Rep. Dennis Richardson: Oregon’s Medicaid experiment

Rep. Dennis Richardson (R-Central Point)

The Oregon Health Plan is Oregon’s name for Medicaid. Medicaid is the federal and state program that provides health care to poor adults and children. Its promise for decades has been to provide comprehensive medical care that would result in healthier people, making fewer trips to emergency rooms and hospitals.

Medicaid’s promises have failed to deliver for many of Oregon’s 670,000 current Medicaid “clients,” yet Oregon Governor John Kitzhaber plans to add more than 200,000 additional Oregonians to the Medicaid roles.

This Medicaid expansion comes with a tremendous price to taxpayers and creates a $1 billion state budget hole in 2015. In my opinion, it is likely Oregonians eventually will realize the Governor’s “Health Transformation” has created a medical monster and will demand a new and sustainable model of health care reform.

Recently, a highly regarded medical report, entitled, “The Oregon Experiment—Effects of Medicaid on Clinical Outcomes,” was published in the New England Journal of Medicine. Among several important findings, the report concluded the following:

1. Medicaid clients went more frequently to doctors, Emergency Rooms and Hospitals and consumed 35% ($1200) more in medical services than similarly situated adults who did not receive Medicaid benefits.
2. Medicaid clients suffered less depression and concern about medical costs (which is not surprising since the Medicaid clients no longer were responsible for paying for the increased costs of their medical care and treatment).
3. Even though the Medicaid clients had increased care, treatment and medical costs, “…Medicaid coverage generated no significant improvements in measured physical health outcomes….”

Essentially, Medicaid is government (taxpayer) paid medical care for low income adults and children.  As government-paid medical care,  Medicaid is expensive. (By analogy, imagine how much your car insurance premiums would increase if, in addition to the usual protection against unforeseen loses, your auto policy also paid 100% of your car’s routine maintenance, oil changes, new tires, and motor repairs.)

Oregon is in the midst of a health transformation from the customary “fee for service” model to a “managed care” system through Coordinated Care Organizations (CCO’s). The lack of health outcome improvements under existing Medicaid, we are told, will improve because of the transition to CCO’s.  Time will show whether or not the CCO model for Medicaid patients has better results. Since the Oregon Health Transformation’s CCO strategy is too new to evaluate, the Oregon Experiment’s data will serve as a benchmark with which the CCO strategy’s outcomes and costs can be compared in the future.

One thing is certain, the number of Oregonians qualifying for Medicaid only increases.

In addition to the present 670,000 Oregon Medicaid clients, at a cost of $6.8 billion (2011-13), Governor Kitzhaber intends to increase Oregon’s Medicaid ranks by more than 200,000.

In a recent newsletter I stated the following and it’s worth repeating:  “This expansion will add 225,000 new Medicaid patients beginning in 2014, without adding a single physician beyond the usual medical school graduates. Who will provide the additional medical services? Who will pay the costs? If the federal government can be trusted, paying the increased costs will not be a problem. The federal government promises to pay 100% of the expansion costs in its early years, then scale down to paying 90% in 2020 and beyond.”

This generous promise to pick up most of the tab is made by the federal government–which has not passed a budget in nearly four years, borrows $90 billion every month and has boosted thefederal debt to nearly $17,000,000,000,000 ($17 trillion). For the federal government to make good on its promises to all 50 States would cost $950 billion and add 21 million new Medicaid patientsover the next nine years. For Oregon to assume the federal government has the ability to add another trillion dollars of debt on top of its current spiral of indebtedness is more than a mere leap of faith.

Even if we assume the federal government will be able to keep its promises to fund the Medicaid Expansion, Oregon’s revenue stream is insufficient to keep pace with the State’s anticipated additional health care costs.

The Oregon Health Authority’s graph above shows Oregon’s anticipated Medicaid cost increases for the next three biennia. It also color codes the sources for funds needed to cover those Medicaid cost increases. Of special note are the purple segments showing additional State funds needed will total $1 billion in 2015-17 and $1.5 billion in 2017-19. The source of that money is unknown and has yet “To Be Determined (TBD).”

Oregon would be wise to have an alternative plan ready, in case Oregon’s “Health Transformation” and new CCO strategy fail to provide the promised improvement in health outcomes and health cost curve reductions or the federal government fails to make good on its promise of free Medicaid Expansion money from Washington, D.C.

An alternative Oregon health care plan will be needed when Governor Kitzhaber’s Health Transformation plan is fully implemented and when:

1. the new federal Obamacare business owners’ mandate takes effect and businesses are required to provide and pay for health coverage for their workers, regardless of their businesses’ profitability,
2. individual health policy premiums increase by 30%, 40% or 50%, and
3. young adults pay substantially higher health insurance premiums to subsidize the high medical costs of older adults and lower the cost of their policies.

In sum, when Oregonians realize the true cost and consequences of Governor Kitzhaber’s “Health Transformation”, I expect voters will respond accordingly.

Eventually, due to grossly underestimated costs and complexity, I expect the repeal of Oregon’s Health Transformation and the federal Affordable Care Act (Obamacare).  If and when their repeal or reforms occur, it will be time to implement a free market, incentivized health care model. A new health plan will be needed that will actually result in better health outcomes because it contains financial incentives to do so.  A new health plan will be needed that will motivate individuals to make better health decisions and even change unhealthy lifestyles because they will derive direct financial benefits for themselves and their families.  I developed such a plan several years ago.  It is called the Oregon Base + Plan (OBP). I believe the time will come when the OBP will finally get serious consideration.  I designed it to serve as an example of what a free market, consumer empowering health plan might look like.  Since years have passed, adjustments may be necessary, but the OBP stands as a starting point for Oregon’s new health care model.  When the time is right for real change, we can have a health plan that empowers individuals and provides incentives for personal change.

In conclusion, merely providing expensive, taxpayer funded health care to ever-increasing numbers of dependent Oregonians should not be Medicaid’s goal. Its purpose from the beginning has been to improve health, quality and length of life of Medicaid clients.  The Oregon Experiment report demonstrates that Oregon’s existing Medicaid programs have failed in this part of their mission.  We will watch closely to see if Governor Kitzhaber’s health transformation and its CCO Medicaid model achieves the goals of lessening the increase of health costs and improving health outcomes of Medicaid clients.  If the CCO’s fail to deliver for Oregon and if the expensive mandates of Oregon’s Health Transformation become intolerable for Oregonians, it will be time to revisit Oregon’s health care system, innovate with a more effective and economical health care model—one that includes personal financial incentives for better lifestyle choices. A good starting point for such a new and vibrant health system might be the Oregon Base + Plan.

When Oregon is ready for real change in its health care system, it will be time to focus on innovative ways to provide incentives and break the cycle of dependency currently trapping too many low income Oregonians in poverty.