What Strategy on Medicaid Reform?

Published March 25, 2013

Consumer Power Report #366

James Capretta makes an argument on the Medicaid strategy states ought to use that is worth considering and warns against accepting the Arkansas deal without knowing what’s in it:

The GOP governors engaged in these direct negotiations with the White House are playing a loser’s game, and throwing away a historic opportunity to secure fundamental and lasting reform of the Medicaid program. Even if individual states are able to secure concessions from HHS and the White House, the “deals” they strike will be in the form of temporary and inconsequential “waivers” (the terms of which will always be subject to administration amendment and revision, too). What’s worse, these deals are no way to run a national program. Why should one state receive more favorable treatment than others? And why should the administration be allowed to “buy off” states with federal taxpayer funds in the first place?

Instead, GOP governors should withdraw from this White House game of “let’s make a deal” and instead decide, as a group, what kind of Medicaid reform to demand in return for considering broader insurance coverage. Importantly, the reforms they seek should be in the form of legislative revisions of Medicaid, not temporary “waivers.” By pursuing a legislative approach, the GOP governors could join forces with House speaker John Boehner and Energy and Commerce Committee chairman Fred Upton, who have made serious Medicaid reform one of their top priorities this year.

The right principles for such a reform are clear. The federal government should move toward a fixed and predictable level of support for Medicaid insurance coverage, and states should be given near-total authority to manage their Medicaid budgets without federal interference. States can and should be held accountable for how well they provide safety-net insurance protection and for the quality of the health services they deliver to the program’s participants, but there’s no need for the countless federal mandates and restrictions. It is especially important that states be allowed to convert their Medicaid programs into a version of “premium support” through which the program’s enrollees would choose their insurance plans from competing offerings.

This is an interesting idea, but the problem here is that I don’t see the same leverage on the governors’ end that Capretta sees when it comes to Medicaid. The pressures faced at the state level are enormous to just accept the cash and move on. But that pressure is coming from providers and the administration, not from the grassroots, and some legislators listen to one and not the other. Holding these governors together seems like a major cat-herding lift to me, one unlikely to result in the kind of legislative restriction of expansion Capretta envisions. These governors all have different motivations (some of them are running for reelection, some of them aren’t – some of them are running for president, some of them aren’t), and legislators have already put down their positions and staked out their territory.

One reason for this is an enormous divide on the assumption between the way the national political elite view the Medicaid expansion and the way the states view it. The primary motivation for the Arkansas compromise endorsed by HHS, for instance, was not just the coverage expansion – it was that Arkansas’ own health department staff, in a Democratic administration, said they couldn’t handle the sheer bureaucratic lift of adding a quarter of a million people to a program already rife with problems. Laughably, Bloomberg’s editors came out against the Arkansas approach to Medicaid reform – because they apparently believe: “Medicaid is efficient, delivering a high standard of care at rock-bottom cost.” The divide between the national conversation and those at the state level is absurd on this score, and it’s one reason why the amount of balking at “free money” surprised so many people who don’t spend much time working with legislators.

Smart legislators will understand they should simply wait to hold a special session if need be in 2014 to decide the issue. The exchanges aren’t live yet, and once they do go live, states will have a better gauge on the permanence of the current structure. 2014 is going to be an eye-opening year in more ways than one, and there’s no need to rush the expansion considering how many questions about Arkansas remain unanswered.

— Benjamin Domenech



Holy cow.

So far California has received $910 million in federal grants to launch its new health insurance exchange under the Affordable Care Act (“Obamacare”).

The California exchange, “Covered California,” has so far awarded a $183 million contract to Accenture to build the website, enrollment, and eligibility system and another $174 million to operate the exchange for four years.

The state will also spend $250 million on a two-year marketing campaign. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million. …

Privately funded Esurance began its multi-product national web business in 1998 with an initial $5.5 million round of venture fund investment in 1999 and a second round of $34 million a few months later.

The start-up experience of other major web companies is also instructive. Facebook received $13.7 million to launch in 2005. eBay was founded in 1995 and received its first venture money in 1997––$6.7 million in 1997.

Even doubling these investments for inflation still leaves quite a gap.

The California Exchange officials also say they need 20,000 part time enrollers to get everybody signed up––paying them $58 for each application. Having that many people out in the market creates quality control issues particularly when these people will be handling personal information like address, birth date, and social security number. California Blue Shield, by comparison has 5,000 employees serving 3.5 million members.

New York is off to a similar start. New York has received two grants totaling $340 million, again just to set up an enrollment and eligibility process.

I thought it was notable that the Obama Administration has issued grants totaling $174 million to a non-profit group––Freelancers––for the purpose of setting up a new full service health plan in New York under the Affordable Care Act’s health insurance co-op program.

So, the Obama administration thinks it costs $174 million to set up a full service health insurance company in New York (including the significant cost of premium reserves) compared to $340 million to set up just a statewide insurance exchange to do eligibility and enrollment?

As many as 17 states are going to be setting up their own health insurance exchanges under the new law and the feds have so far released $3.4 billion to the states to build them. Little Vermont has received $124 million so far, Kentucky $253 million, and Oregon $242 million, for example. I wonder what the per person cost of exchange enrollment in Vermont will be?

SOURCE: Health Care Reform Blog


Scott Gottlieb:

Efforts to restrict new technology aren’t merely the throes of a Medicare agency grappling with the fiscal woes confronting entitlements. It’s a fulfillment of the bureaucracy’s established aspirations.

The physicians at the Centers for Medicare and Medicaid Services (CMS) have long sought authority to more firmly insert their own clinical judgment around when and how the nation’s seniors should have access to new medical treatments. They don’t think community doctors make good decisions, wasting the government’s money along the way. They believe industry marketing too easily sways doctors’ decisions.

It’s a jaded, and largely mistaken view of the clinical practice of medicine. But these sentiments increasingly fuel the agency’s bureaucratic drive. To protect patients, and lower costs, they see a role for themselves in regulating medical choices.

Medicare recently issued a “guidance” document stipulating that the CMS will limit access to new drugs and devices only to patients enrolled in a clinical study that’s sponsored by Medicare. This is after the products have already cleared FDA. The notion is that Medicare still needs more data to decide when patients should have access to new treatments, even for FDA approved uses of new products.

In the case of the aortic heart valve, CMS limited the procedure to about 50 mostly urban hospitals and required that both a heart surgeon and an interventional cardiologist had to be present in the operating room whenever the device was implanted. The presence of these two specialists, while surely idyllic, isn’t essential to ensure safety. Medicare wants to prevent the surgeons and cardiologists from each competing to do their own procedures. In this way, the agency can regulate the sort of professional competition that can advance faster adoption of technology.

But the key authority that Medicare’s staff wants is the ability to group different medical treatments under a single payment rate reflecting the price of the “least costly alternative” among the different medical options. This would give Medicare’s staff the ability to decide which treatment options are “clinically interchangeable.” If a patient wanted to use a drug or procedure that’s costs more than the cheapest available option, they’d be stuck making up all the difference themselves.

SOURCE: American Enterprise Institute


Dial fast and try again:

State residents who have high medical bills but would not normally qualify for Medicaid, the government health care program for the poor, can call a state phone line and request an application. But the window is tight — the line shuts down after 2,500 calls, typically within an hour — and the demand is so high that it is difficult to get through.

There are other hurdles, too. Applicants have to be elderly, blind, disabled or the “caretaker relative” of a child who qualifies for Medicaid, known here as TennCare. Their medical debt has to be high enough that if they paid it, their income would fall below a certain threshold. Not many people end up qualifying, but that does not stop thousands from trying.

“It’s like the Oklahoma land rush for an hour,” said Russell Overby, a lawyer with the Legal Aid Society in Nashville. “We encourage people to use multiple phones and to dial and dial and dial.”

The phone line opened at 6 p.m. on Thursday for the first time in six months. At 5:58, Ida Gordon of Nashville picked up her cordless phone and started dialing. Ms. Gordon, 63, had qualified for TennCare until her grandson, who had been in her custody, graduated from high school last spring. Now she is uninsured, with crippling arthritis and a few recent trips to the emergency room haunting her.

“I don’t ask for that much,” Ms. Gordon said as she got her first busy signal, hanging up and fruitlessly trying again, and then again. “I just want some insurance.”

Gov. Bill Haslam, a Republican, has indicated that he will decide this week whether to support an expansion of Medicaid to cover more low-income adults, as called for in the federal health care law. Doing so would add more than 180,000 people to the TennCare rolls by 2019, according to the state, most of them adults like Ms. Gordon whose incomes are within 138 percent of the federal poverty level.

SOURCE: New York Times


Here comes the train wreck:

Julie Hamos, director of Illinois’ Health Care and Family Services department, told Illinois lawmakers Tuesday never mind the president’s health care reform: the state is still struggling to fix the current health care system for the poor.

She said Illinois saved $1.1 billion last year, but lawmakers were expecting $1.6 billion in savings. The state has $2.3 billion in unpaid Medicaid bills.

“We haven’t solved the problem of not paying our Medicaid bills,” Hamos said.

Saving money in Illinois’ Medicaid system has been an exercise in lowered expectations.

State Sen. Heather Steans (D-Chicago) said Illinois hoped for more than $500 million in savings by simply trimming the Medicaid rolls.

That didn’t happen.

“Originally there has been some intent and effort to try and get a saving number of $700 million. We thought that might be high and unachievable,” Steans said. “We put it down to $350 million, still, I think, understanding that it might be difficult to achieve.”

Hamos doesn’t know how much Illinois could save by trimming the Medicaid rolls, in part because an outside auditor has reviewed the accounts for only 20,000 of Illinois’ 2.7 million Medicaid recipients.

“Of those 20,000 they have recommended to cancel 13,550.”

Hamos said those cases are now “with case workers” but didn’t say if anyone has actually been dropped from Medicaid yet.

But that number–13,550–is dwarfed by the huge increase in new Medicaid recipients under the Affordable Care Act.

Hamos expects 509,000 new Medicaid patients in Illinois by 2017, when the ACA is fully operational.

The federal government will cover 100 percent of the cost for most of those people, but the state would have to pay half for at least 167,000 new patients, as well as the 2.7 million people now on the Medicaid rolls.

Finding the money to pay those bills could be a problem. By 2014, Hamos said, the state is headed for a “train wreck,” which could leave the state wanting for billions in federal money.

SOURCE: Reason.com


This could prompt some pushback:

With 21 states having adopted bans or severe restrictions on insurance companies from paying for abortions, Washington is alone in seriously considering legislation mandating the opposite.

The Reproductive Parity Act, as supporters call it, would require insurers in Washington state who cover maternity care — which all insurers must do — to also pay for abortions.

The bill passed the state House earlier this month by a vote of 53-43, though it faces an uncertain future in the Senate. A similar bill in the New York state Assembly has been introduced each session for over a decade but has never received a public hearing.

“This is a core value for Washingtonians,” said Melanie Smith, a lobbyist for NARAL Pro-Choice Washington. “We should protect it while we still have it and not leave access to basic health care up to an insurance company.”

The proximate cause of Washington state’s measure is the federal Affordable Care Act. Thanks to language placed in it to assuage anti-abortion congressional Democrats, insurers selling their plans on the state exchanges taking effect next year will have to segregate the premiums they collect for abortion coverage.

In addition to that built-in disincentive to insuring abortion, the law also invites states to enact stricter rules of their own. Thus far, 16 states have followed suit, barring or restricting insurance companies on their exchanges from covering the procedure. Three of those states are joining the five that have barred or limited all insurers from covering abortions since the early 1980s.

Relatedly, the Obama administration’s contraception mandate is receiving the most comments of any federal regulation in history.



They feel free to criticize:

Thirty-four Senate Democrats joined Republicans on Thursday night in a nonbinding but overwhelming vote to repeal a key tax in President Barack Obama’s health reform law.

The Senate voted 79-20 to get rid of the law’s 2.3 percent sales tax on medical device-makers.

The amendment to the budget resolution won’t become law because the budget is nonbinding. But it has huge political significance as momentum builds for bipartisan consensus to get rid of another piece of Obamacare.

This levy was supposed to help pay for $29 billion of the costs of the law. But the medical device industry has raised a raucous over the tax, slowly building support to eliminate it. The tax went into effect in January.

Assuming none of the provision’s backers rescind their support, there is now plenty of support to surpass the 60 votes needed to repeal the device tax — if it comes to a vote, on another bill in the future. Thirty-three Democrats and one independent who caucuses with them supported the measure.

The Democrats who backed the repeal include Sens. Dick Durbin of Illinois, Chuck Schumer of New York, Maria Cantwell of Washington, Barbara Mikulski of Maryland, Tim Kaine of Virginia, Elizabeth Warren of Massachusetts and nearly all Democrats from states with many device-makers, such as Pennsylvania, Minnesota and Indiana.

SOURCE: Politico


Michael Cannon:

If only more people knew about the good stuff in ObamaCare – you know, the subsidies to seniors and the provisions forcing insurers to cover the sick – more people would like it. But the polls showing public support for those provisions don’t ask respondents whether they think the benefits of those provisions are worth the costs. They only ask about the benefits. Since none of those provisions is a benefits-only proposition, those polls tell us essentially nothing.

For example, last year a Reason-Rupe survey asked respondents about laws forcing insurers to cover the sick. What made this poll interesting is that it was the first poll in 18 years to ask respondents to weigh the costs of such laws against the benefits. The below graph (from my latest Cato paper, “50 Vetoes”) displays the results.

Reducing the quality of care is actually the most likely negative effect of banning higher premiums for people with pre-existing conditions. (Don’t take my word for it. The authors of the law knew those provisions reduce the quality of care, and so included an awful lot of regulations that they hope will prevent that from happening.) When people learn about this negative effect, they oppose those provisions by a ratio of five to one. Greater public understanding of ObamaCare increases public opposition to the law.

Cannon’s paper is here.

SOURCE: Cato Institute