Oregon Leaders Must Reject ACA’s Medicaid Expansion

By Eric Fruits, Ph.D.

Despite an eight percent increase in general fund revenues, Governor Kate Brown and some lawmakers say the State of Oregon is facing a $1.7 billion budget shortfall in the 2017-19 biennium. In her inaugural address, the governor blames more than $1 billion of the shortfall on the state’s choice to expand Medicaid and other taxpayer-funded insurance. The Census Bureau estimates that about one in four Oregonians are in the state’s Medicaid program.

In addition to the expansion provided by the Affordable Care Act, the governor seeks new state money to expand single-payer public insurance to those who are not “lawfully present” in the United States, under a program called Cover All Kids.

Although the federal government pays a large portion of the costs of Medicaid expansion, the state’s share of the costs is growing under the ACA. The huge costs of Medicaid mean even a small increase in Oregon’s share has big impacts on the state’s budget. State Senator Elizabeth Steiner Hayward, incoming co-chair of the Ways and Means Committee for Human Services indicates that about one-third of the deficit at the Oregon Health Authority comes from what she called a “minuscule” reduction in the federal match. This deficit is certain to grow as federal support for expansion shrinks over time, as outlined in the ACA.

The state has massively underestimated the costs of Medicaid expansion in Oregon. A 2013 report prepared for the state estimated that the Medicaid expansion would cost Oregon’s general fund $217 million in the upcoming 2017-19 biennium. Janelle Evans, budget director for the Oregon Health Authority, now estimates a cost to the state’s general fund of at least $353 million. For the federal government, the cost of Oregon’s Medicaid expansion will cost more than $3.5 billion over the next two years.

Oregon simply cannot afford the ACA’s Medicaid expansion and Governor Brown’s expensive new entitlement. Nationally, expansion costs and enrollment have grown much faster than projected. Previous expansions of the Medicaid program have resulted in crowding out, the process by which taxpayer funded Medicaid replaces private health insurance. These earlier expansions have seen crowd-out rates ranging from 15 percent to 50 percent, depending on the type of expansion. Not only does the expansion crowd out private insurance, government spending on the expansion crowds out funding for other state and national priorities, such as education, infrastructure, and defense.

In Congress, repeal of much of the ACA is imminent. Oregon Congressman Greg Walden, incoming chairman of the House Energy and Commerce Committee, is working on a timeline for repealing major provisions of the health care law, including the expansion of Medicaid. In the absence of repeal, Congress should consider an enrollment freeze approach. A freeze would halt new enrollment while allowing current enrollees to stay in the program until their incomes climb above eligibility limits. It would be an intermediate step towards repeal with immediate benefits for taxpayers and current enrollees.

However repeal of the ACA rolls out, Oregon’s congressional delegation should be at the forefront of ending the Medicaid expansion as soon as possible. While Congress works through the details, Oregon can take steps in the upcoming legislative session to protect the state’s fragile finances. One first step would be to opt out of the ACA’s Medicaid expansion and reject Governor Brown’s proposal to expand coverage even further. As noted in the governor’s inaugural address, the state’s choice to expand Medicaid is the single largest source of the impending budget deficit. Rejecting the health care law’s expansion is the clearest path to fiscal solvency and financial responsibility.


Eric Fruits, Ph.D. is president and chief economist at Economics International Corp., an Oregon based consulting firm specializing in economics, finance, and statistics. He is also an adjunct professor of economics at Portland State University, an Academic Advisor to Cascade Policy Institute, and author of Cascade’s report, The Oregon Health Plan: A “Bold Experiment” That FailedThis article originally appeared in The Oregonian on January 27, 2017.

A Health Clinic by Another Name…Will the Oregon Health Plan “Transformation” Work?

By Douglas A. Perednia, M.D.

Here’s a question for you. If you quietly take thousands of Oregonians hostage and then release them with great fanfare, does that make you a kidnapper or a hero? The answer, of course, depends on whether anyone remembers you kidnapped them in the first place. This happens to be exactly the scenario posed by the Oregon Health Plan’s newest innovation, the “Coordinated Care Organization,” or CCO.

CCOs are in the news because they now appear to be the state’s only strategy for saving the Oregon Health Plan (OHP). According to a recent article in The Oregonian, they are “poised to transform” health care. The CCO approach is said to “offer a glimpse of the future for the Oregon Health Plan’s 600,000 low-income and disabled people on Medicaid and Medicare.” As described in the article,

“The state budget assumes the transformed health plan will be up and running next summer—quickly enough to save $249 million in Medicaid costs in the second year of the 2011-13 biennium. If it doesn’t, the state will have to find money to fill the hole or cut Medicaid payments, already down 11 percent this year.”

Before we get too carried away with praising the solution, it’s worth recalling just how we got into this situation, who got us here, and exactly what, if anything, is “new” about CCOs.

It’s no secret that Medicaid in Oregon has been underfunded for decades. As documented by The Lund Report, depending on the contract, “…something like 60% or less of a doctor’s overhead is covered…,” and “an additional 19% cut on top of that is going to create problems with access.” Already, “[r]oughly a quarter of all primary care physicians in Oregon, and about 18% overall, refuse to accept additional Medicaid patients mainly due to low reimbursements….”

One predictable result is that large numbers of OHP patients headed to hospital emergency rooms for care. Indeed, the Oregonian article began by profiling one such patient who is now a CCO patient and advisor to the Governor’s CCO program:

“Wracked by diabetes, hypertension, asthma, spinal disease, allergies, depression and other ills, Amy Anderson felt she was near death when she found the Mid-County Health Center in 2007.

“She had lost her job and health care a year earlier and had been getting most of her health care in hospital emergency rooms. But at Mid-County in Southeast Portland, she was assigned her own team of health care providers that she saw at every visit. They got to know her; she grew comfortable with them.

“‘Any time I called, someone was there,’ says Anderson, 56. ‘I started to believe I was going to get good care.’”

That’s great, but how does the CCO do it? And what is a CCO anyway?

In basic terms, CCO is a medical clinic that has enough people, and a big enough budget, to do what any medical clinic would do if it could afford to do so: take care of its patients. Here is the Oregonian’s description:

“Each Mid-County clinic team has a doctor and family nurse practitioner, each with a clinical medical assistant; a registered nurse; a team clerical assistant; and a third clinical medical assistant to track appointments, preventative measures, prescriptions and other information for team patients.

“The team also has access to psychiatric nurse practitioners and social workers at the clinic. Team members work together in the same room and huddle twice a day….

“When a patient like Anderson shows up, the team knows her health history, her medicines she’s taking and what tests she needs. Sometimes the team will call her in for a test. She can call the team directly and often, if needed, get in to see someone on the same day.”

Doctors normally do most or all of those things for their private patients. So why don’t all doctors do this for their Medicaid patients? The answer, of course, is that they can’t. Medicaid doesn’t pay them enough to cover their basic overhead, let alone retain whole teams of social workers and administrative personnel. If it did, many doctors wouldn’t have stopped seeing Medicaid patients in the first place. Moreover, Medicaid doesn’t pay them for many of these activities (such as coordinating with other providers), at all. Adding insult to injury, Medicaid is notorious for its paperwork, administrative rules and reporting requirements. It’s not our health care providers who have failed these patients; it’s the insurance system that the government itself created.

All of which brings us back to the promised OHP transformation. Since the Oregon Health Plan’s own policies created the problem of underinsured patients who receive all of their care in emergency rooms, why should anyone expect that its new Coordinated Care Organizations will be any more successful?

It all comes down to money. CCOs are nothing particularly innovative or revolutionary. They’re just clinics with more resources than the typical clinic that accepts Medicaid patients. If the additional funding isn’t there, they will be held hostage to the same unsustainable business model that has characterized the OHP in the past.

In that event, Oregonians would do well to recall who got us into this mess in the first place.


Douglas A. Perednia, M.D. is a Portland-area physician and the author of Overhauling America’s Healthcare Machine – Stop the Bleeding and Save Trillions (Financial Times Press, 2011). He blogs at The Road to Hellth (www.roadtohellth.com). He is a guest writer for the Cascade Policy Institute, Oregon’s free market public policy research organization.

Learning from Mistakes in Health Insurance Policy

By Michael Bastasch

The Oregon Health Plan (OHP) was implemented in 1994 as Oregon’s attempt to improve health care for the state’s low-income Medicaid population. The program set out to increase access to health coverage, ensure early preventative treatment and reduce premium increases for the insured. Despite its lofty goals, the program largely failed as financial instability forced it to impose higher costs on its own beneficiaries and to disenroll many participants.

Recently, the National Bureau of Economic Research released a controlled study analyzing the effects of “expanding access to public health insurance on the health care use, financial strain, and health of low-income adults” in Oregon. In 2008, the state expanded Medicaid enrollment by 10,000 under the Oregon Health Plan (OHP) Standard program. The Standard program covers only a limited number of uninsured adults ineligible for traditional Medicaid programs and charges monthly premiums but no copayments. This recent study has been trumpeted by some as a vindication for the national Affordable Care Act (Obamacare), but the results simply echo a return to the same failed approach to health insurance that Oregon has already experienced with the OHP.

The results of the 2008 study were as follows: There was an increase in utilization of health care services among those who received insurance. The probability of having a hospital admission increased 30%, the probability of having an outpatient visit increased 35% and the likelihood of taking any prescription drugs increased 15%. Likewise, there was an increase in reported compliance with recommended preventative care including mammograms and cholesterol monitoring.

As for financial strain, there was a 25% decline in the probability of having unpaid medical bills sent to collection agencies and a 20% decline in having to pay any out-of-pocket medical expenditures.

In terms of the benefits of insurance to physical health, the results show a 13% increase in the likelihood that someone reported feeling “good, very good, or excellent;” and the likelihood of screening positive for depression fell as well.

All of these would seem to indicate that the program was successful, yet a closer examination reveals the fundamental problems with the program. First, the increases in the utilization of health services and the reduced financial strain add significantly to overall costs. In fact, average annual individual expenditures increased by 25% ($778). This isn’t surprising, given that merely a decade after OHP was implemented expenditures per enrollee had increased 58[SB1] %. OHP’s total Medicaid expenditures increased 113% from 1994 to 2008[SB2] , well over the rate of medical inflation for that time period. These huge cost increases put heavy burdens on the system which eventually resulted in large-scale disenrollment of beneficiaries.

Second, the push for preventative care did not decrease emergency room visits or generate cost-savings. Proponents of preventative care argue that expanded public insurance should encourage preventative treatments in order to reduce health care costs as fewer people use hospital emergency rooms for preventable diseases. They believe that emergency room visits are often the most expensive form of health care provision. However, the recent study points out that there was no such decrease in emergency room use, despite the fact that compliance with recommended preventative care increased. In fact, OHP has never caused any measurable change on emergency room usage over its lifetime.

Third, self-reported measurements of health indicated improvements. However, two-thirds of the increase in self-reported health came shortly after enrollment and before enrollees began utilizing any medical services. Also, the increase in self-reported health doesn’t mean enrollees were actually physically healthier. In fact, the report indicated it is most likely that the increase in self-reported health reflects a general sense of improved wellbeing. In other words, people feel better off with insurance even if they are not physically healthier.

 

The recent study provides a clear insight into the effects of expanded public health coverage in Oregon, and the results of the study provide additional evidence to the failure of OHP. However, proponents of Obamacare see the Oregon experiment as vindication for their nationwide endeavor. Comparing Oregon’s results to the national stage is premature, as even this report’s researchers have warned: “[C]onsiderable caution must be exercised in extrapolating from our estimates of the causal impact of insurance eligibility and coverage to other settings.”

Policymakers should use the study as a blueprint for how not to go about reforming health care. The Oregon experience has shown that further centralization of health coverage and layering of subsidies ultimately fails. Instead, it would be prudent to decentralize health coverage to promote competition and consumer choice.


Michael Bastasch is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

The Oregon Health Plan: A Policy Placebo

Cascade Commentary

The Oregon Health Plan: A Policy Placebo
by Eric Fruits

The Oregon Health Plan has been called a “bold experiment” designed to expand health insurance to Oregon’s low-income residents. Its promoters promised the impossible: To expand health insurance coverage while simultaneously controlling costs and fostering provider participation. These promises would be met by the explicit rationing of care through a prioritized list of conditions and treatments. However, like the experimental drug that performs no better than a placebo, Oregon’s bold experiment has produced results that are not significantly different from the outcomes seen by the U.S. as a whole. In this way, the experiment has failed.

Expanding coverage. When John Kitzhaber first proposed the Oregon Health Plan in the late 1980s, he claimed that nearly 20 percent of Oregonians did not have health insurance, a claim that state agencies have echoed ever since. Unbeknownst to them, however, their data was incorrect. Revised estimates by the U.S. Census Bureau show that between 1987 and 1989, only 14.5 percent of Oregonians were uninsured, a percentage that was not much different from the U.S. as a whole. Indeed, census data show that the rate of uninsured during the life of the Oregon Health Plan has not been significantly different from the U.S. as a whole. In the end, one cannot confidently conclude that the Oregon Health Plan had any significant and sustained impact on reducing the number of uninsured as a share of Oregon’s population.

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The Oregon Health Plan: A Policy Placebo

Cascade Commentary

The Oregon Health Plan: A Policy Placebo
By Eric Fruits, Ph.D

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The Oregon Health Plan has been called a “bold experiment” designed to expand health insurance to Oregon’s low-income residents. Initially, the experiment had bipartisan support. The plan’s chief architect was John Kitzhaber, a Democratic state senator turned governor who is currently running for a third term as governor. The plan’s chief advocate in Washington, D.C. was Republican Senator Bob Packwood. Its promoters promised the impossible: To expand health insurance coverage while simultaneously controlling costs and fostering provider participation. These promises would be met by the explicit rationing of care through a prioritized list of conditions and treatments. The rationing plan generated international headlines, and the rollout of the plan prompted physicians and politicians from around the world to visit Oregon to see the bold experiment in action. However, like the experimental drug that performs no better than a placebo, Oregon’s bold experiment has produced results that are not significantly different from the outcomes seen by the U.S. as a whole. In this way, the experiment has failed.

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The Failure of the Oregon Health Plan

Steve Buckstein

QuickPoint!

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by Steve Buckstein

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A new report by Cascade Policy Institute looks at how well the Oregon Health Plan met its promised goals. Launched in 1994, the Oregon Health Plan sought to use a prioritized list of conditions and treatments to simultaneously expand coverage, control costs and foster provider participation in the state’s Medicaid system for low-income residents. By explicitly rationing care, the plan was called a “bold experiment” and was supported by political leaders of both major parties.

Now, sixteen years later, the report’s authors find that:
“[L]ike the experimental drug that performs no better than a placebo, the Oregon Health Plan has produced results that are not significantly different from the outcomes seen by the U.S. as a whole.”

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The Oregon Health Plan: A “Bold Experiment” That Failed

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Contact Steve Buckstein
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steven@cascadepolicy.org

The Oregon Health Plan:  A “Bold Experiment” That Failed (download here)

Cascade Policy Institute has released a new report on how well the Oregon Health Plan met its promised goals.

Conceived in the late 1980s, the Oregon Health Plan has been called a “bold experiment” designed to expand health insurance to Oregon’s low-income residents. It relied on explicit rationing of care through a prioritized list of conditions and treatments.

Launched in 1994, the OHP sought simultaneously to expand coverage, control costs, and foster provider participation.

Sixteen years later, report author Dr. Eric Fruits concludes that:

“[L]ike the experimental drug that performs no better than a placebo, the Oregon Health Plan has produced results that are not significantly different from the outcomes seen by the U.S. as a whole.”

Dr. Fruits makes three major findings about the goals of the Oregon Health Plan:

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Health Care Overhaul: Congress Can Learn From the Costly Mistakes of the States

Eric FruitsQuickPoint!

While many members of Congress have been heading to their home districts to face town halls filled with concerned citizens, some Americans’ thoughts have drifted overseas. As we find ways to overhaul the U.S. health care system, pundits have pointed to other countries’ experiences with government-run health care. Some say that Canada has the solution. Others look to the United Kingdom, France, Switzerland and even Cuba as a model for a U.S. overhaul. Little attention, however, has been paid to the lessons from several U.S. states. During the Congressional recess, I have crossed the country talking about the Oregon Health Plan while learning about the costly mistakes of other states’ experiences with government-run health care.

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