N.C. Hospitals to help finance Medicaid expansion?

North Carolina Gov. Pat McCrory says that he is still exploring options for expanding Medicaid, including having hospitals help finance the 10% of the total cost not covered by the federal government in the out years.

“They would have to have skin in the game to cover the extra 10 percent,” McCrory said.

This comment is the strongest signal I have seen that the Governor is serious about moving ahead, because he has laid down the marker of what the hospitals who so favor expansion will have to give to get it (and they will go along under terms like this).

The simplest mechanism through which the largest hospitals (that are most typically linked to University health care systems) would be via the capping of the North Carolina sales tax exemption granted to Not for Profit organizations in the state. This post from Summer, 2013 notes that around 75% of the value of this tax exemption flowed to hospitals. During the last long session of the North Carolina General Assembly, the hospitals were at odds with the N.C. Chamber over this policy, but the real issue between them was Medicaid expansion. Essentially, they were willing to give up the heretofore unlimited state and local sales tax refund, but only if they got Medicaid expansion in return.

The tax reform passed in 2013 capped the amount of state and local sales tax refund that a Not for Profit organization (hospital, University, small 501 c 3) at $45 Million dollars, which was just above the amount that Duke (combining University and Health System) received in 2014, the biggest in the state (G.S. 105-164.14(b) see page 55).

G.S. 105-164.14(b) – Cap on Refunds for Nonprofit Entities and Hospital Drugs: This subdivision is amended to add “[t]he aggregate annual refund amount allowed an entity under this subsection for a fiscal year may not exceed thirty-one million seven hundred thousand dollars ($31,700,000).” The amount applies to refunds of State tax only. A local aggregate annual cap is added in G.S. 105-467(b) in the amount of thirteen million three hundred thousand dollars ($13,300,000). (Effective July 1, 2014 and applies to purchases made on or after that date; HB 998, s. 3.4.(b), S.L. 13-316.)

So, the General Assembly set a cap in 2013 that didn’t apply to anyone yet. Over time it will start to apply, but there are very few Not for Profit organizations that have more than several hundred thousand dollars of this refund, so dropping the cap well below $45 Million annually will most hit (1) Universities; and (2) large hospitals/health care systems. The 10 or so biggest would essentially pay the way for the rest of the hospitals, and smaller 501 3 c organizations could maintain their state and local sales tax refunds.

Inside baseball for sure, but look for this to be the way that hospitals/health systems and the Universities that own the big ones to be the way they “help pay the state’s cost of Medicaid expansion.”

Stance on Medicaid could cost N.C. $10 Billion

So says a Charlotte Observer/McClatchy analysis that was done in conjunction with Kaiser Family Foundation, the best source of non partisan health policy information around (update: it is actually done with Kaiser Health News, and independent, editorial arm of KFF). They quote me in the story, and here is the plan I put out in January, 2014 to which they refer. Here is a post from last year about the fiscal impacts of States sitting out the Medicaid expansion.

After the 2014 election, the political incentives will begin to align in a way that makes possible a reform plan that will likely include some sort of modified Medicaid expansion in North Carolina.

Benefits of health insurance + Indiana Medicaid reform

A few quick thoughts as the N.C. General Assembly gets cranked up for the short session:

• Austin Frakt has a nice round up discussing the cost-benefit calculus of universal coverage, engaging with my friend Michael Cannon‘s post on the evidence base for universal coverage. You can actually incorporate the ideas in my post over the weekend on reasons to be for universal coverage outside of health effects–and to counter- or in-favor arguments for it based on liberty–into cost-benefit analysis. It is just that monetizing such ideas is difficult. However, the most important thing about cost-benefit analysis is the attempt to have a comprehensive enumeration of the costs and the benefits, even if the precise measurement of them is difficult.
• And I think looking carefully at the costs and benefits of how we spend money to expand coverage is more important than I did 19 years ago, but a technocratic solution may not exist (though check out this comment to this post in samefacts.com). It is first and foremost a values/moral discussion. And of course someone could be opposed to the ACA for a variety of reasons and support some sort of universal coverage. That is just not what the tenor of most of the debate has been like, but I would welcome the shift.
• Gov Mike Pence writes in today’s WSJ about his proposal to move ahead to expand insurance coverage in Indiana by using Medicaid expansion money in a non-traditional means. There are now emerging  a series of expansion approaches outside of simple Medicaid expansion that are being undertaken by states whose political leaders are opposed to Obamacare. My suggestion to jump start comprehensive, state-based reform is here. I wish North Carolina’s leaders would come up with something that they are for in relation to health reform. Our elected leaders seem to be doing nothing, and our state is getting passed by. update: here is a good explainer of Gov. Pence’s proposal.

Duke/UNC student proposal on Medicaid

“A New Health Reform Framework for North Carolina: Medicaid Reform in Our State” (pdf) is the final product that flowed out of the final paper that graduate students from Duke and UNC turned in for a class that I taught in Fall 2013 entitled “The Future of Medicaid in North Carolina.”

The short version of their recommendation:

• Expand Medicaid from 0-100% of federal poverty and leverage the infrastructure of Community Care North Carolina;
• Expand from 100-138% of poverty via “private expansion” meaning using Medicaid expansion funds to pay private insurance premiums in exchanges

The report offers many suggestions regarding health system reform in North Carolina as well, that I won’t detail in this post.

It is safe to say that the students who were attracted to this course were reflexively for the Medicaid expansion, and in many ways “didn’t get” how the state of North Carolina wasn’t undertaking the Medicaid expansion as part of the ACA. Most of them are not from North Carolina, and only came here to study. I tried to push them hard over the course of the semester to take seriously the opposition. They mostly still don’t get the opposition or think it is primarily based on opposition to President Obama, but they wrestled mightily to try and understand the perspective of opponents’, and to fashion what they understand to be a plausible way forward that they believe has given some ground.

I should note that these students did independent cost projections, and considered issues of crowd out and woodwork effects. This report represents thousands of a dollars worth of effort at any sort of market rate, especially that done after the final product turned in for the class.

In the spirit of inquiry, I invite my fellow North Carolinians are opposed to expansion, to come wrestle and reason together with these students in their nuanced pages.

First Thoughts on N.C. DHHS Medicaid Reform Plan

As required by the budget passed last Summer, the North Carolina Department of Health and Human Services issued a Medicaid reform report to the North Carolina General Assembly today, who will presumably take up the topic during the short session that begins in May, 2014. The General Assembly issued the following 3 goals to N.C. DHHS last Summer:

• The General Assembly directed that reforms made to the Medicaid program shall:
  •Create a predictable and sustainable Medicaid program for North Carolina taxpayers.
  •Increase administrative ease and efficiency for North Carolina Medicaid providers.
  •Provide care for the whole person by uniting physical and behavioral health care.

The big idea of the plan is for Accountable Care Organizations (ACOs) to provide care to Medicaid beneficiaries on an at risk basis (profit if you reduce costs; take a loss if there are overruns). A few highlights, most of which are written fairly generally, as is the report:

• What an ACOs is has been broadly defined; it can be physicians and other professionals; joint ventures between hospitals and physicians; networks of providers; and safety net organizations such as community health centers, FQHCs, etc. can either participate for form their own ACO. Organizations can propose alternative structures to set up an ACO.
• The document explicitly notes that CCNC can be a part of an ACO, and in fact, it sounds as if they can be a part of more than 1, as well as noting that CCNC could choose to become an ACO itself. Many have viewed them as being in trouble, but I think they are in the cat bird seat from a primary care network perspective. Of course, they will either need partners, or will have to somehow to be capitalized and contract with hospitals if they “go it alone.” Lots of health policy in the last sentence.
• the ACO must have a governing board.
• Insistence on evidence-based practice and some interesting data sharing requirements that could boost research.
• Minimum capacity size for ACO: 5,000 Medicaid beneficiaries.
• Program to start July, 2015, with a goal of 40% of ACO-eligible beneficiaries covered by ACOs by June 30, 2016; 80% of beneficiaries by June 30, 2018. Note: the precise definition of ACO eligible Medicaid beneficiaries will be very important. There are some hints, but more details need (below).
• Most Medicaid beneficiaries are eligible to be covered by an ACO unless they are in some of the smaller waiver programs (family planning, Breast and Cervical Cancer control and Legal Aliens). The explicitly note that they are considering making dual eligibles eligible for Medicaid ACOs, but believe they must be voluntary to the patient. They describe a desire to work with CMS on dual eligible possibilities. I have written tons on this.
• Benefits carved out of ACOs: mental health/subtance abuse, Long Term Care, Dental, and certain high cost imaging and drug expenditures. This makes sense, especially carving out Nursing Home care.
• There are caps on profit and loss to ACOs; 15% profit and 5% loss in the first year, rising to 15% profit and 10% loss after 5 years. So, more upside than downside to the ACOs.
• Lays out a process of identifying needs for Long Term Services and Supports (LTC) in the State. Not sure exactly what this means, but it is important and reform of LTC greatly needed.
• They have some cost savings estimates that will take me some time to look through.

What next?

• The General Assembly made no mention of the decision to expand Medicaid under the ACA or not in their charge to N.C. DHHS, who in return doesn’t mention this choice back to the General Assembly. However, it will quickly become a central part of the negotiation between the General Assembly and the health care providers in the State around this plan. The proposed plan is basically inviting the State’s health care delivery system to “step up” and go at substantial risk for caring for Medicaid beneficiaries. And they (providers) are going to increasingly get more aggressive about insisting on expansion of some sort. The framework Don Taylor NC Health Reform Proposal 1 14 14 that I have proposed would work just fine within the structure that DHHS has proposed, and provides a way to have a privatized expansion that would add even more force to the ability of this ACO approach to reform the entire health care system in the State, and provide competition/options in the North Carolina health insurance marketplace.
• This is going to set off another wave of aggregation/consolidation or accelerate it, whichever way you want to view it. The incentives around this sort of plan are to get as big as possible, I think. At some point, there is likely to arise some anti-trust questions around all of this.

I will blog ad nauseum about this over the next weeks and months.

Duke/UNC grad students put out Medicaid expansion plan

A group of Duke and UNC graduate students have put out a plan for a modified private option Medicaid expansion in North Carolina (traditional Medicaid under 100% FPL, and a buy-in to private insurance from 100%-133%).

I taught these students in a practicum/group based independent study course “The Future of Medicaid in N.C.” last fall in which I put to them the charge that the Medicaid Advisory Commission received. The final product for the class was a document that laid out where they thought Medicaid should go in the State of North Carolina. They have continued to work on their project this semester, and this report represents their updated thinking about what North Carolina should do, including original work they conducted to simulate the costs of expansion. I have given them feedback of course, but it is their work. They are excellent students, and most are moving into the job market this spring. Let me know if you want an intro to them.

N.C. Medicaid Reform Advisory Group

The North Carolina Medicaid Reform Advisory Group, created by last Summer’s Budget, will meet on Wed February 26, 2014:

At this meeting, DHHS will share with the advisory group an initial Medicaid reform proposal. The public is invited to observe the presentation and discussion between the advisory group and DHHS.

I have been thinking that the Medicaid Reform Advisory Group would submit a plan, but looking back at the text (see pp. 162-63) of the budget I see that is not the case. DHHS submits the plan, and the Medicaid Reform Advisory Group has been created to advise DHHS:

SECTION 12H.1.(e) Advisory Group. – There is established the North Carolina Medicaid Reform Advisory Group (Advisory Group) in order to advise the Department of Health and Human Services in its development of its detailed plan to reform Medicaid. The Advisory Group shall meet in order to (i) provide stakeholder input in a public forum and (ii) ensure the transparency of the process of developing the reform proposal. The Advisory Group shall meet at the call of the chair.

The meeting next Wednesday is framed as a discussion between DHHS and the Medicaid Reform Advisory Group (that has two sitting members of the General Assembly, and 3 persons appointed by the Governor). Here is the Medicaid Reform web page, with links to info from past meetings. This is the white paper Don Taylor NC Health Reform Proposal 1 14 14 that I put out in January on Medicaid/health reform in North Carolina.

It seems as though the meeting next week will provide a strong signal about the direction and scope of the reform that North Carolina’s executive branch has in mind for this year.

Randomly Assign Medicaid and Study?

My friend and Duke colleague Chris Conover suggests that states caught in the coverage gap due to their decision to not expand Medicaid (people too poor for exchange subsidies, but not eligible for Medicaid; WSJ says ~20-25% of the uninsured in North Carolina fall into this category) should consider a replication of the Oregon Medicaid experiment in which people were randomly assigned to Medicaid. States could then study the results.

There is merit to the idea in a State whose political leadership is uncertain about Medicaid expansion, and especially when some invoke the Oregon study as a reason to not expand Medicaid (I am not going to rehash that debate now). If multiple States undertook such an experiment,it would provide a great deal more evidence about the impact of coverage expansions, particularly given the idiosyncratic attributes of States. If North Carolina did this, we would need to very carefully design the study; for example, the Oregon study actually only included residents of Portland, as Chris notes in his piece, and we would need to make sure we invested enough resources in the study to provide definitive answers. North Carolina would especially need to make sure we could understand how such an experiment worked in both rural and urban areas.

My suggestion that North Carolina expand insurance coverage using a Basic Health Plan under Section 1331 of the ACA could certainly have an experimental component built into it. In fact, North Carolina could seek authority to do a BHP along side a Medicaid waiver, and randomly assign those below 100% of poverty to traditional Medicaid, or the private insurance/provider option that I proposed in the BHP. The comparison would then be to determine if the private coverage option differed from traditional Medicaid in terms of outcomes.

My white paper Don Taylor NC Health Reform Proposal 1 14 14 goes beyond health insurance expansion and calls for a demonstration/test of an alternative medical malpractice and patient safety approach among those newly covered, and efforts to expand the supply of health care providers by lessening regulation and expanding the practice authority of non-physician providers are also included. We should seek comprehensive reform efforts, and not only focus on coverage expansion.

The ACA has quite a lot of flexibility built into it for States, and the Obama administration has shown a willingness to allow States to experiment with different models and approaches. States like North Carolina have tremendous political leverage that we are now wasting. There are many potential approaches and models. North Carolina needs to pick one and move ahead with a coverage expansion that informs overall system reform, and commit to evaluating and learning from the results.

How North Carolina could (sorta) have universal coverage by 2016

Could North Carolina became the first State to achieve universal health insurance coverage? A student asked me recently what it would take financially to do so, and how it could most simply and quickly be done. Here is a quick estimate.

Using the Kaiser Family Foundations numbers, in 2016 there will be 1,216,000 uninsured persons in North Carolina if the Affordable Care Act were repealed. If implemented, they estimate that in 2016 398,000 persons will be covered by private insurance bought in exchanges who would otherwise be uninsured, and 377,000 (1) who otherwise would be uninsured will be covered by Medicaid if North Carolina undertakes expansion.

NC2016_12.12.13

That would leave 440,000 persons uninsured in 2016, or around 5% of the population, down from ~17-18% today. We could get to this point easily by expanding Medicaid, and the State developing its own exchange. Any state can achieve something like what is noted in first three rows of the table via the ACA; but what would it take to be the first state to cover everyone, with at least some modicum of insurance coverage?

The last row of the table shows how much it would take (I estimate $78 Million in 2016)  to achieve stop loss catastrophic hospital coverage, for the 440,000 left out by the ACA (didn’t sign up; ineligible) using the State Employees Health Plan infrastructure, and having a deductible of $10,000 for individuals, and $25,000 for families, with the state paying hospital costs above that. This is bare bones, hospital-only coverage to be sure, but it is the cheapest way to cover everyone with at least something that I can imagine.

A few details on how I got there.

Using the Hadley et al. (2008) estimate, the cost of care received by the uninsured in 2016 would be $1,100 per capita ($550 per capita actually paid by the uninsured, $550 unpaid, and therefore implicitly subsidized via the rest of the system) for a total cost of $484 Million in North Carolina in 2016 ($242 Million paid, $242 Million implicitly subsidized). Note that this cost will exist no matter what we do, but that half of it will be implicitly paid by those not receiving care by default.

If the 440,000 uninsured persons used care uniformly, the problem would be relatively easy to fix, but that is not the case. A recent U.S. Census Analysis shows per capita out of pocket spending by the uninsured ages 0-64 of $446 (compared to my estimate above of $550), but with 63.7% of such persons having expenditures of $0 (see Table 1). Similarly, a MEPS-based analysis showed that 2002 spending by the uninsured had a mean of $1,491, but the median was only $396, again showing that the distribution includes many $0 or very low users, and a few very large ones. The very large costs are catastrophic to families who have no way of paying them, and are a burden to hospitals and other providers who have to figure out how to cross subsidize such care, some of which they must provide under longstanding law, in what is essentially an unfunded mandate.

How could we achieve what I outline in the table above?

• Expand Medicaid under the ACA, perhaps using the Arkansas “private expansion” Medicaid model in which persons between 100%-138% of poverty receive private insurance purchased on the exchange that North Carolina could set up. Those under 100% of poverty could be covered by traditional Medicaid initially. Perhaps over time, more of them could be moved to the exchange. I have long been in favor of seeking increased flexibility for our Medicaid program so that the state can focus on acute health care, and shifting more of the responsibility for long term care to the federal government.
• Use the N.C. State Employees health plan to create a stop-loss catastrophic hospital insurance payment mechanism, through which the State would pay for the cost of annual hospital care above $10,000 for individuals, and above $25,000 for families. I estimate that this would cost North Carolina $78 Million in 2016, and this would be an annual recurring cost (for magnitude comparison, the annual budget for running the North Carolina General Assembly is around $51 Million in 2013).
• Why use the States Employees Health Plan (SEHP)? The SEHP has members in all 100 counties, and is certainly paying bills in every hospital in North Carolina, which means they have negotiated rates. I got the $10,000/$25,000 figures by comparing them to the SEHP maximum coinsurance (cost share + deductible) amount for their traditional 70/30 plan (in 2014 this will be $7,586 for an individual; $22,758 for a family; looking for round numbers for for simplicity and since we are talking about 2016, I rounded up to $10,000 for individuals, and $25,000 for families). This would mean hospitals would also have to charge uninsured persons what the State Employees Health Plan pays for care, a step that UNC Hospitals has already taken, which is a consumer protection of sorts that at least means the uninsured aren’t charged a rate higher than what any insurance company pays.
• Using a recent ASPE study on the distribution of hospital bills incurred by the uninsured, 56% of such hospital bills are larger than $10,000, and 28% of those larger than $25,000 (see Table 3). Without knowing the distribution of single uninsured v those in families, I assumed the cost of the program to be $78 Million in 2016, which is 40% of the half of the uncompensated care that is currently “implicitly financed” by hospitals not receiving payment.

I acknowledge that being uninsured is not only a financial problem and that there are human consequences. This is not the same as providing the 440,000 residual uninsured with health insurance, which would be expected to increase their use of care substantially. And it could correctly be said that this policy will most directly benefit hospitals who are now providing such care but not getting reimbursed. However, if our state expands Medicaid and sets up a vigorous health care exchange to market those policies, we will have done a great deal to address the issue of uninsurance. However, we know that some will not comply, and others will not be eligible for the ACA, yet they will still be living and working here, and in some cases using large amounts of health care. It would be preferable to develop a straightforward means of paying for this care.

The plan above in neither a liberal, nor a a conservative, dream solution. And the ideas above that could be tweaked in many ways. However, what I have written could plausibly be implemented by 2016, and by doing so, North Carolina could prove itself to be a leader in state-based health reform, and address the challenges of health reform, head on.

Notes:

(1) Kaiser estimates that the number covered by Medicaid in 2016 under expansion will increase by 478,000, but the net reduction in the uninsured will be 377,000. 478k-377k=101k estimate of woodwork effect (those now eligible but not signed up) + crowd out from private and non-group insurance to Medicaid.

(2) Using AHRQ estimate of 32% of uninsured expenses accruing to inpatient hospitals plus hospital outpatient, yields estimate of $155 Million of the $484 Million total uninsured cost estimate in 2016 being hospital care. Using ASPE estimate that 28% of the uncompensated hospital bills incurred by the uninsured are greater than $25,000, and that 56% of them are larger than $10,000, I assume that paying for a weighted average of the individual and family uninsured hospital bills above $10k and $25k would account for half of the uncompensated hospital care, or $77.5 Million, in 2016.

(3) Note: The North Carolina Hospital Association claims that hospitals delivered $1.5 Billion charity care and bad debt in 2010 (see p. 41 of the pdf, page 37 of the document); I am not going to get into it, but they are discounting for a wildly unrealistic initial number, whereas the ASPE work asserts costs; note the markdown from charges to costs in table 3 row 1, is 25 fold.

ACA redistribution via Medicaid: what it means for future reform

The self imposed redistribution from mostly poor (mostly red) states, to mostly rich (mostly blue) states via the ACA Medicaid expansion is a direct result of the June 2012 Supreme Court ruling that made it voluntary.

That 7-2 court decision, and the subsequent state decisions, mean that the primary liberal/progressive health reform goal of expanding insurance coverage is being thwarted in some of the most needy states. Liberals/progressives have two choices: fight out the state-by-state Medicaid expansion decisions, or seek a health reform deal with conservatives that would be more likely to expand coverage in the non-expanding, poorest states, sooner. The first is not a pleasing outcome, and the second seems like a political impossibility.

This result was likely inevitable given the SCOTUS decision coupled with the re-election of President Obama; as I said in my post the day the decision was released:

…in the Medicaid aspect of the ruling the court identified the penalty of losing all of your states’ Medicaid funding if you don’t undertake the prescribed Medicaid expansion, to be something that the Federal Government could not do because it would be coercive to states. While this may seem to Conservatives a bit like the question “other than that Mrs. Lincoln, how was the play?” in the long run I suspect this precedent will be important going forward in policy debates.

Leaving the Medicaid expansion in place, while allowing states to not undertake the expansion without losing all medicaid funding has set up a fascinating test of ideology v. financial self interest for Conservative states. People’s lives are at stake here and I don’t mean to minimize that, but again, elections are important and I suspect what State politicians plan to do about the Medicaid expansions will be a key question in some states this Fall.

Reihan Salam has persuasively noted that a default insurance option is needed for health reform, motivated at least in part by the difficulties of healthcare.gov. I agree with him–if I could do just one thing to the ACA, it would be to add such a default option.

However, I have long felt that a political deal on health reform was needed, and such a deal was at the heart of a book I put out in September 2011 that claimed to identify a health reform deal between Democrats and Republicans, that had at its heart replacing the individual mandate with a default insurance option in the form of universal catastrophic health insurance implemented via the Medicare program. My overriding political point in Fall 2011 was that a Super Committee deal that made the SCOTUS case go away could have removed the doomsday outcome for both sides. We didn’t get such a deal, and also got a mixed SCOTUS decision, that has lead directly to an uneven Medicaid expansion.

My proposed deal is not a liberal/progressive dream, but then neither is the uneven Medicaid expansion.

Paradoxically, a SCOTUS ruling that had struck down the individual mandate as unconstitutional and invalidated premium supported private insurance sold in exchanges but that left the Medicaid expansion untouched would have produced what would have seemed like a bigger loss for Democrats at the time, but that would have at least resulted in all persons up to 133% of the poverty level being guaranteed health insurance. From such a base, the parties could fight another day and the red states, especially in the South, could have continued their tradition of saying they hated the federal government (all the way to the bank). But that is not where we are, so where do we go from here?

I think Liberal/Progressive reformers need a health reform deal because of the uneven Medicaid expansion, but we are in a difficult position because we have no control over the the biggest block to a health reform deal: the fact that elected Republicans do not hold any coherent health reform position(s) for which they are willing to vote (old posts here, here, here, here, here, etc)

It takes two sides to make a deal. This doesn’t mean there aren’t conservative intellectuals with reform ideas–Capretta, Moffit, Ponnuru, Roy, Salam, Douthat and others–these are thoughtful people with ideas that I think are reasonable to differing degrees. But whatever I think of them, some amalgamation of their ideas desperately needs to meet the Republican-controlled Commerce Committee in the House of Representatives, ground zero for any actual health reform effort; and then the CBO.

I think that all of these intellectuals realize that the Republican party is the only way for their ideas to reach legislative fruition, and they know that eventually the Party will have to be for something in health reform. And I believe they are quietly working towards making this case within the Republican Party. The entire country, but especially Liberals/Progressives who know that more must be done on health reform, should be rooting for them to succeed.

Update: while I wasn’t attempting an exhaustive list of conservative public intellectuals with reform ideas, I should definitely have included Yuval Levin.