This bill proposed to build a Medicaid mansion on a crumbling foundation. Our current Medicaid system is broken. In most geographical regions of the state, Medicaid works on a fee-for-service basis with no incentives for affordability for anyone. Worse, study after study has shown that Medicaid leads to worse results for recipients than for persons with private insurance coverage – even controlling for income.

We have a Medicaid foundation that’s bad for both Missouri taxpayers and recipients. The gentlemen’s amendment (to expand Medicaid on this crumbling foundation) does nothing to fix this problem. There is a better way.

There’s a way we can transform Medicaid to save money and improve health outcomes. We can turn recipients into participants in their own health care by introducing price competition for the first time in the history of the federal Medicaid program.

Mr. Speaker, let’s transform Missouri’s Medicaid system into the most market-based system in the history of Medicaid. We can build a system through HB 700 which would save Missouri taxpayers at least $742 million over eight years and perhaps over a billion dollars.

Mr. Speaker, I urge the body to reject the Gentleman’s attempt to build a mansion on this crumbling foundation. Let’s pour a new foundation, a stronger foundation, a foundation that is fiscally-sustainable and uses market forces to improve results.  

Explain the bill in one paragraph. This proposal would force Governor Nixon to request a waiver out of ObamaCare. It would eliminate Medicaid as the world has known it and replace it with the most free market public health system in the entire country. For the first time in history, Medicaid recipients would be empowered to make their own health care choices and incentivized to choose affordable health insurance plans by the injection of price competition into Medicaid. 

Explain the price competition. When a recipient signs up for Medicaid, they will be presented with a list of available health insurance plans with a list of corresponding prices. If the recipient picks the lowest case plan, they will be allowed to keep a portion of the difference between that plan and the highest cost plan offered. In other words, recipients will be given the same price incentives that other Missourians face every time they decide which health insurance plan will work best for them. Price will matter for the first time in the history of our federal Medicaid program.

Has any state ever done this before? Not to my knowledge. Indiana introduced the concept of high-deductible health plans in 2008 when it created the Healthy Indiana Plan, but it did not introduce direct price competition on premiums for managed care plans in Medicaid.

If no state has ever done it before, how do we know it’s possible? There is no federal law or rule which directly prohibits incentive payments based on choosing an affordable plan. There is precedent for cash payments to Medicaid recipients as incentive to engage in healthy activities – and thereby bring down costs. These waivers have been granted in Florida and New York. Because there is no federal law or rule directly prohibiting the injection of price competition into Medicaid, the federal government has the legal authority to grant a waiver. Whether it does or not depends on whether the Obama administration is willing to put ideology aside and let Missouri reject the one-size-fits-all central-planning ObamaCare model. 

What happens if we don’t get the Market-Based Medicaid waiver? If the federal government refuses to allow true price competition into Medicaid for the first time in history, then this legislation has no effect. It’s an all-or-nothing proposition.

Why not just scrap Medicaid altogether? The current situation presents a unique opportunity to craft the most market-based Medicaid program in the entire country. In the Cold War, we had a great battle between an economic system based on decentralized decision-making that relied on the wisdom of ordinary people to make economic decisions versus one that was centrally-planned with so-called experts making all pricing decisions. As Ronald Reagan would put it, “We won. They lost.” Unfortunately, central planning lives on in many ways in American governance, including through state Medicaid programs with prices set by government bureaucrats. We know from history that central planning does not work – and yet it persists in Medicaid. We also know that Medicaid is here to stay. The program has been in existence for 47 years with no serious effort ever made to repeal it. No matter what Missouri does on the ObamaCare expansion of this broken system, Medicaid will march on – consuming more and more of the state and federal budget. This legislation sets up another great test, with Missouri leading the way for a free market model that can save billions and perhaps trillions of dollars across the nation by introducing price competition to Medicaid for the first time in the 47 year history of the program.  

What will this do to the federal deficit? According to the Heritage Foundation, the federal government spent $3.6 trillion in 2012. If Market-Based Medicaid becomes law, the federal share for Missouri would be increased by $1.2 billion in 2014 – a total which represents 1 / 3,000 share or 0.0003 percent of total federal spending. Further, according to Kaiser, the state of New York’s Medicaid program cost $52.1 billion and California’s cost $42.1 billion in 2010. Total Medicaid spending in 2010, according to Kaiser, was $389 billion. This bill could serve as a catalyst to save money by proving how injecting real free market measures into Medicaid could save billions of dollars if adopted nationwide.  Just as businesses are willing to invest portions of the budgets in research and development of products and systems which can save their own company and their consumers money, so too should conservatives be willing to force the Obama administration to invest in Market-Based Medicaid with Missouri as the laboratory of democracy to prove, once again, that decentralized decision-making beats central planning every time.

What happens if the federal government breaks its promise? There’s an automatic trigger in the bill which rescinds all eligibility increases if the federal government breaks its funding promises.

How can Missouri taxpayers afford this? The legislation has a tremendous positive fiscal note for Missouri taxpayers. In its first eight years, the bill would save Missouri taxpayers at least $741.9 billion. In 2021, the first year Missouri would be responsible for its full 10 percent share, the bill has a positive fiscal note of $83.5 million. If we assume savings of just 1.5 percent from high-deductible health plans and a mere three percent for the introduction of price competition for the first time in the history of Medicaid, the bill would save Missouri taxpayers approximately $927.8 million over the first eight years and $109.1 million in 2021. In addition, a provision increasing cost-sharing for pharmaceuticals and specialist doctors visits has not been scored yet.

What does this do to the total number of Missourians eligible for Medicaid? Under this proposal, the number of Missourians eligible for Medicaid will decrease.

Can Missouri get an enhanced match rate at 100 percent of the federal poverty level? In December, eleven Republican governors wrote a letter to HHS Secretary Kathleen Sebelius requesting clarification on whether the enhanced federal match rate would be available at 100 FPL. Sebelius said no. That decision was a political decision, however, not a legal decision. As explained by Charles Miller, senior counsel at Covington & Burling, a mega-law firm in Washington D.C., the NFIB v. Sebelius case gave the Obama administration the legal authority it needs to deviate from the 138 percent requirement. Miller told the Washington Post:

“The court said . . . we’re not allowing you to enforce this so-called mandate,” Miller said. “So what is a mandate when you can’t enforce it? I think it’s not un-sensible to say that a mandate then becomes an option. . . . And in that context does it have to be all-or-nothing? Neither the Supreme Court nor the original statute addressed that point.”

Even assuming the Obama administration refuses to drop its ideological one-size-fits-all edict on this part of the law, there are other things states can do to require recipients to share costs when they make more than 100 percent of the federal poverty level. A new proposed federal regulation, for example, would allow states to require recipients to pay 50 percent of their costs from the first day of hospitalization. Existing federal rules allow states to require recipients between 100 and 138 percent of the federal poverty level to pay up to 10 percent of the cost of a service through co-payments and up to 5 percent of total family income. The subsidies available through a federal health insurance exchange for these populations would be less than the cost-sharing allowed by federal law. By adopting all cost-sharing requirements allowed in existing federal law, a state can make Medicaid a less affordable option for health insurance coverage than a private plan through a federally-facilitated exchange which would require the individual to choose their own plan and pay monthly premiums. 

Why reduce Medicaid eligibility for some groups? Won’t this deny them access to healthcare? The bill reduces eligibility for groups above 100 percent of the federal poverty level because, by definition, people above the poverty level do not live in poverty. They should be expected to make personally responsible decisions to purchase their own health insurance plans. The reductions in eligibility are contingent upon the existence and functioning of a federal health insurance exchange which is offering subsidies for insurance coverage for the populations with reduced eligibility. Under these subsides, for example, a single mother who makes $20,628 per year (133 percent of the federal poverty level) will only have to pay two percent of her income, or $34.38 per month on premiums for an insurance plan in the exchange that covers her family. See this memo from Kaiser re: exchange subsidies. Reducing eligibility for Medicaid for these populations will result in better care as these Missourians choose their own private health insurance plans.

Why not just do reform only? First, because Governor Nixon is highly unlikely to sign a reform only bill, and would not have anything to offer the Obama administration when he demands the ObamaCare Medicaid opt-out. Second, because the powerful provider lobbies in our state hold enough sway in our state capitol that they could – and would – kill any effort at a reform-only bill. Third, reform-only does not solve the serious problem faced by rural hospitals in Missouri losing disproportionate share payments from the federal government to reduce the costs of charity care which federal law (EMTALA) requires them to provide. (Yes, this is a problem caused by the Obama administration and not us. But the argument that “because someone else did it, it’s not our responsibility to help” is like saying that we should ignore a person bleeding in the street after getting mugged because, well, “we didn’t do it, it’s not our responsibility to help clean up that mess.”) In order for real reform with price competition to ever become law, some increases in eligibility are necessary.

Why a high-deductible health plan? The high-deductible health plan is modeled after the Healthy Indiana Plan, a successful program started by Indians Gov. Mitch Daniels. Recipients are incentivized not to waste health care dollars because accessing care requires them to use funds in the Health Savings Accounts attached to their high-deductible plans.

What about the elderly, persons with disabilities, and those with chronic conditions? This bill does not impact elderly Missourians on Medicaid. Persons with disability and chronic conditions are carved out of managed-care and given “health care homes,” a care-coordination model started in Missouri by former Gov. Matt Blunt which has proven to save money.

Why is pharmacy carved-out of managed care? The Department of Social Services can manage pharmacy benefits through an ASO cheaper than managed care companies can because DSS gets pharmacy discounts for buying in bulk. 

Why do the benefits of the transformed Medicaid plans match the benefits to be offered by plans in a federally-facilitated exchange? The benefits match in an effort to remove disincentives that Medicaid recipients currently have to taking a better job or working more hours. Unfortunately, the welfare state is set up so that it is morally repugnant but economically rationale for some welfare recipients to choose not to increase their income when they have the opportunity. We match the incentives so that a recipient on the verge of “churning-out” of Medicaid does not have the disincentive of losing health insurance coverage. Instead, their Medicaid plan will be rolled-over into an exchange plan with the recipient now responsible for premium payments.

Why provide for commercial rates of reimbursement to providers? Medicaid critics from both the right and the left have long decried that measly reimbursement rates for providers reduce the ability of recipients to actually receive care in rural areas because so few providers participate in Medicaid. In order to have a program which actually works for those who need it, provider reimbursement rates have to be competitive. This legislation presumes commercial rates of reimbursement which should increase the willingness of doctors to participate.

How will this cut down on fraud? Recipients will be given an electronic card which they will have to use when accessing health care services. These cards will allow DSS to track spending in real-time. Just as credit card companies are able to shut off a customer’s credit card after unusual activity, so too should DSS be able to identify unusual patterns of activity to prevent fraud. Perhaps even more importantly, managed care companies have incentives to reduce fraud and will likely do a better job of it. 

What evidence is there that private plans produce better health outcomes for recipients than centrally-planned Medicaid?

Here are just a few of many studies on the issue:

–      Children with asthma on Medicaid more likely to endure long hospital stays with “significantly poorer outpatient care.” Quality of Hospital Care of Children with Asthma: Medicaid Versus Privately Insured Patients, J. of HC for the Poor and Underserved, Vol. 12, No. 2 (2001), pp. 192–207. 

–      Medicaid recipients diagnosed later with cancer, less likely to receive cancer-related surgery, and have higher mortality rates. The Relation Between Health Insurance Coverage and Clinical Outcomes Among Women with Breast Cancer,”New Eng. Journ. of Medicine, July 29, 1993, pp. 326–331; Effects of Health Insurance and Race on Colorectal Cancer Treatments and Outcomes, American Journal of Public Health, 90 (2000), pp. 1746–1754; Disparities in Cancer Diagnosis and Survival, Cancer, Vol. 91 (2001), pp. 178–188; Cancer Survival in Kentucky and Health Insurance Coverage, Archives of Internal Medicine, Vol. 163 (2003), pp. 2135–2144 

–      Higher mortality rates for non-cancer patients for heart attack, stroke, and pneumonia – even adjusting for age, gender, income, other illnesses, and severity. Insurance Status and Hospital Care for Myocardial Infarction, Stroke, and Pneumonia, Journal of Hospital Medicine, Vol. 5, No. 8 (2010), pp. 452–459 

How will this transformed system differ from managed care in the existing I-70 corridor? In the current managed care corridor, price is centrally-planned and set by the Department of Social Services. Bidders compete on the basis of the breadth of their network and services provided. In the transformed system, bidders will be required to compete on price, with the lowest cost conforming bid guaranteed acceptance. Bidders will be incentivized to make their plans as affordable as possible for Missouri taxpayers because they will want to win the guaranteed slot. In addition, they will compete for market-share on the basis of price from recipients who will be told that they will be rewarded for making affordable health care choices for the first time in the history of the federal Medicaid program. 

To facilitate orderly testimony Monday morning, I’m posting an outline of the Draft HCS for HB 700. I plan on following this outline (roughly) as I give my presentation to the committee. To the extent possible, it would be extremely helpful to the committee if people planning on testifying on the bill tailored their presentations to speak to specific parts of this outline. 

The outline can be found here: HB 700 OUTLINE

REP. JAY BARNES FILES MEDICAID TRANSFORMATION LEGISLATION

“Market-Based Medicaid” Bill Would Give Missouri Most-Market Based Medicaid System in the Country by Injecting Price Competition in Medicaid for the First Time in History

February 26, 2013

Representative Jay Barnes (R-Jefferson City) filed legislation Tuesday to transform Missouri’s Medicaid system into the most market-oriented public health care system in the entire country. The bill would protect Missouri taxpayers by saving at least $741 million and potentially billions over the first eight years of implementation. It would also reduce dependence by lowering the total number of Missourians eligible for Medicaid.  

Barnes’ Market-Based Medicaid proposal would inject personal responsibility and price competition into a system sorely lacking in effective constraints on runaway spending. Under current law, much of the state’s Medicaid system operates under a fee-for-service model in which there is no incentive for anyone to reduce costs. Market-Based Medicaid would replace the “no-brakes” fee-for-service model with a managed care model designed to encourage the efficient use of taxpayer resources. In addition, it would empower recipients to choose their own health insurance plan, and, for the first time in Missouri history, require bidders providing managed care plans to compete on the basis of price.

Creating the Most Market-Based System in History through Real Price Competition

Market-Based Medicaid would introduce price competition into Missouri for the first time. Managed care bidders would be forced to compete on the basis of price, with the lowest cost conforming bid being guaranteed acceptance into the market. Just as important, at the time of sign-up, recipients will be incentivized to choose more affordable plans by rewarding them for choosing lower-cost plans. For the first time in the nearly five decade history of the federal Medicaid program, recipients would be given the financial incentives to choose the plan most affordable for taxpayers.

“Missourians understand that competition is the most powerful force the world has ever known to reduce costs in any market,” Barnes explained. “Market-Based Medicaid will introduce real price competition to Medicaid for the first time in history, bringing down costs for Missouri taxpayers.”

“We will go from a system with centrally-planned prices set by government employees to one with decentralized decision-making by private market participants who know the health insurance industry better than any central planner ever could,” Barnes continued.

Market-Based Medicaid would empower recipients to choose between either a high-deductible health plan or a pre-paid co-pay plan. The state would fund the deductible or co-pay card depending on the plan chosen. No deductible or co-pay would be applied to preventive or primary care services. However, a steep deductible or co-pay would be assessed upon the use of unnecessary emergency room services. Recipients will be incentivized to use care wisely by rewarding them with a portion of the funds remaining on their deductible or co-pay card at the end of the year. The goal of such measures is to encourage recipients to scrutinize their decisions. A recipient considering whether to present at an emergency room with a sprained ankle will, for the first time in the history of Missouri’s Medicaid program, have a real disincentive to use the ER for such a non-emergency.

“We want to end the wasteful use of the ER for non-emergencies,” Barnes said. “Under the current broken system, Medicaid recipients have no reason not to waste taxpayer dollars at the ER because recipients have nothing at stake. Market-Based Medicaid will dramatically change the incentives. For the first time in the history of Missouri Medicaid, recipients would have real financial disincentives to wasting taxpayer dollars in hospital ERs around our state.”

Market-Based Medicaid would also maximize cost-sharing allowed by the federal government, requiring recipients to pay $4 or $8 for prescription drugs and $4 for specialist doctor visits.

“Participants should be required to pay real money out-of-pocket in addition to the new incentives,” Barnes added. “Market-Based Medicaid would maximize cost-sharing to require recipients to pay as much of their own money into the health care system as reasonably allowed.”

Requiring Gov. Nixon to Demand an Opt-Out of ObamaCare Medicaid

Market-Based Medicaid would require Gov. Nixon to demand an opt-out of ObamaCare Medicaid from the federal government. Other states with conservative governors like Sam Brownback of Kansas and former Gov. Jeb Bush of Florida have received waivers to move to managed care, and at least two states (Florida and New York) have received waivers for innovative incentive systems which reward recipients for making healthy choices. But no state has ever received a waiver for moving to managed care while injecting true price competition into Medicaid through incentives to pick the most affordable managed care plans available. Though it has never been done before, there is no direct prohibition in federal law on incentive payments for choosing affordable coverage.

“Market-Based Medicaid would force President Obama to put his central-planning ideology aside in order to increase access to care for those least able to afford it,” Barnes said. “This innovative new delivery system can serve as a model for other states to save billions in Medicaid spending across the entire country.”

“This proposal is an all-or-nothing proposition,” Barnes continued. “If the waiver is not granted, the bill has no effect.”

Expanding Health Homes for Missourians with Disabilities and Chronic Conditions

Market-Based Medicaid will expand statewide the health care home model introduced to Missouri by former Gov. Matt. Blunt to coordinate care for low-income Missourians with disabilities or chronic conditions. Health care homes assign a provider to coordinate health care – leading to better outcomes for recipients and reduced costs for taxpayers.

“Gov. Matt Blunt’s health care home innovation has proven to improve health and save money,” Barnes said. “Market-Based Medicaid will expand this innovative and successful program statewide to maximize better health outcomes and taxpayer savings.”

Similar Proposals and Plans from Conservatives

The high-deductible plan is modeled partly after legislation enacted in Indiana under Republican Governor Mitch Daniels in which Medicaid eligibility was expanded to 200 percent of the federal poverty level. Another similar proposal was offered by Gov. Matt Blunt in 2008 which would have expanded access to health insurance for working Missourians making up to 225 percent of the federal poverty level.

At the federal level, Congressman Paul Ryan proposed legislation in 2009 which would have provided recipients up to 100 percent of the federal poverty level with a block grant of $5,000 to purchase private health insurance, an amount which could have been matched in any amount by state governments. Under the current Medicaid match-rate, a Missouri recipient would have received a subsidy of $8,064 per year. Rep. Ryan’s Patients’ Choice Act would have also provided similar subsidies for families making up to 200 percent of the federal poverty level – twice the level proposed with Market-Based Medicaid.

“Conservatives have tried for decades to introduce true market-based reforms into entitlement programs,” Barnes explained. “This Market-Based Medicaid proposal would put these ideas into action for the first time in public health care. Missouri would serve as a model for market-based Medicaid reform for the entire nation.”

Streamlined Eligibility

Market-Based Medicaid would also streamline Medicaid eligibility standards. Medicaid categories with eligibility below 100 percent would be increased and those above would be decreased. By setting more consistent standards, Market-Based Medicaid would reduce dependency for Missourians above the poverty level. These reductions in eligibility would be contingent upon the existence of a functioning health care exchange under which robust subsidies would be available. For example, a single mother making $20,123 per year would only be required to pay two percent of her income, or approximately $34 per month, for health insurance.

“Missourians living above the poverty level should be required to take more personal responsibility for their health care decisions,” said Barnes. “Requiring Missourians in these income brackets to choose their own private health insurance plans with low affordable premium payments will improve the quality of the health care they receive and dramatically reduce costs for Missouri taxpayers so that we can get help to those least able to afford access to care.”

The increase to just 100 percent of the federal poverty level would require a waiver from the federal government. In December, Health and Human Services Director Kathleen Sebelius told 11 Republican governors who requested an enhanced federal match rate at only 100 percent that it would not be available.

Barnes stated Sebelius’ response was a political and not a legal decision. “If the Obama administration is serious about increasing access to care for those least able to afford it, it’s going to have to put down its ideological shield and abandon the one-size-fits-all liberal approach that it has taken so far,” Barnes said.

Saving Missouri Taxpayers Billions of Dollars

The free market reforms and reductions in eligibility more than pay for Barnes’ Market-Based Medicaid proposal. Over the first eight years of the reforms, it would save taxpayers at least $741 million and likely billions of dollars. In 2021, the first year the state would be responsible for 10 percent of the costs of increased eligibility, the reforms would save Missouri taxpayers at least $83.5 million. In addition, the bill contains a contingent sunset so that if the federal government ever breaks its promise, the increased eligibility is automatically eliminated.

“Missouri taxpayers cannot afford a straight Medicaid expansion,” Barnes said. “But by transforming the system and streamlining eligibility, we create a fiscal note so positive that Missouri taxpayers can’t afford not to transform this broken system.” 

For Monday’s hearing on HB 700, I have prepared (with great help from House research) the following draft House Committee Substitute for HB 700.  I am posting here so that anyone planning on testifying has access to the document from which the Committee will be working. 

Draft HCS for HB 700

I filed HB 700 this morning to transform Missouri’s Medicaid system into the most market-based public health care welfare system in the entire country. 

I will post more in the near future. For now, here are the key points:

• Market-Based Medicaid would force Gov. Nixon to request an opt-out of the failed ObamaCare Medicaid system and replace it with the most market-based public health care system in the entire country. 

• Market-Based Medicaid would empower participants to choose their own health insurance plan and would inject true price competition into Medicaid for the first time in the 47 year history of the federal program.

• Market-Based Medicaid would flip-the-script on one-size-fits-all ObamaCare. Missouri would end Medicaid as the world has known it and would serve as a model for reform that could save billions of dollars every year if expanded to other states. 

• Market-Based Medicaid will reduce dependency by lowering the total number of Missourians eligible for Medicaid. 

• Market-Based Medicaid would require participants to put “skin in the game” for the first time – forcing participants to consider costs just as ordinary Missourians with private health insurance are. Participants will have financial disincentives to waste taxpayer dollars with unnecessary emergency room visits. 

• Market-Based Medicaid turns participants into active consumers of health insurance plans rather than passive recipients of no-strings-attached welfare benefits.

• Market-Based Medicaid replaces bureaucratic central planning with decentralized competitors who know the health care industry and local markets better than any bureaucrat in Jefferson City ever could.

• Concepts similar to Market-Based Medicaid have been proposed or implemented by Congressman Paul Ryan, former Indiana Gov. Mitch Daniels, Kansas Gov. Sam Brownback, former Missouri Gov. Matt Blunt, and Florida Gov. Rick Scott. None of these proposals, however, has been as innovative as Market-Based Medicaid. 

• Market-Based Medicaid would help save rural Missouri hospitals scheduled to suffer under ObamaCare.

• Market-Based Medicaid would increase access to care to working Missourians who are least able to afford it. 

So, I realize this is yesterday’s news, but I thought it worth posting, even though events have moved forward (more on that later). The House Committee on Government Oversight and Accountability rejected Minority Leader Jake Hummel’s bill to expand our broken Medicaid system. David Lieb of the Associated Press reports:

Rep. Jay Barnes derided the Democrats’ plan as the “Brink’s truck theory of economic development, where we ask the federal government to send as many Brink’s trucks full of borrowed cash from China as they can possibly gather and dump it into Missouri’s economy.”