- Medicaid, not Medicare, may be the primary government vehicle through which to implement substantive healthcare reforms.
- An increasing number of states are seeking to improve access to care and bring down premiums by incorporating a Medicaid buy-in option or establishing a robust reinsurance program.
- Facing the possibility that Medicaid payment rates will become more prevalent, not-for-profit health systems should prepare to defend their current business model by highlighting the concrete benefits they bring to their communities.
While various legislative proposals for “Medicare for All,” “Medicare X” or “Medicare for America” are debated in Washington, healthcare innovation and reform activity is shifting to the states. As issues of cost and access gain urgency, state policy and legislative efforts seek to:
- Expand access to the remaining uninsured
- Safeguard access to health insurance for working families who are stressed by premium costs
- Keep overall healthcare inflation under control
The “Medicare for All” concept, which is focused on making affordable healthcare insurance a right for all Americans, is likely to remain an aspiration rather than an achievable goal given the current business model of almost all health systems. Most providers rely on the cross-subsidization of their Medicare and Medicaid business by fee-for-service commercial contracts. Being paid at Medicare rates for all patients would be financially untenable.
What issues are states looking to rectify?
In the absence of new federal legislation or fixes to the Affordable Care Act (ACA), an increasing number of states are turning inward to their Medicaid programs for solutions to the challenges of access and affordability. “Medicaid Buy-In,” not “Medicare for All,” may be the most pragmatic alternative in the next two to five years. Legislative proposals to provide healthcare coverage to individuals above current Medicaid eligibility levels are being discussed in at least a dozen states. The idea is to leverage state programs and infrastructures to offer a Medicaid-like benefits package at an affordable price.
Reform-minded states are addressing these issues:
Ensuring adequate market access and choice. States may want to focus on improving premium affordability by introducing a competitively priced “public option.” States may elect to offer products in the individual or small-group market for families that are ineligible for subsidies in the ACA marketplaces. Delaware is among the states that have discussed allowing residents to buy in to state-employee healthcare coverage in markets without commercial coverage.
Reducing premium costs through a reinsurance program. By introducing reinsurance, states generally seek to reduce claims costs by 25% to 35%, maximize the retention of federal dollars staying in the state, and minimize the level of uncertainty about future state expenditures. A number of states are drafting reinsurance programs to take the place of the ACA’s risk adjustment, reinsurance and risk corridor programs, which were crippled by the Balanced Budget Act.
The proposals are dependent on 1332 waivers from CMS but typically provide payments for high-cost insurance claims. As in Delaware, specific programs may include:
- Condition-based programs for individuals with certain chronic conditions
- Programs that reimburse insurers for a portion of claims between an upper or lower threshold (e.g., $80,000 to $3 million)
- Percentage-of-claims programs (i.e., paying insurers for a specified percentage of total annual claims)
Improving alignment between Medicaid and the ACA marketplaces. Alignment between marketplace coverage and Medicaid can enhance continuity of care as beneficiaries transition between the two programs. States may see a Medicaid buy-in as a pragmatic alternative to the single-payer discussions or even as an incremental step toward universal coverage.
What are the buy-in options?
Recent events — Democratic victories in midterm governor elections and the passage of ballot initiatives in conservative states such as Kansas, Nebraska, Utah and Idaho that have laid the groundwork for either full or partial expansion of Medicaid-like benefits — have made a Medicaid buy-in approach more likely to happen.
According to data compiled at the Woodrow Wilson School at Princeton University, approximately a dozen states have a buy-in public-option plan or reinsurance program proposed and supported by active legislation. The two major buy-in options under discussion are:
State-sponsored products in the marketplace. The state would leverage its Medicaid program, infrastructure and purchasing power to provide a public-coverage option that meets the ACA’s Qualified Health Plan standard.
State-sponsored buy-in outside the marketplace. The state would make a Medicaid-like benefit available to residents whose incomes are higher than the Medicaid eligibility level. This program would fall outside the single risk pool that encompasses ACA-compliant health plans.
Benefits would be similar to those in Medicaid. Premiums would be set consistent with ACA rating rules and state insurance regulations. Individuals with incomes between 100% and 400% of the federal poverty level could use their ACA tax credits to offset premiums if they met eligibility requirements. Depending on the plan design, a 1332 waiver would be required.
5 strategies for health systems to respond to payment pressure
In Colorado, the sponsors of an earlier version of a reinsurance program had proposed paying for the program through mandated hospital price cuts, with all state hospitals paid at Medicare rates. Health plan savings would be passed on to the public via lower premiums — as much of 35% lower in some areas — but would leave providers with big losses.
The bill’s sponsors backed off that approach under pressure from the Colorado Hospital Association (CHA). A revised proposal calls for state hospitals to pay fees of up to $150 million a year into the reinsurance pool, with a limit of $500 million over five years. The CHA recently has changed its position on the bill from “opposed” to “neutral.”
The developments in Colorado indicate that providers should be thinking outside the box as state healthcare policy becomes more of a factor. Hospital leadership will be increasingly challenged to justify a business model that pays for mounting losses in Medicare and Medicaid through inflated commercial rates. Leaders should be prepared with strategies for investing dollars in the community to improve health and access.
Five recommended approaches include:
- Be ready for transparency around not only consumers but also the state. If you are with a not-for-profit institution, know where you are spending community-benefit dollars and be ready to show how the health system is addressing the “real needs” of the communities being served.
- Be prepared to collaborate on solutions to high costs, perhaps by discounting rates for communities where the cost of care is excessive.
- Know what your organization would pay in taxes if it were for-profit. Be able to show how that amount has gone toward addressing community needs, not just into bricks and mortar.
- Don’t ignore state agencies, but instead be willing to partner with them on solutions.
- Stay focused on costs. Legislation that involves fixed pricing may be coming your way.