If you’ve ever attended one of his “fiscal reality” town hall meetings, you’ll notice the passion with which Senator Dan Liljenquist talk about entitlement reform. He’ll tell you it’s what pulled him out of the private sector and into politics. You can hear the excitement in his voice when he talks about how Rhode Island — the bluest of all blue states — enacted sweeping pension reform legislation this past year to forestall a fiscal collapse. And you feel his real frustration when he speaks about the fact that a “mid-level bureacrat” is holding up Utah’s Medicaid waiver request over small proposed co-pay increases.
Liljenquist has built quite a name for himself as the state level entitlement reform guy nationwide. It’s what he does, and, thus far, he appears to have done it in impressive fashion. So these days, he’s the guy that other people talk to when they want to do it, too.
But despite all the notoriety, I suspect there are quite a few people, especially here in Utah, that don’t understand what exactly it is that Liljenquist has done when it comes to entitlements. So I wanted to put up this post summarizing the nature of Liljenquist’s Medicaid reforms here in Utah, and then offer some brief thoughts on the future of state-level Medicaid reform (and how it may tie in with Liljenquist’s future political plans, which may be the worst kept secret in Utah).
What’s Been Done
Liljenquist’s reform efforts were prompted by some alarming numbers. In the case of his Medicaid reforms, it was the accelerating growth of Medicaid as a percentage of Utah’s budget.
Medicaid, though jointly implemented by the federal government and the states, is a federal program. And the federal government sets uniform eligibility requirements for state Medicaid programs, while each state (with significant federal funding assistance, of course) is left to meet those requirements with its state level programs. The continually soaring cost of health insurance — whether employer-funded and privately purchased — together with the difficult economy has led to a rapid rise in eligibility for benefits. As a result, states are being forced to budget ever larger shares of their shrinking (or stagnant) revenue streams to meet the increased demand. And Obamacare, when fully implemented in 2014, will expand eligibility even further. These days, Medicaid expenses are growing fast enough, and becoming large enough, that they legitimately threaten to crowd out other important state services, including public education.
So, what to do?
Well, the federal government could grant limited waivers to Medicaid eligibility requirements for states who need them. But it won’t.
Kathleen Sebelius (President Obama’s Secretary of Health and Human Services) has made clear that states cannot expect any flexibility with Medicaid when it comes to eligibility; the current federal administration is not about to let Utah, or any other state, reduce eligibility requirements, even (and maybe especially) in the middle of a recession. And the two most reviled statutes in recent memory (at least from the right side) — the stimulus and Obamacare — both contain provisions protecting Medicaid eligibility.
Although Utah cannot control the number of people who are eligible for Medicaid benefits from the state level, Sebelius has suggested that states — as they have been in the past — will be given some flexibility when it comes to the nature of benefits themselves, and that’s the starting point for Liljenquist’s proposals.
The essence of Liljenquist’s reforms involve limiting costs by (1) tying Medicaid expenses to budget growth and (2) changing treatment incentives. These two components are designed to reduce total cost as well as to make expenses predictable in relation to each year’s revenue (which obviously fluctuates due to a number of different factors).
According to Liljenquist, Utah’s current Medicaid model — a combination of managed care and fee for service — incentivizes overtreatment by hospitals and physicians, and, more importantly, irresponsible overuse by Medicaid recipients (e.g., unnecessary trips to the emergency room). Liljenquist proposes moving Utah’s Medicaid system to a managed care+ philosophy designed to encourage more cost effective treatment. Here are the highlights:
- The state would allocate what amounts to block grants of its Medicaid funds to groups of healthcare providers known as Accountable Care Organizations (“ACOs”) on a statistically calculated (based on disease rates and risk profiles) per patient basis.
- Each patient would be assigned what’s called a “medical home,” and a healthcare provider would be assigned to manage that patient’s care. Patients would have a limited ability to choose their initial ACO and would have an option to switch ACOs once per year during an open enrollment period.
- The ACOs would profit from Medicaid to the extent they facilitate effective and responsible treatment for their patients; since Medicaid payments would no longer be tied to specific treatment services provided, Liljenquist’s reforms would reduce the incentive to over treat for profit.
- The state would offer some incentives, such as reduced co-pays or even cash rewards, for ACOs and patients who take advantage of preventative treatment options.
- The system seeks to avoid the potential incentive to under treat patients by requiring that ACOs maintain a quality of treatment equivalent with that provided under the current system.
- Compensation for services provided would remain in line with compensation under the current system; any expected savings would be generated by a relative predominance of more preventative and cost-effective treatment options.
- The state would infuse some predictability into Medicaid funding by tying it to budget growth going forward. In years where there is a surplus, the surplus would be put into a rainy day fund. In years where enrollment growth exceeds expectations, benefits would be reduced across the board according to a predetermined schedule.
- The state would seek modest increases in co-pay requirements for certain health services for those on Medicaid.
The Utah legislature’s fiscal analysts office estimates that the proposed reforms would result in savings of $770 million over the first seven years they’re implemented.
Liljenquist’s reform effort is just beginning, and can’t be implemented without permission from the U.S. Department of Health (USDHHS) and Human Services. The specific reform bill, S.B. 180, passed unanimously by the Utah legislature during the 2011 session, required the Utah Department of Health to develop the specific details of a reform plan, and submit a request for waiver to USDHHS, which it did on July 1, 2011. The waiver request is available online, for those interested in getting down into the details. If the waiver request is granted in time, the initial reforms are set to be implemented in July 2012.
Where Do We Go From Here? And What’s the Future for State Level Medicaid Reform?
Liljenquist’s proposed reforms are an attempt to work within the present system, frustrating as that system may be for reformers. And Utah’s new approach does seem promising. Of course, only time will tell whether the projected cost savings are realized and whether the quality of treatment for patients on Medicaid remain high. But what Utah is proposing to do, while not wholly innovative, is a significant step forward in deal with the problems created by partially-funded federal mandates that result in unpredictable expenses.
But ultimately, thanks to that pesky Supremacy Clause, state level Medicaid reform can only get you so far. Furthermore, you can never be certain that the reforms will be enduring, as they are subject not only to Congressional changes in course (see, e.g., Obamacare), but also to a somewhat unpredictable bureaucracy, subject to changes in approach based on the four-year Presidential election cycle. Finally, there is the oft-cited concept as the states as laboratories of democracy for federal policy; the irony in this case is that if state reforms are successful in providing effective care at a reduced cost, they might serve as models for National Health 2.0 — “Hey, Utah’s got this great approach to effective cost, statewide government funded health care, let’s try it nationwide!” Indeed, when I started investigating Liljenquist’s proposal, I thought to myself, if this works are well as they say it’s going to, it sounds like something that could go national and be, relatively speaking, cost effective.
All this reminds us, simply, is that Medicaid, despite the promise of state reforms, is a federal program, and real, fundamental change must happen at the federal level. The drivers of the Medicaid problem are eligibility and benefit standards, and, as a result, the basic components of real, substantive reform involves dealing with questions of eligibility and tiered-benefits, not just increased effectiveness in treatment and care delivery (which treat the symptoms).
The premise of Medicaid is about setting creating a safety net and setting a basic floor for those who can’t afford health care coverage. I think that’s a good thing, and I think that it’s probably something that should be done on a national level. This is, after all, all about people and not about states — and a person is a person, no matter what state they live in. But if Medicaid is going to continue to be implemented and significantly funded by the states, the overall national structure needs to provide, at minimum, necessary flexibility for states with vastly different budgetary needs and obligations and populations with different health profiles.
That can’t be done from a state legislature, no matter how many great ideas you’ve got. The future of Medicaid reform is not at the state level. Liljenquist knows that, and I suspect it’s a big part of what’s informing his future career plans.