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Indiana Could Chart a Path for Medicaid Reform

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Former Indiana Gov. Mitch Daniels created the Healthy Indiana Plan in 2008 as a way to expand sensible health coverage to uninsured Hoosiers. The program is a model of how to expand coverage but in a fiscally responsible way that also provides incentives for participants to help manage their health spending.

Daniels’ successor, Gov. Mike Pence, has unveiled his own 2.0 version of the Healthy Indiana Plan (HIP), but it is getting a great deal of pushback from conservatives because it draws on federal funding by expanding Medicaid.

There are many reasons for states not to expand Medicaid, which we have enumerated here and which many others have explained as being harmful to those the program was designed to help.

The evidence against Medicaid as it is currently structured is mounting. For example, a recent study by researchers at the University of Michigan found that patients on Medicaid had two-thirds more complications and were more than twice as likely to die in the month after their operations compared with those on private insurance.

The study, published in the journal JAMA Surgery, found that Medicaid patients stayed an average of three days in the hospital rather than two with privately-insured patients and were more likely to return to the hospital after going home from surgery. And Medicaid patients “had more emergency operations and used 50 percent more hospital resources than patients with other kinds of insurance.” Although Medicaid patients in the Michigan study were generally younger than privately insured patients, they were twice as likely to smoke and had higher rates of conditions that increased their health risks.

Gov. Pence wrote in a Wall Street Journal op-ed that “Medicaid is not a program we need to expand. It’s a program we need to change” to improve health outcomes and lower costs.

Virginia is among the 24 states that have wisely resisted expanding traditional Medicaid against huge headwinds from organized hospitals, Chambers of Commerce, labor unions, and many others pushing them to take advantage of the federal funds to enroll 400,000 more Virginians.

Gov. Pence has proposed expanding the Healthy Indiana Plan to cover up to 350,000 people in Indiana, and after many long months of negotiation with the Obama administration, the governor believes he has a green light to proceed.

HIP requires participants to contribute to a Personal Wellness and Responsibility (POWER) account that works like a health savings account. The account is used to pay for routine health bills before triggering catastrophic coverage, which even in the original plan was funded through Medicaid.

Currently, enrollees are required to make payments on a sliding scale to fund their POWER account up to $1,100 a year. The account is jointly funded by the state and the participant. The more people make, the larger their share of the contribution up to the maximum of about $90 a month. The state’s share of the POWER account contribution is financed through a cigarette tax.

Under the proposed expansion, the POWER account would be increased to $2,500 a year, but participants would be required to contribute only $3 and $25 a month. Before, if people didn’t make their contributions, they were dropped from the program. Under the expansion, people who fail to make their payments would be enrolled by default in “HIP Basic,” in which the states funds the full $2,500 account but people lose added benefits, such as vision and dental coverage.

Gov. Pence is being criticized for taking $18 billion over six years in federal funds to expand Medicaid, money that would otherwise stay in the federal treasury or not add to the deficit.

Conservatives argue that HIP 2.0 requires a much smaller financial contribution from enrollees. But his advisors point out that the new monthly contributions are similar to those made in similar income categories under the original program. (Medicaid expansion caps at 138% of poverty instead of 200% in the original HIP program.) The governor’s staff also says he will walk away from the deal if Washington pushes him to further dilute the program.

The new HIP program would also provide a path for a “defined contribution” toward employer coverage that a qualifying individual would be eligible for, adding about $4,000 to $4,500 a year toward their job-based plan. This aggregation of funds is an important foundation for the kind of health care financing system that many conservatives envision as part of their reform agenda.

So is this a good thing? Conservatives do need to chart a new path to Medicaid reform, and the original Healthy Indiana Plan is one of the best models. The reality is that Indiana has to negotiate for its Medicaid waiver with the Obama administration where officials are remarkably hostile to consumer-directed ideas. This deal is probably as much as Indiana could get in the short term before the existing HIP program is scheduled to expire later this year.

It is extremely helpful to have working models of innovative programs as examples of consumer-centered health reform going forward. If Indiana holds the line on any further demands for changes to HIP by the Obama administration – and hopefully demands more flexibility – then Gov. Pence could set the stage for other states to chart a different path forward to reform the flawed, fraud-ridden Medicaid program that fails so many of its enrollees.

Arkansas and Iowa were duped in their efforts to develop creative alternatives to traditional Medicaid expansion. Indiana can be different. It has a track record of success with the popular HIP program. Conservatives could consider the Healthy Indiana Plan to be our pilot project for transformation of Medicaid to give people the dignity of private coverage going forward.

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