Policy Documents

Research & Commentary: Pence’s HIP 2.0 Is Not Conservative Medicaid Reform

June 27, 2014

In May 2014, Indiana Gov. Mike Pence introduced a proposal to expand the state’s Medicaid program, known as the Healthy Indiana Plan (HIP). Currently, HIP serves only individual Indianans earning below the federal poverty level. HIP never served a large group of people, and enrollment in the program was capped at approximately 36,500 childless adults based on the availability of funds from Medicaid savings initiatives. 

The new plan, known as HIP 2.0, rolls back many cost-management components and transforms the limited HIP program into a substantial new entitlement for adults. According to Benjamin Domenech of The Heartland Institute, more than 284,000 able-bodied childless adults and 91,000 parents will become eligible for Medicaid expansion under HIP 2.0, an increase of nearly 700 percent. HIP 2.0 also eliminates the enrollment cap while increasing the income levels for Indiana Medicaid eligibility from 100 percent to 138 percent of the federal poverty line. 

One aspect of HIP 2.0 that Pence touts as a free-market reform is the inclusion of the previous program’s health savings accounts (HSA), known as Personal Wellness and Responsibility (POWER) accounts. Under HIP 2.0, however, these accounts do not resemble traditional HSAs. Whereas most HSAs are funded by both the account holder and his/her employer, HIP 2.0 POWER accounts would require taxpayer funding: between 88 and 100 percent of account contributions, as Josh Archambault, Jonathan Ingram, and Christie Herrera of the Foundation for Government Accountability point out in a Forbes.com article. In addition, whereas enrollees in HIP were required to contribute to the program and their POWER accounts or face penalties and disenrollment, HIP 2.0 eases these requirements. 

One of the key components of the original HIP was a desire to give enrollees “skin in the game,” with the idea that making people responsible for their health care would incentivize them to make better health care decisions. These reforms included an annual contribution of 2 percent to 5 percent of income, with a minimum contribution of $160 per year, and emergency room copays to discourage ER use for non-emergency services. According to Archambault et al., HIP 2.0 all but eliminates monthly contributions for three-quarters of the expansion population when enrollees choose the “Basic” plan option, which costs only $3 per month. As for the ER copayments, HIP 2.0 reduces some copayments for unnecessary ER use to as low as $8. 

Opponents of this expansion of Medicaid note the program is already stretching states thin financially and has a poor track record of providing cost-effective and efficient care for those in need. Medicaid is currently the largest category of state spending: according to the National Association of State Budget Officers, Medicaid spending accounts for 23.6 percent of state government expenditures. 

The original HIP took important steps to manage costs and capped enrollment, whereas HIP 2.0 undermines several of these measures, increases costs and enrollment, and creates a new, significant health insurance subsidy for able-bodied adults and their children. Instead of expanding on a flawed model, legislators should turn instead to reform options like those piloted in Florida that reduce costs and offer better care to patients in the existing system. 

The following articles examine Medicaid expansion and Gov. Pence’s HIP 2.0 from multiple perspectives.

Ten Principles of Health Care Policy
http://heartland.org/policy-documents/ten-principles-health-care-policy
This pamphlet in The Heartland Institute’s Legislative Principles series describes the proper role of government in financing and delivering health care and provides reform suggestions to remedy current health care policy problems. 

Mike Pence Proposes Indiana Medicaid Expansion Plan
http://www.politico.com/story/2014/05/mike-pence-obamacare-indiana-medicaid-expansion-106725.html
Kyle Cheney of Politico discusses Indiana Gov. Mike Pence’s proposed Medicaid expansion plan, comparing it to plans proposed by other conservative governors. 

No, Mike Pence, Obamacare’s Medicaid Expansion Isn’t Conservative
http://thefederalist.com/2014/05/15/no-mike-pence-obamacares-medicaid-expansion-isnt-conservative/John Daniel Davidson of The Federalist argues Gov. Pence’s Medicaid expansion is not a conservative reform as he claims: “Indiana joins Michigan and a handful of other Republican-controlled states that are pursuing Medicaid expansion under the guise of a negotiating a ‘conservative’ expansion of Medicaid with the Obama administration. But there is really nothing all that conservative about the state-specific plans to capture federal dollars earmarked for Medicaid expansion.” 

Mike Pence's Indiana Medicaid Expansion: Rhetoric vs. Reality
http://www.forbes.com/sites/theapothecary/2014/05/28/rhetoric-vs-reality-the-mike-pence-medicaid-expansion/
Josh Archambault, Jonathan Ingram, and Christie Herrera examine Indiana Gov. Mike Pence’s HIP 2.0 reform in this Forbes.com article, arguing it is poor health care reform: “Medicaid reform does not require creating a new entitlement for working-age, able-bodied adults without children, which is the main policy objective of Obamacare and HIP 2.0. Lawmakers should instead focus their efforts on fixing the Medicaid program with a proven pro-patient, pro-taxpayer solution to make the program work for the most vulnerable.” 

Mike Pence Tries to Make Obamacare Work
http://news.heartland.org/newspaper-article/2014/05/21/mike-pence-tries-make-obamacare-work
Benjamin Domenech of The Heartland Institute discusses Indiana Gov. Mike Pence’s Medicaid expansion in Indiana. The article provides comments on HIP 2.0 from several conservative and libertarian policy analysts. 

Policy Tip Sheet: Medicaid Expansion
http://heartland.org/policy-documents/policy-tip-sheet-medicaid-expansion
Kendall Antekeier of The Heartland Institute explains why states should avoid Medicaid expansion and instead reform this fiscally unsustainable program in ways that offer better care at lower costs to taxpayers. 

Research & Commentary: The Medicaid “Cure”
https://heartland.org/policy-documents/research-commentary-medicaid-cure
Kendall Antekeier of The Heartland Institute examines the Medicaid Cure, a pilot program established in five large Florida counties, which uses a premium support model in which 290,000 Medicaid recipients are given a range of premiums and plans from which to choose. 

A Medicaid Cure: Florida’s Medicaid Reform Pilot
http://www.floridafga.org/2011/11/a-medicaid-cure-floridas-medicaid-reform-pilot/
The Foundation for Government Accountability provides insight into the success of the Florida Medicaid Cure: “When the patient is the priority, government and HMO bureaucrats are finally held accountable. Costs flatten and patient health and satisfaction improves.” 

The Private Option: Medicaid Expansion by Another Name
http://heartland.org/policy-documents/private-option-medicaid-expansion-another-name
Nicole Kaeding of Americans for Prosperity forecasts the effects of the decision to expand Medicaid in Arkansas. 

Why States Should Not Expand Medicaid
http://heartland.org/policy-documents/why-states-should-not-expand-medicaid
Writing for the Galen Institute, Grace-Marie Turner and Avik Roy outline 12 reasons states should not expand Medicaid and should instead demand from Washington greater control over spending to better fit coverage expansion with their states’ needs, resources, and budgets.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Health Care News at http://news.heartland.org/health, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database at www.policybot.org. 

If you have any questions about this issue or the Heartland Institute Web site, contact Heartland Institute Government Relations Director John Nothdurft at jnothdurft@heartland.org or 312/377-4000.