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Indiana: Health Care Reform Amidst Colliding Values

May 1st, 2008

In May 2007, Indiana enacted comprehensive health reform in the form of the Indiana Check-Up Plan and its centerpiece, the Healthy Indiana Plan (HIP). After intense negotiations, the Centers for Medicare and Medicaid Services granted Indiana the 1115b waiver required for the plan to go into effect in December 2007, and within three months over 30,000 Hoosiers had applied for the program.

HIP is the first Medicaid expansion in the nation to be modeled in the spirit of a high deductible health plan (HDHP)/ health savings account (HSA). This structure melds two themes of American society that typically collide in our healthcare system, rugged individualism and the Judeo Christian ethic. HIP combines these diametrically opposed themes by promoting personal responsibility while providing subsidized health protection to those who can least afford it.

Americans have chosen the marketplace as the venue for delivering healthcare. In a perfect market system of consumers and producers, the individual (patient) evaluates cost and quality when making purchasing decisions. Producers (providers) compete for consumers and provide a set of services at a defined price. But as we know, transactions in the American healthcare system are never this simple due to the presence of a third party—the uninsured who obtain services for free. Their presence forces hospitals to act as wealth redistribution agents that shift the cost of uncompensated care to the paying consumer (the insured).

However, the insured are not left to carry the entire burden, as society eases its conscience through a multitude of government subsidies (Disproportionate Share Hospital, Federally Qualified Health Centers etc.) aimed at subsidizing hospitals and institutions. The result of these institutional entitlements is reduced competition and quality, as subsidized providers have little incentive to attain the highest quality of care or to compete for customers. These subsidies, together with the act of cost shifting itself, create opaque pricing, preventing consumers from adequately evaluating the cost and quality of care.

In 2006, Indiana Governor Mitch Daniels and the Indiana General Assembly asked us to create a health plan for the working poor and chronically uninsured in Indiana. The State had no successful effort to address uninsured adults since the inception of the Medicaid program in the 1960’s, and consequently was ranked one of the worst in the nation for coverage. From 1999 to 2004, Indiana had also experienced the second largest decline in employer-sponsored healthcare coverage in the nation and has seen a 30 percent increase in the number of uninsured since 1990. Compounding the problem, Indiana also has extremely high rates of smoking and obesity and Hoosiers fall short in obtaining requisite preventive care as compared to national rates.

Despite these challenges, in a little over a year, Indiana passed legislation, negotiated a federal waiver and implemented a plan to expand coverage to low-income uninsured. The many conservatives of our state initially balked at the idea of either establishing another entitlement program that could create budget shortfalls for future generations or creating another Medicaid plan that creates a platform for unhealthy lifestyles that leads to abuse of the healthcare system. We managed to overcome these obstacles and our experience provides several lessons for reformers elsewhere:

1) Inaction is not a market solution. We pointed out repeatedly that 10 percent of each premium dollar paid by the insured population supported the cost of the uninsured due to cost-shifting by providers. We also explained that 67 percent of Indiana’s uninsured are low-income individuals earning less than 200 percent of the poverty level, without any feasibly affordable healthcare option. These statistics made some form of a government subsidy inevitable: Doing nothing would simply result in steeper premium increases and further exacerbate the imbalance of market forces.

2) Choose reforms that help those who need it, but also increase personal responsibility and utilize market incentives. As we began to formulate the plan, Governor Daniels introduced the idea of using HDHPs and HSAs as a coverage vehicle for low-income Hoosiers. Hailed by conservatives, HDHPs and HSAs promote the notion of consumerism and promise greater price transparency, competition and quality. By giving participants some “skin in the game,” they encourage healthy lifestyles and provide individuals a financial incentive to make cost- and value-conscious healthcare decisions, which in turn increases pressure on providers to demonstrate value and quality. In contrast, Medicaid as it is structured today provides no incentive for participants to consider the cost of their tax-supported care when making healthcare utilization decisions.

HIP targets low-income adults aged 19-64 who have been without health insurance for six months and earn less than 200 percent FPL. (Hoosiers at higher incomes can buy in at market rates.) HIP provides a fully subsidized comprehensive health plan that is offered by private insurers. It requires a $1,100 deductible and provides up to $300,000 of annual coverage and $1 million of lifetime coverage.

Following the HSA model, the Personal Wellness and Responsibility (POWER) Account is used to fund the deductible. Moving away from premiums and copays that are typically too low to incentivize collection by providers, HIP requires individuals to make mandatory monthly contributions – ranging from 2 percent to 5 percent of income, up to $92/month — to their POWER Account. To prevent participants from obtaining temporary coverage, penalties are stiff for payment lapses: Participants have up to 60 days to make their contribution and are then terminated and cannot reapply for twelve months if a payment is missed.

After their monthly contribution, participants have no other cost sharing requirement except for copays for non-emergency usage of the emergency room. While contributions are higher than traditional Medicaid premiums, participants have total control over how these dollars are spent. Members receive monthly statements detailing the use of the accounts and can apply year-end balances to offset future required contributions only if they have received requisite preventive services. This transforms Medicaid beneficiaries into consumers with an incentive to demand price transparency, make decisions about how to obtain the best value for their purchase, as well as to seek necessary preventive services and maintain a healthy lifestyle.

3) Be fiscally responsible. Of concern for both conservatives and liberals alike was the potential impact of a new program on the State’s budget. No one wanted to create a program that could not be sustained over time. In order to address this, we designed an “anti-entitlement provision.” With Indiana having one of the lower cigarette taxes in the nation, Governor Daniels suggested funding the plan through an increase in the State’s cigarette tax. The increase would then serve a dual purpose of discouraging smoking, while also funding the Healthy Indiana Plan. The Governor did not prescribe a specific value for the increase, but noted to the Legislature that the level of the increase would dictate how many uninsured Hoosiers could be covered. Although the discussion identified increases as high as a $1.00, ultimately legislators settled on a modest 44-cent increase, bringing Indiana’s total cigarette tax to 99.5 cents. After funding the other components of the plan, this increase will provide coverage for 120,000 Hoosiers.

The legislation restricts the State from providing services “beyond the level of state appropriations authorized for the plan.” This essentially contains the plan’s budget to the amount of revenues collected through the cigarette tax, and would require the State to adjust the program through either the number of enrollees or the benefits to assure they could stay within the budget. This assures that the program will not be a burden to future generations and that growth can be controlled and maintained. In reality, if there is growth in the program, legislators will still be pressured to find additional funding to support growing enrollees and costs. Nevertheless, the implications of a non-entitlement program were enormous, as it gave many legislators the peace of mind to allow them to support the bill.

4) Reach out across party lines and to multiple constituencies. The bill obtained bi-partisan support and passed by large measures in our split legislature largely due to the efforts of both our Republican Senate Sponsor, Patricia Miller, and our Democratic House Sponsor, Charlie Brown. They worked effectively together and the leadership of both houses reached across the aisle to colleagues who had long kept healthcare issues outside of partisanship. These relationships were further cemented by a passionate coalition of antismoking and health advocates who provided support and actively engaged in the dialogue. Indiana hospitals, also supported the plan, despite the fact that it diverted a portion of their institutional entitlement in the form of their Disproportionate Share Hospital (DSH) funding to the new program.

5) Compromise and cut deals. In developing HIP, we never let the perfect be the impediment of the good. We were able to pass Medicaid reform in Indiana because, while we certainly had our own philosophy and priorities, we made a point of listening to the concerns of all stakeholders and responding to those concerns whenever possible, even when it involved making changes to our plan. For example, providers were initially reluctant to support the plan, as current Medicaid rates had not been increased since 1993. In response, the governor and the legislature not only raised Medicaid rates, but also provided for Medicare rates, instead of Medicaid rates, under the HIP plan to assure an adequate delivery system for the new covered population. The mental health community in particular improved the plan by rallying for full mental health parity, which was included in the final version of the bill.

In another example, in response to criticisms about the HSA model expressed by advocates for low-income Hoosiers, the HIP plan provides upfront subsidies to the POWER Account to assure the account is fully funded to cover the deductible. HIP also provides $500 of first dollar coverage for preventive care to assure that participants did not skimp on important preventive services. We also broadly defined preventive services to include smoking cessation and smoking patches in an effort to aggressively address the State’s smoking problem. (The end result on prevention was even better than the legislation due to successful competition between Anthem Blue Cross Blue Shield and MDWise with Americhoice, the two plans that won the State’s bid to offer the product. Our market concept went to work immediately generating expanded services, with both plans choosing to offer unlimited coverage for all preventive care services.)

6) With the exception of compromise, don’t take any of the above lessons too seriously. The face of the uninsured in each state is different. Therefore, a one size fits all federal solution will not work, especially for the 85 percent of the population that is insured. States must be empowered to develop local solutions. HIP is Indiana’s solution, but we fully recognize that leaders in other states, in dialogue with their constituents, may reach different solutions.

Federal policy, and in particular CMS’ waiver process, should provide maximum leeway for this sort of state experimentation. For example, Indiana’s legislation did not limit HIP to specific categories such as parents of SCHIP-eligible children. Ultimately, we felt that if someone is low-income, uninsured, and willing to make the monthly contributions and play by the HIP rules, he or she should be allowed to participate—regardless of parental status. Medicaid laws, however, see this issue differently, and CMS insisted on capping coverage for childless adults at 34,000 lives, leaving the remaining slots for parents of SCHIP-eligible children. One can argue the merits of CMS’ and Indiana’s respective positions, but in the end Indiana should have been allowed to make the decision it viewed as best for its citizens.

Looking To The Future

Already, we see areas we would like to improve. The $1,100 deductible may be too low for those persons with chronic illnesses. We wonder if there should be additional copays for those individuals not paying up to the five percent CMS limit to further encourage appropriate utilization. Currently, POWER Account contributions can only be made by the State, individuals and employers. Perhaps plans should be able to operate incentive programs and make contributions into the accounts as well. Interest in the plan is high and it is likely that the amount of the cigarette tax may need to be revisited.

Nevertheless, our hard work has resulted in a single plan that is the melting pot of philosophical approaches and compromises; a plan that has attracted liberals and conservatives; and a plan that has withstood the test of CMS scrutiny and Medicaid rules. Through each round of review and approval the plan was tweaked, but with each turn, the health savings account model remained intact. The unique structure of the plan holds the promise of redesigning the Medicaid program as we know it today. For the first time, HIP brings recipients and the State together in a market based partnership to use resources judiciously, and to promote provider competition resulting in improved transparency, quality and value for all Hoosiers.

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12 Trackbacks for “Indiana: Health Care Reform Amidst Colliding Values”

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9 Responses to “Indiana: Health Care Reform Amidst Colliding Values”

  1. Dan.Antes Says:

    We got on the plan when it was first introduced and paid a years worth of premiums without a single claim. We moved and missed our mail for one week and did not get a form back to Anthem in the required time. We missed it by a few days and were notified that we were going to be cancelled. After getting in touch with State Senator Vi Simpson the Senator got an appeal set up for us. We received a letter from HIP about the appeal. It stated that we may want to bring legal council for the hearing in court in Indianapolis . This would have entailed us missing work and also spending money that we did not have to get a lawyer. About the same time we had several acquaintances that had HIP and they were unable to receive medical attention with their insurance since NONE of the doctors on the list would accept a new patient and no other doctors would accept the HIP coverage. Also several others we spoke to did not get their power funds rolled over due to not getting their annual check up in the time allowed although they tried and the soonest appointments they could receive were way past the deadline. This is a ridiculous bureaucracy that makes it near impossible for someone of average intellect or income to be able to understand and maintain coverage. Because of all of this we determined at that time to give up on the policy and my wife called and talked to a lady named Sue and ask to cancel the appeal as well as our policy.
    We never received a dime back as it was stated we would if we cancelled and this week receive a bill for $480 for past due premiums. My wife called to clarify that we had cancelled the policy in June and was told there was no record of this and we would have to pay or be sent to collections. We are now in a situation where we have spent over $1400 for a years worth of premiums ( and the state paid even more than that I am sure) and have never received an ounce of service for this money. I think Anthem and the other insurance companies involved in HIP have a great scam worked out with the Statehouse. They take money from both the state and lower socioeconomic families and then have arranged such a ridiculous bureaucracy that no one can receive medical services. The participants in HIP, the taxpayers of Indiana, and the the State Budget are being fleeced by this program. I would greatly urge you to investigated the obvious graft and greed being perpetrated against the poorer Hoosiers by Anthem. I am sure the taxpayers of Indiana would be interested to know the actual premiums paid by both the state and the plan participants and how much of those monies were paid out by the insurance company for medical care?

  2. GALJohnson Says:

    As a participant in the HIP program I would like to clue you all in. The way the system is set up the consumer pays a flat monthly fee and in exchange gets health benefits. I know all of the theories of how this works, the money goes into the power account and then you spend your (or your and the government, or maybe just the government, depending on who puts how much in) money for the first $1100. But from the consumer’s point of view, s/he is buying health insurance for so much a month. Not that I am complaining, but the fact is that I pay the same thing no matter who I go to. There is a total disconnect between the payment and what particular service one receives or doctor one visits.

    Secondly, on the FSSA side of things the management is abysmal. Poorly organized, poorly trained representatives. I switched insurance companies at my annual renewal, and when I called in to make the change, about a month and a half before my renewal date, they said they could make the change effective the following month (a month early). I said I had been told that I could not under any circumstances change my insurance until my renewal date. The representative said, Oh no, that is not a problem, I can change you the beginning of the next month. Fool that I was I let her make the change. As a result my insurance change for the next month and then changed back on my renewal date. This is but one example of many problems I have had with the administration done by FSSA. I do have to allow that I have been told that they are trying to coordinate activities across several agencies and organizations, which does make things difficult. But it also took them four months to get my billing changed to reflect the change in my payment at my renewal date.

    Third, I have an issue that is probably really an issue with insurance in general, but I hope it will be dealt with somewhere along the line in all of this reform. My spouse has Chronic Fatigue Immune Dysfunction Syndrome, an immune dysfunction for which there is no recognized treatment. The problem is, if you find a drug that actually works to improve the symptoms of the disorder, the insurance companies will not pay for it because it is not an approved for this disorder. But since there IS NO approved usage, they are effectively denying coverage for this disorder.

    Fourth, and back on track, the forms are obscure and difficult to follow. I sometimes wonder in dealing with their forms if there is a place you can take a form to have its design made as unclear as possible. Then to add insult to injury, they are very unforgiving if you fail to provide something they asked for. You are given a very short time to respond, and if you do not respond within the time frame required you are out, your application is diapproved or you are kicked out of the system. If they ask for several things and you miss one of them, you are out, no second chance. And your rejection letter is for “Failure to cooperate” However given the poor design of the forms, regular “Failure to cooperate” is inevitable.

  3. Misi Ba Says:

    Once again Indiana Republicans have made me ashamed of the state I love. You people scare the bejeebers out of me.

    $1,100 deductible on a health plan for the poor.

    Number of beneficiaries limited to the number that can be paid for out of a fraction of the state tax on cigarettes.

    Not to worry, we poor die young and will soon be out of your way.

    May God help you.

  4. Seema Verma Says:

    From Mitchell Roob and Seema Verma, the authors of Indiana: Health Reform Amidst Colliding Values:

    As one of the responders note this is unlike an HSA, in that there is no tax benefit, because individuals at low-incomes do not qualify for the tax breaks afforded by traditional HSAs. The POWER Accounts do, however, offer the ability to rollover remaining account balances. The entire balance rolls over if all preventive services are met, and if they are not completed, then only the individual’s prorated contribution would rollover. As one commenter notes, this is likely to be a “paltry” sum.

    This is precisely, why we believe that the amount of the POWER Account or deductible should increase, especially for those with chronic diseases. This does not mean that individual’s contributions to the account would necessarily increase. Because this is a Medicaid program, we are bound by the 5% out of pocket maximum imposed by CMS. Therefore, the State would contribute to any increases in the deductible. This would hopefully be offset by a premium decrease that is already being paid by the State.

    Persons with chronic diseases will likely blow through $1,100 very quickly, thus eliminating the financial incentives for healthy behaviors. By increasing the deductible, there would be greater financial incentives to complete requisite preventive care services and to manage the larger POWER Account more appropriately. Also, note that preventive health care services are not subject to the deductible.

    As stated earlier, the intent of this program is philosophically centered on personal responsibility. Currently, over 68% of the HIP enrollees are below 100% FPL and 33% are not making any contributions. Therefore, contributions to the POWER Account are very minimal for most participants and may not be high enough to incentivise behavior change, certainly not for the individuals that are participating for free. We believe its worth considering whether increasing required contributions or requiring a minimum contribution, but to no more than the CMS 5% cap, will help participants value the taxpayers investment in their health.

    As for the charge that this plan does not help the dialogue around reform, we say this. We understand that this is not a perfect solution or one without fault. But it is pragmatic; it represents a compromise between two parties and philosophical ideologies. This plan has created health care access and peace of mind for thousands of uninsured Hoosiers that had no place to go five months ago. It is an important step in the right direction and will hopefully serve as an example that reform and solutions are possible when there is committed leadership.

  5. Rick Byrne Says:

    Hate to pile on, but the prior commenters who question the dogma that the chronically ill should be subject to more cost-sharing are absolutely right. The latest research, which has found that you make people healthier AND reduce costs by lowering their cost-sharing on the services that are of greatest value to them, flies in the face of that so-called conventional wisdom. What are the authors thinking? I’d love to hear.

  6. Brad Flansbaum Says:

    On the following:

    “Already, we see areas we would like to improve. The $1,100 deductible may be too low for those persons with chronic illnesses. We wonder if there should be additional copays for those individuals not paying up to the five percent CMS limit to further encourage appropriate utilization.”

    Is this not counterproductive? Can you elaborate as to why increasing the deductible in an individual with chronic illness would help, not harm this needier patient?


  7. Travis Broome Says:

    “Americans have chosen the marketplace as the venue for delivering healthcare. In a perfect market system of consumers and producers, the individual (patient) evaluates cost and quality when making purchasing decisions. Producers (providers) compete for consumers and provide a set of services at a defined price. But as we know, transactions in the American healthcare system are never this simple due to the presence of a third party—the uninsured who obtain services for free.”

    For the authors to suggest the uninsured are what keeps the healthcare system from a perfect market system is borderline irresponsible. The authors know that there are numerous other reasons health transactions do not occur in a perfect market system: moral hazard for the insured, asymmetric information, opaque pricing structures, sorely lacking information on quality for all parties just to name a few.

    If the uninsured all became insured the complexities of a health care service transaction would not be magically transformed into a perfect market system.

  8. Bradley Flansbaum Says:

    Not clear on following:

    “Already, we see areas we would like to improve. The $1,100 deductible may be too low for those persons with chronic illnesses. We wonder if there should be additional copays for those individuals not paying up to the five percent CMS limit to further encourage appropriate utilization.”

    Does this not create a higher hurdle for those in greatest need?

  9. Don McCanne Says:

    Health savings accounts (HSAs) are specifically designed to use regressive tax policies to fund health care for higher-income individuals. They also reward individuals for being fortunate enough to remain healthy by allowing them to use those funds for other purposes in retirement, with the same tax benefits as an IRA.

    Since HSAs are designed to benefit the healthy and wealthy, they are not the solutions that we need to address the very severe deficiencies in our health system. They are an especially lousy model to finance health care for lower-income individuals with greater health care needs.

    The description of the POWER accounts as “following the HSA model” is particularly disingenuous. Although participants are required to deposit their own funds into the POWER accounts (on a sliding scale), they receive no tax advantage (though most of them wouldn’t anyway because of their low incomes). Unlike an IRA, they receive no income from the funds deposited in these accounts. When they leave the program, they may receive a pro-rated amount of their own contribution, but none of the state’s contribution. Since the account limit is $1100, it is likely that the individual’s pro-rated amount would be a relatively paltry sum given as a reward for remaining healthy, but would totally disappear quite rapidly as the $1100 is used for health care.

    This blog is read by members of the health policy community who understand health policy science. The authors impair their own credibility amongst these professionals when they use the “skin in the game” rhetoric of right-wing ideologues. Pretending that small, segregated accounts somehow constitutes a major policy breakthrough is an unproductive diversion from the dialogue on reform that we desperately need.

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