Indiana budget proposal: Where Senate Republicans stand on school vouchers, mental health and free textbooks
Indiana Senate Republicans released their plan for the two-year, $43.3 billion budget Thursday, rejecting two proposals from House Republicans to expand the state’s school choice program and speed up income tax cuts. Senate Republicans also did not include money in their budget proposal for trauma care system improvements.
The two caucuses are, however, on the same page when it comes to how much to spend on right-sizing the state’s public health system, though neither wants to fund it at the level Gov. Eric Holcomb requested.
Senate Democrats on the Senate Appropriations Committee preferred the Senate’s proposal over what passed the House, but they still have some concerns.
Here’s how the Senate budget plan differs from the House’s proposal, and how it would impact you.
K-12 education spending and school choice
Senate Republicans want to pump an additional $2.5 billion into state education over the biennium, but that wouldn’t mean an expansion of the state’s school choice voucher program to more Hoosiers. The upper chamber wants to stick with the status quo when it comes to determining who is eligible for the vouchers.
Senate Republicans rejected House Republicans’ plans to expand the program to families making 400% of the income required to qualify for free or reduced-price lunches. Under the House Republican budget plan, if your family of four makes about $220,000 per year or less, you would qualify for a school choice voucher.
“I can never sit here and say never, because [House Republicans] are pretty adamant about it,” said Sen. Ryan Mishler, the Senate’s chief budget architect. “So we'll just have to talk about that in the next few weeks.”
Currently, families making up to 300% of the amount required to qualify for free or reduced-price lunches can obtain a school choice voucher. That would continue under the Senate Republican plan.
Mishler, a Mishawaka Republican, said his caucus decided to spend the extra dollars that would have been used to expand vouchers elsewhere.
Both chambers will likely compromise and land somewhere in the middle. Of course, Democrats would prefer to spend less money on school choice programs altogether and instead divert more funding toward public education.
While traditional public schools would receive more funding under the Senate Republican plan, they could lose some future property tax dollars. The Senate plan allows charter schools to receive some of those dollars moving forward, reducing charter school reliance on state grants over time.
Democrats shared concerns about the proposal during the Senate Appropriations committee meeting Thursday, because they worried it would hurt traditional schools in their communities.
“We know many of our school corporations are in impoverished areas, still struggling with assessed value, still struggling with a variety of funding issues,” said Gary Democrat Sen. Eddie Melton, the ranking minority member on the committee. “So that's something to keep an eye on.”
It’s all but a done deal: You likely will no longer have to pay for your child’s K-12 textbooks or other curriculum material.
House and Senate Republicans are on board with Holcomb’s plans to provide free textbooks for all K-12 students. Now the question is: Who will pay for it?
While Senate Republicans want to backfill the costs with state money, the House didn’t have a specific line item in its budget to do so. Instead, the burden would fall to schools.
Free pre-K for more Hoosiers
More families would be eligible for free pre-K education under the Senate’s plan, versus the House.
Eligibility for On My Way Pre-K would expand from families making 127% of the federal poverty level income to those making 150%. The state is not putting more money into the program; the current funding isn’t being used up by the eligibility requirements already in place.
Democrats unsuccessfully tried proposing an amendment to expand eligibility to 400%.
“I don’t think that it goes far enough to truly provide that opportunity for our kids for economic freedom,” said Sen. Fady Qaddoura, D-Indianapolis, “so that they can grow up in a society where they can earn, they can succeed and they can take care of their kids and hopefully end the generational cycle of poverty.”
Mental health funding
As expected, the Senate budget contains additional funding for mental health programs to the tune of $35 million over two years — a slight increase of the amount initially contained in Senate Republicans’ keystone mental health legislation, Senate Bill 1.
That number, though, still falls well short of the $130.6 million needed each year to fully fund a mental health crisis system, according to state estimates. Lawmakers envision that system as one solution to Indiana’s growing struggles with suicide and addiction.
Senate and House Republicans are still discussing ways to fill the funding gap — and how much of the gap to fill — for this budget.
One option is an increased cigarette tax to pay for the programs, which is what the Indiana Chamber of Commerce has suggested, but has historically been rejected by Senate Republicans. Another is a cell phone surcharge, similar to how 911 is funded.
Agreement on public health spending
Senate and House Republicans are on the same page when it comes to the dollar amount for public health initiatives in your community, but neither includes as much funding as the governor asked for.
Holcomb requested $315 million in his budget, while the House and Senate both appropriated $225 million. That number doesn’t include the added money for emergency preparedness initiatives.
Before the pandemic, Indiana spent only $55 per capita on public health funding, compared to the U.S. average of $91, according to a report from the Governor’s Public Health Commission. That led to disparities in what some local health departments offered its residents.
Most of the new money would go toward grants dedicated to local health departments. Those departments that opt in to receive the extra funding could use it for things like tobacco cessation programs, testing for HIV or education about trauma prevention.
One key difference between the Senate and House’s health spending is that the Senate’s proposal doesn’t contain a separate line item to better Indiana’s trauma care system.
Senate Republicans also aren’t itching to speed up income tax cuts for Hoosiers.
Last legislative session, lawmakers enacted a series of tax cuts that would take effect every year through 2029, moving the tax rate down from 3.23% to 2.9% over time. The Senate budget proposal would keep that plan intact.
House Republicans, however, want to speed up that timeline and remove some guardrails that prevented the tax cuts from going into effect unless state revenue growth reached 2%. If the House’s plan is implemented, someone making $50,000 per year would save an additional $325 over five years.
But both plans would give Hoosiers the same 2.9% income tax rate starting in 2029.
Mishler said he would rather pay down the unfunded liability on the pre-1996 teacher retirement fund in order to free up money in future years, rather than move forward with incremental tax cuts.
“It gives us flexibility to do something more transformational,” he said.
What else is in the Senate’s plan
The Senate proposal also contains additional money for pay raises for state employees, trails, attracting direct flights, economic development initiatives and employer child care expenditure credits.
Senate Republicans also kept language added into the budget on the House side prohibiting state money from being used for Indiana University’s Kinsey Institute, which conducts research on sexuality, gender and reproduction.
What’s next for the budget
Senate Appropriations voted the amended budget bill out of committee Thursday by a 10-2 vote, after rejecting multiple amendments from Democrats. Democrats on the committee were split on their bill votes.
Once it passes the full chamber, Senate and House Republican budget writers will have to work through the differences in their two versions and vote on the bill one last time. Holcomb is all but guaranteed to sign the final version.
The biggest unknown at this point is what the updated state revenue forecast will show when it’s released later this month. If the forecast is dimmer than expected, lawmakers could be forced to make cuts somewhere in the proposed budget.
That’s why Mishler said he set aside a large amount of money for reserves, 13.8% in the first year and 14.7% in the second, in order to act as a cushion.
“I’m happy with it,” Mishler said of his proposal. “It’s balanced.”
Contact Kaitlin Lange on Twitter @kaitlin_lange or at [email protected].
Contact Ryan Martin on Twitter, Facebook, Instagram, LinkedIn, or at [email protected].
Header image: Senate President Pro Tempore Rodric Bray, R-Martinsville, answers questions at a press conference following the 2023 State of the State Address on Jan. 10, 2023, at the Indiana Statehouse. (Credit: Ronni Moore)
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The debt ceiling, a lack of integrity and the possible fallout
In the coming days, the United States again confronts our statutory debt ceiling. This is a 1917 law (increased every year or so) establishing a cap on federal government debt. The law itself runs up against the 14th Amendment to the Constitution, which was intended to reassure bondholders that we pay our Civil War debts. That means the debt ceiling may be unconstitutional, giving the Biden administration the option of simply printing money to cover the debt.
The debt ceiling law is politically convenient because it offers an opportunity for members of both parties to engage in a bit of political theater. It is important to remain focused on the real issue of debt rather than the political shenanigans. I expect some sort of compromise, but that is more hope than actual analysis.
Neither the Republicans nor Democrats have performed satisfactorily on this ballooning public debt. The GOP showed zero concern about debt when a Republican president was in office. Not a single Hoosier Senator or member of Congress voted against the Trump administration’s Tax Cut and Jobs Act (TCJA) or the CARES Act. These bills fall in first and third place in terms of recent contributions to the debt.
The Democrats, who voted almost unanimously against the TCJA, voted unanimously for the American Rescue Plan, which came in second place for debt loading. There’s not a clean hand in Congress on the current debt. Insofar as I can tell, the sole Republican speaking honestly about the GOP’s profligate history is Mike Pence.
As I wrote at the time, each of these large spending bills had some merits, and there remain reasonable arguments for each. The problem is that so many now in office want to remake themselves as thoughtful budget hawks, but when it mattered, they were nothing of the sort. It is the lack of integrity that highlights the real problem. No one can be honest about the root of the problem.
In 1946, right after winning World War II, our debt-to-GDP ratio stood at 119%. Today it sits at 121%, down from 127% two years ago. But, there is no peace dividend. Our spending problems are not about our military spending, which is today at near historical lows as a share of GDP.
The big-budget items driving our deficit are spending for Medicaid, Medicare, Social Security, and federal government and military retirements. And yes, I know Social Security and Medicare are supposed to be separate budget items. They are not.
If we cut all foreign aid (including Ukraine defense), housing subsidies, environmental remediation, research, discretionary education spending, immigrants, parks, and clean air or water, we wouldn’t make a dent in our debt. Altogether, these spending items wouldn’t even cover the interest payments on our debt.
In order to reduce our debt in the coming decades, we are going to have to do two very unpopular things: raise taxes and cut spending. We are going to have to do more of both than almost anyone really imagines.
On the revenue side, we are going to have to sunset the TCJA and raise marginal income tax rates on middle- and high-income households. By middle, I mean everyone who pays an income tax. Also, we probably must extend the Social Security taxes (FICA) across all earned income types.
On the spending side, we are going to have to extend retirement age, probably to 70 years or so for younger workers. We won’t have to means-test benefits, because we will have higher taxes on more affluent households. But, we will reduce retirement benefits for younger workers, and end the practice of increasing Social Security for older adults who work. We are also going to have to reduce the rate of inflation adjustments for Social Security recipients.
If all of that sounds distasteful to you, too bad. What I have just outlined is probably the easiest resolution to our current debt problem. But, what if we choose a different path?
We could cut defense spending. I’d vote to eliminate the entire Marine Corps. If we did that, it would only take another 117 years to eliminate today’s debt, though that wouldn’t come close to balancing the current budget. So, we’ll have to cut something else. If we cut our foreign aid, we could pay off the current debt, not counting interest, in 600 years. Alternatively, we could reduce overall Social Security costs by 10%, through later eligibility, and extend FICA taxes to a further 10% of earnings, and retire the debt in 60 years.
It is probably wise to ignore the political talking points about our debt and focus on the arithmetic. Still, many might wonder what if we ignore all this and blow off our debts, and default. After all, many Americans declare bankruptcy. Well, that step would be somewhere between a crisis and a full-blown economic catastrophe.
The United States borrows money like every other government does. We have treasury bills notes, bonds, inflation-indexed securities, floating rate notes, domestic series bonds and the like. Altogether this is about $31.5 trillion in borrowing. About 13 cents on every federal tax dollar collected goes to paying interest on these debts (or about twice the annual cost of the entire Marine Corps).
The reason the U.S. can borrow all this money is simply that everyone believes we will pay it back. Our creditworthiness ensures a reasonably low rate of borrowing and keeps our currency as the world’s reserve currency. So what happens if we default?
Well, there will be a flight away from U.S. securities. This will lead to financial markets devaluing our bonds, leading to higher borrowing rates on futures. Since our bonds turn over all the time, that would mean an almost immediate increase in the share of taxes we have to spend to service the debt.
If the U.S. defaults on our debts, the stock market will decline precipitously. It would strengthen China and Russia, while weakening the U.S., perhaps sliding our economy into recession along with most of our allies. The worst forecast I have seen suggests that an extended default would result in a Great Recession-level shock to the global economy.
I think this is an unlikely scenario, only because the domestic political backlash would be so severe we will come to some compromise. But, I’m a notoriously bad political forecaster. Rather than risking default, we’d be wise to heed the rare wisdom of then-President Donald Trump’s advice on the debt ceiling: “That’s a sacred element of our country. They can’t use the debt ceiling to negotiate.”
Michael J. Hicks, Ph.D., is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. He can be reached on Twitter @hicksCBER.
Header Image: Debt ceiling (Credit: Douglas Rissing / Getty Images/iStockphoto)
Thousands of Hoosiers will soon lose Medicaid access, but the cost of the program is still increasing
Hundreds of thousands of Hoosiers are poised to lose Medicaid insurance access over the next year due to the end of a COVID-19 pandemic-era federal policy that prevented states from kicking people off Medicaid.
Despite that, state costs for the health program serving more than 2.2 million low-income Hoosiers, including more than 60% of Indiana’s children, are only expected to continue to grow over the next two years. That puts pressure on the system and the state’s budget.
Indiana spends billions of dollars on Medicaid each year, making it the second largest expense to the state’s general fund following K-12 education.
In the last decade, Medicaid assistance has doubled, growing at a faster pace than the state’s general fund budget as a whole. It now makes up nearly 18% of the general fund budget, which means less money for other priorities such as education, paying down state debt or infrastructure.
“If you ask me what I lay awake at night thinking about,” Senate President Pro Tempore Rodric Bray, R-Martinsville, said at the end of the legislative session, “it’s Medicaid spending.”
The increased pot of money needed for Medicaid makes it challenging for advocates of either expanded access or increased Medicaid reimbursement rates to make their case. It also means some Hoosiers, such as those who rely on Medicaid for autism services, fear cuts may be coming.
Why so many Hoosiers will likely lose access to Medicaid
Over the next year, the state estimates that a net 400,000 Hoosiers, or nearly one-fifth of the number currently on Medicaid, will lose their Medicaid insurance access.
During the pandemic, the federal government prevented states from disenrolling people from Medicaid even if they were no longer eligible, in exchange for more federal dollars. That caused the number of people on Medicaid in Indiana to increase by more than 800,000 enrollees over the three-year period.
The Biden administration prohibition ended at the end of March, which means that for the next year, the state of Indiana will start double-checking whether those receiving Medicaid still qualify, in a process known as unwinding.
Advocates are worried some people will be kicked off by accident, or won’t realize they lost insurance until it’s too late and they’re hit with a doctor’s bill. The Family and Social Services Administration (FSSA) is sending people at risk of losing access a notice, but Adam Mueller, executive director of the Indiana Justice Project, and other advocates say it’s possible people either won’t get the notice or won’t understand its importance.
“Our biggest concern is that folks who should still be eligible for Medicaid or HIP [Healthy Indiana Plan] or any of the programs could lose coverage for procedural or administrative reasons,” Mueller said. “Even where there’s not a giant unwinding going on, people slip through the cracks.”
To that point, a recent report from the state found that of the roughly 52,000 people who lost coverage in the first month, more than 88% of them lost their Medicaid simply due to procedural reasons such as failing to respond to FSSA, not because the state found them ineligible. That could signal a problem in how Indiana is unwinding, said Joan Alker, executive director and co-founder of the Center for Children and Families at Georgetown University.
“When you see a lot of procedural losses, there’s probably a lot of people, particularly children, who remain eligible, but they’re getting terminated anyways,” Alker said. “Is the state making clear that the children and the parents may have different outcomes, that like the parent is losing [Medicaid access, but] the child is still eligible?”
Advocates also fear that those who do lose access because they are no longer eligible won’t know where to find low-cost insurance options and will go uninsured instead.
So why are the costs still ballooning?
With a net decrease in Medicaid enrollees on its way, it seems counterintuitive that the costs for the program to the state would increase, so why is Indiana’s Medicaid general fund spending poised to increase by almost 40% from the previous budget?
It’s partially because the process of double-checking Medicaid eligibility will take 12 months, which means Indiana will continue to feel the effects of the pandemic requirement until May of next year. Meanwhile, the extra funding from the federal government, which typically covered the extra costs of continuous enrollment to the states, will be phased out by the end of 2023.
“There’s been some inaccurate rhetoric and claims flying around that states have been forced to carry this population, that it’s been very burdensome on them,” Alker said. “That wasn’t true because the federal government was giving them extra money.”
But even if the pandemic requirement had not been a factor, Indiana’s Medicaid costs would likely have increased due to the growth in those enrolling, and are poised to continue increasing in the future. Michele Holtkamp, a spokeswoman for FSSA, said that’s being driven largely by an increase in the number of seniors in Indiana, who often require more costly care.
Hoosiers aged 65 years and older are making up a growing share of the population, and that trend isn’t expected to slow down in the coming years. By 2030, 1 in 5 Hoosiers will be senior citizens, according to a 2018 report from the Indiana Business Research Center.
“That’s just something we and every other state in the country will have to deal with,” Allison Taylor, interim Medicaid director for FSSA, said during an April Medicaid forecast presentation.
Likewise, the state is spending more on behavioral health costs for children. There’s currently no uniform reimbursement rate for Applied Behavior Analysis therapy, commonly used to help children with autism, which means reimbursement amounts are often significantly higher than in other states, Holtkamp said. In 2022, the state spent $420 million on such services, which she called “not sustainable.”
Indiana has also expanded Medicaid in other ways. For example, a new federal rule will require states to provide 12 months of continuous coverage for children enrolled in Medicaid. That protects children from going off and on Medicaid due to minor changes in their parents’ income or other “red tape losses,” but once again, there is a cost. Indiana also extended postpartum eligibility.
The most recent data available from Kaiser Family Foundation puts Indiana near the middle of the pack when it comes to per-enrollee spending for Medicaid and 39th when comparing how much of the general fund is made up of Medicaid spending. But without more recent data, it’s challenging to know how Indiana compares today to other states.
What’s the solution?
Finding a way to stop costs from increasing is complicated because, typically, activists and lawmakers are pushing for an increase in Medicaid access or reimbursement rates — both of which might help Hoosiers but could drive up costs more. Already, Indiana requires those making over a certain income level to make a monthly contribution to their health care.
Some lawmakers pointed to one solution: fix Hoosiers’ dismal health outcomes in hopes that it will reduce the need for care among those using Medicaid. Valparaiso Republican Sen. Ed Charbonneau, who championed a revamp of the public health system in Senate Bill 4, hopes his bill will help.
“This may be a way to bend the curve just a little bit, because unless we prevent people from getting sick … it’s going to get worse,” Charbonneau said. “We can’t keep it up.”
Beyond that, Indiana could strengthen eligibility requirements or lower Medicaid reimbursement rates, both of which would likely be unpopular.
Starting this year, FSSA is undergoing regular Medicaid reimbursement rate reviews. That means costs to the state could go up or down depending on what rates the agency lands on.
Could those reviews cause problems?
They could. This year, for example, lawmakers are coming up with a uniform reimbursement rate for Applied Behavior Analysis therapy. That means some providers could experience cuts.
Indiana ACT for Families, which aims to protect access to care for children with Autism Spectrum Disorder, actively pleaded with lawmakers and the Holcomb administration during the legislative session not to cut funding.
“The outcome of this review has existential repercussions for the children we serve,” the organization wrote in an April letter to lawmakers. “A sudden and steep funding cut would make it extremely difficult for some providers to continue operations and would reduce availability of quality ABA therapy that is critical to the children and families that we serve.
Meanwhile, other Medicaid recipients spent the legislative session pleading with lawmakers to increase reimbursement rates. The Indiana Hospital Association, for example, said Indiana’s current rate only covers about 53% of costs.
Indiana is poised to share the first batch of proposed Medicaid reimbursement rates within the next few weeks, Holtkamp said. The state will look at others, such as hospital reimbursement rates, during the next budget cycle.
Aside from that, Mishawaka Republican Sen. Ryan Mishler, the chief budget architect on the Senate side, has made it clear that he wants to be very picky when it comes to legislation that would increase Medicaid costs.
“We still have a lot of bills out there where members want to keep expanding it and adding more people to the program, and that’s something we have to take a look at is how much do we really want to keep expanding? Because once we do it’s ongoing,” Mishler said during the legislative session. “We just have to figure out the growth of the Medicaid.”
Contact Kaitlin Lange on Twitter @kaitlin_lange or at [email protected].
‘We needed to try something creative’; Here’s why lawmakers are allowing Indy to create a new downtown tax
In the final days of the legislative session, state lawmakers quietly provided the city of Indianapolis with a gift: Mayor Joe Hogsett and the City-County Council gained the power to create a special taxing district in the downtown area.
It is a victory for boosters of Mile Square who have been advocating for a similar district designation for at least five years to pay to improve public spaces, attract new businesses and hold special events. But their efforts failed in 2018, in large part, because of strong opposition from the Indiana Apartment Association that killed a petition drive to create a district.
Now, however, Indianapolis leaders can create the district if they want. No petition signatures are required. That’s because lawmakers created a special carve-out within state law for Indianapolis.
Many observers of the Indiana General Assembly were surprised by the move. The language, inserted into the final version of the state budget bill, was never publicly discussed. Not only that, the Republican supermajority agreed to help local Democrats in a year in which Hogsett is running for reelection against a well-funded Republican candidate. Most years, Indianapolis Democrats are playing defense against bills that would weaken their authority.
The eleventh-hour deal was made possible by the rare bipartisan acknowledgment that the downtown area needs help — not only from the city, but from the state, too.
And while it is true that the creation of a new taxing district could support several quality-of-life improvements and economic initiatives, they are not the main reason the language appeared in the state budget bill.
How the language ended up in the budget bill
The special taxing district language may have emerged in the final moments of this year’s legislative session, but it stems from years of conversations about homelessness.
In 2019, the Indy Chamber led a delegation of local business and government leaders to San Antonio, where they visited a low-barrier homeless shelter. People on the trip envisioned something similar for Indianapolis: a compassionate way to address homelessness by helping people who are unable or unwilling to use faith-based shelters. (One common barrier cited by policymakers, for example, is requiring a commitment to sobriety.)
Since the start of the pandemic, according to an Indiana University Public Policy Institute report, the homeless population has generally grown. They have concentrated in the city’s downtown, advocates say, because that’s where many public services are available.
“The pandemic made it feel like an even more significant, maybe crisis level, situation that we’re still dealing with,” said Taylor Hughes, vice president of policy and strategy at the Indy Chamber. “Coupled with the reality that there aren’t as many people downtown for work reasons … That makes the visibility of the challenge stand out that much more.”
In response this year, a bipartisan group of Marion County lawmakers, the Hogsett administration, the Indy Chamber and others asked state lawmakers to financially support the creation of a new shelter in Indianapolis. Those efforts followed several months of meetings on the topic in a task force co-chaired by appointees from the governor and mayor.
Gov. Eric Holcomb’s office and legislative leaders were supportive of a significant capital investment, according to several people interviewed by State Affairs, but they were also concerned: Could Indianapolis find a way to sustain funding for operations in the future?
So a small group of people, led by Indianapolis Republican Sen. Kyle Walker, dusted off some legislative language that had been floating around since at least 2021. That language enables Indianapolis to create a new downtown tax district, which the budget bill identified as an economic enhancement district.
That’s not to be confused with an economic improvement district, which is difficult to implement because it requires a large number of property owners to sign a petition.
The new language, however, skirts some of the red tape — and opposition — that typically appears when new taxing districts are created.
In the final days of the legislative session, budget writers agreed to insert the language into the budget bill as an option for Indianapolis. And then they added a line item to support the capital expenses for a homeless shelter.
The line item in the budget does not specifically mention Indianapolis. It does, however, allocate $20 million — which just so happens to be the amount advocates were seeking. Combined with the $12 million in city dollars that Hogsett has already set aside, the two pools of cash would cover the $32 million in expected capital costs outlined in a feasibility study.
The line item in the state budget, though, comes with a twist: It is structured as a grant program. That way, if Indianapolis stakeholders fail to identify a funding stream for ongoing operations of the homeless shelter — such as the new downtown taxing district — then the state would not necessarily be required to write a check.
Following a bill-signing ceremony for mental health legislation earlier this week, Gov. Holcomb told reporters he supports a state investment into a low-barrier homeless shelter.
“If nothing else, I’m supportive of local communities who are very transparent about their motives. And how can we then be a good partner?” Holcomb said. “How can we both put skin in the game? How can we both turn the cards face up? … On this front, it’s overdue. So yes, I’m not just pleased but proud to take a crack at this with them but understanding that there is local responsibility here.”
Which senators championed the language?
Budget negotiations every two years typically contain extensive back-and-forth between the two chambers of the Indiana General Assembly. This year, it was important to the Senate to see both the funding of the homeless shelter and the option for Indianapolis to create the new district.
Walker, who represents parts of Marion and Hamilton counties, stepped forward as the main voice championing the deal.
“The economic enhancement district, along with the low barrier shelter, certainly will go a long way to giving Indianapolis the tools to make downtown Indianapolis more attractive and also provide valuable services to the homeless community,” Walker told State Affairs. “I worked on it pretty extensively in the final days of the session.”
Walker had several conversations with other lawmakers, budget writers, legislative leadership and the governor’s office.
The language garnered broad support in the Senate, but it still required a bipartisan battle in the frenzied final days of the session. Once the Indiana Apartment Association became aware, according to those interviewed by State Affairs, the group moved quickly to lobby lawmakers to strip the language from the bill.
“That person had one job, which was to get this language out of the budget,” Sen. Andrea Hunley, D-Indianapolis, told State Affairs. “And so this was not easy to get through. There were definitely forces that were working against it.”
Hunley, who represents the downtown area, described a similar battle in 2018. She was not yet a state senator, but she and her family lived in the Mile Square and went door-to-door collecting signatures on a petition that sought to create the economic improvement district.
“At that time, the apartment lobby stopped it, which was incredibly frustrating,” Hunley told State Affairs. “So we knew that we needed to try something creative.”
Lynne Petersen, president of the powerful Indiana Apartment Association, did not return a call this week from State Affairs. But in an op-ed published by the Indianapolis Business Journal, Petersen criticized the concept: “Imagine our surprise when we learned the Indiana General Assembly granted the Indianapolis City-County Council the authority to levy an additional tax assessment onto businesses and residences downtown to fund some services that presumably property tax dollars already fund.”
Senator cites wide support for district concept
Walker acknowledged the concerns raised by the Indiana Apartment Association, but he emphasized that “the vast majority of businesses and property owners” within the Mile Square are supportive of the creation of a new district. And Walker said he wanted to ensure the legislation contained both guardrails and flexibility.
The guardrails include the creation of an oversight board with representation from downtown property owners as well as appointees from the governor, legislative leadership, mayor and City-County Council leadership.
As for the flexibility? The district can levy taxes in such a way that the costs are proportionate to the benefits, Walker said. The taxing amounts can be different based on the types of properties, too: Maybe residential properties pay one amount, for example, but large commercial properties pay another.
Walker also noted: State lawmakers are not requiring any of it. The legislation, Walker said, simply gives Indianapolis one more option to help the downtown. The ultimate decision is up to local leadership.
“It’s a tool, and it could be a very beneficial tool, but not without a tremendous amount of input from stakeholders,” Walker said.
Mayor Hogsett has not publicly endorsed the creation of a downtown taxing district. His administration could theoretically decide instead to set aside money in each year’s city budget to fund the new shelter, but those interviewed by State Affairs shared a fear that it would lead to a decline in public safety spending at a time when Indianapolis is already struggling with homicides, gun violence and a perception that the city is unsafe.
Late last year, however, Hogsett directed $3.5 million in American Rescue Plan dollars to help the downtown area. The money is paying for police overtime, security cameras, cleaning crews and homelessness outreach. Dan Parker, who serves as Hogsett’s chief of staff, suggested the taxing district could provide funding when the federal money runs out.
“If folks want to see it continue into the future, this is one mechanism now available to keep it going,” Parker told State Affairs. “But there needs to be support built for that, and that’s the hard work that needs to be done over the coming months.”
Downtown Indy Inc CEO Taylor Schaffer, Hogsett’s former chief of staff, celebrated the proposed taxing district’s potential for Indianapolis, which is the largest city without a dedicated fund for its central business district.
“Those types of sustainable funds really help to come alongside city services and private investment to ensure that a downtown can be responsive and nimble,” Schaffer said, “but also have the level of operations that make sense for that area.”
Contact Ryan Martin on Twitter, Facebook, Instagram, LinkedIn, or at [email protected].
A David and Goliath story: Why it was hard to legislatively cut health care costs
At the start of the legislative session, lawmakers pushing for health care cost-cutting bills knew they faced a challenge.
So much so that they nearly all used the same biblical tale to describe the situation: It was like David and Goliath. In their eyes, the legislatively powerful nonprofit hospitals were the giant Goliath and lawmakers were the smaller, weaker David, working to pass bills that could limit hospitals’ profits and in turn — they hoped — lower Indiana’s high health care costs.
Indiana lawmakers passed three Republican priority bills this legislative session aimed at reducing such costs, ranging from limiting physician noncompete agreements to creating benchmarks for how high hospital prices in the largest hospital systems should be.
While those carrying the bills lauded the progress, not everyone agrees the new laws, which are poised to start going into effect in the next couple of months, will reduce costs without dangerous unintended consequences.
Depending on who you ask, that’s because lawmakers weren’t looking at the complete puzzle of what drives high hospital prices, such as Medicaid reimbursement rates or the role of pharmaceutical companies, or because the measures were significantly watered down throughout the legislative session. Or maybe both.
For example, lawmakers removed a fine in House Bill 1004 for hospitals that charged high prices, and a bill reducing prior authorization requirements never crossed the finish line. And instead of banning all physician noncompetes, Senate Bill 7 just prohibited them for primary care physicians.
“Senate Bill 7 was a stone to throw at this Goliath as it passed the Senate,” Rep. Ethan Manning, R-Logansport, mused during a committee hearing in the second half of session. “As amended, I think we’re throwing a wiffle ball.”
The health care industry is one of the top employers in the state and generates nearly 15% of the state’s gross domestic product, so it’s all but unavoidable that the debate would be routinely muddied by the influential employers involved in it. Some of the state’s biggest employers are health care giants that sit just roughly a mile from the Statehouse, including Elevance Health (previously known as Anthem), Eli Lilly and Indiana University Health.
Still, the Indiana Hospital Association and the Indiana Insurance Institute rejected the notion that either of their industries was Goliath-like.
Likewise, those in the health care industry don’t always agree on which data to rely on and blame costs on other factors — or sometimes each other — making it difficult to pinpoint easy solutions.
There’s also simply ideological qualms over too much government involvement and a fear of unintended consequences, such as the potential closure of hospitals that provide valuable care in rural communities or an inadvertent increase in health insurance premiums.
“There seems to be this short sighted focus on ‘doing something’ to a certain number of facilities without a recognition of the consequences to the entire health care system around the state,” said Brian Tabor, president of the Indiana Hospital Association. “We kind of missed the opportunity to have a broader discussion.”
Which bills were signed into law
Lawmakers made lowering hospital costs a priority this legislative session after multiple reports found that Indiana’s health care costs are higher than they should be, driven at least in part by high market concentration in both Indiana’s hospital and insurance industries.
Health insurance premiums make up a larger share of a Hoosier worker’s salary than of an average American and there’s a large gap between what Medicare pays for hospital services compared to what commercial insurance pays in Indiana, signaling a high hospital cost problem.
The result was three new laws signed by Gov. Eric Holcomb, all of which were priorities of Republican legislative leaders.
House Bill 1004, which received the most attention throughout the legislative session, no longer contains its most controversial measure — fining hospitals that charge more than 260% the cost of Medicare. Instead, the final legislation requires the state to collect data on when Indiana’s largest hospital systems charge more than 285% the price of Medicare.
Starting in July, the new law will also require nonprofit hospital systems to charge for services based on where the service is actually provided. Currently, health providers can charge more for a procedure if it’s performed at an off-site, hospital-owned clinic — as if it were being performed at a hospital — rather than an independent clinic.
Representatives from hospitals say that flexibility allowed them to treat patients where they are, instead of requiring them to travel to hospitals, but it also can mean higher costs for patients. Just like in the other part of the bill, there are numerous carve-outs, including for rural hospitals, oncology centers and behavioral health centers.
The legislation also encourages hospitals and insurance companies to participate in a program that would reduce prior authorization and gives physicians who own their own practices a tax credit.
Some lawmakers saw the bill as a good start, a way to get more data, while others viewed much of it as a do-nothing bill targeting a small subset of hospitals.
“We squandered the opportunity to help Hoosiers facing high health care costs,” Evansville Democratic Rep. Ryan Hatfield told State Affairs, “and instead passed a feel-good bill that will have little implications for the consumer.”
Lawmakers also approved Senate Bill 8, which requires pharmaceutical benefit managers, who negotiate agreements with drug manufacturers for insurance companies, to pass along discounts to those who are insured, and Senate Bill 7, which bans noncompete agreements between hospitals and primary care physicians.
Getting the three measures passed was so challenging that the latter barely crossed the finish line, due primarily to philosophical issues about the role of government and whether or not the state should limit noncompete agreements for one industry and not others. Even a Democrat, Hatfield, questioned why Indiana Republicans were more in-sync with Democratic President Joe Biden on the issue.
A House committee had to vote twice on the measure after it failed to obtain enough votes to advance the first time, a rare occurrence at the Statehouse.
Health care influence at the Statehouse
Lawmakers on both sides of the bills blamed how convoluted the process of lowering health care costs can be on the prowess of the health care industry, and the sheer number of groups and lobbyists with an interest in the debate.
“It’s a behemoth. We’re talking about billion-dollar companies and folks that are making millions of dollars,” said Sen. Justin Busch, the Republican from Fort Wayne who carried SB 7. “Any time you step into a world where folks are making a ton of money, and we’re talking about really, really big business here, I think it’s going to be difficult every time.”
Both insurance and hospital groups frequently contribute to Statehouse candidates, with the top five insurance companies and the Indiana Insurance Institute contributing more than $1 million over a five-year period to state candidates and committees. Hospitals spent at least $600,000 as well.
Meanwhile representatives from both industries spent in the hundreds of thousands on lobbying efforts and entertainment at the Statehouse in 2022. (The 2023 reports aren’t yet available).
Those advocating for the bills, primarily in the business community, have their own powerful connections, too. Al Hubbard, an influential Republican who once served in the White House, leads Hoosiers for Affordable Healthcare.
Andy Downs, director emeritus at the Mike Downs Center for Indiana Politics at Purdue-Fort Wayne, said it’s not that lobbying or campaign contributions guarantee a candidate will vote in line with your goals.
“What they are much more likely to guarantee is access,” Downs said. “If you give $2,500 to your favorite candidate, your favorite candidate is probably going to answer your call when you call, which means you may be in a better position to argue your point.”
On the hospital’s side, that increased access meant the opportunity to cast doubt on studies completed by the RAND Corporation, a nonpartisan think tank, that showed hospital prices were higher than they should be. Hospitals took issue with the methodology, though multiple studies confirm Indiana has a high health cost problem.
Valparaiso Republican Sen. Ed Charbonneau, the sponsor of House Bill 1004, said the dispute over the validity of the numbers impacted discussions on health care costs. In the end, House Bill 1004 primarily collects more data, instead of relying on the data that already exists to take action.
The insurance fight was less obvious. House Bill 1003, which originally would have limited prior authorization requirements for physicians with a good track record, was dramatically weakened after the Insurance Institute of Indiana testified against it. The amended language, which just encourages insurance companies to limit prior authorization, was later placed in House Bill 1004.
Rep. Hatfield argued Republican lawmakers put too much emphasis on punishing a select few hospitals and not enough on insurance companies. He said lawmakers were fearful of upsetting Anthem, which is headquartered just a mile away from the Statehouse.
“I genuinely do not believe that it’s the unintended consequences that lead to inaction,” Hatfield said, “but rather the hold by the special interests, in particular the insurance companies and the insurance industry, over the legislative process that prevents us from taking bold action on health care costs.”
The Indiana Insurance Institute, though, said it was equally impacted by the bills that legislators passed. Another bill that was not dubbed a priority bill among legislative leadership requires insurance companies to speed up the prior authorization timeline and creates a pilot program reducing prior authorization for state employees.
Marty Wood, president of Indiana Insurance Institute, argued lawmakers were likely also influenced by another health care entity, this time pharmaceutical Eli Lilly. The company, which has contributed $246,000 to candidates and other state committees in the last five years, did not respond to a question about if it was involved in this year’s health care cost debate. However, the company called SB 8, the pharmacy benefit manager bill, “ground-breaking legislation.”
Some lawmakers still worry that the new laws, however watered down they may be, will have unplanned outcomes on health care access throughout out the state.
“I’m worried that what we’re doing is going to minimize that quality and access for everybody,” Sen. Jean Leising, R-Oldenburg, told State Affairs. “So then, will it have rippling effects to my small hospitals in my district?”
While some hospitals across Indiana are still collecting much more than they spend, others are struggling after the pandemic. Just this week, Community Health Network announced it would be cutting jobs, and a recent report found that seven unnamed rural hospitals in Indiana are at risk of closing.
Already, a third of Indiana’s counties have no inpatient delivery services, and 8% of the state is located more than 45 minutes away from a trauma center.
“They like their hospitals,” Carmel Republican Rep. Donna Schaibley, the author of House Bill 1004, said of her fellow lawmakers. “Sometimes I think they have trouble disengaging what’s going on as far as hospital administration and wonderful doctors and nurses that take care of you every day.”
During the legislative session, hospitals and insurance companies advocated for a different way to cut health care costs for Hoosiers: increase Medicaid reimbursement rates for hospitals, so less of the costs are shifted onto those with private insurance. The base Medicaid rates haven’t been increased in decades.
“It’s a choice the legislature is making and they understand that there’s a cost shift going on,” Wood said, “but right now, they’re pointing the finger rather than addressing their own part of the problem.”
Holcomb’s administration is planning to review reimbursement rates for hospitals during the next budget cycle, but Tabor warned that could be too late for struggling hospitals. It’s also unclear if that answer would do much to lower health costs: Both Michael Hicks, a Ball State University economist, and Seth Freedman, an Indiana University professor specializing in health economics, cast doubt on the concept of cost shifting.
“What that’s kind of assuming is that the providers have some way of raising prices to their private paying patients that would increase their profit on those patients, but they’re only going to do that if Medicaid pays the low prices,” Freedman said. “That doesn’t really make sense right? If they can raise prices on their private payers, we expect them to do it anyway, no matter what Medicaid payment rates are.”
During the debate on House Bill 1004 the final night of session, Sen. Jean Breaux, D-Indianapolis, shared perhaps the most transparent take on the dilemma lawmakers faced when dealing with the complex issue of cutting health care costs.
“I feel like just throwing up a coin and whichever side it falls on,” she said, before voting against the bill. “I really don’t know what’s the best thing to do here.”
Contact Kaitlin Lange on Twitter @kaitlin_lange or at [email protected].
Header image: Lawmakers passed multiple bills this legislative session with a goal of cutting health care costs. (Credit: Maudib)