Affordable Care Checkup
Not expanding Medicaid: a $20 billion opportunity missed? State-run insurance exchange: a sucker’s bet?
Michael Morrisey, director of the Lister Hill Center for Health Policy, estimates an expansion of Medicaid in Alabama under the Affordable Care Act would have a positive $20 billion impact on the economy.
We turn this month to two experts for insights on the Affordable Care Act and Alabama’s policy decisions regarding the Act. Dr. Don Williamson is the state health officer and head of the Alabama Department of Public Health. Michael Morrisey is the director of the Lister Hill Center for Health Policy at the University of Alabama at Birmingham.
We begin with Morrisey and a Lister Hill Center study of the potential economic benefits of expanding Medicaid under the Affordable Care Act — an option that has not been taken by Gov. Robert Bentley, so far.
One of the things that could change the governor’s mind is the way Medicaid is run in Alabama. Dr. Williamson is in charge of that, and he is in the midst of an extensive reorganization of the program.
We looked at the effect of the expansion over the first seven years, and what we find is that our best guess is roughly a little less that 300,000 people would be newly covered by Medicaid. Alabama would spend over those years $771 million, and the federal government would spend $11.1 billion. And when you consider that the federal Medicaid dollars will be spent on other goods and services, we estimated an impact, both direct and indirect, of almost $20 billion.
The governor’s initial comment when our report came out was that he was not prepared to expand Medicaid “in its current form.” I’m optimistic that indicates there may be room to reconsider that decision. I think it’s sort of like a first-time homebuyer who finds the price of houses is low and the interest rates are low but who still has to come up with the down payment. The state has to come up with a little money, like a down payment on a house.
Regardless of whether you expand Medicaid or not, the amount of money the federal government reimburses the public hospitals that provide a disproportionate share of services to the uninsured will decrease by about 75 percent. With the expansion of Medicaid, those uninsured will be largely covered. Without expansion, hospitals that have a big charity load are going to be between a rock and a hard place. For Alabama, you’re looking at no effect in 2014, because the change doesn’t go into effect yet. But after that, it’s about $82 million in 2015, then going up to $246 million in 2020. So, more than pocket change.
Do you agree with Alabama’s decision not to operate a state-administered exchange under the Affordable Care Act?
I think that was the right decision. The problem with a state-based exchange is that you were supposed to have it up and running by October 1 and fully operational by January 1, and the federal government was slow with their guidance and rule making and the states were never sure what they were supposed to do. And the federal government is only paying for administrative costs in 2014, and in 2015 the states are on the hook for the cost of running their exchanges, and that was not a good bet. I’m surprised that so many states did it.
What are your early observations on the Affordable Care Act in terms of cost and participation?
The Society of Accountancy estimates the cost for non-group coverage in Alabama will go up close to 60 percent. That’s higher than I would have expected. I would have expected higher than that national average, but 60 percent is a big number. The reason is that Alabama is a state that has allowed medical underwriting, so pre-existing conditions are factored in to determine the cost of insurance. Now healthy and unhealthy are mixed into the same pool, so that is going to raise the average premium.
In my experience, very few companies will participate in the small group exchanges. I guess as many as 5 percent, and that may be an overestimate. They are going to continue to offer insurance outside of the exchanges.
The majority of states allow medical underwriting. There’s a handful that have restricted it rather substantially, and what you have in those states is the opposite. The unhealthy folks are already in the pool, and now, with the Affordable Care Act requiring everyone to have coverage, they will be adding young and healthy members to the pool, and that should bring premiums down in those states. In states like New York, Vermont and Rhode Island.
For the most part, small employers will see their premiums going up and not down. The Affordable Care Act has a list of essential health benefits that have to be covered, and it’s more generous than a lot of small businesses have had to offer.
Small employers, if they have less than 25 workers, can qualify for a subsidy, but it only lasts for two years. Not many companies are going to offer health care for the first time because of a subsidy for two years.
The biggest argument in favor for the Affordable Care Act is that it is supposed to provide health insurance coverage to something approaching 30 million nationwide that were uncovered. The benefit is expanded access. But on the health side, it turns out that it’s harder to make a case for that access leading to better health. The research is kind of weak. And, in principal, once the exchanges are up and running, you’re supposed to be able to make apples-to-apples comparisons in shopping for benefits. In principal, it’s supposed to offer much greater transparency, but in fact it’s too soon to tell if that makes any difference.
Why does Blue Cross dominate the Alabama market? Are Alabamians too unhealthy to attract competing insurers?
I don’t know that the fact that we’re sicker has a lot to do with it. It’s more to do with Blue Cross long having a market position and Alabama not having — for the most part — that many large employers who take the lead. We have a lot of small employers, and Blue Cross offers a pretty good product, and that makes it expensive for other companies to enter the market and compete — to generate name recognition and enrollment, having to make so many calls on so many small employers.
Give us your assessment of the early performance of the Affordable Care Act.
Given where we are today, in terms of all the problems we’ve had with it and the premiums increasing, it’s really tough to say. It’s a really complex piece of legislation. If it works, it reduces the number of uninsured. It was never intended to reduce health care costs. And, so, at best, it’s a mixed bag. I think there are much simpler approaches — whether you approach it from the Democratic side of expanding coverage or from the Republican side of reducing health care costs. They could have expanded the high-risk pool. Or, if you want health insurance for low incomes, you could offer a voucher and let it go at that. It’s not as comprehensive, but it’s not as complicated either. Employers don’t have a lot of time to spend on this stuff, trying to be innovative in health care. They just want something that will be valuable for their workers and then get on with the next problem on their list.
Dr. Don Williamson
The state can expand Medicaid at any time. Likewise, it can withdraw from the expansion at any time. The reason the timing matters is the federal government is going to pay for it completely for three years, from 2014 to 2016. If you expand earlier, it will bring in more federal money. But on the other hand, you don’t want to expand too early, 300,000 new enrollees without a change in the system, because it could overwhelm the system.
The form of Medicaid in Alabama is changing. When this started, with the opportunity to expand Medicaid and the Supreme Court decision last July, we were in a situation where we had serious problems in terms of our budget and our data systems, and we really needed to get a handle on some basic business practices, and we’ve done that. In the 18 months I’ve been assisting with changes, we have a much better data system and financial system to predict what the costs will be. But none of that has fundamentally changed the drivers around the costs. And the delivery system is still a fee-for-service delivery system, paid based on the number of visits versus quality and outcomes.
What we’re beginning on now, with the legislation that passed this spring and the governor has signed, is the creation of regional care organizations. We were working on a timeline to set them up by October 1, and we accomplished that. Now we’re promulgating rules. By the end of November, the rules are going out for the formation and governance of these RCOs. Then, by the fall of next year, we will have issued probationary certifications.
Then we will have an adequate provider network and adequate cash, and, by 2016, we will have a capitated payment system. But that is still down the road, and by that time we will have travelled a three-year journey.
The governor has been very supportive of the transformation and very supportive of the concept of regional care organizations — locally owned, managed care in regions. While he’s supportive of the idea, we have to implement it correctly and demonstrate that we are sure it has been fully implemented.
You have to understand that Medicaid is significantly underfunded at even $615 million from the general fund. Medicaid is a $5.7 billion to $5.9 billion program. The state’s share of the $5.9 billion is supposed to be $1.8 billion. The reality is that Medicaid is not spending at a $615 million pace. It’s spending at a pace of $700 million. The only reason we’ve been able to make it work is cuts in reimbursements to physicians, dentist labs and x-ray labs and pharmacies and one-time carry-forward money in 2014.
When I presented the budget to the Legislature last year, I spent almost as much time talking about the 2015 budget. There were things we could do in 2014 to put a Band-Aid on and keep things level, but those expired in 2015. I believe the leadership on the budget committees in the House and Senate understand the fiscal gravity of the situation.
There isn’t any more cutting you can do from the providers. You’ve already cut those once, and the doctors are telling us they don’t want to see any more, it isn’t going to work, they are going to stop taking Medicaid patients. The federal government doesn’t let us cut below the level that negatively affects access, so we are in a really precarious situation.
In 2014, the Legislature will be appropriating the spending for 2015. It will be the most critical budget decision for Medicaid that we’ve ever had. The one-time carry forward money will be gone, and you cannot continue to cut reimbursements. We’re facing a $100 million shortfall for 2015, and that’s a conservative estimate. They are going to have to raise spending to an appropriate level sufficient to fund the Medicaid program.
Once you do that, what the RCOs will do, they will slow the future rate of growth of Medicaid. Over a five-year period, once they are implemented, starting in 2016, we estimate they will save between $750 million and $1 billion. About a third of that would be state dollars, so the state would spend between $50 million and $75 million less per year.
Understanding that the impact of the change will not happen until 2016 or 2017, when we talk to the Legislature we can tell them we are going to a capitated budget, that for every patient there is x number of dollars and it is our job to manage within those dollars. It gives them the assurance that now we are moving to shift the risk from the state of Alabama to the regional care organizations.
The one thing that would have the greatest impact on Medicaid is improvement in the Alabama economy. The single biggest driver of the cost of Medicaid has been the growth in enrollment: 750,000 in 2008 to 950,000 in 2013. While unemployment is going down, the number of people enrolling in Medicaid is going up. I worry that the jobs that are being created don’t offer insurance and many are low paying. That’s the recession. One would have thought that with the recession ending and unemployment going from 8.5 percent to 6.3 percent, I would have fully anticipated that the cost of Medicaid would be going down because enrollment was going down, but that is not happening.
Much like other states, in Alabama you’re looking at 670,000 to 700,000 uninsured. Half of those — about 300,000 to 320,000 — would be covered in a Medicaid expansion. About 300,000 would be eligible for purchase through an individual exchange or a SHOP exchange for small businesses. In Alabama, 52 percent of those would be insured through Medicaid expansion and 42 to 45 percent will be insured through the exchange, leaving 3 to 5 percent still uninsured.
The upside is that the Affordable Care Act will create the opportunity for tens of millions of people to have access to health care who didn’t have it before. The downside of that is that if you expand Medicaid by 30 percent or the private insurance market by 10 to 15 percent, you can’t logically infer that you’re going to get the same level of access as those who have always had insurance. You have not increased the providers by 10 to 30 percent. Without increasing the number of providers, you’re really in a position to make it hard for everybody to have access to care. In Alabama, where 62 of 67 counties are already health care shortage areas, it is a real concern. I hear from rural hospitals, and they’re exactly on point. There is a real danger in many rural communities that they will not have enough providers to see the patients who could be added to the rolls.
The Affordable Care Act is an extremely poorly written law and complicates the provisions much more than was necessary.
Chris McFadyen is the editorial director of Business Alabama.