State Medicaid strained by low-pay jobs

With tens of thousands of homes being built in Arizona this decade, shopping centers, grocery stores and fast-food chains followed.

The 23 percent surge in retail business, the second-highest growth rate in the nation, has been a boon to sales-tax collections for communities, but low-paid retail employees have been a drain on state coffers. They are prime users of the state's health-care program for the poor, and they are fueling a major enrollment increase.

With one in six Arizonans enrolled, the program now costs taxpayers more than $1 billion annually. In 2000, one in 11 Arizonans was in the program, the state's version of Medicaid.

Companies with the most workers in the health plan, known as the Arizona Health Care Cost Containment System, or AHCCCS, are some of the state's biggest retail and restaurant employers: Wal-Mart, Target, Fry's, Bashas', McDonald's and Yum! Brands, which is the corporation behind Taco Bell, KFC and Pizza Hut restaurants.

Only eight other states and the District of Columbia have a higher percentage of residents in their respective Medicaid programs than does Arizona, according to the Kaiser Family Foundation, which gathers information on health policies.

Anthony Rodgers, AHCCCS director, said some retail employees simply can't afford private health-care coverage.

"Part of the issue in Arizona is the number of low-wage and part-time jobs, especially in the service and retail industries and small business," Rodgers said.

Rodgers said another reason for the growth of AHCCCS is expanded eligibility requirements, which voters approved in 2000.

Economic-development experts say the state needs to break its cycle of creating large numbers of low-skill jobs and focus on increasing skilled-job opportunities that result in higher incomes and, most often, enrollment in company-provided health insurance. If a change doesn't occur, they say, there will be even more pressure on a shrinking state budget and less money for schools, higher education and prisons.

Chasing retail

The state's economic landscape has changed significantly since 2000, when Honeywell, with 17,500 workers, was the state's top employer. Others in the top 10 included Motorola, American Express, Bank One Arizona (now JPMorgan Chase & Co.), America West Airlines (now US Airways) and Intel, according to The Republic 100, an annual ranking of the state's biggest employers.

Today, only Honeywell remains a top-10 employer, but its ranking has dropped to No. 5 as its high-wage workforce fell 27 percent this decade to 12,700 workers. The average annual wage at Honeywell is $73,000.

Wal-Mart is now the state's largest private employer, and its annual average wage is $22,547, according to the company. That is slightly higher than the $21,128 that a typical full-time retail worker makes in Arizona.

A single parent with two kids making either of those average retail wages would qualify for an AHCCCS program called KidsCare. Many retail jobs, however, are not full-time and the wages are lower.

Other retailers among the 10 largest employers in Arizona are Fry's, No. 7; Bashas', No. 9; and Safeway, No. 10. Each is also among the top 10 businesses with the most workers covered by AHCCCS during the past three years, according to records obtained by The Republic.

Ioanna Morfessis, a national economic-development consultant based in Phoenix, said a cultural shift will have to occur if Arizona wants to slow the growth of low-wage retail jobs.

"I don't think there is another state that chases retail the way we do," said Morfessis, president of IO.INC.

There are a few others, but only Nevada had a higher growth rate in retail jobs, 31 percent. Three other states - California, Texas and Florida - produced a greater number of retail jobs than Arizona did, but their populations are much larger than this state's.

"Retail jobs historically have never been high-wage jobs," Morfessis said. "The challenge is, our local governments depend heavily on local sales taxes." Thus, they push for more retail businesses because of the tax revenue generated by those businesses' sales.

Wal-Mart factor

Wal-Mart is Exhibit A when it comes to Arizona's retail growth. While Arizona added about 60,000 retail jobs this decade, Wal-Mart created more than a third of them. The company's statewide workforce increased 171 percent, to 31,785, since 2000, according to the Republic 100, an annual list of top employers.

As of June, the company had 1,680 workers, or more than 5 percent of its workforce, in AHCCCS. That cost taxpayers about $18.4 million annually, with the state's share being about one-third and the federal government covering the rest, according to state records.

Dennis Hoffman, an economics professor at the W.P. Carey School of Business at Arizona State University, said it's not necessarily Wal-Mart's fault that the company has the most workers on AHCCCS.

"They face a customer base that is relentlessly seeking the lowest prices. That is what Wal-Mart customers look for," Hoffman said. "If you deliver the lowest prices, you will not be in a position as a business to shower your employees with benefits."

Delia Garcia, a Wal-Mart spokeswoman, said that the company does not encourage employees to join AHCCCS and that it has created a plan that gives workers more than 50 options to customize a health plan.

She said that an individual can obtain coverage for as little as $24 a month and that nearly 93 percent of Wal-Mart's employees nationwide have health-care coverage, with about half getting it through the company. She did not have Arizona figures.

Although more than 1,000 of its workers depend on public medical assistance, Wal-Mart says it has created thousands of jobs in Arizona and collected $336.5 million in state sales taxes in fiscal year 2008 while paying an additional $48.4 million in state and local taxes.

"We are a significant contributor to the Arizona economy, and we employ more than 30,000 associates (workers)," Garcia said. "We are doing everything we can to make health care affordable."

The giant discount retailer also has fewer employees in AHCCCS than it had in 2005, when about 2,800 employees, or 10 percent of its workforce, were in the plan.

Other retail, restaurant and grocery employers say they, too, offer health-care benefits with modest employee premiums. But they say employees are drawn to AHCCCS because it is free or has minimal premiums and, unlike a company plan, doesn't have a waiting period.

Growth of AHCCCS

The overwhelming majority, 89 percent, of AHCCCS members are in a free acute-care program, while an additional 6 percent are part of KidsCare, which requires parents to pay a small monthly premium.

The rest of the more than 1 million members, a total that more than doubled this decade, are made up of small businesses obtaining coverage, the disabled and those in long-term care.

Rodgers, the AHCCCS director, said membership in the health program grew in Arizona after voters in November 2000 approved an initiative that expanded eligibility limits so those at 100 percent of the federal poverty level could qualify. The expansion also created new Medicaid categories for single adults and childless couples.

Rodgers added that although AHCCCS has grown, it has used federal funds to help pay hospitals that previously weren't compensated for treating the uninsured. The percentage of uninsured patients treated has decreased to 20 percent from 25 percent, he said.

But membership has grown so fast that the managed-care plan now costs the state general fund roughly $1.3 billion a year, about four times as much as the $310 million spent in 2000. Though the cost rose more than 300 percent, the state's population grew only about 30 percent.

During that time, AHCCCS has gone from consuming about 5 percent of the general fund and ranking fourth in state spending behind public schools, universities and corrections, respectively, to consuming 13 percent of the budget and ranking second in spending.

A typical worker on AHCCCS has two dependents, according to state figures, and the annual cost to cover that family is $10,930.

"Right now, the cost shifting is totally a burden to Arizona taxpayers. It's out of proportion," said state Sen. Tom O'Halleran, R-Sedona, vice chairman of the Senate Health Committee.

Reversing the trend

Job recruiters such as Barry Broome, chief executive of the Greater Phoenix Economic Council, want to reverse the retail-growth trend and attract better-paying jobs with benefits.

"AHCCCS has been a runaway budget item," Broome said. "There needs to be a shift in philosophy. When you don't make an investment in economic development, universities and public education, you end up creating a low-wage economy."

The task won't be easy.

Susan Carlson, executive director of the Arizona Business and Education Coalition, said that the state has an influx of "low-tech residents" who provide a job base for retail companies and that it needs to do a better job of educating kids.

"Students graduate from a system that allows them to take less-than-rigorous course work and graduate from high school. Today, a high-school student can graduate with two years of indiscriminate math. They are not prepared, and companies know that," said Carlson, whose coalition is made up of 113 members, including Intel, Arizona Public Service Co. and United Health Care.

Also, the halcyon days of higher-paying manufacturing jobs have diminished in the U.S., and Arizona lost more than 32,000 of those jobs in the past decade, according to federal Bureau of Labor Statistics.

Hoffman, the ASU economics professor, said the loss was compounded by the state not having a huge manufacturing sector.

"We are really struggling to get high-paying jobs," he said. "The fact is we don't have a sufficient number of high-skilled workers here.

"When businesses think of relocating, they like the fiscal climate, physical climate and the relatively affordable housing. But the quality of the workforce will be an ongoing concern."

Reach the reporter at craig.harris@arizonarepublic.com or (602) 444-8478.