Medicaid, Meet Indiana

We will soon have a Vice President and a head of CMS who hail from the great state of Indiana, and are proud of what they’ve done with Medicaid there through the Healthy Indiana Plan. Seema Verma, the proposed CMS Administrator, is credited with being the architect of Healthy Indiana, and Mike Pence, the Vice President-elect, presents Healthy Indiana as one of the signature achievements of his term as governor of that state.

It is too early to tell if the program will be enough to raise Indiana up the ranks on health and healthcare from the bottom quintile (1, 2). However, since Republicans have run the table with Congress, the White House and soon the Supreme Court, we can reasonably conclude that the future of Medicaid in America is going to look more like Indiana.

That doesn’t mean that income-based Medicaid eligibility will dramatically change. Pence was one of the few Republican governors who took advantage of the opportunity to expand Medicaid eligibility up to 138% of poverty, and President-elect Trump has promised, in his emphatic way, that people will not be denied healthcare coverage in his administration. Some Republicans in Congress have different ideas, however, and the outcome is not at all clear yet.

While eligibility levels and the overall level of federal support for program costs get worked out over the next few months, there appears to be more clarity on coming changes to the financial responsibilities between Medicaid and the people the program serves. One can sum up the core shift in a phrase: Medicaid recipients will take on greater responsibility for the cost of their care. This responsibility may take several forms: greater out-of-pocket expenses for care, the introduction of Medicaid premium payment obligations, or a requirement to work in order to receive Medicaid benefits.

The Design

The Healthy Indiana Plan has more serious carrots and sticks than traditional Medicaid, which had one very big carrot (sign up, get benefits) and almost no sticks. As the safety net insurance plan for those who are impoverished and/or who have behavioral or developmental issues, the standard idea was that even small access barriers like a $10 copay or monthly premium would lead to the avoidance of necessary care and would harm public health. Healthy Indiana took this standard view as a challenge: build a system that gives recipients more “skin in the game” and creates an ethic of accountability, while not creating a public health disaster.

It starts with a carrot: an enriched benefit program called HIP Plus, which includes benefits that traditional Medicaid in Indiana did not, such as vision and dental. Everyone eligible for Medicaid starts in HIP Plus, but they only get to stay there if they pay a monthly contribution of 2% of their income. So, someone earning $250 a month would pay $5 each month. That’s about the price of a pumpkin spice latte, but it is paid by someone who isn’t earning enough to (a) pay for an unsubsidized studio apartment in Indianapolis, (b) pay for the gas and insurance on a car, or (c) buy food, toiletries and clothing at market rates–let alone do all of these things together. Still, one can argue that compared to other expenses on such a tight budget, $5 for health insurance is a great deal, and a rational person would prioritize this above other things.

In most respects, this personal 2% contribution functions as a premium, though it is framed as a payment into a health savings account. And that’s because Medicaid in the Healthy Indiana program technically has been turned into a high deductible health plan, with a $2,500 deductible. Almost the entire $2,500 is funded in advance each year by the state, so primarily it is an artifact of accounting and an attempt to take advantage of the psychology of savings. The only part that isn’t paid by the state is the 2% income contribution. If someone earning $1,000 a month in HIP Plus gets care that costs $3,000 in a year, the person’s own contribution is $240 ($20 x 12), the state-funded HSA pays $2,260 ($2,500 – $240) and the Medicaid benefit pays $500 ($3,000 – $2,500). In short, this considerable amount of bookkeeping complexity results in $240 of real additional cost to the recipient, and for it they get enhanced benefits.

In addition, if money is left in the account at the end of the year, it rolls over and can pay for some or all of the personal contribution the following year. That means that the healthy could get enhanced benefits at no cost, while those less healthy would pay a monthly contribution. (Whether this is intended as an incentive not to get sick is unclear.)

Now for the big stick: If you miss enough of your monthly payments, there is a punishment. For those at or below the poverty line, the name of that punishment is HIP Basic. The HIP Basic high deductible is entirely funded by the state, making that part of the plan an accounting exercise. HIP Basic doesn’t have a premium (sorry, “contribution”) but it reduces coverage to only the essential health benefits required under the Affordable Care Act. Copayments are also added for pretty much every type of service and visit, ranging from $4 to $75. These differences may mean nothing to a healthy person, or an unhealthy one who avoids care, but for someone seeking treatment for medical or dental issues it could mean hundreds or even thousands of dollars in additional costs a year.

For those between 100% and 138% of poverty, the punishment for not paying the monthly contribution is to be cut off from Medicaid and be forced to go on the exchange for insurance, assuming there still is an exchange. At those income levels, it would be difficult or impossible to purchase insurance for as little as the HIP Plus contribution, and if you did, the out of pocket expenses would be larger, on the order of 6% to 40% of medical expenses depending on the type of plan purchased and whether cost-sharing subsidies are retained in 2017. In short, if you are in that income range and didn’t contribute for the HIP Plus Plan, you are very likely going uninsured.

Last but not least, Healthy Indiana includes a Gateway to Work program. Contrary to what some have suggested, it is voluntary rather than required to receive benefits. The program attempts to assess skills and refers participants to training programs and employment opportunities. The voluntary nature of the program was designed to comply with Obama administration hostility to restrictions deemed to create barriers to health care access under Medicaid.

What to Make of All This

In interpreting why Healthy Indiana is designed the way it is, it’s important to remember that it needed to be approved by a skeptical Obama administration that would look for reasons to reject it on the grounds that provisions to shift costs to recipients, or other requirements making it more onerous to receive coverage or care, were antithetical to the purpose of the Medicaid program. Ohio is an example of a state that didn’t know when to stop penalizing the poor for not paying in, and had its Medicaid waiver rejected. Healthy Indiana is to be commended in that sense, as a cleverly designed program that would maximize Republican reform priorities in a hostile regulatory environment. Consultant Verma has been an expert operator within the system, among the most adroit in the nation on the conservative side. In the new regulatory and legislative environment, future CMS Administrator Verma and others have much more flexibility to add teeth to personal responsibility requirements. Rather than pleasing the CMS approver, she will be the ultimate approver of waivers and state plan amendments, and the states will have to please her. Mandatory work requirements, less fully-funded HSAs, and higher premium contributions are all on the table. Today’s Healthy Indiana might actually look tame compared to other state programs four years from now.

So if that’s where we are going, what do we know about how well the personal responsibility incentives are going to work? Quite a lot, actually, because premium contributions, HSAs and out-of-pocket costs have been tried before in Medicaid. The results are not promising from a public health standpoint, though Verma has posted statistics in Health Affairs indicating that those who stay in HIP Plus are doing better on numerous measures of appropriate medical utilization than those in HIP Basic. Whether this is causation or correlation (and if causation, in which way it runs) remains to be seen.

The clearest outcome of responsibility requirements historically has been in saving the Medicaid program money by having fewer people enrolled, or by their avoidance of services. We know going all the way back to the RAND experiment 40 years ago that utilization does decrease as cost-sharing increases, but it does so across the board and not only for wasteful services. In Oregon, increasing copays and requiring a premium contribution in Medicaid had disastrous results, causing around a 75% drop out rate in 30 months. In the first year of Healthy Indiana 2.0, about 30% didn’t make their contributions and were demoted out of HIP Plus. A lighter touch has its own problems: In Arkansas, a CMS-approved plan for cost-sharing was cancelled when it was recognized that the administrative cost of collecting the small premiums outweighed the revenue from the premiums, and since people were not being kicked off the rolls for non-payment, no real incentive was created.

There are other reasons to be skeptical. Roughly half the cost of the Medicaid program is not for the income-eligible population, but for special populations like the mentally and physically disabled. These skin in the game reforms do not touch those costs. But most importantly, homo sapiens is not homo economicus. Unlike the Economics 101 view of the individual as a consumer with rational preferences whose satisfaction is maximized using all available information, real people are shortsighted, distracted, forgetful, don’t seek all available information, and are subject to emotional decisions that aren’t in their long term best interest. We can argue about whether a conservative or liberal approach is more insultingly paternalistic, or maternalistic, for those whose fortunes in life have brought them to Medicaid, but in the end if we don’t design a program for real people rather than ideological constructions, it will fail.

There Is an Alternative

There is a very large caveat to attach to all this speculation on the future of Medicaid. One of the pillars of Republican proposals on Medicaid reform is to implement block grants for the states. These are global budgets by another name, which liberal policy wonks sometimes pursue as means of cost control (nearly every nation with universal healthcare has already adopted global budgets of some kind). Part of the point of block grants to states, and similar proposals like Paul Ryan’s capitated approach to state funding, is to push the hard details for cost control and quality improvement to the states, along with the credit or blame that attaches to the efforts. Block grants outsource responsibility for the details to states, while the states outsource responsibility to managed care organizations (MCOs), and through value-based contracting MCOs outsource responsibility to providers. The buck can get passed a long way, but under a block grant approach the state is supposed to have control over its destiny. If Texas and Florida want to follow Indiana while New York and California do not, the block grant approach should be neutral and allow each to go their own way with minimal interference.

However, if that approach gains headway, then the responsibility-intensive approach of Indiana would not be the national standard but more of a red state template enacted in maybe 20-30 states instead of 50. Seeing this threat to the universal adoption of “skin in the game” for Medicaid, the Heritage Foundation and some other groups have argued that block grants should be coupled with more centralized requirements on cost-sharing. Block grants for Medicaid are also feared and loathed by liberals due to the belief that it is a Trojan horse to further impoverish the program relative to Medicare and commercial insurance, and the proposal will likely receive strong opposition unless funding levels can be set in a way that doesn’t damage states with richer benefits. But if block grants do pass, liberals and blue states like New York may find themselves in the worst of both worlds, contending with a fixed federal budget and tight federal management on how the dollars are spent. In the end, the conservative program for personal responsibility may be poised to win over the conservative principle of states’ rights. The battle lines are being drawn up, and the consequences of the outcome are huge.

Jonathan Halvorson edits the New Economy section for THCB and is a senior consultant with Sachs Policy Group. FD: As a consultant Jonathan works with startups, providers and health plans, advising clients on policy issues, strategic direction and related topics.

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17 replies »

  1. As usual Republicans attack the most vulnerable with the least ability to fight back to make cuts to the budget and claim victory. All this while Trump and Trump likes can escape taxes year after year.

    • “As usual Republicans”

      But, who was it that passed a bill that was unaffordable to the non affluent population and was becoming more unaffordable with time? The Democrats.

      So far I haven’t seen that the Republicans are treating the regular Joe worse than the Democrats. In fact it seems they are doing more for America and Americans. Trump isn’t even President and he cut production on Air Force One to save money, caused Carrier not to lay off over 1,000 people and then yestederday got a Japanese company to invest about $50Billion in the US, something that will create jobs for possibly 50,000 people and he isn’t even the President yet.

      Maybe the only one’s that concern you are those that don’t work. Democratic policies have done a lot to increase that population so it must make you very proud.

      • I should add that Trump manages his taxes in a similar fashion to Warren Buffet who built an empire in part based upon not paying taxes and when he dies he will avoid a big chunk of taxes there as well.

        I think both of them have called for a revision of the tax system.

        • Buffet supports better tax policy for the middle class and him paying more. Buffet actually pays taxes, unlike Trump. Buffet made his money, not from his father but by himself. The two couldn’t be further apart in character and personality and decency.

          • Buffet avoids taxes via the tax laws and is even escaping a lot of taxes upon his death. Trump and he do the same thing. They both pay accountants and tax attorneys a lot of money.

            Trump has been a tremendous asset to NYC and elsewhere.

          • Apparently you aren’t well focused on the accomplishments of others.

            Plenty of people have been employed by Trump projects which continue to offer employment and benefit to all the people that have visited them or live in them. I hope you realize the number of projects he has undertaken and recognize that his company builds internationally as well.

      • “But, who was it that passed a bill that was unaffordable to the non affluent population and was becoming more unaffordable with time?”

        Again, unaffordable to whom – those getting subsidies? Those with pre-exist? How affordable was insurance for them before Obamacare and no subsidies?

        “Trump isn’t even President and he cut production on Air Force One to save money,”

        Not yet, Boeing said sure, if you want to cut some options.

        “caused Carrier not to lay off over 1,000 people”

        What you mean is Ohio paid Carrier to stay and Trump promised more corporate tax cuts.. How about Rexnord (in Ohio) – their jobs went to Mexico. I wonder if Trump will bring back his products made offshore?

        “and then yesterday got a Japanese company to invest about $50Billion in the US, something that will create jobs for possibly 50,000 people and he isn’t even the President yet.”

        No, he put his arms around a guy who already decided to invest, don’t know where, don’t know how, and of course we don’t know what it will cost us yet.

        Trump has the art of theatre and BS.

        • Peter, without having any political intent healthcare costs have risen in conjunction with more and more government intervention. Medicare has seen the same pattern except there we actually see rises in costs after new cost saving methods have been implemented.

          We both agree that there are those that need help and should get it, however, our methods differ.

          Trump announced he will cancel Air Force One. Maybe he will do something else, but he is putting the nation on notice that he will be watching where the money is spent.

          Ohio is paying a small amount of money to Carrier. If you remember the Stimulus the cost of each job produced or saved was a fortune and many of those jobs went down the drain. The amount of money being spent on Carrier is puny and I think Carrier will be doing infrastructure development as well.

          That guy was not going to invest $50B if Hilllary was elected President. It seems we have two types of pay for play. Hillary’s type was to get donations to her foundation or Bill’s pocket and then give a piece of America away. Trump seems to be getting investors to invest in America. That is quite a difference.

          Trump has the art of theater for the art of negotiation is part theater. So far Obama looks like an ill tempered soon to be ex-president and Trump is doing pretty well.

          • A little more in depth assessment of the Carrier deal.

            “That guy was not going to invest $50B if Hilllary was elected”
            Can you link that statement?

            For a guy who wants government out of our lives you seem to welcome government interfering in business decisions and lavishing money to them on bribes to stay here.

          • The $50 Billion dollar guy said it himself.

            The federal government has a lot of ways of dealing with business. To date many have been regulated to death so bringing them back may only rely on reducing unnecessary regulations. If, however, Trump resorts to unwarranted threats on a continuous basis then I won’t support that action.

            I do not expect Trump to rule in the libertarian manner, but just moving a bit towards that side and away from the nanny state will be a pleasant change.

            I don’t pay much attention to Liberal op-eds. Look at what they have led us to, Obamacare, job loss, chaos in the world, you know, all those things that Obama supports.

            Maybe Trump will be a magnanimous leader and give Hillary an ambassadorship. To Libya, perhaps?

          • “The $50 Billion dollar guy said it himself.”

            Show me.

            “I don’t pay much attention to Liberal op-eds.’

            Fortune Magazine?

          • It was in an interview on the news after their meeting. PerhapsCNN doesn’t show things that make Trump look good.

            Yes. A Liberal magazine.

          • Your Repug link says “Trump Said”. That’s credible – NOT.

            “Let’s rewind to October 2016. About three weeks before the U.S. election on Nov. 8, SoftBank announced its plans for a technology investment fund of up to $100 billion, named the SoftBank Vision Fund. SoftBank signed an agreement to make Saudi Arabia’s sovereign-wealth fund the lead partner. Over five years, SoftBank plans to contribute at least $25 billion to the fund, with Saudi Arabia’s fund investing up to $45 billion and an additional $30 billion from other investors.”

            “SoftBank has not exactly been a job creator in the U.S. As BTIG telecom analyst Walt Piecyk points out, Sprint S -1.52% has cut its headcount by 9,000 and reduced capital investment by 70% since SoftBank bought it three years ago.”

            You’d better broader your horizon Allan.

          • There video exists on that page and there might be another video saying something similar elsewhere. The video and audio lets you hear Son’s (CEO) statement so there isn’t much to interpret.

            The Washington Post, who you quote, finally admitted their complicity in fake news. They will spin anything far to the left, but that is OK because we can judge things based upon the results. Your news media said how well our economy and Obamacare were doing. If all that were true I believe Trump would have lost. Both were doing poorly.

            Keep pushing your left wing news without checking what is actually happening. I hope you and all the progressives do that because that will ensure continuing losses for the far left so the nation doesn’t have to put up with that garbage. Maybe the Democrats will reverse direction and move in a more positive direction perhaps similar to the direction seen under JFK. Not perfect, but a vast improvement.

            I am not a fan of the right so I don’t indulge myself on an exclusive right wing diet, rather look for purer view, actual statements along with a lot of raw data.

  2. I am wondering whether either one of them ever met Professor Elinor Ostrom at the University of Indiana, Nobel Prize winner in political science economics 2009.

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