SADOW: What Is John Kennedy Thinking?

Readers interested in Louisiana politics got another reminder recently of the maddening inconsistency of state Treasurer John Kennedy’s thinking, and why, should he decide to pursue the matter, any attempt he makes to be elected governor in 2015 should be greeted with a healthy dose of skepticism.

Sometimes on issues he hits the nail square on the head, as he did recently concerning a hastily-considered law that had the effect of expanding substantially state retirement benefits for two individuals. He correctly understood that the law passed unconstitutionally and that legal action should be taken to have the courts invalidate it. Further, he continually agitated for that until, in effect, that was the outcome.

But on other issues at times he goes into full demagoguery mode that shreds facts bound by illogical inferences. He displayed that recently in an opinion piece concerning the changes coming in the state’s employee and retiree (and for some school employees) health benefits. Generally, while some will see these lowered, many clients will see higher insurance costs when taking all of premiums, co-payments, and deductibles into account as a result of those changes.

Over time a couple of years ago, rates were decreased 9 percent with essentially no changes in the rest of the benefits packages. At the same time, the reserves for health benefits were more than two times the recommended actuarial amount according to industry norms. By decreasing rates, saving some recipients several hundred dollars a year, this also served to reduce the taxpayers’ shares paid into this – generally, the state ponies up three dollars for every one the client has taken pre-tax from salaries or pensions. All told, this left more money in the hands of people who had earned it, both for clients and taxpayers, while putting to use excess funds that had been taken from these groups to inflate an unnecessarily-large reserve.

However, the Gov. Bobby Jindal Administration says it miscalculated the cost side of the equation, and in combination with the reduced revenue side, the reserves began draining much faster than anticipated. The solution provided will stabilize reserves at an appropriate level, but with the consequences of higher overall costs for many – even as the Office of Group Benefits plans in question provide typically much better coverage for lower prices than can be obtained by those who work in the private sector who pay the taxes to support these generous programs.

This discomfited Kennedy, who in his opinion piece likened the outcome to a “detrimental tax increase,” apparently on clients because of “higher deductibles and fewer benefits.” He claimed the state “helped itself to the reserves,” and that because “state workers helped build up the fund balance” therefore to spend the reserve meant “it is being stolen from them.” He argued that by not opting for a premium increase to “replenish the balance” the state “is socking this solely to families.”

Characterizing these remarks as distortions of or ignorant of the facts would be charitable. More bluntly, they are lies. Let’s show why.

No taxes were increased in the new plan structures. As noted, no premium increases are occurring with them (the next effect of the last three rate changes since 2011 has been a decrease of four percent). Unfortunately, Kennedy has fallen prey to the ignorant misunderstanding of what a tax is (rather unfortunately as he is the state treasurer) that many politicians use to try to make a policy action look less desirable (such as when the claim an increase in tuition is a “tax increase’).

A tax is something levied by government on an activity or holding of an asset that triggers an involuntary payment from one to whom the tax is subject, which does not directly relate to a specific service tied with that activity or asset being performed by government in a discrete manner as compensation, this latter being a fee-for-service. In this case of benefits, co-payments and deductibles are relevant in direct proportion to the amount of service used. Further, having health insurance through the state is an entire voluntary transaction; a number of state employees refuse it and there’s nothing coercive about having to have it. Also voluntary is the amount of health care people are willing to consume; if, for example, co-payments go up, clients with non-essential needs can choose not to consume those services to avoid the higher payments.

All that’s happening here is, for many (but for some exactly the opposite), total fees for a service provided by the state which is completely voluntary for employees are rising. Only a deliberate distortion for political purposes could claim otherwise. It’s not a tax by any generally accepted definition in the world of government finance.

In fact, the only thing taxation has to do with the entire question is, interestingly, something Kennedy avoided mentioning. That is, if his suggestion of a premium increase as preferable to changing plan parameters was implemented (which the Administration claims would involve pretty steep hikes), it very well could trigger a tax increase for Louisiana as a whole. He neglects to mention that, because of the taxpayer subsidization aspect, any premium increase takes more from taxpayers, meaning that services must be cut elsewhere and/or taxes on them increased. While Kennedy asserts in the piece that “I’ll put my small government credentials up against anyone’s,” he’s making it easier to dismiss those credentials by deciding to put the interests of OGB clients ahead of those of taxpayers – especially if growing government through taxation is the end result of his recommendation.

This fact of taxpayer support also illuminates how Kennedy comes up short of the truth in regarding the role of the reserve. Oddly, he seems unable to understand that draining a super-high reserve level is not the issue; even if premiums had not been reduced, that only would have delayed the draining. The real issue is that health care costs were misjudged and that only plan changes (perhaps in combination with premium increase) could respond in a way to ameliorate cost overruns that in part the clients, but mostly taxpayers, otherwise paid in premiums.

So maybe state (and some school board) workers (and retirees) did build up the fund balance – but taxpayers on average built them up three times faster. And the state did not go in and take them to spend on other non-related items, as Kennedy implies – in reality, all that came out of the reserves went to health care spending on clients and their families. Nothing was “stolen” from them or taxpayers – every cent was used for the purpose intended.

And, again, Kennedy forgets about the interests of taxpayers and doesn’t seem to understand what’s going on here when remarking about the fund balance. The plan changes aren’t there to “replenish” it, but to prevent it from its balance falling faster than is desirable. And the alternative to “socking this solely to families [of clients]” is to sock it solely to the families of the state’s citizenry (who already caught a break, not mentioned by him, when an outside administrator took over running the benefits program, saving the state an estimated $10 million annually.)

Which is an interesting policy debate, but one Kennedy doesn’t seem interested in having as it appears he’s chosen to put more of the burden on the citizenry than the clients – even though Louisiana state employees have, in part because of the high-benefit, low-pay health benefits they enjoy, a gravy train of total compensation at taxpayer expense that significantly beats what people in the private sector doing similar tasks earn. If the end result of this policy serves to make state employees, retirees, and school board employees and retirees pay a fairer share of the costs they incur, why is that so controversial?

In fact, I’ll go farther than what Kennedy suggested in that the Jindal Administration made a political calculation to cut premiums in order to lower taxpayer payments, freeing that money for use elsewhere in the budget (mysteriously, Kennedy neglected to mention that this not only enabled provision of more state services, but also saved the typical benefits clients to keep hundreds of dollars more a year of what they earned by salary or pension). It may well have for balancing budgets – and for building goodwill among clients. But the conspiratorial-minded also may consider the cuts were a prelude to getting the reserves into a more legitimate posture and to find a way to reduce the overall value of the benefits, in effect making clients more and taxpayers less responsible for their own health care from a situation that already heavily subsidized and favored the clients. It may have been another tactic of the Administration to achieve its long-standing goal of right-sizing Louisiana government, if not ever publicly admitted.

Kennedy concludes by arguing for a change in how benefits decisions are made, from gubernatorial control to placing it in the hands of a collective, the Public Retirement Systems’ Actuarial Committee (which he terms the “Public Employees Retirement Systems’ Actuary Committee;” being that he actually is a member of it and it is part of his department, after 15 years as treasurer one would have hoped that he could identify that correctly). But after all his time in office as a single executive with people under his command, he should know better, for two reasons.

At a more general level, proper administration should vest personnel matters under unified leadership. Too many cooks spoil the broth, and if benefits policy is to be used as a tool of hiring, retention, and motivation of workers, it needs to be under control of the manager ultimately responsible for the vast majority of state employees administratively, either directly or through his appointees, the governor. Since retirees are just that, a case could be made for separating them out, but then this dual system would create more bureaucracy and confusion. Putting a collective in charge further exacerbates the difficulties in achieving unity in command.

And, more specifically, the PRSAC is the wrong group to do it. Its responsibilities presently lie entirely with state and local government retirement payments and have nothing to do with benefits. If one went this route, surely another body, existing or created for this purpose, could prove to have more expertise.

It’s great when the “good” Kennedy shows up, attending to the exposition of genuine wastefulness, if not downright silliness, in state government and how to repair that. But when the “bad” Kennedy emerges, in full demagoguery mode spouting off intellectual mishmash designed to rile rather than to inform about an issue, one again must wonder whether the primary purposes of such broadsides are to lead the state to better policy, or whether they are for political consumption in the service of political ambition.

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