Oregon Asks Federal Taxpayers for $2.5 Billion for Insurance Exchange and CCOs

Oregon Asks Federal Taxpayers for $2.5 Billion for Insurance Exchange and CCOs
March 29, 2012

Kenneth Artz

Kenneth Artz (iamkenartz@hotmail.com) is a freelance reporter for The Heartland Institute based in... (read full bio)

In March, Oregon Democrat Gov. John Kitzhaber signed two key pieces of legislation affecting the state’s health care system. Senate Bill 1580 establishes Medicaid “coordinated care organizations,” and House Bill 4164 will implement Oregon’s health insurance exchange under President Obama’s health care law, instead of waiting for the federal government to create one.

CCOs are intended as a method to rein in rising Medicaid costs by focusing on prevention, reducing emergency room use, and paying doctors based on the quality of the care they provide. Under CCOs the newly merged provider groups will be rewarded for preventative care and keeping people with chronic diseases out of costly hospitals.

Details have yet to be worked out. Providers will submit their request for proposals (RFPs), and the first CCO is scheduled to begin operating in July.

$2.5 Billion Request

By tasking state Medicaid providers with providing better care for less money, Kitzhaber risks increasing the already $640 million deficit in its health care budget forecast for next year. His administration has requested federal funds worth $2.5 billion over five years to fund the CCOs—but if this funding doesn't come through, the state is looking at a dramatic shortfall.

Roger Stark, M.D., a health care analyst with the Washington Policy Center, has doubts about the approach.

“It looks like the plan is simply the latest form of a health maintenance organization (HMO), a la the 1980s,” said Stark. “The state contracts with a provider network and then capitates the payment to the network based on the number of enrollees. We know from the last 30 years that HMOs can hold costs down, but they do so by limiting access. Patients and providers historically have hated HMOs.”

Although the new reforms will only affect a tiny part of the population—m-ainly low-income members of the Oregon Health Plan—over time it could grow to include nearly all Oregonians, increasing costs further, Stark notes.

“I also have no idea why Oregon believes the state can receive $500 million a year from the feds. Every state would like to balance their budgets with that much federal money,” Stark said.

No Malpractice Protections

In crafting the CCO legislation, all 14 Senate Republicans were adamant about placing limits on Oregon Health Plan members' ability to sue for medical malpractice. They argued the reformed system would have problems attracting doctors without caps on medical malpractice awards, and therefore would not support any transformation bill without these liability provisions included. The senators also called for the CCOs to be placed under the Oregon Tort Claims Act, which limits damages--$566,700 for each person injured—to governmental bodies.

Their demands were not met, receiving only a pledge from the governor to bring up tort reform in the next session in 2013, according to Doug Barber, a lobbyist for the Oregon Association of Health Underwriters. He says he does not expect such a bill to pass.

“This is a constant battle between Democrats and trial lawyers on one side and Republicans, doctors, hospitals, and insurers on the other. Nothing ever gets passed on tort reform,” said Barber.

CMS Open to $2.5 Billion Request

As for Kitzhaber’s bet on money from the federal government, Barber maintains Kitzhaber’s $2.5 billion request is based on conversations with the Obama administration.

“It’s not in writing yet, but based on conversations the governor had with the Centers for Medicare and Medicaid Services,” Barber said. “The feds have agreed in principle to grant up to $500 million a year to transform the Medicaid delivery system by breaking down the silos between medical, mental health, addiction treatment, and dental.

“The goal is for CCOs to get medical providers to work together more efficiently through integration of the different Medicaid services. For example, whenever someone comes in for medical care and they’re also in need of mental health services or a dentist, their doctor will be trained to look for that and give them a referral, or there might be a mental health care professional or dentist on site,” added Barber.

‘Waste of Time and Money’

As for the health insurance exchange, the signed plan will now head to Washington, DC for federal approval and $48 million in federal taxpayer support. Steve Doty, president and owner of Northwest Employee Benefits, Inc., served on the state advisory committees during early discussions of the exchange. He remains skeptical it will work.

“It’s a complete waste of time and money,” Doty said. “Basically, the state has created a giant bureaucracy that you now have to buy from, so, if anything, costs will be higher than before because you have to pay for the bureaucracy itself in addition to the [insurance] policy.”

Doty maintains the new exchange won’t lower costs because it doesn’t change anything in the cost of health care, nor does it do anything about the factors driving health care costs. He says the $48 million, a federal grant to help pay for the creation of the exchange, should not be viewed as “free” money since U.S. taxpayers, including Oregonians, are paying for it.

 “Insurance is for catastrophic health care, it’s not prepaid medicine,” says Doty. “Nothing is going to change until people relearn the definition of insurance.”

Kenneth Artz

Kenneth Artz (iamkenartz@hotmail.com) is a freelance reporter for The Heartland Institute based in... (read full bio)