Thursday, February 18, 2016

Income Inequality and North Carolina Health Care: A Tale of Two Extremes

by Nomad

Without the Medicaid expansion, health care for the poor of North Carolina has become a real problem.  Of course, you'd never know it by the looks of salaries paid to CEOs of  non-profit healthcare organizations. 

To put it bluntly, If you are poor in North Carolina, don't even think about getting sick.
The Tarheel State is one of 20 states that rejected Obamacare's optional Medicaid expansion. Governor Patrick Lloyd "Pat" McCrory and a Republican-majority legislature left healthcare coverage as it stood, covering some 1.9 million residents, around only a fifth of the state's population. 

Surviving in the Gap
Not everybody was happy with the arrangement. Advocates of the expansion claimed that another 500,000 people might have been added to the rolls, including tens of thousands of childless nondisabled adults.  
USNews reported last October that there was a good reason for this dissatisfaction. The states' Medicaid program is broken.
Bureaucratically antiquated and growing faster than state revenues, it has gone over budget in three of the past four years, and its taxpayer cost and total enrollment have both doubled over the past decade. Last year, it cost North Carolina taxpayers $15 billion, nearly a third of the budget and more than twice what the state spent in 2003.
At the end of 2015, Gov. McCrory signed into law a bill to reform North Carolina's overgrown and out of control Medicaid program.
However, this reform will take, by the official estimate, around four years to become fully implemented. Supporters claim that it will reduce existing spending by 2%, saving hundreds of millions every year. 
How accurate that is is anybody's guess. But one thing is clear, until then, the uninsured poor in the state are going to have to live with things as they are. 

Currently in the states that have opted out for the expansion, you have to be a child, pregnant or disabled to get Medicaid. And because the Medicaid expansion of the Affordable Care Act (ACA) was designed to accommodate the millions through a subsidy program, these people are caught in a coverage gap: This is defined as people  who are not eligible for Medicaid but also not eligible to buy private insurance at the exchanges because their incomes are above the poverty line. That's about $11,000 a year for an individual.  

Back in January 2014, NPR profiled the healthcare plight of the rural residents of some of the poorest counties in North Carolina. 
The question was: what can be done for people who have fallen between the cracks?
...the name of the game is finding inventive ways that low-income consumers can earn enough to reach the poverty line in order to qualify for a subsidy.
The NPR article details the rural poor desperately trying to find ways to boost their incomes to push them over the poverty line. This includes things like selling wild ginseng in front yards tomatoes from their garden. Or by claiming as income from taking care of an aging neighbor or babysitting. 
One healthcare navigator is quoted in that piece:
"Folks are trying to use every source of income, whether it's selling tomatoes from their garden, or perhaps they've never actually sold the hay off of their field, they've just always let their nephew cut it for free."
From now on, there will have to a put a price tag on every good deed and everything that had once been free.
That's what it has come down to. 

One Out of Five
No question about it.
Poverty in North Carolina is a serious problem. Affecting 1.7 million citizens in the state, one out of every five North Carolinians live in poverty. 
Rural and eastern parts of the state have long been plagued by persistent generational poverty (meaning, a family having been in poverty for at least two generations), and this has been made worse by budget cuts by the state.
As of 2014, North Carolina has the 10th highest poverty rate in the country. It has the 10th highest child poverty rate and is tied in 12th place for having the highest "deep poverty" rate. (“Deep poverty is defined as having an income of 50% or less of the poverty rate.”)

The Republicans have called for tax reform but not to help the poor. In 2013, ThinkProgress reported on the McCory's plan to replace its income tax with an expanded sales tax. Such a move,  the article points out would disproportionately impact the poor
North Carolina’s tax system already benefits the well off, with the richest 1 percent paying 6.8 percent, compared to 9.5 percent for those making less than $17,000, according to the Institute on Taxation and Economic Policy. Shifting to a larger sales tax will hit low-income residents the hardest, as they spend a much larger percentage of their income on basic needs. Tacking the sales tax onto food will make this change even worse for those at the bottom of the income scale.
One of many challenges the state faces is maintaining healthcare in rural North Carolina which is where poverty is a way of life.
These are uncertain times for North Carolina’s rural hospitals. Hospital systems are buying small, struggling independent hospitals, while all hospitals have taken financial hits due to budget cuts and the state’s decision not to expand Medicaid.
When asked about the future of healthcare in that area, he says:
Looking at trends – with more closures and increasing rates of financial distress and challenge, continuing problems with access to providers – it does appear worrisome.
A Common Practice
Let's cross over now to the sunnier side of the street. 
Journalist Karen  Garloch from the Charlotte Observer recently reported on the earnings of the CEO of Carolinas HealthCare System (CHS), Michael Tarwater. Some might have found it a shock.
Firstly some background information.
Carolinas HealthCare System is a nonprofit hospital network which operates hospitals, freestanding emergency departments, urgent care centers, and medical practices in the American states of North and South Carolina. About 90% of the hospitals affiliated with the system are located within 75 miles of Carolinas Medical Center, the system's flagship hospital and headquarters, in Charlotte, North Carolina. The system has over 60,000 employees.
The 62-year old Tarwater announced plans to retire from his position this June at the $8 billion public healthcare system.
According to the Observer's investigation Tarwater received $6.6 million in total compensation, an increase of 26 percent over the previous year’s $5.3 million.

Figures released last week show that in 2015 the CEO received a salary of $1.28 million, two bonuses totaling $5 million, and other compensation, including retirement and health benefits of $305,318.
A spokesperson for CHS was quick to point out that part of this increase in Tarwater's compensation was related to his retirement after 35 years of service. We are told that it's a practice that is "common for many organizations and executives." 

Everybody's doing it. They say this is nothing extraordinary. That's actually correct. In fact, it's an real-lefe example of trickle-down theory.  
Among nonmanagement employees, more than 22,000 in Carolinas HealthCare’s Charlotte-area hospitals received 2015 incentive bonuses of $1,000 each, and 7,674 others received bonuses of $300 or $600 each, Moore said. Another “special bonus” program benefited about 24,000 employees, who received $1,000 each, and 7,568 others, who got $300 or $600 each. Total bonuses for nonmanagement employees came to $53.4 million, in addition to annual pay raises that averaged 2 percent.
CHS, like other tax-exempt nonprofits, retains its earnings and reinvests them in expansion and improvements. All this cash being passed around must be a sign that the organization is doing things right. 

The Bottom Line
Despite the size of the executive compensation, the spokesperson is quite correct. There's apparently nothing particularly unusual or devious going on.

CHS has a committee comprised of a board of commissioners which sets the executive compensation. This increase can be justified by such things as financial performance, quality of care, and surveys that reflect the satisfaction of patients, physicians, and other employees.
And importantly, CHS' executive pay scale compares to other hospital systems of the same size, complexity and performance.
Furthermore, there's the bottom line to consider.
In recent years, Carolinas HealthCare has posted strong profits and built up big reserves. According to Standard and Poor’s, Carolinas HealthCare had unrestricted cash reserves of $3.5 billion as of June 2015.
According to the Observer article, other healthcare systems in the area are all awarding their CEO with comfortable salaries, bonuses and compensation packages.
And another point to keep in mind, the rise of executive pay is a trend that shows no sign of stopping.

A Conflict of Business Models 
Consumer advocacy groups have called out the practice of ever increasing CEO pay. Is it really appropriate for a non-profit to base executive compensation on revenue?  

On that subject, the Observer spoke with Michael Thatcher. He is president and CEO of Charity Navigator which surveys about 8,000 nonprofits of all types, apart from hospitals.  Thatcher points out that CEO of more famous non-profits like the American Red Cross earn considerably less even though it is a $3 billion organization.
Thatcher said citizens have a right to ask: “Who’s holding them accountable?

To be perfectly clear, nobody is claiming that CHS (or any of the healthcare systems) is bilking anybody. There are no outstanding claims of wrongdoing here. 

In fact, the healthcare is understandably proud that in 2014, it provided about $1.63 billion in what the industry calls “community benefit." It's unclear what that term actually means, but at least, $320 million was devoted to free care for low-income and uninsured patients.
CHS officials say even a non-profit must stay financially sound. How else can it provide care for everyone, including free care for those who can’t pay?

Recall that CHS is a tax-exempt system so the taxpayer has a genuine interest in how the money is being spent and on whom. Critics say that the very nature of a non-profit healthcare, with all its complexities, needs to be questioned and the definition and responsibilities of such an organization need to be clarified.

Here's what they mean.
CHS is technically a hospital authority, created by state law in 1943. From this, presumably, it derives its tax-exempt status. Recently the US Department of Labor conducted a closed investigation which asked precisely whether Carolinas was actually a governmental agency or not. As one county commissioner noted, most government agencies have “typical limitations on pay.”  
The jury is still out on that critical question. 

Non-profit healthcare systems, like the one profiled here, seem to want the best of both worlds, a mix of the private corporate model- which include high wages for CEO-  and a tax exemption as per a non-profit.
As Thatcher asks:
“Should a medical care facility be nonprofit and mission driven? Or is it a business? I think there are some ethical questions around that.”
When looking over the salaries of CEOs and other executives at non-profits, perhaps, advocacy groups say we need to start asking seriously whether the money couldn't be better spent.
*   *   *
It boils down to one fundamental question and it's a question of the priorities of a non-profit.
That should be based on need.
So, who is more in need, the poverty-stricken patient who must sell tomatoes from her garden just to qualify for the affordable health care or the already-wealthy executives of a non-profit organization who will retire very comfortably with a fortune fit for a king.