Asa Hutchinson's effort to bamboozle the legislature on Medicaid spending and the private option | Arkansas Blog

Wednesday, January 6, 2016

Asa Hutchinson's effort to bamboozle the legislature on Medicaid spending and the private option

Posted By on Wed, Jan 6, 2016 at 4:41 PM

HUTCHINSON'S SPIN: The governor wants to reform the bigger piece of the Medicaid spending pie. To make his case, he's delivering nonsense claims that savings are needed to pay for the private option.
  • HUTCHINSON'S SPIN: The governor wants to reform the bigger piece of the Medicaid spending pie. To make his case, he's delivering nonsense claims that savings are needed to pay for the private option.

Last month I wrote an explainer on just what went down in December with Gov. Asa Hutchinson and the Health Reform Legislative Task Force; check it out if you want an overview on where things stand on the future of the private option and Medicaid in Arkansas.

One point that I think is worth highlighting: Hutchinson is trying to pull a fast one on the legislature, telling lawmakers that they must reduce spending in the traditional Medicaid program in order to pay for the continuation of the private option. As Max noted yesterday, most media outlets are echoing this spin. In fact, the state's consultant, the Stephen Group, found that the state would save money on net even when the state has to start chipping in its full ten percent share in 2020 and beyond. The governor simply refuses to acknowledge this aspect of the report. 

What's going on here is that Hutchinson has two goals: to continue the private option and to slow the growth of spending in the traditional Medicaid program (that is, everything other than the private option). He is conflating them for political purposes but one has nothing to do with the other. As task force co-chair Rep. Charlie Collins pointed out when the governor made his pitch to the task force last month, it simply is not the case that continuing the private option expansion is creating a need to cut traditional Medicaid spending; on the contrary, ending the private option would create a giant hole in the state budget. 

Hutchinson's first goal, to continue the private option, will save more than $400 million in general revenue to the state between 2017 and 2021 according to projections run by the state's consultant, the Stephen Group — again, those projected net savings continue even when the state is on the hook for its full share. (You can read here about the governor's fuzzy math, selectively editing the Stephen Group report to come up with his own numbers.) 

Meanwhile, the governor also wants to make reforms to the traditional Medicaid program, targeting savings for the state of around $250 million over the same period. Many of these reforms — such as shifting some of the patients currently in nursing homes or similar institutions to home-or-community-based care — are worthy efforts that would provide higher-quality care to beneficiaries in addition to saving hundreds of millions of dollars.

A word on this second goal: Completely aside from the state's decision on Medicaid expansion, the Department of Human Services has been making the case for years, dating back to the Beebe administration, that Medicaid spending on high-cost populations (long-term care for the elderly and people with severe disabilities, care for the developmentally disabled, and mental health) was on an unsustainable path and was in need of reform. These high-cost populations make up three quarters of traditional Medicaid spending and unlike other parts of the program, care is delivered entirely on a fee-for-service basis, with no care management whatsoever. In many cases, providers reimbursed on a fee-for-service basis may be incentivized for treatments that help their bottom line even if they aren't best practices in terms of high-quality care for patients. Meanwhile, the Stephen Group report convincingly makes the case that beneficiaries are ending up in more expensive nursing-home institutions when they would prefer to be in home- or community-based care more appropriate to their needs. The report found that "rebalancing" for these high-cost populations — shifting Medicaid investment from institutional care to home-and-community-based care — would save $500 million in overall Medicaid spending over five years; the savings would grow over time and hit $200 million in annual savings by 2021. 

All of that's to say that there are perfectly legitimate arguments for changing how the Medicaid program offers care to its highest-cost, neediest patients. More care coordination, incentives for providers to provide cost-effective and high-quality care, moving away from over-reliance on nursing homes via “rebalancing” — these are likely necessary reforms. The Stephen Group report compelling argues that the state could save hundreds of millions of dollars while actually improving quality of care. DHS under the Beebe administration tried to take some steps in this direction, but lobbyists for provider groups – particularly the powerful nursing home lobby – proved adept at dodging reforms whenever new rules and regulations worked their way through the legislative process. 

But here's where Hutchinson gets slippery. He won't make that case for reforms to the traditional Medicaid program on the merits. Instead, he's trying to bamboozle the task force, insisting that the state has to come up with big savings in the Medicaid program (the governor set a benchmark of $835 million over five years, which amounts to $250 million in state funds) in order to pay for the private option. "That's the consensus on what we've got to achieve on savings," he told the task force. "If we didn't achieve that savings, we shouldn't vote for the expanded population and if you did vote for the expanded population without that savings, that would mean we're cutting everything from pre-k to everything else that's dear to our hearts in general revenue. So we've got to achieve those savings." 

This is nonsensical for multiple reasons. First and foremost there's the fact that the Stephen Group, the basis for the governor's estimates, finds that the private option is revenue positive for the state of Arkansas, to the tune of $438 million over five years — including $25 million in the black in fiscal year 2021, when Arkansas owes its full share. You don't need additional savings to pay for the private option, according to the Stephen Group's report. The private option itself provides savings; you'd actually have to come up with a pay-for if you eliminated it. (I did a deep dive into the numbers last month.)

Meanwhile, even if you use the governor's fuzzy math (which involves assuming that Arkansas will somehow collect absolutely no state tax revenues at all on the billions of federal health care spending in the state that comes via the private option), the private option is still saving hundreds of millions of dollars between now and 2021. This is an inconvenient hole in the governor's argument that if the legislature doesn't agree to his benchmark of savings in the traditional Medicaid program, "we shouldn't vote for the expanded population." End the private option, and you lose those savings that even the governor admits the state will enjoy prior to 2021. That puts the budget deeper in the red and forces immediate tough choices on the stuff the governor mentioned being "dear to our hearts in general revenue."

Which is, of course, one big reason that the governor wants the private option to stick around. If the goal is to help the state's bottom line, ending the private option would actually be counterproductive. Collins pointed this out in an exchange at Wednesday's task force meeting: 

Governor, I want to make sure that I understand when we’re talking about the numbers — you made the linkage between the $835 million and the private option ... . But I want to make sure that we understand that if we were to say, 'why don’t we just eliminate the Medicaid expansion and then we don’t have the need for any savings?' — that in fact we’re creating a new hole. And that from the Stephen Report on pages 5 and 23...if we were to end the Medicaid expansion we would not only need $835 million in savings, we would need $438 million for the direct costs and more than a billion for uncompensated care for hospitals so we would need to come up with 1.5 billion in [additional] savings. Just so we don’t get confused and think that if we eliminate the Medicaid expansion we’ve solved our spending challenges. I just want to make sure that I’m in sync with you, sir.

The governor responded:

Representative Collins, you have expressed it precisely correctly and I would just say that if we do not do this we would have one challenge in the fiscal session, and not only this year. 

However, when I asked the governor about this exchange after the meeting, he insisted that $50 million in annual state savings would be necessary to pay for the private option and said that the Stephen Group agreed with his numbers. In fact, the Stephen Group was unaware at the time of how the governor had conjured those figures and the only way to arrive at them is by selectively editing the figures in the Stephen Group report. More to the point, Hutchinson is simply sticking his fingers in his ears here and refusing to respond to the actual point Collins made. Collins noted that, based upon the findings in the Stephen Report, ending the private option would make a bigger hole in the budget; Hutchinson keeps insisting that his magic $835 million number is only necessary because of the cost of keeping the private option around. If Collins actually "expressed it precisely correctly," then the governor's argument is rank hooey. 

This becomes particularly clear when you consider that, leaving aside the contested 2017-2021 projections, the private option is saving the state more than $100 million annually on net right now, in the first three years of the program, 2014 to 2016. That's true even if you apply the governor's selective accounting. Hutchinson is aiming to save the state $250 million between 2017 and 2021, but using the governor's own math, the private option itself will produce more savings than that prior to 2017. If the governor was actually concerned about future costs, he could have lobbied to put that money into the private option trust fund, created by the original law to help pay for any potential costs down the road. Despite the fact that the private option has already saved hundreds of millions of dollars for the state's bottom line, that trust fund has just $20 million in it.  This is a policy choice. The Republican-led legislature and the governor decided to plow almost all of those savings into tax cuts instead.

This highlights just how flimsy Hutchinson's argument is that one policy is "paying for" another policy. Hutchinson wants to maximize savings because he wants to maximize tax cuts (Collins, at least, has been forthright about this point). The more he can lower state spending on health care, the more wiggle room he has for tax cuts. That's the budget story here. Note that the Stephen Group's projections for "re-balancing" include savings that grow dramatically over time, much more than the $50 million annually that Hutchinson claims is necessary for the private option. What do you think Hutchinson might want to do with that rosier overall revenue projection?

And here's the thing — if the traditional Medicaid program can become more cost effective, that's a good thing! The political process will then decide whether savings go more toward tax cuts, as Hutchinson or Collins want, or more toward more social safety net spending on health care or pre-k, as Democrats might prefer. But that has nothing to do with the private option! Leave aside the fact that ending the private option would mean that the state misses out on hundreds of millions in savings. And grant, for a moment, the governor's fuzzy math on the PO. That still leaves Arkansas with the question of whether spending for high-cost populations in the Medicaid program is on an unsustainable path if it simply sticks with fee-for-service, or not. As Hutchinson himself has noted, the state's share of private option spending down the road is a tiny sliver of the Medicaid spending pie. See the picture above, from his first big health care speech after taking office. If you're concerned about long-term health care spending in the state budget, the problem isn't the private option. The big issue that Hutchinson is seeking to tackle — runaway spending in the fee-for-service model for high-cost populations in the traditional Medicaid program — would be a big issue whether the state expanded Medicaid or not. Even if you apply Hutchinson's fuzzy math and project that the private option will cost $50 million on net annually in state funds in 2021 and beyond, there is dramatically more money at stake over the question of whether or not the state tackles reforms to covering the high-cost populations in traditional Medicaid. For example, the Stephen Group projects three times that amount in potential savings in 2021 alone via such reforms.  

Here's a simple thought experiment. Let's say the legislature decided to end the private option tomorrow. (Again, even using the governor's revised numbers, that would blow an immediate hole in the budget for the next five years.) Does anyone actually believe that the governor would then say never mind on reforming the traditional Medicaid program? Of course not! The governor wants to curb spending growth for high-cost populations in the Medicaid program precisely because he knows that's the big mover in terms of impact on general revenue in future years. He wants to make these changes because that's the policy he wants. The separate question of Medicaid expansion (he wants that too!) is irrelevant. Indeed, the state would be facing precisely these same questions about long-term costs in the traditional Medicaid program even if it had never expanded Medicaid at all. If the governor would favor these changes regardless of the state's decision on the private option, he can't viably argue that the private option is the reason he's asking for these changes. 

Imagine a flow chart. The state could continue the private option and do nothing on traditional Medicaid; continue the private option and reform high-cost populations in traditional Medicaid; end the private option and do nothing on traditional Medicaid; or end the private option and reform high-cost populations in traditional Medicaid. The best answer for the state's overall revenue picture? Surprise! It's the two things the governor wants — keep the PO and reform traditional Medicaid. And over the long run, from the state budgetary perspective, the private option is small potatoes compared to the cost growth of the high-cost populations in the traditional Medicaid program. 

So all of this business about one thing paying for another is just spin. Hutchinson has made the political calculation that the best way to accomplish two unrelated goals is to combine them together. And he is more or less pulling numbers out of a hat to sell his story. 

The legislature, and the task force in particular, will face the politically explosive question in the coming months of how the Medicaid program can best provide long-term services and support to the elderly, the severely disabled, and those with mental health needs. It's an important discussion, and it may well be that the best approach will produce impressive savings for the state's budget. But there's no need to swallow the governor's baloney: This is not about the private option. 

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