Arkansas Flips the Script on Medicaid Expansion

Published March 4, 2013

Consumer Power Report #363

The news that Arkansas’ Medicaid expansion had been approved by the feds is huge, largely because it’s not a Medicaid expansion at all. Arkansas will start the eligibility for entering the federally run health insurance exchange at 0% of the federal poverty level – meaning every newly eligible Arkansan in the pool of people who would be eligible for Medicaid under Obamacare will instead go into the insurance exchange, getting the taxpayer subsidy to choose among private plans.

This is shocking for a number of reasons, but the big one is the administration has approved something that is going to be way, way more expensive than if Arkansas had just expanded Medicaid, which is far cheaper than subsidizing private plans. Adrianna McIntyre & Karan Chhabra write:

By rough estimate, the most the feds would have [paid] extra for the Arkansas deal comes out to $700 million yearly. It could be money well-spent, because commercial plans provide better coverage than Medicaid (back to this in a bit). But the amount is substantial (0.7% of 2011 state GDP), it has to come from somewhere, and more importantly, it would get way, way bigger if other states decide they want in, too. And why wouldn’t they? It’s an awesome deal–way more federal money entering the pockets of your own insurance companies and healthcare providers, shiny commercial insurance plans, plus the swag of supporting state autonomy and private enterprise. The feds will foot patients’ entire commercial premiums, and co-pays can’t be any higher than Medicaid’s.

If other states consider this option, the price increase could be even bigger for the states and the feds–McIntyre and Chhabra estimate it would amount to a $4.5 billion bump in the prior pricetag for expansion in Texas alone. But as they note: “We don’t yet know whether HHS could say no to other states after creating this precedent with Arkansas–but we can’t imagine what they’d say to justify it.”

But this is the part where it gets really interesting. Step back for a moment and assess what’s been going on in the health policy sphere for decades: the left for years has been arguing in favor of universal insurance coverage. That argument has been lost, in the public and at the Supreme Court, in part because the right has never really found a condensed way of responding, because our real argument is about the role and force of government used to achieve such ends. But while the left’s answer to universal coverage (adopted from Mitt Romney) isn’t going to work as well as they think, their answer on addressing costs is going to be an unmitigated disaster. That’s why the larger increase in coverage under Obamacare was under Medicaid, not the exchange population – the administration wants to be able to cut costs by lowering reimbursements to doctors even more and rationing from on high. But the administration can’t do that if this population has private insurance.

The Medicaid expansion was a plan designed to fail the people it was supposed to help – it would cram millions of poor people into coverage that doesn’t deliver quality care and traps them in a government-run health care system with few doctors and fewer choices. This was a bad idea from its inception, as Linda Gorman notes:

Studies of pediatric surgery suggest that Medicaid patients have greater morbidity, hospital lengths of stay, and total charges even after controlling for differences in patients, hospitals, and operations. In cardiac valve operations and bypass surgery, Medicaid patients had higher risk-adjusted in-hospital mortality, accrued longer hospital stays, and posted higher total costs than either the commercially insured or the uninsured. For adolescent ACL injuries, time to diagnosis averaged 14 days for people with private coverage and 56 days for people with Medicaid coverage. There were no differences in delays due to patients not seeking care. Rapid diagnosis and treatment is especially important for low income people. The time price of care matters when missing work means missing wages and showing up late can get one fired.

Now, states may have a path forward that would allow governors to expand Medicaid in a way that doesn’t actually expand Medicaid. Instead, if done right in the long term, it would return Medicaid to being a safety net program for the disabled, the sickest of the sick and poorest of the poor, giving them better outcomes in a smaller program. With the bulk of the newly covered buying insurance through the exchanges, the cost of Obamacare will increase dramatically despite the law’s mandates and price controls, just as they have in Massachusetts.

But as they do, the right’s answers on costs become all the more applicable. The rate shock that kicks in in 2014 isn’t going to go away by 2016. And here’s why it matters that the feds are running exchanges in 33 states in whole or in part: If Republicans have confidence they can retake the White House, the tools the Obama administration left within Obamacare for Kathleen Sebelius to use to fulfill her every whim would return to pro-market hands. All those invocations of “the secretary shall” become switches that can flip toward something that can transform the federally directed exchanges overnight into a far more open and virtually unrestricted marketplace. Ditch the regulations and let a million portable HSA-based plans bloom.

The danger of technocracy is that it leaves behind tools for the next administration to use at cross-purposes. Mitt Romney found that out the hard way in Massachusetts. Now, it may be Obama’s turn.

— Benjamin Domenech



Uh oh:

After several years of moderating costs, there are signs the rate of increase in Massachusetts health care prices – and insurance premiums – may soon start accelerating again, exceeding a heralded cost cap set by the state last year.

Three factors are threatening to push residents’ annual health care costs up faster than the state’s overall rate of economic growth:

First, health insurers in Massachusetts estimate the “medical cost trend” – an industry measure based on the price of services and the volume of doctor visits, procedures, and tests – will rise between 6 and 12 percent this year. That would be more than double the state’s anticipated rate of economic growth.

Second, organizers of new insurance-buying cooperatives, formed to enable small businesses to band together and negotiate discounts from health plans, say new federal rules will supersede Massachusetts regulations that qualify small businesses for discounts. That will probably drive up premiums for companies with fewer than 100 workers.

Finally, a string of hospital mergers – most recently, Beth Israel Deaconess Medical Center’s deal to acquire Jordan Hospital of Plymouth, as well as the proposed alliance of Partners HealthCare System with South Shore Hospital in Weymouth – raise the prospect that formerly independent community hospitals will have the clout to command higher medical reimbursements.

Reining in health expenses has been a top priority for Massachusetts officials, who view it as a pressing follow-up to the 2006 state law that created near-universal access to health insurance. Governor Deval Patrick last year signed legislation limiting the annual per-capita increase in health care costs to the state’s economic growth, projected to be 3.6 percent in 2013. The measure was applauded by business and consumer groups. Now, there is mounting skepticism about the chances of avoiding a higher increase.

“This goal is completely untested,” said Lynn Nicholas, president of the Massachusetts Hospital Association. “It’s being used for the first time anywhere. This is like turning around a giant tanker in a short amount of time. People totally underestimate how difficult that is.”



From the WSJ:

Hospitals and health insurers are locking horns over how much health-care providers will get paid under new insurance plans that will be sold as the federal health law is rolled out.

The results will play a major role in determining how much insurers will ultimately charge consumers for these policies, which will be offered to individuals through so-called exchanges in each state.

The upshot: Many plans sold on the exchanges will include smaller choices of health-care providers in an effort to bring down premiums.

To keep costs low, the insurers are pressing for hospitals to grant discounts from the rates hospitals usually get in commercial plans. In return, participating hospitals would be part of smaller networks of providers. Hospitals will be paid less by the insurer, but will likely get more patients because those people will have fewer choices. The bet is that many consumers will be willing to accept these narrower networks because it will help keep premiums down.

Tenet Healthcare Corp., THC +0.28% one of the biggest U.S. hospital operators with 49 hospitals, Tuesday said it had signed three contracts for exchange plans that would involve either narrow or “tiered” networks, in which people pay more to go to health-care providers that aren’t in the top tier.

Tenet said that in exchange for favorable status in these plans, it granted discounts of less than 10% to the three insurers, which it said were Blue Cross & Blue Shield plans covering 15 of its hospitals, or around 30%.

SOURCE: Wall Street Journal


Peter Suderman:

February’s Kaiser Family Foundation health tracking poll puts opposition to the law at 42 percent and support at 36 percent; in Kaiser’s November poll, 43 percent said they supported the law and 39 percent opposed it.

A newly released Reason-Rupe poll offers some confirmation that more Americans hold negative views of the law. Asked an open-ended question about what comes to mind when they hear the term “ObamaCare,” 48 percent gave a negative response of some sort. At 22 percent, the largest single response was a generalized comment that the law is a bad thing.

Overall, the poll shows pessimism about the law. Asked about the law’s impact on the country, meanwhile, 37 percent responded that ObamaCare made the nation worse off, compared to 31 percent who said it made the country better off. Another 24 percent said it made no difference, which suggests a large strain of indifference in addition to the positive and negative reactions.

Since the law passed, Democrats have (not surprisingly) tended to be much more supportive of the law than Republicans. That’s still true, but Kaiser’s poll finds that Democratic support has dropped substantially since last year’s presidential election, from 72 percent in November to 57 percent in the February month’s poll. That’s the second weakest level of support Kaiser has found amongst Democrats since it began the monthly tracking poll in April 2010.

Why did support drop for the law in the months since the election? The parade of news stories about rising health premiums may have had an impact. The Reason poll reports that 26 percent of respondents believe the law will make it harder to afford coverage, compared with just 13 percent who think it will be easier.



Taxes get passed on to consumers!

Allergan ($AGN), Cerner ($CERN), Waters ($WAT), Alere ($ALR), Invacare ($IVC), Integra LifeSciences ($IART) and Misonex ($MSON) are just a few of the medical device companies passing on the cost of the industry’s 2.3% excise tax onto their hospital customers, and a major hospital purchasing group wants you to know about it.

Their names are among more than 40 device companies listed on a new website in a move by group purchasing organizations (GPOs) to draw attention to the cost shifting through a de facto public shaming.

Reuters reports that the Healthcare Supply Chain Association, which lobbies for the hospital industry’s largest group purchasing organizations, has rolled out a website that basically names names. The device tax helps support the Affordable Care Act, and the HSCA’s website reveals device companies that are attempting to shift the cost of the tax to hospitals, providers or patients themselves. The group’s action comes as individual GPOs such as Novation – which serves more than 65,000 providers – have said they won’t tolerate the practice.

There are more than 40 companies listed on the website so far. At this point at least, larger device giants like Medtronic ($MDT) haven’t made the list. But as Reuters notes, some larger device companies are named, and we mention their names above. Cerner, Integra and Waters, among others, declined to comment to Reuters, and many others didn’t respond. One company – Invacare – told the news agency it would pass the extra tax cost onto the market, even though the net impact will be less than $1.5 million.

SOURCE: Fierce Medical Devices


And how it will hit more people:

I’m talking about the 0.9 percent tax surcharge on the amount by which individuals’ “earned income” – such as salaries and fees – exceeds $200,000 this year, and the 3.8 percent surcharge on some or all the investment income of single households with an adjusted gross income of more than $200,000, and married households with an adjusted gross of $250,000 and up.

These surcharges were built into the Affordable Care Act (a.k.a. Obama-care). The problem isn’t the tax surcharges themselves – it’s the fact that the thresholds for them aren’t indexed for inflation. This means that unless something is done, more and more people will be subject to these taxes as inflation boosts incomes.

Let me show you how this works, using numbers from a study that the nonpartisan Tax Policy Center did a year ago.

For 2013, the TPC said, about 2.4 percent of households would pay one or both of the surtaxes. By 2022, the level will have risen to 4.6 percent. Project it out another decade, and you’re at 9 percent. Given how things work, you would probably be looking at the surtaxes affecting 20 percent or more of taxpayers in places such as New York and California. (You can find the relevant page from the TPC study at

You can make the case that people who are subject to either or both taxes – who include me – are upper-middle-class or rich, and can and should fork over some extra money to help the rest of the country. But when you look 10 or 20 years out, you see that unless you index the tax thresholds, these taxes will have expanded well beyond the “rich,” however you define that, and will be clawing away at increasing swaths of the middle class.

We’ve seen this show before. Take the alternative minimum tax, enacted in 1969, for which the threshold was not indexed for decades. A tax designed to catch a handful of rich tax avoiders – 155 taxpayers with incomes of $200,000 and up didn’t pay income tax for 1967, news that touched off an uproar – morphed into something that affects more than 3 million taxpayers. It would have affected an additional 30 million had it not finally been indexed as part of the deal that reversed the George W. Bush tax cuts on higher-income households.

SOURCE: Washington Post


Sally Pipes:

In his state-of-the-union address, President Obama trained his eyes on one of his favorite bogeymen – the pharmaceutical industry. The president has proposed a multibillion-dollar fee on drug companies by requiring them to issue the federal treasury rebates on prescription drugs consumed by low-income seniors.

Other Democrats want to go even further. They’re calling for the feds to essentially dictate prices for drugs sold through Medicare. They claim that such a move will save even more money.

But neither plan will deliver the savings its backers claim. Even worse, both will raise costs for seniors, deny them access to drugs they need, and dismantle the structure of the only portion of Medicare that has cost less than government projections – the Part D drug benefit.

Medicare Part D leverages the power of market competition to deliver prescription drug coverage to seniors. Private insurance plans compete with one another for seniors’ business, offering different premiums, deductibles, and levels of drug coverage. Seniors can pick the plan that best suits their needs and budget, and the feds subsidize their premiums.

Today, the more than 27 million seniors enrolled in Part D can choose from about a thousand plans nationwide. Nearly 11 million people covered by Part D did not previously have prescription drug coverage. Ninety percent are satisfied with the program, according to KRC Research.

The competitive forces built into Part D have kept costs down. At an average of just $38 a month, premiums are 27 percent below where the government expected them to be. They’ve been essentially flat since 2009, according to the Kaiser Family Foundation.

Low premium costs, in turn, mean less taxpayer money for subsidies. In fact, Part D costs are 40 percent below where the Congressional Budget Office (CBO) initially predicted. Over the past six years, the CBO has lowered its long-term cost projections for Part D by hundreds of billions of dollars.

Try to name one other federal program that can boast such results. Certainly not the rest of Medicare. At the dawn of the program in 1965, Medicare’s Part A hospital insurance program was projected to cost just $9 billion by 1990. The actual cost was more than seven times that – $67 billion.

Despite Part D’s success at increasing prescription drug coverage at lower-than-expected cost, President Obama and his allies want to fundamentally change the nature of the program.

Obama’s plan would force drug companies to rebate some of the money they make on drug sales to “dual eligibles” – low-income seniors who qualify for both Medicare and Medicaid. They currently receive drug coverage through Part D.

SOURCE: Forbes