Amidst state budget crises erupting throughout the United States due limitless spending and unfunded liabilities, Governor Mitch Daniels and Indiana lawmakers approved a budget that streamlines spending and creates fiscal solvency. While facing a looming June 30^th deadline, Indiana enacted a two-year budget effective July 1^st that structurally balances the state's budget without general tax increases and reserving in excess of $1 billion at the end of the biennium. To accomplish this, Indiana state officials slashed approximately $669 million in spending to begin to decrease the gap between the revenues and expenses.

Although Indiana did not make headlines as a state devastated by the recession, Indianans suffered considerably when unemployment rates reached as high as 10.9% in June of 2009. Despite a steady fall in unemployment rates since February 2010, Indiana still shows signs of a struggling economy and reported unemployment rates as high as 8.2% in May of 2011. These numbers indicate that Indianans certainly did not escape the pitfalls of the recession and yet, their state government managed to create a balanced budget by using fiscally sound policies and tradeoffs.

Governor Mitch Daniels led the way to ensuring that Indiana does not fall victim to the same path of fiscal destruction as it's neighboring states: Illinois and Ohio, both experiencing higher unemployment rates and ever-deepening debt. In order to stave off the inevitable end that Indiana faced if they remained on the same spending path, Indiana legislators passed a biennium budget that is worthy of mention and imitation.

Health Savings Accounts for state employees

To accomplish this feat, Indiana lawmakers focused in part on reforming and promoting the use of health savings accounts for state employees. Indiana Health Savings Accounts are an alternative choice for traditional health insurance options, and offer many benefits to both state employees and the state. 

For employees utilizing them, HSAs have tax advantages. Contributions made to HSA accounts are tax deductible and any withdrawal from the account for a qualified medical expense is not subject to federal income tax.

In conjunction with a high deductible health plan (HDHP) maximum out of pocket expenses are usually less for those with HSA plans because coinsurance is unnecessary in most cases. Often, insurance premiums are reduced, thereby decreasing short-term costs, and an owner of an HSA account is incentivized to take a more active role in his health care decision-making in order to re-invest the money he saves each year.

In addition to the money recouped by employees, the state is saving money as well. By encouraging Indiana state employees to utilize HSAs, Governor Daniels' budget helps decrease the state's contribution to health insurance plans for state employees. In Indiana, the state deposits $2,750 per year into a health savings account controlled by the employee to pay all of his health bills. If any money remains unused, it becomes income for the employee.

Governor Daniels said, "Indiana will save at least $20 million in 2010 because of our high HSA enrollment. Mercer [of Mercer Consulting, independent health care experts] calculates the state's total costs are reduced by 11% solely due to the HSA option." In early March of this year, Governor Daniels authored an opinion article in The Wall Street Journal describing the HSA option as very popular among the state employees that participate in the program (70% in 2011). It is a win-win situation: the benefits to employees promote participation and the benefits to the state promote savings.

Placing health care costs and more importantly, personal health care choices, within the hands of private beneficiaries leads to more fiscally responsible decision-making when it comes to physician, venue, and procedure selection, as the individual now has an economic interest in more thrifty choices. There is an incentive for taking the time to make informed, cost-conscientious decisions, in that the beneficiary receives the excess money he saves to use as he chooses.  

Reigning in Spending, Awarding Taxpayers

In addition to increasing HSA use, Governor Daniels and the Indiana legislature made concerted efforts to cut spending to balance their budget without resorting to budget gimmicks. State Budget Solutions advocates creating a truly balanced budget, absent tricks often used by legislators, and Indiana's recent budget also rejects budget gimmicks. But encouraging straightforward budgeting is only the first part of the solution; the next step is to take definitive measures to cut spending where it is deemed wasteful, disposable or unsustainable and attempt to keep as much money as possible in the hands of the people.

In 2011 alone, forty-six states faced budget shortfalls (in addition to budget gaps) totaling over $130 billion. To help ensure that Indiana does not face the budget shortfalls projected to hinder forty-two other states in FY2012, Governor Daniels and Indiana legislators painstakingly eliminated wasteful spending and reduced spending in many areas; their motto: "measure everything."

Additionally, Indiana cut K-12 education spending by roughly $300 million and higher education spending by $150 million. Lawmakers also decreased Department of Corrections education spending from roughly $12 million to $2 million annually for incarcerated inmates attending college. DOC officials speculate that inmates (who qualify to receive two-year reduced prison sentences for bachelor's degree completion and one-year reduced sentences for associate's degree completion) will forgo the opportunity to pursue bachelor's degrees primarily from Ball State to focusing on associate's degrees and vocational training programs.

Most controversially, Indiana cut Medicaid financing to all of the twenty-eight Planned Parenthood facilities in the state, averaging about $1.4 million in savings. Recently, however, a U.S. District Court Judge granted Planned Parenthood a preliminary injunction on Gov. Daniels' move to defund the organization. It is expected that the case will eventually appear before the United States Supreme Court, since a number of other states are considering similar provisions in their respective budgets.

In conjunction with major cuts, Indiana ensures that Hoosiers are holding onto as much of their money in this recession as possible by using a variety of approaches.  The state capped property taxes and created responsible pension plans. Most interestingly, Indiana also worked in a taxpayer refund provision into HB 1001, The Automatic Taxpayer Refund Program. The provision indicates that if the total amount of the state reserves exceeds 10% and if the accounts payable by the state are not "unusually large" as a percentage of the total amount of state reserves (compared to historical data), half of the excess reserves will be transferred to the pension stabilization fund and the other half of the reserves will be distributed among Indiana taxpayers as an automatic refund. Although the qualifications seem slightly subjective, the prospect of a refund is encouraging to Indianans facing very troubled economic times.

The theme that is working for Indiana is to place more responsibility and fiscal control back into the hands of the constituency, without shortchanging themselves in the long-run by cutting corners and misusing funds to strategically "balance" their budget. By promoting the use of health savings accounts as well as using a realistic budget process, Indiana serves as a fiscal model worth duplicating by fellow states. We expect both short and long-term success in Indiana and wholeheartedly support awarding Indiana and Governor Mitch Daniels the Reality Check Award and Real Leader Award, respectively.

Filed Under : Health Care