Jonathan Small & Jonathan Ingram | April 28, 2016
Out of Balance
Jonathan Small & Jonathan Ingram
Read the one-page study summary here.
The Oklahoma Health Care Authority (OHCA) has proposed a plan to “rebalance” Medicaid eligibility in the Sooner State. But this “rebalancing” is really just an Obamacare expansion by another name. The plan has three major components: (1) increasing taxes to raise reimbursement rates for traditional Medicaid, (2) shifting enrollees (women and children) out of Medicaid in 2019, and (3) expanding Medicaid eligibility to a new class of able-bodied adults under Obamacare.
But the first two components have nothing to do with Obamacare expansion. Oklahoma policymakers could raise reimbursement rates and shift enrollees out of Medicaid even without expanding Obamacare. In fact, expanding eligibility to hundreds of thousands of able-bodied adults will only make it more difficult for lawmakers to make any other changes to the Medicaid program.
Oklahoma policymakers should reject OHCA’s latest proposal to expand Medicaid to a new class of able-bodied adults and instead refocus their efforts on improving the Medicaid program for the most vulnerable.
Many Details of Expansion Plan Remain Unknown
At the announcement, OHCA’s “plan” took the form of a one-page list of bullet points. As a result, several important details of this latest Obamacare expansion proposal remain unknown to the public and to policymakers.
OHCA hasn’t released a draft waiver application, a concept paper, budget neutrality calculations, or a working draft of the federal terms and conditions of the expansion. In other words, OHCA hasn’t released an actual “plan” at all. It appears that Oklahoma lawmakers will be asked to pass the plan so that they can find out what’s in it.
Although the plan is being sold as simply making minor eligibility changes to Insure Oklahoma, the truth is that the plan will actually gut all of the most important features of the program, transforming it into an Obamacare expansion by another name.
Insure Oklahoma relies on an enrollment cap to ensure the program doesn’t expand beyond available state funding, incorporates higher copayments than Medicaid allows, and is generally only available to workers and full-time college students.1 But expanding eligibility under Obamacare will require state officials to gut Insure Oklahoma of its most important accountability measures.
In fact, the federal government has already warned Oklahoma officials that these measures would be stripped from any proposal that relies on Obamacare funding. In a letter to OHCA, the director of the Centers for Medicare and Medicaid Services warned Oklahoma that “enrollment caps will not be approved” for any expansion to able-bodied adults.2 The letter further detailed that extending the program “without any changes [was] not possible” and that any proposal to expand Medicaid would only be approved if it was “consistent with” federal guidance on the issue.3
Policymakers should also know that any waiver approved by the U.S. Department of Health and Human Services is likely to look very different from the original proposal. That’s true even if lawmakers put in place very specific statutory requirements for Medicaid expansion.
The federal government rejected nearly all of the waiver requests Iowa initially proposed, including even minor changes—like increasing copayments for non-urgent use of emergency rooms by just $2.4 In Pennsylvania, not a single “state-unique” request was approved as it was included in the initial waiver request.5 Indiana Governor Mike Pence had to gut his initial waiver request in order to secure federal approval.6 The Obama administration might give lip service to offering states “flexibility,” but the reality is that federal bureaucrats hold all the cards.
Governor Mary Fallin wisely walked away from negotiations with the Obama administration in the past, knowing that expanding Medicaid in Oklahoma under Obamacare would fundamentally transform Insure Oklahoma into Obamacare expansion by another name. Voters likewise understand what a disaster it would be to gut Insure Oklahoma’s key provisions in order to create a costly, open-ended, and uncapped entitlement program in order to get Obamacare funding. A whopping 56 percent of Oklahoma voters oppose using Insure Oklahoma as a method to implement some form of Obamacare’s Medicaid expansion.
Although the details OHCA has provided are sparse, what few details offered thus far make clear that Medicaid expansion would be a bad deal for Oklahoma.
Medicaid “Re-Balancing” Plan Would Create a New Entitlement for Able-Bodied Adults
Thousands of kids and adults with intellectual and developmental disabilities are sitting on Medicaid waiting lists in Oklahoma. That list is now at an all-time high, with individuals waiting an average of nearly 10 years to get the services they need.7
But these aren’t the people who can expect help under OHCA’s “rebalancing” plan. The plan would create a new entitlement for hundreds of thousands of able-bodied adults, moving them to the front of the line while those on waiting lists get pushed even further to the back.
These newly eligible adults are in their prime working years, largely have no dependent children, and have no disabilities keeping them from gainful employment.8 To make matters worse, more than half of new enrollees could be shifted into Medicaid and out of private insurance, according to data from the Lewin Group Health Benefits Simulation Model.9 This means that most of the new able-bodied adults who could be added to Medicaid under the planned expansion will come not from the ranks of the uninsured, but from employer-sponsored coverage, from the individual market, or from the Obamacare exchange. This crowd-out is partially responsible for much higher-than-expected enrollment and costs currently plaguing other states.
Medicaid Expansion Costs Will Be Unpredictable
Although OHCA currently predicts that just 175,000 able-bodied adults would enroll in Medicaid expansion, its own consultants estimated that expansion would make as many as 628,000 able-bodied adults newly eligible for Medicaid.10 And if that weren’t bad enough, the experience of other expansion states suggests enrollment—and ultimately costs—will soar far higher.
In states with available data, actual expansion enrollment surpassed initial projections by a whopping 91 percent.11-12 Worse yet, these states have blown past their projected maximum enrollment by an average of 73 percent.13 In many states, more able-bodied adults have been enrolled in Medicaid than states thought would ever even be eligible.14
This has led to significant cost overruns in state after state. Ohio’s Medicaid expansion, for example, has already run $3.1 billion over budget and is expected to run a whopping $8 billion over budget by the end of 2017.15-16 In Kentucky, costs exceeded projections by $1.8 billion in just the first 18 months of operation.17 And in Illinois, Medicaid expansion has run roughly $1 billion over budget each and every year.18
The few fiscal details released by OHCA are dubious at best. For example, OHCA predicts that no more than 175,000 able-bodied adults will ever enroll, yet their own consultant Leavitt Partners said they should expect at least 205,000 to 257,000 to enroll. OHCA also projects that the expansion budget will remain completely flat over the next several years, assuming that enrollment and per-person costs will not increase at all. These estimates are not based on historical health care trends, experiences in other states, or the reality of ever-increasing health care costs. The projections provided to policymakers are not intellectually honest and should not be trusted.
Policymakers should also know that during past attempts to persuade lawmakers to adopt Obamacare’s Medicaid expansion, OHCA projected that the annual per-person cost of expansion would be just $2,800. Later, OHCA’s own consultants refuted such unrealistically low estimates. Based on the experiences in other states and the specific proposed expansion model, the only certainty lawmakers can expect is that costs will soar far beyond the levels promised by OHCA.
By adopting OHCA’s proposal, Oklahoma policymakers would be inviting further perpetual budget overruns and fiscal uncertainty. But worst of all, it would ultimately mean fewer dollars available for those who need them most.
OHCA Plan Is a More Expensive Way to Expand Obamacare
The central feature of OHCA’s plan is to deliver Medicaid expansion benefits through commercial health plans, instead of through the state’s existing fee-for-service system. This model has failed to deliver on its promises everywhere it has been tried and is ultimately just a more expensive way to expand Obamacare.19
The U.S. Government Accountability Office estimated that a similar expansion plan in Arkansas will cost taxpayers nearly $800 million more than traditional Medicaid expansion in the first three years.20 In Nebraska, state actuaries estimated that using commercial plans to expand Medicaid would be nearly twice as expensive as traditional Medicaid expansion—as if expanding Obamacare weren’t costly enough.21
OHCA Plan Prioritizes Able-Bodied Adults Over Truly Needy
Under OHCA’s plan, able-bodied adults would receive Medicaid benefits through commercial plans, but the most vulnerable would continue to receive Medicaid through the bureaucrat-administered fee-for-service system. Because commercial plans have higher reimbursement rates than Medicaid, this means providers will be given a perverse incentive to prioritize care for these new able-bodied adults over care for seniors, poor children, and individuals with disabilities already relying on the Medicaid safety net.
In Arkansas, for example, primary care physicians’ reimbursement rates are an average of 67 percent higher for able-bodied adults in commercial plans than for the truly needy on Medicaid.22 As a result, Arkansas officials now report that providers are more willing to accept able-bodied adults from expansion than the truly needy enrolled in traditional Medicaid.23
If that weren’t bad enough, Obamacare’s funding formula creates similar incentives for state lawmakers.24 Currently, the federal government reimburses Oklahoma for roughly 60 percent of the cost to provide Medicaid to the truly needy. But if the state were to expand Medicaid under Obamacare, the federal government promises to pay 95 percent of the cost to provide Medicaid to this new class of able-bodied adults in 2017, ratcheting down to 90 percent thereafter.
When expansion costs run over budget, as they have in other states, lawmakers will be forced to find additional funding through either higher taxes or spending cuts. But, thanks to Obamacare, they will have an incentive to cut from the truly needy first—because cutting from expansion would save just 5 cents out of every dollar while cutting from the truly needy would save nearly 40 cents on the dollar.
It would only be a matter of time before these difficult choices were thrust upon Oklahoma policymakers.
Restoring Provider Rates Has Nothing to Do With Expanding Obamacare
One aspect of OHCA’s “plan” is to restore Medicaid provider reimbursement rates to near-Medicare levels, funded through some combination of increased cigarette taxes, provider taxes, or other sources.
Lawmakers should remember that Oklahoma’s current provider rate structure is very rigid, severely limiting the ability to adjust provider rates based on need. This structure may benefit special interests, but it does not allow the state to efficiently and adequately operate the program.
OHCA also pays some of the highest reimbursement rates in the nation. In 2014, just nine states paid providers higher Medicaid reimbursement rates than Oklahoma and only six paid higher rates for primary care physicians.25 Even after the modest rate reductions of the past few years, Oklahoma’s rates still remain among the highest in the nation. In fact, even if Oklahoma reduced its provider rates to 75 percent of what Medicare pays, the state would still have above-average rates.26 Nationally, Medicaid reimburses providers at roughly 66 percent of Medicare rates.27
But at the end of the day, this has nothing to do with the Medicaid expansion plan. In fact, expanding Medicaid under Obamacare to a new class of able-bodied adults will only make increasing reimbursement rates more difficult, as expanding Medicaid will require even more taxpayer resources. That means providers could see even larger reimbursement rate cuts or payment delays, as expansion advocates continue to push for more participants and higher volume over maintaining higher reimbursement rates.
Moving Enrollees Off Medicaid Has Nothing to Do with Expansion
The last component of OHCA’s “rebalancing” plan is to move 175,000 pregnant women and children off of Medicaid and into the Obamacare exchange. This aspect of the plan would not take effect until October 2019, because federal law doesn’t allow states to reduce eligibility for these groups until then.
OHCA argues that the number of pregnant women and children that would be moved off Medicaid would equal the number of able-bodied (mostly childless) adults added as a result of expanding Obamacare. But OHCA’s own math does not add up.
Although OHCA estimates that as many as 175,000 pregnant women and children could be moved off Medicaid, its own consultants say Medicaid expansion would make as many as 628,000 able-bodied adults newly eligible for Medicaid.28 Hoping that just 175,000 of these adults will actually enroll is certain to set OHCA up for a series of perpetual budget crises, with taxpayers left holding the bag. That’s particularly concerning given the experience of other states, where more able-bodied adults enrolled in Medicaid expansion than state officials thought would ever even be eligible.29
It is also unlikely that state officials will have the political will to shift those 175,000 pregnant women and children off of Medicaid in 2019. The Obamacare exchanges face significant problems, including limited competition, narrow provider networks, limited access to top providers, growing deductibles, rising premiums, and financial losses for insurers.
These problems are only getting worse, as insurers are already reporting significant financial losses from participating in the Obamacare exchanges.30 In 2014, for example, insurers lost money in the non-group insurance market in 41 states.31 Even after taxpayer bailouts, insurers lost nearly $3 billion nationally.32
It should come as no surprise, then, that three insurers dropped out of Oklahoma’s Obamacare exchange last year, with another—UnitedHealthcare—announcing that they will also no longer participate.33-34 That leaves Oklahomans seeking coverage on the exchange with just one option.
It is unlikely state officials would have the political will necessary to push 175,000 pregnant women and children out of Medicaid and into a failed exchange, particularly when hospitals and insurers are complaining about the lack of payment for premiums, deductibles, copayments, and other charges for those insured on the exchanges.
But again, this has nothing to do with the Medicaid expansion plan. Oklahoma could move these enrollees off Medicaid in 2019, regardless of whether it decides to create a new entitlement for able-bodied adults. In fact, expanding Medicaid will siphon away the resources saved from this component of the plan that could otherwise be used to increase reimbursement rates for the truly needy already relying on Medicaid.
Oklahoma’s Medicaid Program Has Already Expanded
Medicaid is already one of Oklahoma’s largest and fastest-growing line items. Policymakers shouldn’t repeat past mistakes by approving yet another failed policy proposal from OHCA.
According to OHCA data, the state’s share of Medicaid costs has skyrocketed over the last two decades, reaching a whopping $2.1 billion in 2015.35 That’s a 553 percent increase over the $316 million in state funds Oklahoma paid in 1995.36
Much of this growth is the result of ever-increasing enrollment. By 2015, more than 1 million Oklahomans were dependent on Medicaid, up 124 percent from two decades earlier.37 This massive growth followed total population growth of just 18 percent, while state residents saw significant gains in income and improvement in other economic measures over the same window (personal income growth of 173 percent, per capita income growth of 131 percent).38-39 For comparison, K-12 enrollment grew by less than 13 percent during this period.40-41
A review of annual OHCA reports also reveals numerous attempts by the agency to add more individuals to Medicaid by expanding eligibility or by making enrollment easier. Although OHCA frequently promised that these expansions would come with high federal matching rates, the federal share of Medicaid costs has declined by more than 10 percentage points over the last 20 years.42-43 Every percentage point drop in federal support means another $50 million in extra costs to state taxpayers.44
Ballooning enrollment in Oklahoma’s Medicaid program is already crowding out resources for the most vulnerable, as well as other critical state priorities. Adding hundreds of thousands of able-bodied adults to the program will only make these problems worse, creating a direct fiscal threat not only to the truly needy, but to taxpayers as well.
Oklahoma Should Continue to Reject Obamacare and Pursue Real Reforms
If policymakers wish to increase reimbursement rates or shift higher-income enrollees out of Medicaid, they can do so without expanding Obamacare whatsoever. In fact, expanding Medicaid under Obamacare will make any other Medicaid reforms even harder to achieve.
OHCA has consistently fought efforts by policymakers to better manage and coordinate the care of those currently relying on Medicaid, including seniors, poor children, pregnant women, and individuals with disabilities. OHCA has also fought efforts to protect program integrity by ensuring that those receiving Medicaid actually belong there. In fact, OHCA staff has even boasted to their peers in other states about their ability to kill previous efforts by lawmakers to reform Medicaid.
Instead of expanding Medicaid to a new class of able-bodied adults, policymakers should refocus their efforts on improving the program for those it was meant to serve: the truly needy. Lawmakers have a number of policy tools at their disposal to improve the program, and none of them require implementing Obamacare’s Medicaid expansion. For example, lawmakers could:
- Decouple and adjust the various provider rates based on need, so that critical services like nursing home care, rural primary care, rural hospital care, and other critical services with limited revenue streams can be prioritized for funding. Given it would take just $10 million to protect nursing homes from harmful cuts, thorough analysis reveals affordable state-based solutions can be effective.
- Implement the Medicaid reform pilot program which was passed by the legislature in 2015 and which special interests tried to repeal during the 2016 legislative session.
- Restructure OHCA into a cabinet-level agency with the CEO and Medicaid director appointed by the governor and reorganize the OHCA board into an advisory board. This will allow operational decisions to be made unclouded by the pressure special interests currently wield on OHCA and will improve the overall effectiveness of the agency, just as lawmakers improved the Oklahoma Department of Human Services.
- Utilize 21st-century tools to protect program integrity and ensure that only those actually eligible are enrolled in the program. Illinois saved an estimated $350 million per year by implementing such a program. Oklahoma’s Medicaid program could save an estimated $20 million per year by implementing a similar program.
- Encourage local communities to increase local support and local financing for health providers that are struggling.
- Extend Medicaid reform efforts to other populations currently enrolled in Medicaid. Further coordination of care, greater use of health plans to better manage care, and increased use of capitation could save more than $80 million, based on other states’ experience.
Oklahoma policymakers have repeatedly rejected attempts to expand Obamacare in the Sooner State. Nothing in OHCA’s “plan” gives lawmakers a reason to change direction. Expanding Obamacare would put the truly needy in danger and usher in further perpetual budget crises. ●
Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.
Jonathan Ingram is vice president of research at the Foundation for Government Accountability, a nonprofit think tank which equips policymakers with principled strategies to replace failed health and welfare programs. He is co-author, with OCPA president Jonathan Small, of the April 2016 report, “Out of Balance: Oklahoma Health Care Authority’s Latest Plan Is Simply Obamacare Medicaid Expansion by Another Name.”