes by your legislators using the VoteSpotter smart phone app. Visit votespotter.com and download VoteSpotter today!

The House and Senate are not in session until Sept. 9 and Sept. 1, respectively. Therefore, this report contains several recently introduced bills of interest.


Senate Bill 371: Ban intent to sell ivory and rhinoceros horn products

Introduced by Sen. Steve Bieda (D), to ban the importation, sale, purchase, barter, or possession with intent to sell of ivory or rhinoceros horns and products, subject to fines $5,000 or double the value of the products for second offenses. Referred to committee, no further action at this time.


2015 Senate Bill 383: Impose licensure on midwives

Introduced by Sen. Michael Green (R), to impose a state licensure mandate on midwives (as distinct from “nurse midwives”), including regulations and license fees. Referred to committee, no further action at this time.


Senate Bill 387: Restrict injection well placement

Introduced by Sen. Dale W. Zorn (R), to prohibit locating an “injection” well for disposing of hazardous material, or for storing other material (potentially including carbon dioxide), in a region determined to have “Karst geology.” Referred to committee, no further action at this time.


Senate Bill 398: Create government sickle cell awareness campaign

Introduced by Sen. Jim Ananich (D), to require the Department of Community Health to create a sickle cell disease public awareness campaign and to “coordinate services available” from state, federal, and voluntary sickle cell disease programs. Referred to committee, no further action at this time.


Senate Bill 409: Expand meth-related pseudoephedrine restrictions

Introduced by Sen. Margaret O'Brien (R), to authorize up to one year in prison and a $1,000 fine for attempting to persuade a person to purchase ephedrine or pseudoephedrine while knowing that it will be used to manufacture methamphetamine. Current penalties apply only if the attempt succeeds in persuading someone. Referred to committee, no further action at this time.


Senate Bill 431: Establish process for removing elected official for mismanagement

Introduced by Sen. Rick Jones (R), to establish a process by which the governing body of a city, village, or county can file a petition in circuit court to remove from office an elected official for misfeasance, malfeasance or nonfeasance related to the custody and accounting of public money, or for failing to obtain or maintain a performance bond that is statutorily required for the office. Referred to committee, no further action at this time.


House Bill 4567: Let public schools engage in commercial business

Introduced by Rep. Bradford Jacobsen (R), to establish that property owned or leased by a public school is considered “exempt and immune” from local zoning ordinances, and establish very broad definitions of “school building” and “school purpose.” “School purpose" would be defined as “any purpose that may provide a benefit to a public school or its governing board, including…a benefit of a commercial or financial nature.” Referred to committee, no further action at this time.


House Bill 4578: Authorize school recreation millages

Introduced by Rep. Phil Potvin (R), to revise the law which authorizes recreational authorities to be created by several local governments, so that the districts could be organized by a school district. The authorities have the power to levy up to one-mill of property tax for swimming pools, recreation centers, public auditoriums, public conference centers, and parks, upon the approval of voters in each municipality in which the school district is located. The law itself is silent on whether the recreational facilities of an authority may be located at a school, or may be school facilities themselves, but it does require them to be open to the public. Referred to committee, no further action at this time.


House Bill 4580: Let local governments selectively revoke selective property tax breaks

Introduced by Rep. Andy Schor (D), to allow local governments to revoke certain property tax breaks selectively granted to particular corporations or developers if the beneficiary does not abide by the terms of the tax break agreement, or is judged to no longer meet the criteria under which the tax break was authorized. Referred to committee, no further action at this time.


House Bill 4585: Authorize a state “free speech defense act”

Introduced by Rep. Thomas Hooker (R), to adopt a “free speech defense act” that would prohibit Michigan courts from enforcing a libel judgement issued by a court in a country that does not practice specified due process safeguards, or that upholds a cause deemed “repugnant to the public policy of this state.” Similar laws adopted by other states are seen as a response to so-called “libel tourism,” and in particular to perceived Islamicist persecution. Referred to committee, no further action at this time.


House Bill 4619: Ban state contracts with firms that collect bulk “metadata” on residents

Introduced by Rep. Cindy Gamrat (R), to prohibit giving state contracts to companies that participate in the bulk collection of electronic data and “metadata” on residents without informed consent or a warrant. Referred to committee, no further action at this time.


House Bill 4629: Repeal “bond” requirement to contest civil asset forfeiture

Introduced by Rep. Peter Lucido (R), to repeal a requirement for property owner whose property has been seized by police and is subject to “civil forfeiture” to provide a cash “bond” to contest the taking, and if unsuccessful to pay all the expenses of the proceedings. Under civil forfeiture laws, police can seize any property that may be associated with a crime using extremely broad definition, and then keep the property even if the owner is never convicted or even charged with a crime. Referred to committee, no further action at this time.


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

Authors’ note: The following was first posted by the Georgia Public Policy Foundation August 27, 2015.The Mackinac Center’s annual survey of conventional public school district contracting was expanded this year to include four other states.

More than a third of all conventional pubic school districts in Georgia contract out one of the three major noninstructional services, according to survey data collected this summer by a the Mackinac Center for Public Policy, a Michigan-based research institute.

The Mackinac Center survey of Georgia and four other states found that 38 percent of Georgia districts contract out for at least one of the “big three” noninstructional services: food, transportation and custodial services.

Done right, contracting out can save money and relieve management headaches, too. But Mackinac found a curious pattern in Georgia: Just three districts — 1.7 percent — contract out transportation (bus) services, and only four, or 2.2 percent, contract out for food services.

These are the lowest food and transportation outsourcing rates among the states surveyed: Georgia, Michigan, Pennsylvania, Ohio and Texas.

While this finding might suggest hostility to competitive contracting, such a conclusion belies the fact that 36.7 percent of Georgia school districts use private vendors to provide custodial services.

So why do districts appear comfortable contracting in one area but not others?

When done correctly, privatization can both improve service and reduce costs by 10-20 percent or more. In research going back more than 10 years, the Mackinac Center has found that privatization saved Michigan school districts from $35 to as much as $191 per pupil, depending on various factors.

The Mackinac Center also found nothing inherently problematic about contracting for transportation or food services compared to custodians. Ten years ago, only 3.8 percent of Michigan school districts contracted out for transportation services; today, that figure stands at 26.6 percent, and 42.8 percent for food services (see graph). In Pennsylvania, 66.5 percent of districts contract out some or all of their bus services, and 44.4 percent do so for food.

The Mackinac Center sought answers for the divergence in two places. First, it asked school district officials in their survey interviews. They provided no particular reason to explain why so many districts outsourced janitors but not the other services.

It also investigated whether some provision of state law may be responsible. The research, while not exhaustive, revealed no obvious obstacles.

All this suggests that competitive contracting for food and bus services could be ripe for expansion in Georgia schools. Few district superintendents would turn down an extra $100 per pupil in savings, which is essentially what happens when districts forego this opportunity.

If competitive contracting was not a useful management tool, far fewer schools in states like Michigan and Pennsylvania would embrace it. By their actions, school superintendents there have demonstrated that the practice that can save money and improve quality.

As Georgia continues to investigate education funding, this timely survey by the Mackinac Center highlights an opportunity ripe for school systems to create savings and shift more funding into Georgia classrooms.

Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy in Michigan and Kelly McCutchen is president and CEO of the Georgia Public Policy Foundation.

Raiding Car Crash Victim Insurance Reserves No Way to Fund Roads

A one-time funding blip won't solve Michigan's road funding problem

Perhaps no two human activities are more antithetical to each other than politics and the business of insurance. Insurance is all about prudence and taking the long view, while politics is — not.

An example is House Bill 4560, introduced by Rep. Peter Lucido, R-Shelby Township. To provide a one-time infusion of road repair money this would authorize a $1 billion raid on the reserve fund that the Michigan Catastrophic Claims Association draws on to reimburse auto crash victims for very expensive medical costs.

The MCCA is the entity created by Michigan’s no-fault auto insurance law to cover those expensive claims, under a provision that requires drivers to carry personal injury protection coverage with no cap on benefits. The medical service reimbursements are financed by an annual assessment tacked on to auto insurance bills, in amounts determined by the association’s board.

The current assessment is $150 per year for each vehicle, which was set last March. The document announcing this reported that in the fiscal year ending June 30, 2014, the MCCA had paid out slightly more than $1 billion in claims, which is up sharply from $765 million five years earlier. Also, actuarial projections indicate it has a $292 million reserve fund deficit for outstanding claims. Many of these claims are for medical costs that will extend decades into the future, because they include providing lifetime care for individuals permanently disabled in tragic car crashes.

House Bill 4560 essentially directs the MCCA to recover from the fund raid by increasing future customer assessments and with magic — increasing returns on the fund’s investments. Presumably the association’s fund managers already work to maximize those returns within the bounds of prudent investment practices, so this provision is pure eyewash.

The future rate hike potential is real though. As Michigan Department of Insurance and Financial Services (DIFS) Director Patrick McPharlin put it in a statement on the department’s website, “[R]educing money in the fund could result in the need for the MCCA to increase its assessment on insurance companies — further driving up the cost of auto insurance in our state.”

The bill recalls a previous MCCA fund raid, which occurred in 1998. In contrast to the current reserve fund deficit, at that time the association had accumulated a $2.5 billion surplus above the amounts projected to cover medical claims then outstanding. Politicians saw an opportunity to pander, and the House passed a bill mandating that the MCCA rebate $1.2 billion to auto insurance customers. Rather than wait for the Senate to enshrine this bit of political opportunism into statute, the MCCA agreed to send out checks without a legislative fiat.

Various factors had caused MCCA assessments to fall dramatically. Among other things, these include lower than projected medical costs, a strong state economy and a booming U.S. stock market. Having ample reserves also contributed. After the rebate, customer assessments remained low for a few more years, but in 2002 they were back up to $71 per vehicle, and by the middle of the decade they were close to the current $150 level. It is likely that rates would have stayed lower for longer without the 1998 fund raid, and the temporary customer windfall probably ended up being a net loss for insurance buyers over time.

Taking money that is set aside to pay the medical expenses of people severely injured or disabled in car crashes to provide a one-time funding blip won’t solve Michigan’s road funding problem. But it will cause new problems, and probably subject vehicle owners to higher insurance rates in coming years. This is no way to run a state, a road budget or an insurance plan.

Unions Should Get Serious About Pension Underfunding

A $2.7 million shortfall causes concern in Grand Rapids

Grand Rapids’ public bus system, The Rapid (or Interurban Transit Partnership), and its union are negotiating over a plan to freeze and close its employee retirement system. Union president Larry Hanley is adamant that the plan remain open.

"This is not contract negotiation; this is a political attack on working people with no good financial reason. It's not that the agency's in trouble," Hanley told the Grand Rapids Press. "The system's not in any state of crisis. The benefits have been established for many years."

It is discouraging when union officials that are supposed to be protecting their members ignore pension underfunding.

The Rapids’ employee pension system is 73.5 percent funded and owes its members $2.7 million more than has been saved, according to the system’s most recent financial report.

In order to make sure that pensions are paid, government entities have to devote more money to catch up on this underfunding. Governments tap the same funds they use to pay employees and roll them into the costs of fringe benefits.

This increases spending on employee benefits and makes less money available for salary increases. Also, even though more is being spent on benefits, employees aren’t gaining anything, as it does not make their pensions any more generous. Indeed, this money just goes to pay for pensions benefits earned by workers in the past and should have been set aside at the time they were earned, like the state constitution requires.

You might think that a union head would care to make sure that pensions are well-funded so that current and former employees are protected. A properly funded retirement plan protects retirees and frees up money for spending on current workers’ salaries or other benefits.

Yet this hasn’t happened in Michigan, as the situation in Grand Rapids shows. Read more about pension problems across the state at www.mackinac.org/pension.

Government Price Controllers Can’t Make Up Their Minds

Supermarket chain investigated for low prices

Gas stations have heavy competition. There are stations all over the place and everyone publicly displays their prices. Owners operate on very thin profit margins, and there is lots of incentive to keep prices as low as possible. Almost everyone uses gas and nobody likes paying higher prices. So when prices increase, politicians on both sides of the aisle demand and promise investigations. Oil companies are roundly demonized. (Of course, nobody is sending them a thank-you card when prices come down).

When it comes to crops, government bureaucrats take a different approach. When the price of products like corn, soybeans, sugar, cherries, and raisins is low, that’s good for consumers, but bad for some farmers. So the government price controllers step in, using old, inefficient laws to limit supply and drive up prices.

Some states go further. Michigan-headquartered Meijer opened two stores in Wisconsin and is now being investigated for its prices … being too low. A Depression-era law says items cannot be sold “below cost” — a restriction that costs the residents of the state tens of millions of dollars annually.

“This is a bit peculiar for us, we are not accustomed to regulations that limit our customers' ability to save money when they shop with us," said Frank Guglielmi, Meijer's director of communications.

Public officials should spend less time interfering in the free market and more time focusing on ways to eliminate the monopolies that government mandates in education, alcohol, energy, electricity, unionization, law and more. That would actually help people.

Michigan House Passes Package Repealing Outdated Laws

Taking the first step toward crucial reforms

There are over 3,000 criminal statutes in Michigan, but a recent unanimous vote in the Michigan House will trim that number, eliminating several outdated laws in the first step toward simplifying the state’s enormous penal code.

Overcriminalization has recently come into the spotlight in Michigan as part of a larger movement pursuing criminal justice reform. In 2014, the Mackinac Center and the Manhattan Institute published a study on the topic, Overcriminalizing the Wolverine State. The study advocated for clarification and consolidation of the current criminal code, guidelines to govern the creation of new criminal offenses and enactment of a default mens rea provision — requiring the state to consider a person’s intent before convicting them of a crime.

Since its publication, several organizations have relied on the research, and Gov. Rick Snyder used it as the basis for several recommendations he gave in a recent plan to reform the criminal justice system. The House Fiscal Agency also pointed to the study in its analysis of the bills passed in the House this week.

As reported by MLive, those bills include measures to repeal such irrelevancies as prohibitions of duels, trespassing in oddly specific areas and using the term “lost manhood” in advertising. Some of the more pertinent repeals include laws that criminalize embellishing the national anthem, cursing in front of women and children and hosting a walkathon or similar contest of endurance.

I have never trespassed in a huckleberry marsh and I do my best not to embellish The Star Spangled-Banner beyond sense or recognition, but the existence of these laws is a sobering insight into the state of Michigan’s current criminal code. Even after the repeal of these laws, there will still be over 3,000 that I (and almost every other Michigander) could potentially break without intention or malice.

The recent House repeals address laws that are mostly redundant and silly, but many others among those 3,000 fall into the dangerous category of unknown and enforceable. That’s how people go to jail for keeping rabbits.

There is much more work to be done on the subject of overcriminalization, but the House's action is a good start toward more meaningful reforms.

MEA Opt Out Address Change Featured in State and National Media

Teachers wishing to opt out of union must use little-known P.O. box

Since the passing of right-to-work legislation in 2012, Michigan's largest teachers union, the Michigan Education Association (MEA), has gone to extraordinary lengths to keep unwilling members in the union, first by extending contracts, then by enforcing a scarcely-publicized "August Window." Members who fail to opt out of the union during the month of August have had their membership dues sent to collections, despite multiple authorities calling the August Window illegal.

The latest effort comes in the form of a small disclaimer at the bottom of MEA's Members Only page:

Effective June 3, 2015 -- For any resignations during  August 2015 and any subsequent resignation timeframes, all resignations of MEA membership must be submitted in writing, signed and dated by the member, and mailed to MEA at P.O. Box 51, East Lansing , MI 48826.

This address change had to be sought out. Some members have contacted the Mackinac Center concerned about whether their resignation letters would be accepted if they sent them to a different post office box number.

Mackinac Center Vice President for Legal Affairs Patrick Wright joined Frank Beckmann to discuss the matter this morning. The full audio of that discussion is available here.

The August Opt Out address change was also featured by the Washington Examiner on August 18, and on Vic McCarty's podcast on August 20.

On August 21, Ingrid Jacques published an editorial in The Detroit News titled "MEA keeps trying to block right to work" in which she gave a brief history of MEA member-retention tactics from right-to-work through the address change. The full editorial is available at The Detroit News website.

Any MEA members who have already sent in resignation materials this month are encouraged to send a second letter to: MEA P.O. Box 51, East Lansing, MI 48826.

Those who wish to opt out may find information and materials to do so at AugustOptOut.org.

On August 18 and 19 the Michigan House and Senate met in an unsuccessful effort to negotiate the differences between road funding bills each has passed. In the end they appointed a House-Senate conference committee to craft a compromise.

This edition of the Roll Call Report repeats the latest key road funding votes by each body, which were taken in June and July.


House Bill 4615, Increase fuel tax - House version: Passed 58 to 51 in the House on June 10

To increase the current 15 cent per gallon diesel fuel tax to 19 cents per gallon, and index future diesel and gasoline taxes to inflation. Also, to tax natural gas and other “alternative fuels” burned by vehicles at an equivalent rate.

Who voted “Yes” and who voted “No”


House Bill 4615, Increase fuel tax - Senate version: Passed 19 to 19 in the Senate on July 1 (Lt. Gov. broke the tie)

To increase the current gasoline and diesel fuel tax to 34 cents per gallon by Jan. 1, 2017, an increase of 15 cents and 19 cents, respectively, and index the higher rates to inflation. When combined with the 6 percent sales this would give Michigan the second highest gas tax in the nation.

Who voted “Yes” and who voted “No”


House Bill 4605, Earmark some income tax to roads - House version: Passed 62 to 47 in the House on June 10

To earmark a portion of state income tax revenue to road funding, gradually increasing the amount to $717 million in 2019, which would then be indexed to inflation.

Who voted “Yes” and who voted “No”


Senate Bill 414, Earmark some income tax to roads - Senate version: Passed 27 to 11 in the Senate on July 1

To earmark some income tax revenue to road repairs, gradually increasing the amount to $700 million, which would then be indexed to inflation. While the Senate has not identified spending cuts to offset this, estimates are that income tax receipts will increase more than $500 million annually by 2017.

Who voted “Yes” and who voted “No”


House Bill 4609, Offset income tax roads earmark with EITC repeal: Passed 57 to 52 in the House on June 10

To eliminate the state earned income tax credit, which grants recipients an amount equal to 6 percent of the federal EITC, a refundable tax credit that sends checks to low income workers. Michigan state taxpayers contribute around $115 million annually for this program. This spending cut would offset some of the income tax revenue repurposed to road repairs.

Who voted “Yes” and who voted “No”


House Bill 4607, Offset income tax roads earmark with corporate welfare cuts: Passed 60 to 49 in the House on June 10

To no longer spend $75 million annually on various direct and indirect subsidies granted to corporations and developers under the “21st Century Jobs Fund” rubric, and instead use this money on road repairs. This spending cut would offset some of the income tax revenue repurposed to road repairs. The House also passed House Bill 4608, which would halt an annual earmark of around $60 million in Indian casino revenue to government economic development programs and their adminisration.

Who voted “Yes” and who voted “No”


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

In 2013, the Michigan Legislature passed a bill expanding Medicaid, a core component of the federal Affordable Care Act, aka Obamacare. Given Republican control of the state House, Senate and governor’s office, the move surprised many. Two years earlier, referring to another ACA provision (the insurance exchange), Chuck Moss, then the chairman of the House Appropriations Committee, said GOP lawmakers would “rather be caught sacrificing to Satan than voting for Obamacare.”

Lost in the hubbub surrounding the expansion bill was a section requiring hospitals that were contracted by the state to provide managed care services under Medicaid to offer “healthy behavior” incentives for new enrollees. The idea was to mimic the cost-saving incentives inherent in private Health Savings Account insurance plans, which use high deductibles and copays to encourage health care consumers to shop around and avoid paying excessive prices.

But the Obama administration had refused to permit states to impose any meaningful deductible or copay requirements on Medicaid beneficiaries, so Michigan policymakers sought other incentives. Since the state couldn’t use a stick, it would try a carrot.

Recent news reports have focused on one of these carrots, $50 Wal-Mart gift cards for Medicaid clients who, in essence, “follow the doctor’s orders.”

Who Pays?

The law leaves the exact form of an incentive up to the discretion of the officials who negotiate the managed care contracts between the state and the hospitals that provide almost all Medicaid services in Michigan. While the state doesn’t itself purchase or give out any Wal-Mart gift cards, their cost is baked into the Medicaid managed care contracts.

Jennifer Smith, spokeswoman for the Michigan Department of Health and Human Services, explained that the hospitals must “provide a $50.00 gift card to … beneficiaries who earn less than 100 percent of the federal poverty level, have met with a primary care provider, and have agreed to address or maintain healthy behaviors.” She said, “We want to see the newly insured connecting with primary care providers and understanding how to use their benefits so they can take steps to improve their overall health and wellness.”

Enforcement and Nanny Statism

State Sen. Patrick Colbeck (R-Canton) was perhaps the most vocal critic of Medicaid expansion in the state Senate. Colbeck said about the gift cards, “This really is an incentive to expand participation in the program.”

He referred to the “double loss” this incentive incurs, one to the taxpayers who pay the bills and the other to the individuals who become dependent on a government welfare program. Colbeck is also concerned with the implications of the state involving itself so deeply in the personal affairs of private citizens.

In addition, he believes that what participants are really rewarded for is the information they give to the government rather than their medical lifestyle. He points to a provision of the expansion statute that requires clients to “demonstrate improved health outcomes or maintain healthy behaviors as identified in a health risk assessment. …” (emphasis added).

In other words, the state may not be incentivizing healthy behaviors as much as filling in the right answers on a form.

Longer Term Impacts on Freedom and Finances

The bill authorizing the expansion extended medical welfare to two new populations: able-bodied childless adults under 100 percent of the federal poverty level (FPL) and people between 100 and 138 percent of FPL. It also brought into the program many individuals who were already eligible for Medicaid but were not enrolled (the “woodwork effect.”)

Initially the federal government is paying for the expansion, but starting in 2020 Michigan taxpayers will be responsible for 10 percent of the cost. This was originally projected to be around $300 million annually, but could be much higher because enrollment has already far exceeded original estimates.

The Wal-Mart gift card incentives bring into focus three of the many concerns raised about the Obamacare Medicaid expansion: Increased dependency, deeper intrusions by the state into the deeply personal affairs of private citizens, and the potential for beneficiaries to “game” the system in ways that undermine its intentions.

See Also: Mackinac Center Medicaid Expansion Coverage