Golden State Looks On as Others Threaten To Cut Medicaid

The federal health reform law is intended to bring sweeping improvements to the nation’s health care system — but analysts repeatedly have warned that its many provisions may bring unintended consequences, too.

High-risk pools could force some ill patients to temporarily go without coverage. Formal medical-loss ratios may push low-income workers out of employee-sponsored health insurance. New regulation could spell the end of health savings accounts.

The most far-reaching fear: state-based insurance health exchanges could upend traditional paths toward health coverage.

Discussion of the exchanges’ potential adverse effects has focused on possible changes to employer-sponsored coverage. Just 52% of 1,400 employers in a recent survey said they expect to continue offering group medical plans after the exchanges take effect in 2014.

However, in the past week a new wrinkle has emerged: Some states are threatening to pull out of the Medicaid program, citing current deficits and fears that the reform law will worsen their budget woes.

Texas Leads Charge Away From Program

The effort has gained steam in Texas, led by GOP lawmakers, and about a dozen other states have considered the idea.

According to some Texas Republicans, Medicaid and CHIP are contributing to a state budget deficit that some estimate to be nearly $25 billion. Meanwhile, the pending Medicaid expansion — which will expand program eligibility beginning in 2014, as called for by the reform law — will further strain state coffers, these lawmakers say. One leading GOP Texas state representative argues that some of these newly eligible individuals have made poor lifestyle choices, like smoking and misusing alcohol, and yet “we’re supposed to provide their health care.”

Among the ideas considered by lawmakers, Texas could seek federal waivers to revise its Medicaid program. Alternately, using only state money to fund Medicaid — and abandoning federal matching funds provided by the government — would allow Texas the flexibility to determine benefits.

According to a Heritage Foundation report, states collectively would save $1 trillion across a decade by opting out of federal Medicaid money, and one of the report’s authors last week said that Texas specifically would save $46.5 billion between 2014 and 2019. Conservative analyst Reihan Salam proposes that opting out of Medicaid would allow states to “create new programs, perhaps modeled on Indiana’s subsidized HSA program.”

Can States Even Opt Out?

Health care experts and economists have debated whether opting out of Medicaid would even be feasible for states. The game-changing question: Would HHS allow low-income individuals who lose Medicaid coverage to receive subsidies and purchase private insurance through the exchanges?

The department is reportedly mulling the answer, and HHS officials would “put [the idea] to rest and move on with implementation” by saying no, according to New America Foundation’s Kavita Patel.

Opponents of the idea say that regardless of eligibility issues, states would damage their economies by rejecting federal Medicaid funds. The federal government currently covers 60% of Texas’ biennial Medicaid budget, which is $45 billion. Opponents also say that if Texas lost that funding, emergency departments would be flooded with patients, care would be less efficient and Texans likely would pay higher premiums for private health insurance.

Meanwhile, others have suggested that the effort is motivated by politics and perception. Texas Gov. Rick Perry (R) ramped up speculation about Texas pulling out of Medicaid while promoting a book that applauds anti-federal sentiment on CNN. The search for alternatives to Medicaid might be more about states’ seeking more leverage to receive more federal funding, according to former Congressional Budget Office Director Robert Reischauer.

Why California Doubled Down on Medicaid

While Medicaid pullouts are being discussed by top GOP officials in state houses and Congress, one name is conspicuously absent from the debate: California’s own Republican governor, Arnold Schwarzenegger.

Anthony Wright of Health Access notes that Schwarzenegger once pushed proposals to eliminate or dramatically scale down health programs like Healthy Families and Medi-Cal, the state’s CHIP and Medicaid programs. However, “those options were rejected by the Legislature for what they were — extreme, absurd, unworkable, costly and counterproductive, if not simply wrong and immoral,” according to Wright.

Instead, Schwarzenegger has changed his position on the programs, becoming one of the most prominent Republican champions of health reform and helping secure a federal Medi-Cal waiver that promises to be transformative.

Writing in the Washington Post, liberal analyst Suzy Khimm contrasts California and Texas as the “Jekyll and Hyde” of health reform, noting that the Golden State is moving forward with its Medicaid expansion, while the Lone Star State continues to push back against the law. Khimm also contends that California leaders have decided “that it’s worth betting on health-care reform and reaping the benefits of federal dollars sooner than later.”

Here’s a look at other health reform news.

Coming Coverage Changes

  • A growing number of U.S. companies are looking to adopt a tiered system that would require higher-earning workers to contribute more toward their medical costs or premiums and deductibles. The tiered model would vary those payments for low- to middle-income workers. Employers are expected to face higher health costs during the new enrollment season because of health system changes spurred by the federal health reform law (Abelson, New York Times, 11/9).
  • Six percent of U.S. employers with 500 or more employees and 20% of employers with between 10 and 499 workers likely will drop their health coverage when the federal health reform law is fully implemented in 2014, according to a survey of more than 2,800 employers conducted by Mercer. The findings suggest that the smaller the firm, the less likely it is to offer coverage come 2014 (Parashar, Kaiser Health News, 11/9).
  • Health care costs for individuals who are covered by employer-based plans increased by 6.3% for the year ending June 30, according to a Thomson Reuters index released last week. The analysis — which was based on information on more than 12 million employees and their dependents assembled from hospitals, insurers and other sources — found spending for hospital care rose by 8.2%, while spending for physician services increased by 5.5% and by 3.4% for drug costs (Fox, Reuters, 11/12).
  • About 52% of 1,400 employers in a recent survey said they expect to continue offering group medical plans when the state-based insurance exchanges under the federal health reform law take effect in 2014. The survey — which was conducted by insurance broker Willis Group Holdings and Diamond Management and Technology Consultants — found that 33% of the employers said they were not sure and 12% said they were somewhat or not at all likely to continue coverage when the plans become operational (Goedert, Health Data Management, 11/10).
  • New rules included in the federal health reform law regulating flexible spending accounts are likely to discourage people from using their accounts for routine purchases, such as aspirin, cough medicine and vitamins. Starting in 2013, FSA contributions will be capped at $2,500, and starting in January, account holders will no longer be allowed to use FSAs for over-the-counter medications without a prescription. According to the IRS, the new rules do not apply to medical equipment and supplies, insulin or diagnostic devices (Andrews, Washington Post, 11/8).

Eye on the Industry

  • Officials from the health insurance, pharmaceutical and other industries said they do not wish for the federal health reform law to be repealed and instead hope to move forward following two years of contentious debate on the overhaul. The officials, who had gathered at a Reuters Health Summit last week, also said they are seeking to develop clear strategies to realign their businesses under the law, which they agreed holds promise for their industries (Heavey, Reuters, 11/11).
  • During the Reuters Health Summit, some insurance company executives and other attendees said they planned to invest more in areas like health information technology, efforts to rein in spending, and expand their businesses overseas. Mark Bertolini, the incoming CEO of Aetna, said, “We can’t stay where we are. We have to move. We have to change” (Krauskopf, Reuters, 11/12).
  • Meanwhile, McKinsey & Company analyst Alissa Meade recently told a group of insurance company executives that the health reform law will bring “fundamental disruption to the health care economy,” predicting that “something in the range of 80 to 100 million individuals are going to change coverage categories in the two years post-2014.” Meade, who was speaking at a conference sponsored by America’s Health Insurance Plans, urged insurance executives to re-evaluate competition in the industry so they have a good mix of consumers that would “balance” insurance risks in the market (Reichard, CQ HealthBeat, 11/11).

Challenging the Reform Law

  • Republicans plan to use their House majority and increased leverage in the Senate to launch investigations and further scrutinize the federal health reform law. After the midterm elections, House Republicans are poised to control three influential committees that have jurisdiction on health care legislation, while Senate Republicans will have additional powers on two key panels. The GOP is expected to focus on the cost of the overhaul to consumers, the Obama administration‘s promise that U.S. residents will be able to retain their existing health coverage and the law’s effects on Medicare and the employer-sponsored health insurance system (Alonso-Zaldivar, AP/San Francisco Chronicle, 11/9).
  • Republicans aiming to repeal elements of the federal health reform law are seeking support from certain Senate Democrats who campaigned against the overhaul or could benefit from voting against it during re-election bids. Because Republicans now have a majority in the House, they likely will see few challenges to passing antireform legislation — including a full repeal — in that chamber. However, the GOP could face opposition in the Senate unless the party can appeal to moderate Democrats, such as new Sen. Joe Manchin (D-W.Va.), and Sens. Ben Nelson (D-Neb.), Joe Tester (D-Mo.) and Jim Webb (D-Va.) (Haberkorn, Politico, 11/12).

Administration Happenings

  • On Wednesday, CMS Administrator Donald Berwick is scheduled to testify before the Senate Finance Committee, his first hearing since being appointed by President Obama to the post in July. According to a draft of his prepared testimony, Berwick primarily will defend the federal health reform law (Adams, CQ HealthBeat, 11/15). A copy of Berwick’s testimony states, “The Affordable Care Act does not prescribe a ‘one size fits all’ approach to health care because health care is first and foremost about caring for unique individuals” (DoBias, National Journal Daily, 11/15).
  • Last week, CMS released updated ratings for Medicare health and prescription drug plans, as well as proposed regulations for the program required under the federal health reform law. The ratings award one to five stars to plans by considering 53 quality measures. A “low performer” tag is given to plans that have received three stars or fewer for the past three years. Beginning in 2012, Medicare Advantage plans with four or more stars will be receive quality bonuses (Norman, CQ HealthBeat, 11/10).

On the Hill

  • On Friday, Senate Finance Committee Chair Max Baucus (D-Mont.) announced plans to introduce new legislation to repeal a tax-reporting requirement in the federal health reform law. The mandate in recent months has drawn strong criticism from Democrats and Republicans, the business community and even the White House. A number of business groups and Obama have criticized the requirement, saying that it would be burdensome to companies and also counterproductive (Ethridge, CQ HealthBeat, 11/12).

In Public Opinion

  • A recent AP-GfK poll found that 39% of U.S. residents support Republican efforts to repeal or scale back the federal health reform law. The poll, which was conducted just after the midterm elections, also found that 58% of respondents favor either making more changes to the reform law or leaving it as is. When broken down by party, 61% of Republican respondents favored repealing the overhaul, while 85% of Democrats want to expand it or leave it how it currently stands (Fram, AP/Atlanta Journal-Constitution, 11/11).
  • Meanwhile, the Kaiser Family Foundation‘s most recent Kaiser Health Tracking Poll found that 56% of respondents who voted in the midterm elections would like to see the overhaul repealed entirely or in part. The poll also found that 42% of respondents had a favorable opinion of the reform law, while 49% have an unfavorable opinion. About 70% of respondents said they favored repealing the reform law’s individual mandate (Dick, National Journal, 11/10).


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