Background on Medicaid in Utah
Medicaid was first implemented in our country in the 1960s and Utah joined the program in the late 1960s. We were not one of the first states to join and we waited several years to become part of the program. The Medicaid program was designed to be a state-federal partnership, using a combination of federal and state dollars but with the understanding that states would maintain ultimate control over the program and would decide which groups would qualify for coverage.
In Utah, qualifying for Medicaid has always been based on two criteria: (1) income; and (2) status. Policy makers in Utah determined that it was best to provide Medicaid to people based on their relative need, rather than just on income.
Therefore, Medicaid coverage differs based on different groups. Currently, Medicaid in Utah covers most groups already. For instance, all children are covered, as are pregnant women, people over age 65, and those with disabilities, as long as they are under 100 percent of the poverty level. The two remaining groups are parents of children under 18 and people without children.
Policy makers in Utah previously decided to extend Medicaid to parents of children whose income is between 0-50 percent of the federal poverty level. For a typical family of four with two children living at home, the poverty level is an income of just over $24,000 per year. Therefore, Medicaid is already available for these families if their income is under $12,000 per year. Utah has never provided Medicaid coverage for parents whose income is above 50% of the federal poverty level. The other group without any Medicaid coverage is adults without children. The poverty line for people in this group is just over $12,000 per year. The argument among Utah policy makers in the past was that the State of Utah should not provide free healthcare to able bodied adults who are not disabled and who can work.
Development of the Affordable Care Act
In 2009, when Barack Obama become the President of the United States, he made providing universal healthcare one of his top policy objectives. In the summer of 2009 he and his fellow Democrats in Congress began the active push to reform the healthcare system in America. This process quickly became very politically divisive and over the next nine months Republicans and Democrats debated what the Affordable Care Act should look like.
Ultimately, the President’s goal of universal healthcare across the country was abandoned and replaced with a system in which states would be required to expand Medicaid up to 138% of the poverty level and this would be overlayed with a system of health exchanges which would provide federal subsidies for the purchase of health insurance for everyone earning between 100-400 percent of poverty, with a sliding scale as incomes approach the upper limit. For the typical family of four this means that they qualify for a federal subsidy until earnings of approximately $96,000 per year. For individuals or families earning between 100-138 percent of poverty this subsidy is effectively 98% of the cost of insurance. Therefore, those in this group end up paying around $20-60 per month for a health insurance plan that is characterized as a “silver plan”. This means that it is not the best plan available but it is a mid-tier plan that covers many common health needs. In designing these programs the Obama Administration thought they were creating a system that would provide redundant coverage for all people earning under 400% of poverty.
In March 2010, Congress was able to pass the Affordable Care Act, however, no Republicans voted for the bill because they disagreed with the manner in which the bill was passed and the fact that they were unable to participate in the development of the bill. Many states also opposed the passage of the Affordable Care Act, since states were not involved in the development of the legislation either.
Almost immediately after passage of the Affordable Care Act it was challenged in court. In 2012, the US Supreme Court announced its decision on the Affordable Care Act. While most people at the time focused on the decision that the individual mandate was constitutional, a second part of the decision said that the federal government could not force states to expand Medicaid to 138% of poverty. In making this decision, the Supreme Court exposed a fundamental flaw in the design of the Affordable Care Act. The federal government now had to convince states to expand Medicaid to 138% of poverty rather than forcing them to do it.
This decision also created what we refer to as the “coverage gap”. This gap was created because those earning over 100% of poverty now qualify for the federal subsidy while those earning below 100% of poverty do not. In Utah, around 60,000 people fall into the coverage gap and would benefit from an expansion in Medicaid.
Utah, along with several other states, was very reluctant to expand Medicaid the way the Affordable Care Act had envisioned. Over the last three years, about 29 states have decided to expand Medicaid coverage as spelled out in the Affordable Care Act. Another 21 states have either decided not to expand at this time or are in discussions about if and how they can expand Medicaid. Among the 21 states that have decided to wait and see are Idaho, Texas, Georgia, Florida, and North Carolina. In the last couple weeks, legislatures in Wyoming and Tennessee have decided not to expand at this time either.
Development of Healthy Utah
Governor Herbert, working with members of the Utah Legislature, began developing options to address the coverage gap in 2012, after the Supreme Court decision on the Affordable Care Act. I have been actively involved in this process since the beginning. I worked in the Governor’s Office from 1999 to 2014 and I was the Governor’s Health Reform Coordinator from 2007 to 2014. I was intricately involved in the options to address the coverage gap.
As we worked on options to address those in the coverage gap we quickly learned that the federal government did not want to give flexibility to states in how they administered the Medicaid program. Under the federal system of cost sharing there exists two programs. One program uses a traditional match rate of federal to state dollars. This is the system the State of Utah is using to operate its current Medicaid program. In this system, the federal government covers 70 percent of the cost of Medicaid while the state covers 30 percent. We often refer to this as the 70/30 framework. Under the new system in the Affordable Care Act, the federal government has agreed to cover 90 percent of the long term cost for the newly eligible population while the state covers 10 percent of the cost. We often refer to this as the 90/10 match or “enhanced match”.
Governor Herbert, to his credit, has spent countless hours trying to negotiate flexibility in how Utah runs Medicaid. Unfortunately, the federal government has not been willing to be flexible when dealing in an enhanced match environment. In other words, the feds say that for a state to qualify for the enhanced match they must be willing to essentially go along with much more stringent federal controls over the program. These controls include prohibitions against state spending caps, enrollment caps, or any expansion that does not extend to those all the way up to 138% of poverty. The effect of these federal controls is it makes it much more difficult for a state to mitigate risk if the program grows faster than expected or if costs end up being much higher than anticipated.
My Position on Healthy Utah
Many people have asked me if I support or oppose Healthy Utah. However, in complex policy issues like this it is impossible to either fully support or oppose a proposal. As Sen. Shiozawa, the bill sponsor of SB 164 said when he was presenting his bill on Healthy Utah, his bill is a means to continue negotiations on this issue. As he said, Healthy Utah was a point in time. SB 164 is a process to come to a consensus. I agree with Sen. Shiozawa that we need to bring people out of their corners and we need to work together to come to a consensus on this important matter.
Positives of Healthy Utah
- It is both compassionate and cost effective to help those without health coverage. Those in the coverage gap are already getting health coverage, but they are getting it either through emergency rooms or through the criminal justice system. The cost of providing coverage in this manner is enormous and it is not providing the kind of care that these people need. Healthy Utah ensures that everyone in the Coverage Gap receives a higher level of Medicaid coverage
- Because of the enhanced match, more federal money comes back to the state. We don’t know exactly how much money will come back to the state, but it could be in the range of hundreds of millions of dollars. This would be a direct benefit to many in the healthcare community in Utah.
- This is the best deal the Governor has been able to negotiate. Governor Herbert has worked hard to get the best deal possible. He should be commended for his hard work.
Downsides of Healthy Utah
- It provides double coverage for those earning between 100-138 percent of poverty. Instead of just helping those in the coverage gap, Healthy Utah expands coverage to those who are already covered by the federal health exchange. There is no policy justification for extending Medicaid for this group except for one. This is a way for the federal government to have the states subsidize the cost of expanding health coverage to those above the poverty level. This was the only way they were able to keep the cost estimate of the Affordable Care Act under $1 trillion.
- It has a high probability of long term risk. When I was helping develop this plan in the Governor’s Office we had an actuarial firm conduct an analysis of the plan. They told us the long term annual cost of Healthy Utah would be $40 million per year in state money. The Governor’s Office decided to have a new analysis performed last year and when the results came back the estimate DOUBLED, from $40 million per year to $80 million per year. The shocking thing about this is that it showed us how much we didn’t know about the true cost of doing this. We weren’t just a little off; we were off by an enormous amount.
As scary as this scenario is, the even scarier thing is the probability that we could still be underestimating the true cost. In economics we talk about a concept called “crowd out”. This is the principle that if the government provides a service that the private sector is currently providing, it will cause the private sector to cease providing that service. In this case, we’re talking about employers providing private health insurance to their employees.
If we provide a very good health benefit to everyone earning up to 138 percent of poverty, those people in this group who are currently receiving health insurance will likely be transitioned away from private insurance onto Medicaid by their employers. This doesn’t happen immediately, but it happens over the next 5-10 years. Therefore, this is not part of the official cost estimates but the risk is just as real. I’ve heard reputable estimates that crowd out could add another $200 million per year to the cost of Medicaid in Utah – on top of the $80 million we’re officially estimating. Added together we’re talking about an amount approaching $300 million per year. In other words, $40 million grew to $80 million, which could grow to $300 million. If this happens, our state will be in big trouble and our only option will be to either dramatically increase taxes or cut services in other areas, or both.
According to the State of Utah’s own calculations, Medicaid has grown from 9% of the budget in the 1990s, to 23% of the budget today, and is forecasted to grow to 30% of the budget by 2020, even without Healthy Utah! Medicaid has already caused significant struggles in the state budget and if we’re not careful we are in for a very dangerous budget situation going forward.
- I can’t support a plan that would drop coverage to people if the program doesn’t work out. I don’t think it is compassionate to offer a plan and then drop it later. People respond to incentives and if the government provides an incentive they will adjust to the new situation. If the program doesn’t work out we need to develop a way to help those who can no longer stay on the program.
What are the options?
As I was helping develop the plan that became Healthy Utah in the Governor’s Office, I was always concerned about these controls and the federal handcuffs tied to expansion. In order to address these concerns, I developed two main options that policy makers could choose from. One option would be to fully expand Medicaid to 138% of poverty, as the federal government wanted. This would qualify for the enhanced match rate of 90/10 federal to state funds. The second option would be to expand Medicaid to 100% of poverty, thus filling in the coverage gap. Ideally, this would qualify for the enhanced match rate of 90/10, but it would at least qualify for the traditional match rate of 70/30 federal to state funds. However, there are several other options we could also consider as well.
- Wait and see (do nothing now). We could join the other twenty states and see if the federal government is willing to work with us to develop a better plan to help those in need. Additionally, given the unsure nature of actions in Washington right now the case for the wait and see approach is strong. The Supreme Court is currently hearing another challenge to the federal exchanges that could completely unwind the Affordable Care Act. Additionally, Congress is considering the repeal of several parts of the Affordable Care Act which could undermine the funding structure of the entire system.
- Partial expansion using 70/30 cost share. While the federal government has been unwilling to significantly negotiate with states when enhanced match money is being used, they are much more open to negotiating with states when traditional match money is being used. We have many options to help those in need using this model. We could expand our existing Primary Care Network to all those in the coverage gap and put additional money into helping those at the lower income levels of the gap using a managed care model of Medicaid coverage. That way we could help those most in need and still be able to control costs in the program.
- Cover all of those in the gap under the enhanced match rate. Ideally, the State should apply for a waiver to cover all of those people in the coverage gap using the enhanced match rate of 90/10 federal to state money. Currently, I am sponsoring a bill (HB 307) which would do exactly that. It is the best policy option for the state to follow and if approved by the federal government would also be the most cost effective means of helping these people. However, the probability of federal approval for this proposal is low right now so this is more of a “best case scenario”.
- Full expansion using 90/10 cost share. Healthy Utah is not quite full expansion of Medicaid but it does expand Medicaid to 138% of poverty, as the federal government would like.
What would a compromise look like?
I have consistently said throughout this process that I am looking for a compromise that all sides can live with. With the different camps so entrenched this is not an easy task. However, these are the components that must be included in any compromise on Medicaid.
- Mitigates risk. Any plan must have built in controls to mitigate the risk of cost overruns in the program.
- Doesn’t remove coverage for those in need. We cannot make promises we can’t keep. It is not fair and it is not compassionate.
- Can be approved by HHS. Any plan we put forward must be one that can receive approval from the federal government.
I continue to actively work on developing a compromise on Medicaid. The Governor’s Office has shown a willingness to work with the House and Senate to address some of the concerns about the Healthy Utah program and the version of the Shiozawa bill that is coming over to the House of Representatives addresses many of these concerns. Also, I am working with other members of the House to develop a plan that covers people in the coverage gap while ensuring that the State can responsibly control costs. We have also been actively working with our counterparts in the federal government to determine how much flexibility they will give us in developing this compromise.
As we are closing in on the end of the 2015 Legislative Session, I will continue to make developing a compromise on Medicaid a top priority of mine.
Representative, House District 49