Do’s and Don’ts of Improving State Medicaid Programs

A version of this document is available on the Galen Institute website.

Across the country, state legislatures are considering whether and how to implement Obamacare’s Medicaid expansion.  Ten simple reasons illustrate why states should reject Obamacare’s government-centric expansion and instead develop their own innovative solutions.

Obamacare’s Medicaid expansion harms states

  • Medicaid is “Not a Jobs Program:”  Former Obama administration official Zeke Emanuel wrote in a New York Times op-ed that hospitals and other health providers should not view health programs as a never-ending government jobs program.  Research suggests tax increases needed to fund Medicaid expansion will destroy jobs, not create them.
  • Medicaid “Not Real Insurance:”  Medicaid’s problems with poor beneficiary access to physicians have been well documented.  One Michigan beneficiary said it best: “You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we would call and come in at the drop of a hat.”
  • Not True Flexibility:  Guidance recently issued by the Obama administration shows continued unwillingness to contemplate flexibility in Medicaid.  Washington continues to place limits on even modest cost-sharing for recipients to incentivize healthy behaviors.
  • “Bait and Switch” from Washington, Part I Given the significant Medicaid spending cuts President Obama himself previously proposed to rein in massive federal deficits, the high federal Medicaid matching rates included in Obamacare are unlikely to remain.
  • “Bait and Switch” from Washington, Part II:  States with premium assistance demonstrations now must ask permission from Washington to extend them beyond 2016.  HHS has shown little flexibility for states, and it could show even less after millions more Americans are enrolled in taxpayer-funded benefits.

True Reform: What states should do instead

  • Customized Beneficiary Services:  Providing beneficiaries with a choice of coverage options can provide plans an incentive to tailor their benefit packages to best meet individual needs.  Similar incentives promoting competition in the Medicare Part D drug benefit helped keep program cost more than 40% below estimates.
  • Coordinated and Preventive Care:  Reform programs in states as varied as Indiana, Rhode Island, and Florida focus on individualized, coordinated services to beneficiaries – an improvement on the top-down, uncoordinated care model of old.  In many cases, preventive care interventions for Medicaid recipients suffering from chronic conditions can ultimately save money.
  • Personal responsibility:  Cost-sharing can be an appropriate incentive to encourage recipients to take ownership of their health and discourage costly practices, such as ER visits for routine care.  More than two-thirds of participants in the Hoosier State’s Healthy Indiana Plan consider their cost-sharing levels appropriate, proving that families of modest means are willing and able to provide some financial contribution to their cost of care.
  • Home and Community-Based Services:  Providing long-term care in home settings, rather than in more costly nursing homes can improve quality and save taxpayers money.
  • No New Federal Funds:  Most importantly, innovative programs in Rhode Island, Indiana, Florida, and elsewhere neither seek nor require the massive new spending levels contemplated by an Obamacare expansion.

On Liberal Elites and “Dumb” Patients

Just before the Memorial Day recess, liberal blogger Ezra Klein published an interview with Sen. Coburn regarding health care.  Dr. Coburn’s responses can be found here, but in many respects Klein’s “questions” are themselves more interesting.  Two in particular speak volumes to the liberal mindset on health care:

EK:  Well, if you presuppose “properly regulated [markets],” then I doubt there are many examples.  But IPAB seems like an effort to deal with something you’re worried about: The inability of Congress to act to reform Medicare.  It’s an effort to more properly regulate the Medicare market….

EK:  The question is how do you define excess?  In the market version of this, it’s not clear that people know the care that’s best for them.  When you say how many primary care physicians we need, it may just be that Americans like a lot of specialty care.

There, in a nutshell, lies the liberal philosophy: That patients are unable to make their own choices, and that government – in this case, the IPAB bureaucracy created by Obamacare – should do so instead.  It’s worth examining each premise more closely.

The idea that patients cannot be intelligent consumers of health care permeates the left.  Former CMS Administrator Donald Berwick perpetuated the belief, as have writers like Paul Krugman and Klein himself.  At least at the most basic level, one can’t argue with the logic: It would be highly irregular – not to mention dangerous – for an accident victim riding in an ambulance to quibble about hospital choice.  But a significant part of the health spending problem in the United States focuses not on acute episodes like heart attacks or car crashes, but on chronic diseases like diabetes and emphysema, which comprise three-quarters of all health spending.  In these cases, patients certainly have the ability – and often the desire – to take better control of their health care, if only they were given the tools to do so.

The left argues in response that not every diabetic patient will want to spend time poring over “Consumer Reports”-esque ratings guides to find the most effective clinic or program that will work best for them.  But as Harvard’s Regina Herzlinger has written, markets don’t assume – and don’t need – every consumer to be fully informed in order to spark innovation; they only require a leading vanguard of educated “early adopters” to spark change and competition.

After all, how many automobile purchasers know the intricacies of their cars’ ignition systems, braking devices, etc.?  A car can be just as deadly an instrument as a surgeon’s scalpel – yet we don’t need a federally-created board like IPAB to “properly regulate” the automobile market.

Medicare Advantage Hypocrisy

A new paper argues that Medicare Advantage plans have been overpaid by hundreds of billions of dollars since 1985.  Two things are worth noting about the article.  First, the paper was written by three leaders of, and is being promoted by, Physicians for a National Health Program – a radical liberal group arguing for single-payer health care.  So the idea that this group would claim private health plans are overpaid is not news; in fact, it was a virtual certainty.

Second, the paper on several occasions attacks Medicare Advantage risk adjustment methods: “Risk adjustment does not and cannot work in the setting of for-profit MA plans….There is no evidence that risk adjustment works or can work in the dynamic reality of profit-seeking health care insurers.”  This argument would sound slightly more genuine were it not for this paragraph included in Section 1343(b) of Obamacare:

(b) CRITERIA AND METHODS.—The Secretary, in consultation with States, shall establish criteria and methods to be used in carrying out the risk adjustment activities under this section.  The Secretary mHyay utilize criteria and methods similar to the criteria and methods utilized under part C or D of title XVIII of the Social Security Act.  Such criteria and methods shall be included in the standards and requirements the Secretary prescribes under section 1321.

In other words, Obamacare explicitly grants HHS the authority to impose the risk adjustment methods currently being used in Medicare Advantage – the exact same methods that the paper claims undermine traditional Medicare.  And if those Medicare Advantage risk adjustment methods are as flawed as the paper claims, then that means Obamacare itself is likely to fail.

Other liberal organizations are likely to seize upon this paper’s headline figure about Medicare Advantage plans receiving hundreds of billions in “unjustified overpayments” – without embracing the paper’s other argument, which is that risk adjustment, and therefore Obamacare’s Exchanges, are bound to fail.  But cherry-picking only certain talking points is disingenuous.  The fact is that this “study” was written by advocates of socialized medicine, and its pre-conceived conclusions are as dubious as its’ authors political views.

Democrats’ Medicare Chutzpah

One little-noticed element in the “fiscal cliff” debate hasn’t attracted much attention – the glaring hypocrisy of Democrats when it comes to the Medicare program.  Last Thursday, Democrats in the House offered a motion to recommit spending reduction legislation (full text available here) that would have required HHS to disclose:

  1. The number of Medicare beneficiaries in such district…who, at any time during the ten-year period beginning on the first day of the first fiscal year that begins after the date of the enactment of this Act, will A) lose coverage under the Medicare program… or B) experience an increase in premiums, cost-sharing, or other out-of-pocket costs under such respective program as a result of the implementation of this Act; and
  2. The name and location of each hospital and nursing facility that would experience a reduction in payments under the Medicare program…as a result of the implementation of this Act.

It’s more than a bit rich for the Democrat leadership to offer such a motion, given that Obamacare:

  • Takes “half a trillion dollars out of Medicare” to pay for Obamacare’s new programs, according to none other than Nancy Pelosi;
  • Raises Part D premiums, according to the Congressional Budget Office, so that Big Pharma can benefit from its “rock-solid deal” struck behind closed doors with President Obama and Congressional Democrats;
  • Cuts Medicare Advantage by more than $300 billion, which will reduce the program’s enrollment by half and plan choices by two-thirds, causing millions of seniors to lose their current health insurance; and
  • Makes up to 40 percent of providers unprofitable over the long-term, according to the non-partisan Medicare actuary, potentially forcing providers “to withdraw from providing services to Medicare beneficiaries.”

The Medicare program is in dire need of reform to make it fiscally sustainable.  But no one should take lessons on entitlement “reform” from the crowd that – by its own admission – raided the Medicare program to pay for yet more irresponsible entitlement spending.

Even Supporters Fear Obamacare’s Impact on States

An eye-opening article in yesterday’s Los Angeles Times shows the dilemma states are facing as they begin to make crucial policy and budgetary choices surrounding Obamacare.  The article notes that the law “takes states into uncharted territory” as they attempt to estimate the fiscal impact of Obamacare’s massive Medicaid expansion:

California, which plans to expand coverage to hundreds of thousands of people when the law takes effect in 2014, faces myriad unknowns.  The Brown administration will try to estimate the cost of vastly more health coverage in the budget plan it unveils next month, but experts warn that its numbers could be way off.  Officials don’t know exactly how many Californians will sign up for Medi-Cal, the public health insurance program for the poor.  Computing the cost of care for each of them is also guesswork.  And California is waiting for key rulings from federal regulators that could have a major effect on the final price tag, perhaps in the hundreds of millions of dollars….

Unanticipated costs associated with the healthcare changes could undermine California’s efforts to improve its standing on Wall Street and keep the economy moving.  They could force fresh cuts in services if they consume much more of the state budget than Brown is able to approximate….

Gov. Jerry Brown expressed a new concern in an interview last week.  He said recent signs from Washington suggest the federal government may not pay as much of the costs associated with the new law as originally promised, sticking states with a larger share of the bill.  “As the guardian of the public purse here, I have to watch very closely what may come out of Washington,” the governor said.  “So we’re going to move carefully.  We want to make sure the federal government is on board.”

These statements of caution and concern come from a major supporter of the law.  And little wonder: Over the past two fiscal years, states had to close a combined $146.3 billion in budget gaps – yet Obamacare is about to impose new unfunded mandates on states of at least $118 billion.  Both the numbers, and the diffident attitude from the governor of the largest state in the union, should serve as a cautionary tale for states contemplating the massive fiscal hit Obamacare will impose on their budgets.

They Said It…

The New York Times has an interesting story today on market research taken by groups attempting to build support for Obamacare, and encourage Americans to sign up for insurance plans in the law’s Exchanges.  Among the more interesting passages were the following two paragraphs:

Lake Research Partners recommended that Enroll America not cite specific dollar amounts at all when they talk to the uninsured about new coverage options. “Talking about ‘free or low cost’ plans may be more motivating,” the survey authors wrote in a report.

Another finding: respondents generally did not like hearing that the law would require most Americans to buy health insurance or pay a fine starting in 2014.  “The data show warning signs for messaging around the mandate,” the survey authors wrote.

One of the many problems with this messaging is its inaccuracy.  As a major Bloomberg article noted last month, most Americans will be required to pay thousands of dollars per year for health insurance under Obamacare – at least in part because the law’s mandated benefits will raise individual health insurance premiums by $2,100 per family.  And those who can’t afford insurance will pay a tax, not a fine, the President’s claims notwithstanding.

Just as important, the fact that liberal supporters of the law are trying to hype its “free” benefits tells you everything about Obamacare you need to know.

On Raising Premiums — And Raising the Retirement Age

Earlier this week, the Center for American Progress released a report about the potential effects of raising the retirement age.  Among the reasons cited in the report to oppose an increase in the retirement age was the following:

Since 65- and 66-year-olds would be older and on average less healthy than the nonelderly population in the exchanges, shifting these individuals to the exchange pools would increase premiums for all enrollees in the exchange by an average of about 3 percent.  Premium increases in the exchanges would be highest for the youngest exchange beneficiaries, as those younger than age 30 would see an increase of 8 percent and those between the ages of 30 and 34 would see an increase of 5 percent.  Such substantial increases in premium costs for young and relatively healthy individuals could result in these individuals choosing not to purchase health insurance—a process known as adverse selection—which would increase costs for the less healthy individuals remaining in exchanges.  This scenario could threaten the viability of the exchanges.

These claims are particularly interesting for CAP to make, because there’s one law that guarantees skyrocketing premiums for young Americans – and it’s called Obamacare.  An Associated Press study, and story, the week after the law passed noted the impact:

Under the health care overhaul, young adults who buy their own insurance will carry a heavier burden of the medical costs of older Americans — a shift expected to raise insurance premiums for young people when the plan takes full effect. Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty.  That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press….The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

So if the Center for American Progress really wants to lower premiums for younger Americans – as opposed to attempting to defend America’s unsustainable status quo on entitlements – it should whole-heartedly endorse a repeal of Obamacare, and its onerous new regulations that will jack up premiums for millions of 20-somethings nationwide.

Henry Waxman, Liberals, and Medicaid

The Hill reported last night that liberals are calling for the massive Medicaid entitlement to be left unchanged in talks related to the fiscal cliff.  For instance, House Energy and Commerce Committee Ranking Member Henry Waxman said that “If you want to boil it down to one message: Keep your hands off the Medicaid program.”

This is an interesting statement from Mr. Waxman, given comments he made nearly four years ago.  In early 2009, during the markup of the “stimulus” bill, then-Chairman Waxman opposed an amendment to prohibit millionaires from receiving Medicaid benefits, on the grounds that “I think it is highly unlikely that you are going to find millionaires who would like to go on Medicaid.”  Unfortunately, however, he never explained why he thought that millionaires – who of course can afford to buy most any type of health insurance – would turn down Medicaid coverage, given that the program provides “free” coverage of medical treatments without charging premiums or other cost-sharing.

In other words, Henry Waxman wants to leave untouched an insurance program for millions of poor Americans even though – by his own admission – those who can afford insurance categorically reject Medicaid.  By any reasonable standards, that’s not “reform.”

The Left Makes Its Obamacare Motives Clear

The Commonwealth Fund released a study this morning regarding the impact of Obamacare’s medical loss ratio requirements on insurance plans – and the paper’s findings speak volumes about the Left’s move toward government-run health care.  Included on page 4 of the brief is this sentence regarding the impact of Obamacare’s changes:  “In 2010, individual insurers had an operating profit mar­gin of 0.15 percent overall, but this dropped to an oper­ating loss of –1.2 percent in 2011, amounting to a $351 million reduction in operating profits overall.”  In other words, in the individual insurance market, insurers lost money due to the new mandates imposed by Obamacare.  Those losses may be sustainable for one year, but if continued for long periods of time, carriers will doubtless drop out of insurance markets, or go out of business altogether.

So how did the Commonwealth paper characterize these troubling developments?  As “Substantial Gains for Consumers.”  Which raises an obvious follow-up:  Why would Commonwealth believe that making insurers unprofitable represents a “substantial gain” for consumers?

The obvious follow-up question has an equally obvious answer:  Because the Commonwealth Fund, like the rest of the left, wants to create a government-run health system – and deliberately making private insurers unprofitable under the aegis of “consumer benefits” represents a necessary precursor to that goal of socialized medicine.  Or, to use a Shakespearean analogy, Commonwealth hopes to praise private insurance in order to bury it.  That’s the true story of this morning’s report.

Up Next: Obamacare’s Thanksgiving Turkey

According to online sources, on Wednesday President Obama plans to pardon the White House turkey in an annual Thanksgiving ceremony.  But before that happens, later today Secretary Sebelius plans to serve the American people a turkey – more regulations implementing Obamacare.  Among the possible items on “Aunt Kathy’s” Thanksgiving menu:

Reading through all these mandates and requirements is enough to give anyone a serious case of indigestion, which explains why the Administration is releasing them so close to Thanksgiving.  They don’t want the American people to read the regulations implementing the bill, just like they didn’t want the American people to read the bill itself.  Thus the spectacle of a Cabinet secretary who sat idly by as an “author” of Obamacare admitted he hadn’t read it (because Democrats had to “make judgments very fast”) engaging in a real-life version of “Take Out the Trash Day” by dumping out massive – and costly – regulations two weeks after the election, and two days before a major holiday.  It does raise one obvious question: If Obamacare is so popular, why did these major regulations implementing Obamacare sit on a shelf until after the election?  What has HHS been hiding?

Then-Speaker Pelosi spoke the truth when she famously said we had to pass the bill to find out what’s in it.  That statement is just as true with the regulations implementing the bill as it is with the 2700-page measure itself.  But a general clue about what’s to come will arrive in the form of the entrée on many Americans’ tables this Thursday.