For the first time, MacIver follows the City of Milwaukee’s lead and considers how Act 10 changed the trajectory of health care costs in Wisconsin.
Improved method and sources provide more accurate and reliable data that will enable MacIver to continue calculating Act 10 savings estimates indefinitely.
Mar. 18, 2024
Wisconsin state government has been so prosperous for so long, few seem to remember that it all started with Act 10 in 2011, known at the time as the “Budget Repair Bill.”
The reason why Wisconsin needed a budget repair bill is because the state was facing an immediate $127 million budget shortfall. The next fiscal year, which would begin that July, was projected to begin with a $3 billion structural deficit. In summary, in 2011, Wisconsin was facing a fiscal cataclysm.
The state could not solve this problem by raising taxes. It had already tried that. The 2009 state budget included $2 billion in new taxes and fees. It could not solve the problem with borrowing. The 2009 budget included $3.6 billion in bonding. It could not push the problem onto local governments. The 2009 budget had increased local property taxes by $1.5 billion. The state was out of options; out of easy options at least.
That’s why Gov. Scott Walker introduced the budget repair bill in February 2011, “to get this current budget, this soon to be forthcoming budget, and budgets for decades to come in line.”
Walker’s plan was to break the government unions’ stranglehold on state and local governments. He enabled workers to leave the unions and limited the unions’ bargaining authority. Government employees also had to start paying half of their pension contributions and 12.6% of their health insurance premiums. Previously they paid nothing towards their pensions and their health insurance was completely free (which was an eye-opening discovery to their peers in the private sector). Government employees and various radical groups occupied the state capitol for a month hoping to intimidate lawmakers enough to block the proposal. Instead, that lawlessness had the opposite effect and strengthened those lawmakers’ resolve. The budget repair bill passed and became known as Act 10.
Act 10 did exactly what Gov. Walker promised it would. It ushered in an era of unprecedented government fiscal stability which includes balanced budgets, revenue surpluses, and tax relief. The left is still determined to go back to the old days with the unions calling the shots and creating fiscal crisis after fiscal crisis for state and local governments. With a liberal majority on the supreme court, they hope to finally succeed in overturning Act 10, where all other previous lawsuits have failed. After all, Justice Janet Protasiewicz told voters during her campaign that she believes Act 10 is unconstitutional. It’s important for Wisconsinites to understand exactly what it would cost them if Act 10 were to be taken away.
Calculating the Savings
Ever since Act 10 was enacted, the MacIver Institute has annually calculated how much the law has saved taxpayers. Our approach has been the same year after year. We collect data on employee pension contributions from the Employee Trust Funds CAFR, and we collect data on health insurance premiums from various government and private reports.
The pension savings are very straightforward. Employees didn’t contribute to their pensions before, so whatever they contribute now can be labeled as savings.
Health insurance savings are more complicated, and we took a very conservative approach to what we considered savings. We compared what agencies spent on healthcare in a given year to what they spent in 2011. It’s an extremely safe approach, but it is also a disservice to the public because it minimizes the true impact of Act 10. Last year, MacIver estimated total Act 10 savings since 2012 had reached $16.1 billion. The real figure is much, much higher.
The first shortcoming with MacIver’s traditional method is that it treats 2011’s rates as a permanent benchmark for high costs. While MacIver continued to compare today’s rates to those from over a decade ago, others have been considering how Act 10 changed the trajectory of health care costs. No one has done this more visibly than the City of Milwaukee, which continues to chart the trajectory health care costs would have taken without Act 10. It estimates that health care costs would still be increasing 8-9% annually and measures its savings from that estimate. Why should MacIver claim that Milwaukee’s Act 10 savings are lower than what Milwaukee has estimated?
Secondly, some of the sources for data that MacIver relied on for over a decade no longer exist or have changed their reporting methods. That makes it impossible to maintain consistency in our calculations.
Finally, it is inevitable that the day will come when health insurance rates will be higher than they were in 2011. If you compare those future rates with 2011’s rates, the total savings from Act 10 will start decreasing. Eventually they will reach zero. If you continue with this method, you’ll come to the mistaken conclusion that government is spending more because of Act 10.
Therefore, it’s time to retire MacIver’s traditional method for calculating total Act 10 savings. Using that method one last time, we’ve calculated that Wisconsin taxpayers have saved $18.1 billion since 2012. It is an extremely lowball estimate.
A New, Better Formula
In order to provide a more accurate estimate of Act 10 savings, MacIver has developed a new method for its annual calculation. It relies entirely on official government records that are very unlikely to ever change. It uses fewer sources, which makes it easier to collect and process the data. Finally, it adopts the City of Milwaukee’s approach of comparing current costs to the pre-Act 10 trends.
How we calculate pension savings has not changed. Since 2012, government employees have paid $12.2 billion towards their own pensions, and that’s how much Act 10 saved government on pensions due to Act 10.
For health care cost savings, we start with the City of Milwaukee. The city estimates that its health care costs would have risen an average of 7% every year since 2011 if not for Act 10, which it describes as an “unsustainable trend.” By comparing current costs to that estimate, Milwaukee’s cumulative savings equal $1.7 billion. (MacIver’s old method of comparing current costs to those in 2011 resulted in a mere $361 million in savings).
That projected average annual increase of 7% is then applied to other state and local government agencies’ health care costs to determine their true savings from Act 10. Each year, in each agency, we subtract their current health care costs from their projected health care costs. For Milwaukee County, the total cumulative savings comes out to $2.9 billion.
The Department of Public Instruction provides data about all its districts’ health care costs in a raw form. Calculating these total costs is the most labor-intensive part of MacIver’s new method, but it has certain advantages. It will produce more consistent and accurate results year after year. Comparing those annual totals to the projected 7% average increase in health care costs prior to Act 10, we calculated that the public school system’s total cumulative Act 10 health care savings is $4.1 billion.
Finally, we looked at the State Health Insurance Program, which is administered by the Department of Employee Trust Funds. It includes active state, university, and local government workers. The number of participants in the program has been fairly steady over the years. In the three years prior to Act 10, its costs were increasing by an average of 8.3% annually. After Act 10, its costs have averaged out to a 1% annual increase. To remain consistent with our estimates for other government agencies, we continue to use 7% rather than 8.3% for these estimates. Our calculations found that the State Health Insurance Program has saved at least $10.1 billion due to the Act 10 reforms.
There are other local governments and public authorities that are not captured in the data sources above. Previously, MacIver attempted to gather those numbers, but the sources for that data was unreliable and inconsistent. Therefore, they are no longer included in our estimates. That means, our estimates for total Act 10 savings will still continue to be lower than reality.
Regardless, according to these calculations, Act 10 has saved Wisconsin taxpayers over $31 billion since 2012. That comes out to an average of $9,840 per taxpayer for all 13 years. For this year alone, the average is $1,232.
Summary
MacIver’s old method for calculating Act 10 savings produced unnecessarily cautious results and had become obsolete because it relied too heavily on sources and reports that have changed or disappeared over the years. Furthermore, its results would have become increasing less accurate as time passes.
MacIver’s new method relies on official data sources that are minimally impacted by changing reporting methods. It also considers health care cost projections prior to Act 10 when calculating total savings, which is how the City of Milwaukee calculates its savings.
These changes will enable MacIver to produce more accurate Act 10 savings totals and to continue tracking those savings indefinitely into the future.