Analysis: Doubts Loom Over Brown’s Medicaid Funding Plan

Gov. Kate Brown's four-pillar plan to fill Oregon's Medicaid gap remains just half assembled as the legislative session speeds into its final months.

Taxes on hospitals and insurance premiums breezed through the state House and Senate in March, amounting to easy wins for Brown. They're projected to fill nearly half of the state's $930 million gap in funding for the Oregon Health Plan over the next biennium.

But the remaining two pillars are tougher sells.

A proposed $2 per pack tax hike on cigarettes and a new e-cigarette tax face pushback from the tobacco industry, small grocers and convenience stores. Minimum health care spending requirements for larger businesses and a tax on companies with 50 or more employees that don't offer health insurance have drawn opposition from an influential coalition of business and industry trade groups.

The bills have support from the Democratic supermajorities in the Oregon House and Senate. But neither has advanced yet to the full House or Senate floor. Opponents are whispering – and some Democratic lawmakers are privately voicing concern – that one or both measures could be referred to voters. Their defeat could blow a $470 million hole in Brown's plan.

But even if the entire four-pillar plan becomes law, Brown's aim of filling the state's fast-growing Medicaid funding gap hangs on another ambitious goal: holding per capita spending growth on Oregon Health Plan patients to 3.4 percent per year – far lower than the 4.7 percent rate the Centers for Medicare & Medicaid Services projects private health insurance spending to grow by through 2026 or the 5.8 percent rate expected for Medicaid.

Capping the growth of Oregon Health Plan and public employee health care costs would save the state an estimated $638 million over the next biennium and $1.6 billion the following two years, Brown's proposed budget says.

"We're basically challenging ourselves with a task of finding ways to reduce costs lower than what the federal government is expecting them to grow by," Jeremy Vandehey, director of the Oregon Health Authority's Health Policy and Analytics Division, told The Lund Report. "That's critical because if we aren't successful, we have to come back and find more money."

It's a goal the state has often failed to meet.

Capping Costs No Easy Task

Oregon launched its coordinated care model of Medicaid delivery in 2013. Regional coordinated care organizations, which receive billions of Medicaid dollars, act as insurers for the roughly 1 million low-income residents in their areas. The model was built on a projected 3.4 percent growth rate. But the 15 care organizations reported average annual cost growth of 4.6 percent in 2016, 2.4 percent in 2017 and 5.3 percent last year, according to actuarial reports written for the state health authority.

Oregon finances about one-quarter of the total cost to administer the Medicaid program, amounting to hundreds of millions of dollars out of its general fund each year. Even small increases in how much the care organizations spend can have a big impact on the state cost of Medicaid.

Brown and leading Democrats say they're committed to protecting low-income Oregonians' health care no matter what. That promise figures to make cost a major driver in how much the state ends up paying to support the Oregon Health Plan in the coming years.

The Oregon Health Authority this year projects a roughly 4.4 percent rise in Medicaid spending in 2019.

"Some CCOs are meeting the 3.4 percent cost-growth target and at the same time meeting our quality goals, so we know it is possible with the right strategies," Brown spokeswoman Lisa Morawski said in an emailed statement. "We are committed to continuing to improve the health delivery system so that all state programs reduce cost growth below 3.4 percent."

Shifting The Medicaid Funding Burden

Proponents call Brown's tax plan a one-time package that will put the Oregon Health Plan on solid financial footing. Oregon and the 36 other states that expanded Medicaid under the Affordable Care Act are slated to take on the full cost burden of the expansion for the first time next year as part of a plan to prod states into finding innovative ways to lower costs and prevent runaway growth.

Oregon's answer to that challenge was the creation of coordinated care organizations that emphasize early preventative care to prevent costly complications or overuse of the emergency department. The state's cost benchmark puts it in step with Medicaid expansion states like New York and Massachusetts, which are setting spending caps with varying results.

"It's been a challenge for some states that have expanded Medicaid under the ACA," said Stacy Maser, a senior staff associate with the National Association of State Budget Officers. "The (state contributions) have gone up, but that was known going in that states were going to have to plan for it. The good news has been that with the economy doing well, it's helped with enrollment growth. But there's a lot of uncertainty, and there are demographic pressures. In health care, you're operating in a world where you're not controlling everything, whether it's hospital costs or pharmaceutical prices."

Democrats say they're taking other steps this session to address health care costs. Those include bills authorizing bulk importation of prescription drugs from Canada, requiring pharmaceutical manufacturers to notify the state of planned price increases and enacting fees on private emergency medical transport providers.

It’s not clear, however, whether those bills will pass and what cost impact they would have.

Brown's proposal to set minimum health care spending requirements on large businesses would require employers with more than 50 workers that don’t provide insurance to pay into a fund for employees to purchase health plans on the state insurance marketplace. Health authority officials project the fund to raise hundreds of millions of dollars to help lower the cost of marketplace plans.

Economic Impacts Loom Large

But the largest variable state budget writers can't control may be the economy. The state's financial wellbeing has an outsized impact on tax revenues that pay for services like health care. Past downturns have triggered spikes in Oregon Health Plan caseloads as cash-strapped residents turned to public safety nets like Medicaid.

"Caseloads go up in a recession, and the need goes up as people go from moderate to low income. And public services needs go up when resources go down," said Josh Lehner, senior economist with the Oregon Office of Economic Analysis. "That makes for a challenging budget environment."

Prior responses to downturns have had widely different consequences for Medicaid as a whole, and the Oregon Health Plan in particular.

The economic collapse a decade ago swelled federal Medicaid rolls by 14 percent in just two years. But the Obama administration responded with an identical increase in Medicaid spending before the Affordable Care Act reshaped the program.

Yet the 2001 recession sparked a far different response. A nearly 20 percent reduction in personal income tax collections spurred steep cuts to Oregon Health Plan benefits. It also provoked an ill-fated $540 million tax increase package in 2003 – including cigarette tax hikes – that anti-tax groups referred to the ballot and defeated a year later. Its defeat triggered even more cuts.

How the federal government responds to the next downturn may depend on who is in the White House. President Trump has moved to erode the Affordable Care Act, while many Democratic challengers have pledged to move beyond Obama's health care law and drastically increase spending.

"You're never sure because it's not written in law," Maser said of the government's response to a recession. "Each time is different."

State Republicans, lacking the numbers to stop the cigarette or employer taxes if Democrats hold ranks, have taken to sounding alarms about the viability of Brown's four-pillar plan amid slowing economic growth.

"It's a good economy short-term," Rep. Cedric Hayden, R-Roseburg, told The Lund Report. Democrats "can get those funds by adding a tax here and there, like the health insurance premium tax, and they're looking at doing the employer tax. But if there's a recession, even just a small downtick – even a small percentage could make a huge difference with this Medicaid funding package."

An Uncertain Future

Also unknown is how further efforts to transform Oregon's health care system could affect spending. The state is preparing to announce contracts for a second five-year round of coordinated care organization funding in June with fresh expectations, including an emphasis on improving mental health care and focusing on social issues like housing that affect health.

About 6 percent of Oregonians still lack health insurance. They’re mostly lower to modest income residents who earn too much to qualify for the Oregon Health Plan or subsidies through the Affordable Care Act. Brown and Democratic leaders have made closing the remaining enrollment gap a top health care priority. Health authority officials, lawmakers and liberal advocates have different ideas for accomplishing that.

Advocates of "Medicare for all" are backing a bill that would establish a Universal Health Care Commission to study plans to provide government-backed health care for every Oregonian. House Democrats last year formed a work group to study a Medicaid buy-in concept in Oregon. A bill awaiting a hearing in the Joint Committee on Ways and Means would require the health authority to develop a Medicaid buy-in or another public option program to close the coverage gap.

Republicans worry that switching to a system where the government funds most residents' insurance coverage could raise health care costs for workers covered through their employers as well as seniors on Medicare. The state's response to those increases could blow a new hole in the budget, they warn.

The cigarette and large employer taxes Brown needs to cover the Medicaid gap will be among a flurry of major legislation Democrats will try to get to her desk over the next two months. Initiatives like a nearly $2 billion funding package for schools and a controversial carbon pricing bill are grabbing much of the attention -- and the most protest from Republicans.

But Democrats are pushing ahead on Brown's four-pillar funding strategy for the Oregon Health Plan.  

"The Governor presented a balanced budget for funding the Oregon Health Plan, and she is still fully behind the four components," Morawski, Brown's spokeswoman, said. "If any components of the package do not pass, the Legislature will be faced with making some difficult choices about how to use the general fund."

Have a tip about the health-care industry or legislation? You can reach Elon Glucklich at [email protected].


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