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As part of her 2016 budget proposal, Rhode Island Governor Gina Raimondo convened a Working Group to Reinvent Medicaid. Although its theme is reform of the way the public healthcare program operates, the selling point has been budgetary savings — specifically in the next fiscal year, when the group expects its suggestions to save or raise $91.1 million, just shy of 10% of state spending.
While there can be no doubt that Rhode Island’s Medicaid system is in need of reform, analysis of the proposals suggests that policymakers should be reluctant to hinge their budget decisions on the savings’ actually being realized. They should also go into the reforms with eyes wide open. Substantial portions are likely to shift costs to their constituents as healthcare consumers and federal taxpayers.
The group divides its proposals into three categories:
- Payment and delivery system reform
- Targeting waste, fraud, and abuse
- Administrative and operational efficiency
Although waste, fraud, and abuse is often a go-to source when government officials promise to pay for new spending without raising taxes, it makes up a very small portion of the working group’s list, at $4.0 million (4% of the expected savings). About two-thirds of the savings come via payment and delivery system reform, with the remainder in administrative and operational efficiency.
These categories are of limited use in understanding how the state is actually supposed to save money. Working with health policy expert Josh Archambault, of the Foundation for Government Accountability, the RI Center for Freedom & Prosperity sorted the proposals into five new categories that are more descriptive of the likely effects of the policies:
- Shifting costs to private insurance and employers
- Shifting costs to federal taxpayers
- Potentially saving or costing money, depending how the market reacts
- Cutting payments, with uncertain effects
- Implementing good (if limited) ideas
More than half of the savings (53%) will likely shift costs to the private sector, with another 4% shifting to the federal government. Despite the working group’s projections, 27% of the reforms should be considered speculative and might even cost the state money. Another 8% are simply cuts that may have adverse outcomes or fiscal effects. That leaves just 7% of reforms that we would count as plainly good ideas.
The largest example of cost-shifting to the private sector ($15.7 million) is a 5% reduction in hospital payment rates, which hospitals will seek to transfer to others. The policy would give hospitals an opportunity to receive bonuses, but to the extent that they do so, the “savings” will be consumed. The largest proposal to transfer costs to federal taxpayers, at $1.5 million, would “streamlin[e] the application process” to ensure that beneficiaries are counted in the way that will bring the most federal dollars for their care.
With respect to unknowable outcomes, the largest projected savings ($3.3 million each) come from proposals to change the methods and locations of treatment for people who are seriously mentally ill or have complicated cases. Such proposals may or may not save money, and if the providers losing revenue find ways to bring their customer bases back up, the costs could actually increase. The largest outright cut is $6.1 million in increased risk and other agreements the state would force on providers. Meanwhile, the most significant good, if limited, idea is $2.6 million in projected savings from new methods of tracking waste, fraud, and abuse.
In short, the working group’s proposals are a mixed bag. In some cases, it may in fact be more appropriate for costs to be borne by insurance customers and the federal government, and some reforms might be worthwhile despite uncertain outcomes. Hopes for short-term savings, however, should not become an excuse for jumping into reforms, and costs shifted off of the state’s books should not be an excuse for increasing or maintaining other government spending.
A proven and bi-partisan cost saving measure that has produced significant savings in other states has been recommended to state officials by the RI Center for Freedom & Prosperity and its national partner, the Foundation for Government Accountability (FGA).
It is well-known that fraud, abuse, and lack of enforcement plague many state and federal welfare programs, often resulting in wasteful spending and a potential lack of funds for the truly needy.
FGA’s recent “Stop the Scam” report discusses how many states are not conducting detailed enough Medicaid eligibility and verification procedures for new and existing enrollees.
From issuing Medicaid and welfare payments to dead people, to lottery winners, to enrollees who did not provide proper documentation, and to people under-reporting their incomes, a process that provides for more detailed screening and periodic check-ups can result in significant cost savings for states.
According to FGA, “Illinois and Pennsylvania instituted proactive audit reforms with bipartisan support, and together they have saved hundreds of millions of dollars. Pennsylvania discovered thousands of ineligible individuals receiving benefits, removing 160,000 individuals in just the first 10 months of the audit, saving $300 million. Illinois quickly followed suit and removed 300,000 individuals in the first year, 400,000 more in the second, with expected taxpayer saving of $350 million per year in Medicaid alone.”
As with many states, Rhode Island has its own screening and verification process. However, according to FGA, rarely do they have the capacity to conduct the deep-diving to search the federal and state databases necessary to root out more subtle cases of ineligibility.
The Center recommends legislative action or an executive order requiring Rhode Island to utilize third-party vendors that specialize in determining if enrollees have retained eligibility in Medicaid.
A thorough examination of FGA’s recommended “best practices to stop welfare fraud” should be conducted by Rhode Island health officials to determine if the vendors suggested by FGA may be able to help the state identify additional cases of ineligibility.
Summary: Explanations by the Raimondo administration about the Governor’s proposed surcharge on health insurance premiums appear to be misleading. The truth about the new tax expose four major concerns about how it is NOT comparable to the would-be federal exchange tax.
FOR IMMEDIATE RELEASE
March 17, 2015
Truth about the proposed HealthSource RI Tax
|Is Not Commensurate in Scope to Federal Exchange Tax:
Tax Base, Tax Levy, Tax Certainty, and Next Steps are Considerably Different
Providence, RI — Explanations by the Raimondo administration about the Governor’s proposed surcharge on health insurance premiums appear to be misleading. Designed to raise money to partially fund continued state operation of the controversial HealthSource RI exchange, the tax is being positioned by administration officials as comparable to the fees that would be charged if the exchange were to be returned to the federal government.
However, as broached in a recent post in The Ocean State Current, there are a number of major differences between the federal tax and Governor Raimondo’s proposed tax:
First, who gets taxed? Under a federally run exchange, only those who purchase a policy through the exchange, or who purchase an identical policy outside of the exchange, would be taxed. But, as the Center has been projecting for years, because of Rhode Island’s small size and low enrollment numbers, not enough revenue can be raised without charging exorbitant per policy fees.
Under Raimondo’s plan to pay for HealthSource RI’s high projected costs, there would be an assessment on ALL individual and small business policies in the state, whether purchased inside or outside of the exchange.
Also of note, vocal special interest groups, such large corporations and union shops, would appear to be exempt from the tax; yet another special interest handout?
Second, how much tax? Under the federal plan, it was estimated that the 3.5% federal rate assessment based on the 30,000 or so who are currently purchasing insurance through the exchange, would result in about $5-6 million in fees. The Governor’s tax is projected to raise an ‘initial’ $6.2 million in half a year, or about $12 million in annual revenues, making it at least twice as expensive for Ocean State policyholders as the federal option.
Additionally, the proposed 3.8% and 1% tax on individuals and small employers, respectively, is significantly higher than similar 1.35% and 2.5%-3% taxes in Connecticut and Massachusetts, which can afford the lower rates, as they can be spread across a significantly higher number of policy holders.
Third, a fixed tax rate? Use of the term ‘initial premium assessment’ indicates a potential slippery slope. In fact, if HealthSource RI’s expenses rise, or when federal funds disappear, the health and human services secretary is empowered to raise rates for this tax in future years, while the federal plan is statutorily fixed.
Fourth, a stepping stone to state control? Maintaining the exchange under state operation also maintains the threat of further state control over Rhode Island’s healthcare industry, with separate legislation in 2014 (H7819) and 2015 (H5387) already seeking to give government unprecedented new powers. A single-payer system, such as that advocated for by the new HealthSource RI Director, has long been a goal of progressive lawmakers. Under a federal exchange, this threat is virtually eliminated
See related OpEd in the Providence Journal, July 3, 2014
Center’s CEO discusses the recently passed FY-2015 budget, BIG QUESTIONS for gubernatorial candidates, and the state of the state on “State of the State” cable TV.[button url=”http://vimeo.com/channels/365354/99366876″ target=”_blank” size=”medium” style=”royalblue” ] Cable TV Interview [/button]
Ignoring the advice of her own specially convened study process, Lt. Gov. Elizabeth Roberts became one of the leading figures in promoting a complex, costly health insurance exchange for Rhode Island. Further,
HealthSourceRI officials and supporters continue to tout a cost containment goal that the process advised is not achievable according to a little known 2009 Issue Brief provide to Ms. Roberts and other state officials! Our Center’s analysis of this Brief can be downloaded by clicking the button below:
Ignoring the advice of her own specially convened study group, Lt. Gov. Elizabeth Roberts and HealthSourceRI officials continue to tout a cost containment goal that the group advised is not achievable! The Center provides an analysis of this buried 2009 report.
Following a House Finance Committee hearing Wednesday on H7817 that would send the state’s health insurance exchange to the federal government, Mike Stenhouse, CEO for the RI Center for Freedom and Prosperity, commented that “virtually every major claim made by HealthSourceRI in defense of its own costly existence was shot down by well-researched testimony.”
State Funds on the Hook? HealthSourceRI officials claimed that no local funds would be required for FY2015: the Center countered that $15 million is indeed allocated in the Governor’s proposed budget for the closely related UHIP project, an expense that would be eliminated by passage of the bill.
Federal Fee Exaggeration. They previously claimed that a transfer to the federal government would cost Ocean State policyholders $17.3 million in federal fees: testimony by both the Center and by the House Fiscal Advisory Staff put the actual figure under $5 million. The Center further noted that the costs of maintaining operation of the exchange in Rhode Island would be significantly higher, and that it is disingenuous to talk about only one side of the coin.
A True Success Story? They also claimed that theirs is one of the most successful state-based exchanges in the nation: the Center questioned whether it truly should be considered a success when HealthSourceRI has met less than one-third of its original enrollment projections; has see abysmal business sector participation; has no sustainability funding plan; and will cost the state an additional $50 million per year in higher Medicaid costs.
Local Control to Reduce Costs? They further claimed that loss of local control would inhibit the likelihood of reducing healthcare costs in the state: however testimony from Josh Archambault of the Foundation for Government Accountability, a national healthcare think tank, noted that after seven years of operating its own exchange, the cost curve has not been bent-down in Massachusetts, which had similar cost-reduction hopes, and that HealthsourceRI’s claims to be able to accomplish this may be over-played. (See “They Knew in 2009” analysis)
Illegal Use of Funds? HealthSourceRI official also proclaimed that the federal government, in reaction to recent news coverage, expressed a willingness to work with HealthSourceRI to help fund its ongoing operations: the Center testified that such use of federal funds may be illegal, being specifically prohibited both by the ACA law and Governor Chafee’s executive order that established the exchange in 2011.
“HealthSourceRI officials all but admitted that they have no idea how to pay for the high expense of the exchange in future years. The fact that the federal government called local officials to try to save the exchange, shows that even its own advocates here and in DC understand the challenge of justifying its continued costly existence, and that they are willing to violate their own law,” concluded Stenhouse. “It is an obvious choice to let the federal government pay for its own federal mandate; a choice that other states are making, and a choice that will not adversely affect any current or future policyholder in Rhode Island.”
In the past week the Center has published two reports supporting the transfer of the state’s costly health insurance exchange to the federal government; $38 million or Zero? and Moving HealthSourceRI Forward to the Feds. Each of these reports, as well as links to other related information about this issue,can be found on the Center’s home page for the health exchange issue at RIFreedom.org/Exchange.
Related News Stories:
Associated Press – http://apnews.com/ap/db_268748/contentdetail.htm?contentguid=x4SpOIdE
TWO NEW REPORTS by the Center and a recent Forbes.com analysis re. why the Ocean State cannot support its costly health benefits exchange.[button url=”http://www.rifreedom.org/exchange/” target=”_self” size=”medium” style=”royalblue” ] Report: $38 million or Zero?[/button] [button url=”http://www.rifreedom.org/exchange/” target=”_self” size=”medium” style=”royalblue” ] Report: No Legal Barriers[/button]