Thursday, June 19, 2014

Raymond Scheppach: States wll take back their ACA exchanges (eventually)

Raymond Scheppach, longtime director of the National Governors Association (1983-2011) and a former deputy CBO director, is an expert on the role of the states in the formulation and implementation of public policy.  Currently a professor at the University of Virginia, he recently served as project director for a report, Cracking the Code on Health Care Costs,  produced under the auspices of UVA's Miller Center by a State Health Care Cost Containment Commission co-chaired by Michael Leavitt, former Republican Governor of Utah and HHS Secretary under George W. Bush (interviewed here), and Bill Ritter, former Democratic governor of Colorado.

The report highlights the power of state governments to shape healthcare policy, given their roles administering Medicaid, state employee benefits, and now the health insurance marketplaces established by the Affordable Care Act.  It calls on states to set targets for health care spending; promote various forms of managed care, ACOs and alternatives to fee-for-service medicine in the programs it administers; and help consumers generate competition by reporting cost and quality information about health care providers and insurers.

I spoke to Dr. Scheppach, now a professor of public policy at UVA, about current and likely future state-level healthcare reform efforts.

Scheppach noted at the outset that  state governments administer or oversee health insurance for a large swath of the U.S. population  -- with more to come as the ACA exchanges and Medicaid expansion matures. "If you add it all together, in another year or two, there will be about 75 million people in Medicaid, another 3-5 million in state and local government employees' health plans, and then there's the exchanges." (CBO projections envision 25 million ACA exchange customers by 2018.)

I asked what states are doing now to contain healthcare costs. Scheppach suggested that while Medicare has for some time been the frontier in efforts to move away from fee-for-service and toward more coordinated care,  "Now a number of states are using the Medicaid to make delivery system changes. Arkansas is providing some leadership there. In the southern states, including Arkansas, they don't have a lot of managed care or a lot of medical homes or Accountable Care Organizations -- they're still largely fee-for-service. You've got to build the infrastructure to move toward more consolidated, integrated care, where you're trying to negotiate contracts based on value, including quality benchmarks. You're seeing a lot of states doing that -- Ohio, Arkansas, Tennessee, Massachusetts, Minneapolis."

Private options tradeoffs

Scheppach noted that the "private option" alternatives going forward in Arkansas, Iowa and Michigan, and pending in Indiana and possibly Pennsylvania, will give Republican governors and legislators the chance to test whether their favored measures, imposing "responsibility" on low-income beneficiaries and,by enrolling them in private plans, boosting participation and thus competition in the exchanges, will offset the higher reimbursement rates demanded by private insurers compared to Medicaid. (States will have to pay the difference between the estimated cost of the Medicaid expansion, for which the federal government pays 100% in the first two years and 90% thereafter, and the cost of subsidizing low-income enrollment in private plans).

"To some extent," Scheppach said, "the combination of deductibles and copays and other restrictions (such as job search requirements in Pennsylvania) is going to reduce the number people who are eligible, and so you have more cost per person, but the numbers are going to be down, saving money."  And, he noted, putting the Medicaid-eligible population in private plans offered on the state exchange gives the exchange a boost.  "If you have a much more robust demand in the exchange, then you pull in more plans, and that may create competition and lower costs over the longer run."

What about the impact of private options vs. traditional Medicaid exchanges on the healthcare delivery system? "In a way, there's not much difference," Scheppach said. "Through Medicaid you're going to be moving toward capitation and in the exchange you're going to be moving toward capitation."

States will take back their exchanges -- eventually

I asked whether moving forward with private option alternatives was likely to get Republican state governments invested in making the exchanges work, since private option plans are administered through the exchange.

"I think so," Scheppach responded. "I suspect in the long run some of these states are going to take their exchanges back."

While our conversation took place before Oregon, Maryland and Massachusetts announced that they would give up on their error-plagued state-built exchanges and integrate with Healthcare.gov in the coming year, Scheppach's read of the short- and long-term incentives governing state decisions on this front is consistent with those moves.

"One thing that's critical: the exchange has got to be able to refer people to Medicaid, and Medicaid to the exchange, because everyone doesn't know where they are," Scheppach said.

He explained that, given that some states will place people whose incomes are under 100 percent of the Federal Poverty Level (FPL) in conventional Medicaid and those between 100 and 138 percent FPL in a private option, "If a person comes in who's say 90 percent FPL, they don't know whether that person is eligible for standard Medicaid or 'Medicaid' in the exchange. So those systems have to be able to refer people. Plus, state Medicaid systems are integrated with other low-income programs."

He added that internal state politics would also militate toward state control. "Most of the healthcare industry and most of the private firms would rather have a state exchange as opposed to a federal exchange.  They believe they can work with the state on issues -- they can't really work with the federal government."

While "states' internal politics probably tend toward taking the exchange back at some point," Scheppach said, "That's not going to happen in the next two or three years, because this thing is still so politically volatile. But I think once it's up and operating, a lot of the financial risk -- of  failures like the ones in Maryland and Oregon, for example -- is going to be over, and so they'll be more willing. "

Scheppach added that most states understood the risks of trying to build an exchange from scratch, as there was very little precedent , the only ones being the exchange built in Massachusetts in 2006 to implement Romneycare, and a small one in Utah. The attitude in most states, he said, was "why do we want to do this and get egg on our face? But once they're up and operating, that calculation is different, because most of the constituencies in the state are going to push for the state to take over the exchange. From the state's perspective, integrating all low income programs in one system is an advantage.  Over the very long run, a number of states will take back the exchanges."

Future state action in the exchanges

I asked whether, once states took over their exchanges, they were likely to alter them much -- change the terms on which insurance can be sold. If elected officials in red states made the Medicaid expansion more palatable to themselves and their base by changing the terms, would they be likely to try to do the same in the exchanges?

Scheppach said that states on the far left tend to be active managers, willing to put pressure on plans to reduce costs. "Red states," he said,  "will be more passive --they'll probably certify most everyone and let the market go where the market goes." More generally, "Since the state has to certify anyone who wants to sell in the exchange, the states have some pretty powerful levers if they want to exercise them."

I asked whether states were likely to use those levers to push private insurance away from fee-for-service, toward capitation --  paying service providers per plan member or per treatment episode.  Not yet, Scheppach said. At present, states are still trying to get the big insurers in. Efforts to drive change in the healthcare delivery system are more focused on state employee plans and the Children's Health Insurance Program (CHIP). The trend is to start with relatively healthy populations where the risk is less, and then move on to more complex management challenges such as long-term-care and disabled populations.

Pressure to expand Medicaid will rise

Just as Scheppach anticipates a long-term gravitational pull toward state exchange takeover, he also thinks that the financial imperative to expand Medicaid will ultimately prove irresistible -- though he point out that the arc of that history could be long, as it was for 50-state adoption of Medicaid itself (only completed when Arizona implemented the program in 1982, seventeen years after Medicaid was signed into law in 1965).  While the carrot is 100 percent federal funding for the expansion for the first two years and 90% thereafter, the stick is the phase-out of "disproportionate share" payments to hospitals -- that is, federal compensation for care provided to the uninsured.

While that pressure is not too intense at this stage, "The $19 billion that goes to uncompensated care gets phased down and out.  The Secretary of HHS has discretion as to how fast, but it does get phased out over five, seven, ten years. Right now the pressure to expand Medicaid is not huge. but as the disproportionate share money begins to fade down in five or six years, a number of hospitals will go out of business."

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In a previous post, progressive healthcare economists Austin Frakt and Donald Taylor and conservative Yevgeniy Feyman  suggested that the ACA will have to change in conservative directions to win full acceptance across the nation and fulfill its mission. In a way that's begun to happen, with the spread of private option alternatives to the Medicaid expansion from Arkansas and Iowa to Michigan and now, likely to Indiana and perhaps Pennsylvania. To the extent it happens, it's likely to transpire on the state level, not only through federal waivers for Medicaid alternatives, but also for the more general innovation waivers enabled by Section 1332 of the ACA, which allow states to propose changes to virtually any ACA component in the context of an alternative plan to meet the law's goals to extend affordable and adequate coverage.

Scheppach's long-term perspective suggests that the gravitational pull of long-term incentives will move red states toward incremental buy-in to the law as a whole.  How much they change it along the way, via the ACA's built space for state-level experimentation, remains to be seen.

Related: interviews on the future of healthcare reform
Austin Frakt, Donald Taylor and Yevgeniy Feyman (healthcare economists)
Dr. Greg Dworkin (of Daily Kos fame)
Michael Leavitt (former HHS Secretary and Governor of Utah)

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