Delivery of Care

Calculating the costs, excluding the benefits

Why the state budget equation for Medicaid never seems to add up

Courtesy of Rhode Island Kids Count

The cover of the 2014 Rhode Island Kids Count Factbook, which found an increasing gap in the well being of Rhode Island's children based upon racial, ethnic and economic indicators.

By Richard Asinof
Posted 5/5/14
As state budget wonks attempt to reach cost projections for next year’s Medicaid budget at the Revenue & Caseload Estimating Conference, the inability to measure long-term cost reductions and economic benefits as part of the budget equation has emerged as a glaring omission.
Without that kind of economic calculation, the R.I. General Assembly and the Chafee administration will continue to make short-sighted budget decisions – cutting back on benefits to the most vulnerable as a way to try to balance the budget. The long-term reality is that such short-term fixes will be predictable failures – much as last year’s purported budget savings to lop off 6,500 parents from RIte Care.
Why hasn’t the Brown University School of Public Health – or the new master’s program in Healthcare Administration – undertaken a Rhode Island-centric study quantifying the numbers of economic benefits of expanded Medicaid benefits in Rhode Island? As a key factor in economic development, why hasn’t CommerceRI – or the Rhode Island Foundation, which has emerged as the de facto policy arm of the state’s economic development agency, created an up-to-date analysis quantifying the impacts on health care on the Rhode Island economy? Food and design may be the flavors of the year, and startups may be in vogue, but the bread-and-butter of a healthy economy are healthier people.
In all the future economic proposals by the 2014 gubernatorial candidates, health care has been a glaring omission. The candidates so far have been able to avoid talking about it, and the news media has failed to ask them hard questions about their policies. The leadership of the business community has, for the most part, also been absent from the conversation. In the so-called leadership profile developed as a partnership between The Providence Journal, RI PBS and the Hassenfeld Institute at Bryant University, health care doesn’t even show up in the equation. The absence of leadership – by the candidates, by the news media, by the business community, and by the R.I. General Assembly – is glaring.

PROVIDENCE – When the state’s Revenue and Caseload Estimating Conference reconvenes Monday morning at 9 a.m. in Room 35 of the State House, the number crunchers from the House and Senate Finance staff and the Chafee administration will attempt to reach consensus on budget targets and projections.

They will be trying to reconcile the actual numbers of the state’s Medicaid caseload in FY 2014 and then estimate projected costs for FY 2015, with competing metrics, equations and analyses. At stake is about $1.9 billion in state and federal dollars – some 23 percent of the state’s total $8.5 billion budget.

Much like a group of Las Vegas odds makers trying to predict the over and under of an entire season of NFL games for the New England Patriots, each of the numbers crunchers has their own preferred methodology for proving that their math works best.

Imagine a Saturday Night Live parody of competing geeks – attired as street-smart gamblers from “Guys & Dolls,” singing the classic “Fugue for Tinhorns” of competing tips and sure bets: “I’ve got the horse right here, his name if Paul Revere, and here’s a guy who says if the weather’s clear….”

In reality, it’s often a crapshoot – and many times, the projected budget savings don’t materialize because the equations are based on bad assumptions.

This year, finding common ground – one that the R.I. General Assembly will endorse – promises to be very challenging, given the increases in Medicaid enrollment.

For example, in the enacted FY2014 budget, some $6 million in savings were projected by lopping off some 6,500 parents from the RIte Care program, with the premise that they would be enrolled in commercial health insurance plans through HealthSourceRI.

But the reality – and the numbers – didn’t work out that way. Although there were 6,574 parents initially identified and targeted to lose RIte Care coverage, the actual number turned out to be closer to 1,400 – with 724 enrolled in a qualified health plan and have paid the premium, with another 650 in process. More than 2,000 of the parents targeted initially turned out to be still eligible for Medicaid. 

As of Feb. 28, there were 122,987 children, parents, and pregnant women enrolled in RIte Care, according to Katherine Chu, spokeswoman for Rhode Island Kids Count, citing figures from the R.I. Executive Office of Health and Human Services.

Beyond the caseload numbers estimates that were adopted in November, RIte Care enrollment was expected to increase in FY2014 by 2,933, with an additional state cost of about $10 million, according to Linda Katz, policy director of the Economic Progress Institute.

“The increase in enrollment over what was projected in November is not due to the ‘welcome mat’ effect, i.e., people who were previously eligible but not enrolled in RIte Care coming through the door,” said Katz.

In addition, Katz told ConvergenceRI, another 16,130 will be enrolled in RIte Care in FY2015, at an additional state cost of about $38 million, according to the initial state estimates.

Toward a new value proposition
In looking at the budget, state officials have predicted that Rhode Island will pay about $10 million more than expected for Medicaid expansion for FY 2014 ending June 30 – and another $42 million for FY 2015.

The cause is a result in part of the higher-than projected number of Rhode Islanders – more than 70,000 – who enrolled in Medicaid as part of the health care reform rollout.

Raising new revenue from taxpayers to cover the extra Medicaid costs is an unlikely option, given the current mood of the R.I. General Assembly. Instead, the likelihood is that the state budget will be balanced by finding ways to further cut health care benefits to Medicaid members.

Indeed, the current budget proposed for FY 2015 by Gov. Chafee and Richard Licht, his director of R.I. Department of Administration, balanced the revenue estimate with $43 million in cuts in the state’s Medicaid benefits – jiggering with the capitated rates paid to Medicaid providers for delivery of health care services.

What’s missing from the legislative math is a more long-term equation, where the increase in Medicaid budget costs are calculated against future health care savings achieved through better health outcomes – and the calculus includes the economic benefits.

As Katz told ConvergenceRI, “The benefits of Medicaid – and the expansion of coverage to nearly 50,000 Rhode Islanders – not only provides a health insurance card that is the ticket to health care.” It has a beneficial impact, she continued, “to the state’s economy, with the infusion of $491 million in federal funds.” It also translates into economic benefits for Rhode Island’s workforce and employers, Katz said, “because a healthier workforce is a more stable workforce.”

Fleshing out the numbers
But how do those economic benefits become part of the cost equation?
Katz suggested looking at Maine, a state that has so far not expanded Medicaid, and the analysis done by the Maine Center for Economic Policy along with the Maine Equal Justice Partners, showing how Medicaid expansion would benefit Maine. “The points they include about impact on the economy are applicable to Rhode Island,” she said.

Christopher F. Koller, the former R.I. Health Insurance Commissioner and now president of the Milbank Memorial Fund in New York, said that he was unaware of an existing economic equation that can be used to detail how savings achieved by Medicaid investments could be used as a way to measure how costs could be lowered.

“I am not aware of a precise quantification of the benefits of more insured which include: more prevention, reduced chronic care, better productivity and reduced absenteeism,” Koller told ConvergenceRI.

In terms of the state budget, was there an economic framework that Koller would suggest that legislators might look at – other than seeing increased costs as a burden on taxpayers?

“Every budget decision is a marginal one,” Koller answered. “Do increased marginal costs exceed the increased marginal benefits?” As I understand it, Koller continued, “The projected increases are for populations we had already agreed merited coverage; we just had more than we realized.”

Koller added: “It is also important to note that Rhode Island and the federal government have in place policies to maximize employer coverage. These people are not walking away from eligible employer coverage.”

Did Koller have any suggestions of what might be an appropriate source of new revenue to be considered as a way to cover the increases in Medicaid spending?

Koller said he was not a fan of dedicating specific revenues to specific expenses. “However, the public health benefits of placing increased costs on sweetened foods [such as beverages] to compensate for the social costs they incur – obesity, diabetes, heart disease – should not be overlooked.

Population health improvement as the cure
For the political opponents of Obamacare, the increased costs in the state budget are seen as a kind of proof positive that health care reform is not working and will prove to be a burden on taxpayers. It has become the latest in a series of shibboleths thrown up against the wall that has not yet stuck.

As the enrollment numbers in Rhode Island and nationally far exceeded projections, many opponents challenged the numbers, saying that the test would be how many people who signed up actually paid their premiums. New figures released recently by Christine Ferguson, executive director of HealthSourceRI, blow away the opponents’ doubts. In Rhode Island, 91 percent of the almost 28,000 individuals who signed up for private health insurance plans between Oct. 1, 2013, and March 31, 2014, paid their first premiums by the April 23 deadline.

Beyond the linear quarter-by-quarter budget review, without any economic calculation to measure the long-term, lowered-cost benefits of expanding coverage, legislators often make choices that create short-term gain and long-term pain.

Ironically, a bill proposed by Blue Cross & Blue Shield of Rhode Island to spread the costs of vaccination programs across the full spectrum of Rhode Island’s businesses – and not just the small businesses who are paying for it now in increased premiums – given the broad public health benefits, is expected to be enacted.

The R.I. General Assembly could apply that same economic rationale to support the increased spending on Medicaid – given the benefits of reducing hospital emergency use, better prevention and care of chronic diseases, and better prenatal care for pregnant women. But none of the state’s number crunchers have yet developed the necessary analysis to make that case.

“In the long term, it is pretty well understood that population health improvement is the only real way to reduce the costs of medical care,” said Dr. Peter Simon, a pediatrician and epidemiologist who recently retired as the medical director of the Division of Community, Family Health, and Equity at the R.I. Department of Health. “Investments in healthy housing, regional food systems, adult skills development and early childcare and education are what will make real impacts.”

The politics of medical care, Simon continued, have restricted the time frame and limited potential innovation incentives from the federal Centers for Medicare and Medicaid to medical care interventions.

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