Consumer Power Report: The States Lead By Example

Consumer Power Report: The States Lead By Example
November 21, 2011

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Last week I told you about the Obama administration’s denial of the Medicaid waiver extension request for Mitch Daniels’ Healthy Indiana Plan. Today, let’s take a moment to admire what Daniels has achieved in empowering consumers within one area where he exercises more control, absent federal policies: the use of consumer-driven plans for state employees.

This article from Stateline’s Christine Vestal is a must-read on this issue, outlining the incredible success Daniels has had through educating employees and providing more generous health savings accounts. Employees are voting with their feet: As of 2012, 90 percent of Indiana state workers will be on consumer-driven plans, combining low premiums and higher out-of-pocket expenses. Indiana leads the nation with this approach, which has not taken off to comparable degrees in other states such as Virginia.

In part, it is Indiana’s intensive education and outreach program that has overcome the barriers to acceptance that most states face. It also helps that the state’s carrier – Anthem of Indiana – is one of the largest providers of consumer-driven plans in the country and offers easily accessible comparative information on local health care services across the state. But Indiana’s generous health savings account contribution is likely the biggest reason for the plan’s extraordinary growth. Virginia and other states have been reluctant to ask lawmakers to appropriate new dollars for the savings account offset, even though experts say short-term savings on consumer-directed plans are likely to more than cover the investment.

So is it time to declare Mitch Daniels’ experiment a success? Possibly. Experts say that the state’s traditional plan is close to what they call a “death spiral,” in which the cost of covering a small pool of subscribers exceeds the price any given employee is able to pay. Once the remaining traditional plan subscribers are added to the consumer-driven pool, the price tag is likely to go up, and customer dissatisfaction is likely to go up with it.

For now, though, it seems to be working. In addition to other advantages, each of Indiana’s current consumer-driven subscribers has a sizeable health savings nest egg to fall back on. Overall, the savings account fund exceeds $49 million, and many individual subscribers have more than $10,000 in their accounts.

The fact that Daniels is one of the few governors who understands so well the need for policy reforms that give consumers price signals and more personal stake in their own health care utilization – compared to top-down rationing by bureaucrats – makes it all the more disappointing that he is not participating in this cycle’s national debate.

But in his own way, Daniels is participating, the way policymakers ought to: by planting a flag for true consumer-empowering reforms and providing examples to other states of how they ought to lead. This is a marked contrast from Washington, where the so-called Super Committee is currently failing to agree on even the most obvious and necessary entitlement reforms. Once again, it’s up to the states to lead by example.

-- Benjamin Domenech


IN THIS ISSUE:


THE LATEST ON FLORIDA’S MEDICAID REFORM

Here’s a study on another state example of positive consumer-focused reform from Florida:

Florida’s Medicaid Reform Pilot represents a fundamental shift in the state approach to Medicaid. For four decades, nearly every state has largely managed Medicaid through central planning, with states and the federal government directing which services would be provided, how those services would be delivered, and how costs would be paid. With the state at the center of the program, provider rates were dictated without regard to market conditions. This led to physician and provider shortages in specialties and failed to hold provider networks accountable for patient care. Scope of services and duration of benefits were based not on the patient’s needs, but in many cases on random budget decisions. The patient was nothing more than a passive participant. The cost of this runaway system was borne exclusively by the state and federal taxpayers.

Under Governor Bush, Florida advanced a new approach that prioritized the patient. From the outset, the Medicaid Reform Pilot was designed to be patient-centered. Patients would have a meaningful choice of multiple private plans, which offered varying sets of benefits and various provider networks. An innovative monetary rewards system would encourage and incentivize patients toward healthy, responsible behavior in managing and improving their own health. This was a tectonic shift away from central state management of individuals toward individuals managing their own care.

In addition, the Reform Pilot shifts risk. Taxpayers would no longer bear the financial risk of fraud and abuse or overutilization driven by unscrupulous providers. In the old system, the state simply paid claims, leaving taxpayers to pay hundreds of millions of dollars per year in fraud and abuse. Under the Bush plan, the private marketplace would absorb this risk as the state shifted to paying premiums rather than using the open-checkbook model of the fee-for-service system.

The premise was relatively simple. If the plans provided care management, limited provider network options to providers with the appropriate skills and reputations, and ensured that patients with chronic conditions received the tools to prevent the need for acute interventions, they would succeed financially. In terms of accountability, if plans provided unsatisfactory access to providers or in any other way did not meet the test for success, the consumer could switch plans, and the market would punish the plan.

SOURCE: Heritage Foundation


IN TEXAS, SUPPORT FOR MEDICAID REFORM

Sarah Kliff on how Texas is exchanging more oversight for more funding:

Texas received more than $2 billion in what are called Upper Limit Payments, a decent portion of the state’s $23.7 billion Medicaid budget. And those funds show up with no strings attached, allowing hospitals to use them as they see fit. “That money is free and clear,” says Jared Wolfe, executive director of the Texas Association of Health Plans. “It’s theirs to do what they want with it.”

The Medicaid waiver that Texas is currently negotiating with the federal government has a lot to do with the supplemental funds. Specifically, the state wants a a lot more of them, about $12 billion more than it currently receives, over the next five years.

To get that extra money, Texas is willing to pay a price. The state proposes to implement greater restrictions on what that money can be used for. Under the waiver it has requested, hospitals would have to come together to draw up Regional Health Partnerships, which would pick metrics that hospitals have to hit -- such as reducing re-admissions or slowing emergency room use. The state then has to bless those plans. And the federal government has to sign off on the whole framework.

In other words, the waiver Texas wants would add two levels of bureaucracy to funds that currently show up with no strings attached. In certain ways, it even syncs with the health-care reform bill.

“It’s meant to change the system to be prepared for the Medicaid expansion before 2014,” says State Rep. Garrett Coleman, a Democrat who rarely finds himself on the same side of an issue as Perry. “It will pull down the [supplemental] dollars into more transparent and better uses. That’s the great thing.”

Hospitals see a slightly different, albeit equally positive, outcome. “The best thing about this is there is new money,” says Dan Stultz, CEO of the Texas Hospital Association.

SOURCE: Washington Post


DID THE FDA DO THE RIGHT THING ON AVASTIN?

Avik Roy says the agency did.

The 2008 approval in breast cancer was based on encouraging results from a 2005 phase III study, the E2100 study sponsored by the Eastern Cooperative Oncology Group. ECOG-E2100 compared Avastin in combination with Taxol (paclitaxel), an older chemotherapy drug, with Taxol alone. While the ECOG study wasn’t blinded – patients knew what treatment they were getting – the study showed that patients on the Avastin-plus-Taxol did better on an endpoint called “progression-free survival,” which measures how long patients live without a growth in the size of their tumors. Avastin-plus-Taxol patients had a median PFS of 11.3 months, versus 5.8 months for Taxol.

On the basis of ECOG-E2100, the FDA granted “accelerated approval” to Avastin in breast cancer, despite the fact that the trial wasn’t up to traditional FDA standards: it wasn’t blinded such that doctors wouldn’t know which treatment they were giving, and such that patients wouldn’t know which treatment they were receiving (what statisticians call double-blinding). In addition, the FDA strongly prefers not to approve drugs on progression-free survival, which is a somewhat soft endpoint, preferring instead to approve a drug on overall survival: the most objective endpoint there is. (Did you live, or die, after taking the drug?)

The FDA’s accelerated approval of Avastin was conditioned on Genentech conducting a proper, double-blinded study comparing Avastin to the standard of care. The study would need to show that patients on Avastin lived longer than those who weren’t on Avastin.

In other words, the FDA did exactly what I and other FDA-watchers are always asking the agency to do: get drugs out there quickly, put them in the hands of doctors and patients, and let the clinical evidence pile up over time.

The FDA only pulled its approval of Avastin for breast cancer after that blinded phase III trial was finished, a trial that showed that patients on Avastin didn’t live longer than those not on it. Because Avastin is already approved for other diseases, doctors are free to prescribe it “off-label” for breast cancer if they want to. Medicare has promised that they will continue to pay for it, even though it’s debatable as to whether or not they should.

For the contrary view, here’s the Wall Street Journal.

SOURCE: Forbes


SHOULD JUCTICE KAGAN RECUSE HERSELF FROM OBAMACARE CASE?

Here’s the argument from Carrie Severino:

At least eight of the Supreme Court’s nine members will soon decide whether to review the constitutionality of the Patient Protection and Affordable Care Act (“PPACA”). The only question is whether Elena Kagan, the Court’s most junior Justice, will also pass judgment on President Obama’s signature law or recuse herself because of her role in defending PPACA’s constitutionality as President Obama’s Solicitor General.

As President Obama’s top advocate, Kagan headed the office responsible for formulating the Administration’s defense of PPACA – and oversaw the arguments both on appeal and in the lower courts because of PPACA’s national importance. The President is now asking her to adopt the very same positions her office helped craft for him on this matter, but this time, as a Supreme Court Justice.

Her jump from advocate to judge on the same issue raises profound questions about the propriety of her continued participation in the case. Moreover, the legitimacy of any decision where she is in the majority or plurality would be instantly suspect if she chooses not to recuse herself. To use a sports analogy, would anyone trust the outcome of a close game where the referee had been a coach for one of the teams earlier in the game?

For the reasons set forth below, we find it impossible for Justice Kagan to deny that she was directly involved in the defense of PPACA, and that she should therefore recuse herself from any consideration of PPACA’s legality before the Supreme Court.

Senate GOPers are already inquiring about Kagan’s work while at the Justice Department. We shall see where this ends up.

SOURCE: Judicial Crisis Network


RICHARD EPSTEIN ON OBAMACARE AND THE COMMERCE CLAUSE

Bracing stuff from Richard Epstein:

With the exception of Justice Clarence Thomas, the current Supreme Court is, after Lopez, dead set against overturning Wickard. But the justices don’t have to overturn Wickard to strike down the individual mandate. What they must do is acknowledge what Judge Silberman has denied – Wickard’s indefensible pedigree – and then refuse to budge one inch further. With Wickard’s pedigree discredited, it is far easier to accept the sensible claim that commerce does not apply to transactions that people never entered into.

The action/inaction distinction would be beside the point if the New Deal Court had not gone off the deep end in the first place. Manifestly, if Gibbons were still law, Obamacare wouldn’t stand a chance before the Court. But if the justices recognize publicly that Wickard is a constitutional aberration, then knocking out the individual mandate should be a piece of cake, for the one point that is absolutely incorrect in Judge Silberman’s opinion is that national problems require national solution. The situation on the ground is quite the opposite. The National Labor Relations Act, for instance, did not solve any national problem when it introduced a regime of mandatory collective bargaining into all employment relations throughout the United States. Nor did the Agricultural Adjustment Act of 1938, which was sustained in Wickard, solve any national problem when it authorized the Department of Agriculture to initiate a system of nationwide cartels for the allocation of various crops. To be sure, it solved the problem of how labor and agricultural interests could monopolize large segments of the economy. But such “solutions” have become the bane of the public at large. And such will be the case with Obamacare should it be sustained on this point.

Today’s economic situation is indeed grim, and is likely to remain so for some time. The last thing that this nation needs is a national solution to a problem that is better solved in a piecemeal way by the states, whose ability to dole out goodies is limited by the competition that they face from other states. The United States Supreme Court should confess error and acknowledge that its past decisions are bad both as a matter of constitutional history and constitutional theory.

Let us hope the Court does not, as Epstein warns, “extend the indefensible.” For a useful chart of how the Supreme Court could ultimately decide the matter, go here.

SOURCE: Hoover Institution

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)