Mike Pence Tries to Make Obamacare Work

Mike Pence Tries to Make Obamacare Work
May 21, 2014

Benjamin Domenech

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

Consumer Power Report #420

Indiana Gov. Mike Pence spoke at the American Enterprise Institute earlier this week in defense of his Medicaid expansion in Indiana. His position had been roundly denounced by most conservative and libertarian policy analysts. Here’s Josh Archambault, Jonathan Ingram, and Christie Herrera on the problems with Pence’s plan at Forbes.

Although a small number of childless adults previously qualified for the Healthy Indiana Plan, their enrollment was always subject to available funds from other Medicaid savings initiatives. The program capped the number of childless adults who could enroll at 36,500. Gov. Pence’s new plan turns that small, limited program into a massive new entitlement for childless adults.

Under HIP 2.0, more than 284,000 able-bodied childless adults (and 91,000 parents) will become eligible for Medicaid expansion, an increase of nearly 700 percent. And unlike the Healthy Indiana Plan, there is no cap on enrollment, obligating the state to provide benefits to those individuals regardless of the availability of funds.

Currently, the Healthy Indiana Plan only serves individuals earning below the federal poverty level, though it once served individuals with higher incomes. HIP 2.0 not only lifts the enrollment cap, it also increases the Indiana Medicaid eligibility from 100 percent to 138 percent FPL. Moreover, individuals earning more than 100 percent FPL are currently eligible for subsidies through the Obamacare exchange. They would be forced out of the exchange and into Medicaid under Gov. Pence’s proposal.

Here’s John Davidson of TPPF with more:

It’s true that HSAs can be a powerful tool to accumulate wealth and cut health care costs, but an incentive to save only works if the money saved is your own. In the case of HIP 2.0, these HSA-type accounts will be almost entirely taxpayer-funded, partly from Medicaid and partly from a tax on hospitals. The expansion thus provides strong incentives for enrollees to stay on Medicaid--especially because if they leave HIP, they lose the account. Enrollees can spend funds on any provider they choose, and whatever is unspent will roll over at the end of the year.

What’s more, HIP 2.0 contains an employer option that allows enrollees to pay for an employer-sponsored plan using their taxpayer-funded HSA account. In fact, the employer provision in HIP 2.0 will likely lead to crowd out--a migration of workers away from private employer coverage into Medicaid. This would quickly swell costs for Indiana taxpayers, especially if federal funding ever drops off.

According to Indiana’s proposal, if federal support is ever reduced the HIP 2.0 expansion “will automatically terminate.” This has become a common gesture in state expansion schemes. It is meant to mollify conservative skeptics, but the problem is that such a condition is simply not possible under federal Medicaid rules. In order to expand Medicaid a state must apply for a waiver and amend its state plan, and CMS must approve the amendment. Once that happens, the expansion becomes part of the state plan (really, a contract between the state and the federal government), and the feds have the authority to enforce that plan and withhold federal funding if the state does not comply with it.

Dean Clancy has more here. I understand how Mike Pence felt like he was in a jam because of the vulnerability of the Healthy Indiana Plan – the waiver request comes following a year of negotiation with the administration to try to save the plan begun under Mitch Daniels, a plan that had its problems, but at least it was on the small side. This plan is much larger, and coming as it does in a form that invests a new constituency in the permanence of Obamacare, it could have much broader negative consequences for the state.

For a rare defense of Pence’s plan from the right, read Grace-Marie Turner here, but even her praise is qualified the deeper you go. At least Pence got a few magic beans out of his negotiation with the Feds (compared to John Kasich and Chris Christie, who got nothing), but the political ramifications of this are going to significantly ramp up pressure on other Republicans. It serves ultimately as a vindication of the administration’s strategy on expansion: picking off governors one by one and getting them to expand what is effectively a new welfare entitlement for able-bodied adults.

Most of the critiques of Pence have focused on the politics of the issue assuming the waiver moves forward, but there is also a question of the viability of his request. After seeing his presentation and talking to him at a session following the event, I have my doubts this waiver will even go through. There are some key defects to this new proposal, particularly on the “HIP Basic” side. I challenged Pence on the enforceability of co-payments from people below 100% of FPL, and whether he could think of any precedent that would suggest CMS would believe those are enforceable. He couldn’t supply any, nor could either of his staffers.

Pence also has a couple of dangerous verbal tics of talking about the expansion as “not a permanent entitlement” and “for working Indiana families” – the first is something that makes Republican primary voters snort with derision, and the second simply isn’t true: There is no work requirement in the waiver, the expansion is overwhelmingly going to childless able-bodied people, and if someone were to work anywhere close to full-time for minimum wage in Indiana, they would barely qualify. A full-time minimum-wage worker last year made a little more than $15,000, more than $15,500 with the fully refundable Earned Income Tax Credit – Pence’s plan would incentivize them to work less, since they will lose their eligibility if they earn more than $16,105.

If CMS rejects his plan, it might actually be better for Pence’s political future as opposed to owning the ramifications of this approach two years from now. If CMS accepts it, we’re about to find out what happens when someone with a strong conservative record decides to try to make Obamacare work.

-- Benjamin Domenech


IN THIS ISSUE:


THOUSANDS OF OREGONIANS LOSE PLANS FOR NON-PAYMENT

A large number of people who’ve signed up for private health insurers through the Cover Oregon health insurance exchange have not paid their first month’s premiums, meaning they are at risk of going without coverage through November.

“I’ve already had clients not pay and lose their coverage,” says Lisa Lettenmaier, who owns the health insurance brokerage Health Source NW in Tigard. “It’s imperative for people to pay their premiums on time.”

This year, for the first time, most people who don’t have health coverage risk a federal tax penalty that runs as much as 1 percent of household income. If consumers selected a private plan but didn’t pay their first month’s premium, their enrollment won’t go into effect – meaning they may be out of luck until the next open enrollment in November.

That applies not only to Cover Oregon policies, but policies purchased directly from carriers as well. But Cover Oregon offers a microcosm of the market in general, brokers and agents say.

More than 81,000 people went through Cover Oregon – either through paper or electronic applications – to select a private health plan. Of those, 5,000 have already cancelled policies or been terminated for lack of payment. Thousands more have not yet paid their first-month’s premiums, meaning they have not completed their enrollment, according to carriers.

SOURCE: Oregonian


SUBSIDIES MAY BE TOO HIGH OR TOO LOW FOR MILLIONS

The government may be paying incorrect subsidies to more than 1 million Americans for their health plans in the new federal insurance marketplace and has been unable so far to fix the errors, according to internal documents and three people familiar with the situation.

The problem means that potentially hundreds of thousands of people are receiving bigger subsidies than they deserve. They are part of a large group of Americans who listed incomes on their insurance applications that differ significantly – either too low or too high – from those on file with the Internal Revenue Service, documents show.

The government has identified these discrepancies but is stuck at the moment. Under federal rules, consumers are notified if there is a problem with their application and asked to upload or mail in pay stubs or other proof of their income. Only a fraction have done so, according to the documents. And, even when they have, the federal computer system at the heart of the insurance marketplace cannot match this proof with the application because that capability has yet to be built, according to the three individuals.

So piles of unprocessed “proof” documents are sitting in a federal contractor’s Kentucky office, and the government continues to pay insurance subsidies that may be too generous or too meager. Administration officials do not yet know what proportion are overpayments or underpayments. Under current rules, people receiving unwarranted subsidies will be required to return the excess next year.

The inability to make certain the government is paying correct subsidies is a legacy of computer troubles that crippled last fall’s launch of HealthCare.gov and the initial months of the first sign-up period for insurance under the Affordable Care Act. Federal officials and contractors raced to correct most of the technical problems hindering consumers’ ability to choose a health plan. But behind the scenes, important aspects of the Web site remain defective – or simply unfinished.

White House officials recently have begun to focus on the magnitude of income discrepancies. Beyond their concerns regarding overpayments, members of the Obama administration are sensitive because they promised congressional Republicans during budget negotiations last year that a thorough income-verification system would be in place.

SOURCE: Washington Post


REPUBLICANS TARGET INSURER BAILOUT

Republicans on the Senate Budget Committee circulated a memo Friday, obtained by Morning Consult, that urges the caucus to take another look at the Affordable Care Act’s “risk corridors” program and review whether it’s possible to block the administration from using the program as a “slush fund.”

“The Administration’s move to change the budgetary treatment of risk corridors is all about doing another end-run around Congress,” the letter reads in part. “It also suggests that in the absence of actual budget neutrality (which would require legislation enacted by Congress), HHS could raid other programs within CMS program management to fund a shortfall or use the program as another ‘slush fund to implement other portions of Obamacare.’”

The Morning Consult reported last week that some Republicans believe they’ve identified a poorly structured aspect of the healthcare law that could provide an opening for a legal challenge.

The Affordable Care Act (ACA) created a temporary pool of money – the risk corridors – to reimburse insurers who enroll a higher-than-expected number of sick patients in the first two years of the healthcare law.

The program is meant to ease the transition for insurers worried about the inherent risks of universal coverage. Insurers with better-than-expected results pay into a fund, with the understanding that HHS will redistribute that money to insurers that underperform because they got stuck with sicker-than-average enrollees.

But a Congressional Research Services memo from January argued that because there’s no appropriations language for the program, which Republicans have decried as an “insurer bailout,” that Health and Human Services (HHS) has no authority to reimburse insurers who perform poorly in the early years of the law.

SOURCE: Morning Consult


CALIFORNIA’S MEDICAID CONUNDRUM

On Tuesday, the Los Angeles Times highlighted the growing cost of Medicaid in the Golden State--namely, a $1.2 billion hole in the state’s budget. While California’s Medicaid enrollment exceeded projections by 1.4 million, many of those new enrollees had already been eligible for the program. The federal government provides states a 100% Medicaid match through 2016, but that’s only for those individuals newly eligible under the 2010 health-care law; if individuals who had already been eligible for but not enrolled in Medicaid come out of the woodwork, states will pay a portion of those costs. In 2012, the Department of Health and Human Services estimated that states would pay an average of 43% of those enrollees’ Medicaid costs in this fiscal year.

On Thursday, The Wall Street Journal reported on the “income tax yo-yo” California and many other states are facing. A recent Rockefeller Institute report found that state revenue declined in the first quarter of 2014, and many states are reporting shrinking surpluses or projected deficits. Meanwhile, economists at the Federal Reserve Bank of Chicago have noted the increasingly uncertain nature of state tax collections.

Some states opted to expand Medicaid under the health-care law, raising costs and budgetary pressures at a time of volatile tax revenue. In some cases, the result has been cognitive dissonance. California Gov. Jerry Brown was quoted in Thursday’s Journal saying: “We can’t spend at the peak of the revenue cycle--we need to save that money, as much of it as we can.” But two days earlier, Mr. Brown had expressed pride in the “huge social commitment” that health-care expansion represented in his state--even as it caused a billion-dollar overspend.

Ultimately, states that expand Medicaid could face pressure to cut other important services, whether health-related or in areas such as corrections or education. Recent trends have moved toward reductions because when an irresistible force such as a shrinking tax base meets an immovable object--the rising costs from expanding Medicaid--something has to give.

SOURCE: Wall Street Journal


POOR OUTCOMES FOR MEDICAID SURGERY

Surgery patients covered by Medicaid generally enter the hospital for their surgeries in worse health, do worse afterward, stay in the hospital longer and find themselves back in the hospital more often than surgical patients covered by private insurance, according to a new study by researchers at the University of Michigan School of Medicine.

In addition, people with Medicaid coverage were twice as likely as privately insured patients to have a number of health risk factors prior to surgery, many more emergency operations, two-thirds more complications after surgery and use 50 percent more hospital resources. The Medicaid patients in the study were also, on average, younger than the privately insured patients studied and twice as likely to smoke. They had higher rates of conditions that can result from poor health habits and make surgery riskier, including diabetes, lung disease and blockages in their blood vessels.

The researchers gathered their data from a one-year study of patients in 52 Michigan hospitals looking at 1,400 patients aged 18 to 64 using Medicaid or private insurance.

The findings are very important in the near term, say the study authors, because Medicaid has been expanded this year for millions of low income people in 26 states under the Affordable Care Act. Previous studies show that many of the newly insured under Medicaid are likely to seek out medical care they’ve delayed because of a lack of funds, including surgeries. The findings are also financially significant for hospitals who care for many patients receiving Medicaid benefits. Often, hospitals don’t make back their full expenditures on Medicaid patients. Information on the cost implications of admitting Medicaid patients for surgery can give them an idea of expenses over the next several years, especially since Federal Medicaid dollars are expected to decline over the next few years.

“If we make the presumption that the new Medicaid-covered patients will fit the mold of what we see now, surgical and inpatient teams must be prepared to provide the care and support they need,” says Seth Waits, M.D., a University of Michigan surgical resident who led the study.

SOURCE: JAMA Surgery


LESSONS IN SOCIALIZED MEDICINE FROM THE VA

Just a couple of years ago, Paul Krugman pointed to the Veterans Health Administration (VHA) as a “huge policy success story, which offers important lessons for future health reform.” He gloated, “yes, this is ‘socialized medicine.’”

Similarly, a letter touted by Physicians for a National Health Program trumpeted “the success of 22 wealthy countries and our own Department of Veterans Affairs, which use single-payer systems to provide better care for more people at far less cost.”

How could a bloated government bureaucracy achieve such low-cost success? As we found out recently, it’s by quietly sticking veterans on a waiting list and putting off their treatment for months--sometimes until the patients are far too dead to need much in the way of expensive care. Which is to say, calling it a “success” is stretching the meaning of the word beyond recognition.

And, while the White House insists it learned from press reports about the secret waiting lists, Press Secretary Jay Carney acknowledges that the administration long knew about “the backlog and disability claims” that have accumulated in the VHA.

This should surprise nobody. Canada’s government-run single-payer health system has long suffered waiting times for care. The country’s Fraser Institute estimates “the national median waiting time from specialist appointment to treatment increased from 9.3 weeks in 2010 to 9.5 weeks in 2011.”

Likewise, once famously social democratic Sweden has seen a rise in private health coverage in parallel to the state system because of long delays to receive care. “It’s quicker to get a colleague back to work if you have an operation in two weeks’ time rather than having to wait for a year,” privately insured Anna Norlander told Sveriges Radio.

SOURCE: Reason

Benjamin Domenech

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