Federalizing Medicaid funding

And another story from Oklahoma:

Facing a $1.3 billion budget hole, the Oklahoma House has passed legislation that would cut 111,000 Oklahomans from Medicaid.

House members on Wednesday passed the bill 65-34 mostly along partisan lines and sent it to the state Senate for action.

The measure would instruct the Oklahoma Health Care Authority to seek a federal waiver allowing the state to exclude from Medicaid all able-bodied adults under 65 with dependents.

That bill failed in the Oklahoma Senate.

Oklahoma is heavily dependent on oil revenue to make their budget work. Oil prices have cratered so state revenues have crashed. At the same time as oil prices have collapsed, economic activity in the state is decreasing which means more people don’t have jobs, more people don’t have employer sponsored insurance, and more people have become Medicaid eligible. The Medicaid eligible pool is counter-cyclical. As the economy does well, the eligible pool shrinks, and as the economy does poorly, the pool grows. So the number of people who are eligible for Legacy Medicaid grows just as the state revenue needed to pay for Medicaid services drops.  This is a problem.

Legacy Medicaid is financed by the state and the Feds splitting the bill.  Oklahoma pays 41% of the cost of the medical services component of the program.  The Feds pick up 59% of the medical side and a bit more on the administrative side.  Oklahoma has a balanced budget constraint.  the Federal government does not.  That means the Feds are willing and able to spend money to meet increased Legacy Medicaid demand in a downturn but the state can not.  Instead, the state needs to cut expenses to meet its balanced budget constraint and Medicaid is a very large line item in every state budget, so that means Medicaid is often one of the major areas of cut-backs in either eligibility, services allowed or provider payments.

So what is the solution?

The long term solution is that the Federal government should take on more and more of the cost of Legacy Medicaid.  The Feds can spend in a downturn when the states have to be 50 mini-Hoovers who have to cut during a recession.  This does three things.  The first it makes sure that people can get the medical care that they need and that the continuity of care is maintained.  Continuous care is usually better and cheaper  than people getting dropped and then added back to insurance months or years later.  Secondly, it transforms Medicaid financing from a pro-cyclical activity into a counter-cyclical macro-economic stability policy.  One of the major components of the stimulus in 2009 was a Federal Match rate bump.  This moved $87 billion in Medicaid expenses from the states’ books to the Federal books.

The Stimulus bump was a short term solution that required massive supermajorities from a party that believes that the federal government faces a different budget constraint than a typical household.  The long term solution is to have the Feds continually increase their share of the costs until Legacy Medicaid is funded on the same bases as Medicaid Expansion. The Feds pick up 90% of the tab and the states pay 10%.  This will still allow for state control  which allows Massachusetts to cover different services than Mississippi but it allows for a much stronger counter-cyclical automatic stabilizer to be in place.

The attraction this should have to a significant number of Republican state level elites is that by taking Medicaid off of their books, it frees up a lot of money for easy to justify tax cuts.

 



What’s a couple trillion among friends

The Committee for a Responsible Federal Budget ran the numbers on the Sanders’ healthcare plan and its financing and depending on the assumptions, the Sanders plan is either $3 trillion dollars short over 10 years or $14 trillion dollars short over ten years compared to what the campaign is claiming.

That Sen. Sanders has shown a commitment to paying for his new initiatives and has proposed specific concrete changes to do so is quite encouraging. However, by our rough estimates, his proposed offsets would cover only three-quarters of his claimed cost, leaving a $3 trillion shortfall over ten years. Even that discrepancy, though, assumes that the campaign’s estimate of the cost of their single-payer plan is correct. An alternateanalysis by respected health economist Kenneth Thorpe of Emory University finds a substantially higher cost, which would leave Sanders’s plan $14 trillion short. The plan would also increase the top tax rate beyond the point where most economists believe it could continue generating more revenue and thus could result in even larger deficits as a result of slowed economic growth.

Sanders is not running in the Republican primary where the ability to propose programs with multi-trillion dollar piles of bullshit is an asset.  His campaign should respond to CRFB and Thorpe’s cost estimates on a non-ad-hominem basis to explain why their estimate that single payer is a net neutral fiscal move instead of a massive budget buster.



Less stupid fucking in Maryland

At least that is the the public health take-away of a recent study analyzing the public health impacts of an increase in the alcohol tax in Maryland.

The Baltimore Sun:

Maryland recorded 7,400 cases of the bacterial infection in 2010, when alcohol, like other goods, was taxed at 6 percent. But two years later, with a 9 percent levy tacked on to booze sales, gonorrhea cases in the state dropped below 5,700, even as infection rates grew nationally.

Researchers at the University of Florida say they can only find one explanation: the alcohol tax.

“We know increasing alcohol taxes decreases alcohol consumption,” said Stephanie Staras, the lead author of the study, published in the American Journal of Preventive Medicine. “We also know that people who are using alcohol are more likely to have risky sexual behavior.”

Besides being a great opportunity to for an excellent post title, this is a good illustration of how insurance design is important but far less important to general health than general socio-enviromental factors.  Maryland was looking to raise revenue and perhaps decrease drunk driving when they increased the tax.  Tertiary impacts on sexually transmitted infection (STI) rates were most likely not part of the political debate.

However, if these results hold up, and logically they make sense as alcohol consumption leads to bad decision making, avoiding seventeen hundred STI cases avoids significant treatment cost and more importantly, it avoids significant pain and risk for individuals.  Avoidance through changing the environmental and economic matrix is far more efficient treatment than post-infection treatment.

 

 



Good news everybody

In 2014, the nominal economic growth rate in the US was 3.91%.  Not a great number but not a bad number.

In 2014, healthcare spending grew by 5.3%.  Given context that is a great number

Total spending for health care in the United States increased 5.3 percent and reached $3.0 trillion in 2014, or $9,523 per person (Exhibit 1). This was faster than the rate of growth in 2013 (2.9 percent), which was the lowest in the fifty-five-year history of the National Health Expenditure Accounts. The acceleration in health spending growth in 2014 followed five consecutive years of historically low growth, which averaged 3.7 percent. Health care spending grew 1.2 percentage points faster than the overall economy in 2014 (when the nominal gross domestic product [GDP] increased 4.1 percent), resulting in a 0.2-percentage-point increase in the health spending share of GDP—to 17.5 percent. By comparison, the health spending share of GDP remained between 17.3 percent and 17.4 percent from 2009 to 2013.

The past few years had seen healthcare spending at or below nominal growth in the economy.  That led to a stabilization or decline in healthcare spending to GDP ratio for several years which is a massive deal for long term federal fiscal planning.

But 2014 saw the share of GDP going to healthcare go up.  Did something strange happen in 2014?

Why yes, 15 million more people got coverage and they used that coverage.

If it costs .2% GDP net to cover 15 million or more people that is dirt cheap and a good value for the money.

And a final piece of intriguing potential for good news:

 



Cadillac tax alternatives

 

TLDR: Changing the Cadillac tax from a fixed rate surcharge to elimination of deductible benefits workers with lower incomes but very high health insurance compensation while keeping the incentives aligned for better cost control measures. This tweak could get some unions back on board while also simplifying the tax code. Should be a double win. It won’t be.








HDHPs, HSA and no deductible Silvers

In yesterday’s thread that PPOs are merely a plan design and not an indicator of quality nor shittiness, Dr. Bloor restates a very important point about high deductible plans in response to another comment:

The High-Deductible Health Plans scare me. Are the prescription rates for these plans pre-negotiated, or do you eat the cost of prescriptions at retail rates until you hit the deductible?

You should never take on more of a deductible than you can assume you’ll spend in the course of a year. Folks who either opt for big deductibles or have them foisted on them by their employers for the sake of saving a few bucks on their monthly premium are aching to be victims of the penny-wise-pound-foolish approach to insuring their families.

High deductible health plans (HDHPs) are “consumer-driven” health insurance. The theory of change is that the consumer (not patient, and not person but consumer) will be able to effectively assess their healthcare needs and since they are paying the first several thousand dollars in expenses, they will not use healthcare that is low value to them. The IRS defines a HDHP as having a deductible of at least $1,300 for an individual in 2016.   A HDHP at $1,300 deductible and no other cost sharing has an actuarial value of 77% or 78% at a rough back of the envelope guess.

HDHPs are often tied to Health Savings Accounts (HSA) where people can put pre-tax money into an account to cover the deductible.  The money rolls-over year after year (unlike a Flexible Spending Account) and it can be placed on Red at the casino or invested.

I am not a big fan of high deductible health care as the evidence is good that they reduce utilization but the utilization reduction is not targeted at bad or low value care, it is not targeted at all.  Good care is excluded due to cost.  Recent evidence has shown that there is not a cost cascade two or three years out after employer sponsored insurance switches to HDHPs from low deductible health plans, but that study is fairly limited to a healthy population (employed individuals).

This is a problem with the ACA.  Catastrophic, Bronze and non-cost sharing Silver plans are low actuarial value plans when taken in the context of defining a HDHP.  Most of these plans have HSAs attached.  However I have a question about whether or not HSAs can be attached to some Silver plans?  Do no deductible Silvers qualify for HSAs?

Read more



When a failure is a win and a win is a failure

From my days as a general policy wonk instead of a health policy wonk, there were two common sayings on optimal taxation policy:

“Lower rates, broader base”

and

“Tax the bads, subsidize the goods”

Yes, policy wonks are not wordsmiths, but I want to focus on the intersection of tax policy and healthcare policy that is implicit in the second shibboleth.

Taxing the bads usually means declining long term revenue as over the long term, fewer people consume the bad thing.  A classic recent example is the use of high levels of cigarette and other smoking tobacco taxes to fund the Childrens Health Insurance Program (CHIP).  In 2009, CHIP was reauthorized and expanded.  The federal share of the program was to be paid for with a $0.61 per pack increase in the federal cigarette tax.  There is a long term problem with using a tobacco tax to fund CHIP — tobacco usage is going down and has been going down for over a generation now as we as a society are starting to approach the point of having smokers fully internalize the costs of smoking.  This trend will continue as cigarettes and other tobacco products are more heavily taxed.

The basic mechanism is higher cash prices for cigarettes keeps non-smokers from becoming addicted smokers because they never try or they never quickly get to a pack a day.  Long term smokers will brand shift downwards or less likely quit if they are cash constrained, but cash constrained non-smoking 17 years olds will grow up to be non-cash constrained 51 year old non-smokers.  We’ve decided as a society that tobacco usage is a bad that we really want to significantly reduce or eliminate over the long term.  So we’ve been taxing a “bad” to subsidize a “good”, health insurance for kids.

Read more