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Forbes.com

 

Should Arkansas Take the Obamacare Medicaid Deal? Probably Not

April 03, 2013

By Avik Roy

Arkansas has attracted national attention over the possibility that the Obama administration might agree to allow Arkansas to implement Obamacare’s Medicaid expansion by enrolling these newly Medicaid-eligible patients on the ACA exchanges. This has appealed to me and others, because the exchanges, for all of their imperfections, would be a substantial improvement to the broken Medicaid program in a market-oriented direction. However, we’ve learned in recent days that what the Obama administration is offering Arkansas is not, in fact, true exchange-based insurance, but rather a kind of private-sector window-dressing upon the Medicaid program. Unless HHS agrees to revise its stance and embrace true market-oriented reforms, the Arkansas legislature should oppose the Medicaid expansion in their state.

The advantages of exchange-based insurance vs. Medicaid

There are a lot of reasons why Medicaid provides low-quality coverage with poor access to physicians and enormous amounts of waste, fraud, and abuse. One of the biggest is that Medicaid requires almost nothing of its enrollees in terms of cost-sharing: co-pays, deductibles, and the like. Because Medicaid patients have no financial incentive to avoid wasteful consumption of medical services, they often over-use the emergency room—where the co-pay is usually less than $5—and other costly facilities.

In addition, "any willing provider" rules prevent the government, or even private insurers managing Medicaid patients, from organizing their provider networks to steer these patients to hospitals and doctors who provide cost-efficient care.

By contrast, insurers on the exchanges can compete on just this basis: by tiering co-pays so as to steer patients to higher-quality, lower-cost doctors and hospitals. By charging higher fees for non-urgent use of the emergency room, and higher co-pays for using branded drugs where cheaper generic ones will work just as well. These are all things that Medicaid, as it’s currently designed, can’t do, even if the Medicaid "benefit" is managed by private insurers, as it already is with two-thirds of Medicaid enrollees.

The competition amongst insurers on the exchanges will also drive a reduction in fraud. Because insurers will gain market share by offering a less expensive product than their competitors, they will have a huge incentive to root out fraudulent health-care utilization, in a way that the government does not.

These points are key. It’s because Medicaid encourages wasteful and fraudulent spending that the government responds by cutting payments to doctors and hospitals, because that’s the cost-cutting measure of least political resistance. Fix the incentives for waste and fraud, and you can afford to pay providers more, and thereby offer better access to care for the poor.

There are other significant advantages to putting the Medicaid-eligible individuals on the exchanges.

As the New York Times noted in an editorial, low-income individuals on the exchanges would no longer be subjected to the churn that comes from having to go from exchanges to Medicaid to exchanges, every time their income fluctuated above or below the statutory threshold. That churn usually means significant disruptions in the network of physicians and hospitals that a Medicaid patient uses, decreasing the quality and continuity of care.

Because the subsidies on the exchanges gradually decline as you make more money, Medicaid recipients will no longer have a disincentive to work and lift themselves out of poverty: a critical feature for those who wish to combat the cruel legacy of welfare dependency that has been engendered by the Great Society programs.

As discussed above, exchanges are likely to offer significantly higher reimbursement rates than the Medicaid program does. This means that beneficiaries on the exchanges will enjoy better access to physicians who otherwise don’t accept Medicaid patients due to their financial constraints.

So that’s seven major points in the exchanges’ favor: more efficient cost-sharing, better provider networks, more competition, less fraud, lower churn, incentive to seek work, and higher reimbursement rates. So how does the Arkansas deal stack up?

Arkansas’ faux Medicaid exchanges vs. the original ACA exchanges

Unfortunately, based on what the Obama administration has recently stated, the Arkansas deal does not reflect these advantages in full, because the administration is requiring that the faux-exchange population, that would have otherwise been on the exchanges, hew to Medicaid’s antiquated and inefficient requirements.

HHS has stated that states must hew to Medicaid’s antiquated cost-sharing requirements, which practically outlaw the use of co-pays and deductibles. In case there was any question about whether Arkansas was an exception to HHS’ general policy, HHS Secretary Kathleen Sebelius yesterday sent a letter to Arkansas Governor Mike Beebe (D.), in which Sebelius wrote that the "additional guidance" she released on Friday "will help inform states like Arkansas as you work to finalize your plan."

In other words: yes, Arkansas will have to adhere to the requirements outlined in last Friday’s HHS memo. The memo stated that "beneficiaries remain Medicaid beneficiaries and continue to be entitled to all [Medicaid] benefits and cost-sharing protections. States must have mechanisms in place to ’wrap-around’ private coverage to the extent that benefits are less and cost sharing requirements are greater than those in Medicaid."

Put simply, the "exchange" based insurance that will be offered to Medicaid beneficiaries will not be much like the exchange-based insurance that people from 138 to 400 percent of the federal poverty level will receive. HHS makes that clear in the second paragraph of their memo, in which they state that states will not have the option to expand Medicaid to 100 percent of FPL, putting people in the 100-138 percent FPL income bracket onto the exchanges, full-stop. "Partial [Medicaid] expansion is not part of these discussions" with Arkansas, says HHS.

Medicaid also has "any willing provider" rules that prevent insurers from steering enrollees to cost-efficient providers. So, while carriers on the faux-exchanges will be pitted against each other in a thing that some will call "competition," there will be little room for plans to actually compete with one another.

Imagine two pizza restaurants who are competing against one another. Now imagine that the government comes in and says that the competitors’ pies must be exactly the same size, use exactly the same recipes, use exactly the same ingredients obtained from the same supplier, and pay their workers exactly the same amount. Yes, those two pizza places are still "competing" against each other, but the instruments by which they can truly compete with one another have been taken away from them.

Without these key components, the faux-exchanges will not provide real competition, or bring real private-sector efficiencies to the Medicaid program. The faux-exchanges can moderate churn somewhat, but not entirely, since provider networks in the Medicaid program will be different than those on the exchanges. Faux-exchanges may be able to pay providers more than traditional Medicaid, which would be a good thing.

So, in sum, on the seven points I raised above, the Arkansas faux-exchanges fail on point 1, 2, and 3, which are the most important of the seven. They could get partial credit on points 4, 5, and 6, and full credit for point 7. That’s not good enough.

On what basis should conservatives implement Obamacare?

I’ve gotten a lot of flak from certain quarters on the right for making encouraging noises about the possibility of expanding Medicaid through the exchanges. "It’s odd to find [Avik] to the left of officials in the 15 or more states that are flatly rejecting the expansion," wrote Michael Cannon yesterday.

My basic approach is one I’ve outlined in the past: that we need to remember that Obamacare is but one part—and not even the central part—of the overall government health-care leviathan that is driving us into debt and bankruptcy. The good news is that Obamacare’s exchanges, if modified in certain ways, could serve as a viable mechanism for reforming both the Medicare and Medicaid programs, thereby achieving what Paul Ryan has been trying and failing to do for the last several years.

The Arkansas deal, done correctly, could have played a part in that overall strategy. But the deal that HHS is actually offering is nothing like a true exchange-based model. Here are the key things that HHS would need to change, from its existing position, in order to make a deal worthwhile:

  1. Allow states to partially expand Medicaid such that the population from 100 to 138 percent of the federal poverty level would be enrolled on the exchanges, full-stop, and not associated with the Medicaid program, irrespective of the degree to which states expanded Medicaid. Arkansas can offer to pay their share of the out-year costs (e.g., 10 percent in 2020 and beyond).
  2. Insurers will have the same cost-sharing flexibility in the Medicaid-eligible population that they do in the 138-400 percent of FPL population, without the need for "wrap-around" coverage.
  3. Insurers will be freed from "any willing provider" statutes that prevent them from steering Medicaid beneficiaries to higher-quality, cost-efficient health care providers. (Again, according to Update 2, they will be, which is encouraging.)

If Arkansas cannot gain HHS’ agreement on these points, the state will not be transforming Obamacare in a way that augurs well for future entitlement reforms. It will simply be expanding Medicaid, with some incremental managed-care improvements to the program, but not enough to justify the enlargement of a broken system.

I’ve obtained drafts of the amendments to the Arkansas Medicaid bill that indicate where pro-reform Republicans are trying to go.

The amendment states that the Medicaid expansion "shall include cost sharing for eligible individuals that is comparable to that for individuals in the same income range in the private insurance market and is structured to enhance eligible individuals’ investment in their healthcare purchasing decisions." That’s a good start, though it’s contradicted by a later section that assures that exchange-based Medicaid plans "do not exceed Medicaid cost-sharing limitations."

The amendments are full of language like this: "The [Arkansas] Department of Human Services shall…seek approval from the Centers for Medicare and Medicaid Services to enroll participants in Health Savings Accounts and Medical Savings Accounts." Such language is basically meaningless, because it doesn’t come with actual HHS approval or policy detail. "Seeking" approval is not the same thing as getting approval.

No deal is better than a bad deal

So: if the Arkansas legislature were to apply the three conditions above to the Medicaid expansion, that would be a constructive step, and the ball would then be in HHS’ court to grant Arkansas the necessary waiver. Otherwise, Arkansas should pass on the Medicaid expansion, and hold out for a friendlier White House that will grant the state more flexibility. Over that time frame, people above the poverty line will get accustomed to true exchange-based insurance, insurance that future governments will be loath to replace with 1965-vintage Medicaid.

On the other hand, if Arkansas rushes into the Medicaid expansion, without reforming it first, it will be extremely hard to change later. The usual left-wing suspects will mobilize to block any changes to the program, once it is up and running. It’s far easier to reform a program that is not yet underway.

All in all, it’s important to thank Gov. Beebe, a Democrat, and leading Arkansas Republicans, like Sen. David Sanders, Sen. Jon Dismang, and Rep. John Burris, who have made a good-faith effort to find common ground on the issue of health care reform. Whether they’ll actually get there or not is up to the Obama administration.

Original Source: http://www.forbes.com/sites/aroy/2013/04/03/should-arkansas-take-the-obamacare-medicaid-deal-probably-not/

 

 
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