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Joint Healthcare Task Force Address

08.19.2015

Thank you Chairman Collins, Chairman Hendren, for your leadership. For the record, I’m Governor Asa Hutchinson and I appreciate the opportunity to speak to you today. I feel as if I’m appearing before a joint session of Congress. This is a very impressive gathering.

First of all, I want to express my appreciation to the leadership. Rep. Hendren and Rep. Collins have taken time out of their schedule to go with me to meet with Secretary Burwell, and I know personally how much time they’ve devoted to this, and I know as I look out on the legislative task force how much each of you has devoted of yourself in terms of meetings and hearings and also in terms of personal study.

On behalf of Arkansas and the Governor’s Office, thank you very much. I also want to recognize the Governor’s Advisory Council on Medicaid Reform. You are integral to this process. Your engagement in it is very important.

Let me assure you that your work will make a difference for all Arkansans. Some things we do in Little Rock are important. Some things we do in Little Rock are of little significance. But what you are doing here will define our future. What you’re doing is important, and obviously it’s important that we get it right. I talk about the future, and it seems as if the future is rushing upon us. We’re going to have to get to a point where we make decisions. We’re going to have to define the issues. We’re going to have to march forward with solutions.

The process you have gone through is perfect — information gathering, consultants, listening to the experts, expanding your knowledge base — so that in the end, when the John Stephen Group and others make their reports, you can make good decisions.

You’ve heard from experts, you’ve heard from medical-care providers, you’ve heard from consultants. Today, I give you my perspective as Governor.

It is a unique perspective. It is a limited perspective. As I make my presentation to you, I recognize that this is a legislative task force, that it’s legislatively driven and that it’s going to be a legislative solution.

I’m in a different branch of government. I have a high regard for the work you are doing, and I applaud you for being willing to listen to the Governor and say, “your perspective is important.”

Some of you might not know this, but I majored in accounting in college. Obviously, I didn’t make a career of it. In accounting, the first thing you start with in business is taking inventory, and I think it’s important that we take inventory as to where we are right now.

In April, thanks to your leadership and legislative action, we provided stability in healthcare and continuity through December 31, 2016. That’s what I asked you to do. You responded. And we have provided that stability, which is important to healthcare providers and those who need access to healthcare in this state.

The result of that action and that stability has been a reduction in uncompensated care. It has resulted in increased access to healthcare for Arkansans. Those two facts are well established and without dispute. For hospitals, the savings from uncompensated care was $149 million in 2014. Arkansas has substantially improved those with insurance coverage and those needing access to healthcare. Those are good things. Those are an excellent part of the inventory.

But I also understand that there is a bill coming from the federal government, and we have to get ready. Right now, it is in accounts payable. In 2017, which is when we will have to initiate a new plan for Medicaid reform in Arkansas, we’ll have to start paying 5 percent of the cost of the expanded Medicaid that we have adopted. And it will grow to 10 percent over a period of years.

So I want to look at the numbers more carefully. On the first chart, the bottom blue line is our general revenue that goes toward Medicaid. What’s interesting to me, in terms of historical perspective, in 2006, when I first ran for governor, we were spending half a billion dollars in general revenue in Medicaid. In 2014, it climbs to $886 million. Then it escalates. In 2017, which is the first year of our contribution, it goes to $1.129 billion.

The lighter blue line is the contribution of other tax revenues from the state. It might be the soda-pop tax or other revenues that are not general revenues. And then the brown or peach-colored block is federal spending.

And you can see that the federal spending accelerated when the Private Option was adopted. The figure you ought to keep an eye on there is 2015. The federal contribution is $4.7 billion. Then in 2017, it goes up to $5.4 billion.

If you go to the next chart, this is the projection of Medicaid spending without the Medicaid expansion. The blue line is about the same in terms of the state revenue contribution. But what I want you to concentrate on is the federal spending block. Without the expanded Medicaid payments from the federal government, it would be reduced. The point is if you are looking at the Medicaid spending with and without the Private Option, then you’re looking at a difference of $1.4 billion to $1.7 billion. If we ended the Medicaid expansion and refused those federal dollars, then that is a lot of money being pulled out of our healthcare system in this state.

The next chart is probably more relevant. This reflects the impact on the state budget as a result of the Medicaid expansion dollars coming into the state. If you look at the column that is fiscal year 2015 … we had $2.5 million in administrative costs, we had traditional Medicaid savings of $55 million, we had uncompensated care savings of $33 million, and then you had a premium tax revenue that was generated. So the positive impact in 2015 was $115 million as a result of the Medicaid expansion of our state budget. In 2016, $124 million positive. In 2017, $94 million positive.  

Even in that year, when we’re picking up 5 percent of the expansion, we’re still receiving benefits of the costs of program savings and uncompensated care and traditional Medicaid spending. We’re still benefiting in 2019. … And then in ’21, ’22, ’23, it’s between $50 and $60 million that we’re in the hole.

Some of you have looked at the John Stephen report on the positive impact of the Medicaid expansion. That’s true. But there is an accounts payable down the road we’ve got to worry about. That’s real money. That’s $50 million to $60 million that is a hole that has to be accounted for. Keep that figure in mind; 2021 and beyond, $50 to $60 million.

The conclusion is that if you end Medicaid expansion, you’re going to be taking $1.4 to $1.7 billion out of our state budget. At the same time, we have accounts payable coming due. So with that background, with that inventory, with that accounts payable recitation and review, let’s look at the options that we ought to be considering right now.

For me, it’s a decision chart. It’s a decision chart as to where we go as a state. As you know, I opposed and continue to oppose the Affordable Care Act because the negative impact of it on individual businesses and the states. But we have to deal with the economic reality of congressional action, Supreme Court rulings and independent executive action that expands the federal healthcare mission and limits flexibility. We need to deal with the reality but push to expand the flexibility given to our state. That is an objective that I have.

Coming back to our decision tree, one option we have as a state is we can say no to Medicaid expansion. We can say we don’t want to have that coverage; we want to end it. That is an option.

Again, the result, as I’ve already recited, is $1.4 to $1.7 billion drained out of our Arkansas economy, 220,000 will have their health care coverage ended. I say 220,000. That’s the number I’m going to use. Because there’s 250,000 on the Private Option at its peak. I think that it very well will result after redetermination at a 220,000 level. We will see but I’m going to use that figure.

Our previous system in Arkansas of charity care, of uncompensated care, of clinics across the state that would provide medical care to those who do not have insurance or health coverage has been dismantled. Even to a certain extent, the uncompensated care coverage has been dismantled. Everything has changed since … the Private Option.

We also have to remind ourselves that in addition to the $1.4 billion in Medicaid expansion money, we’ve also already lost from our hospitals the Medicare cuts that were a part of the Affordable Care Act. And that was $1.2 billion out of our hospitals and our healthcare system.

So do we as a state want to say no to that Medicaid money when it’ll draw that money out of our economy and, for the 220,000, there’s really no reasonable plan to address their healthcare coverage? If you conclude that we should not leave those 220,000 without a solution — and remember in my UAMS speech that was one of the points that I made; that we’re a compassionate state and we’re not going to leave 220,000 without some recourse, without some access to care … then that brings you to another decision point. And that is that we need to absorb that coverage as a state and pay for that coverage out of state revenue.

Or we do it in partnership with the federal government.

I have not talked to many who believe that we can absorb the 220,000 out of state general revenues, and if you reach that conclusion, then that leaves you with only one option. And that is that the federal government started this program with 100 percent coverage; Arkansas cannot absorb that, so if we continue to provide coverage for the 220,000, then we have to have some form of Medicaid expansion with a combination of federal and state dollars.

Then you have to make plans for the state’s share and how we’re going to cover that.

As we consider our options, I always believe that principles should guide us. Let me cover a few principles that I think are important. A few Arkansas values that I think are at stake.

First of all, we have to count the cost for our generation and the next. We should only assume the responsibility that we can afford and that we can pay for. That’s good accounting, that’s good stewardship.

Secondly, a value that I’ve always articulated and many of you have as well is that we must incentivize work. People who work should not look at those who don’t and say why am I doing this. Why am I working when others who are not working have more or better benefits? People who are working and want to move up the economic ladder should not be penalized.

The third value is, the 220,000 currently on the Private Option should have an affordable way to access healthcare. In other words, we know now that those covered by expanded healthcare coverage are Arkansans, our friends, our neighbors, our family members that we care about. That’s a value that we must protect.

Fourth, when there is an option for a workable private sector solution versus a government solution, we should opt for the private sector. Now I’m talking about Arkansas values, maybe that’s my value. But that’s a principle that I want to follow.

To be specific, employer-sponsored health insurance should be strengthened and not weakened by government policy.

Let me restate that: Employer-sponsored health insurance should be strengthened and not weakened by government policy.

I would prefer those on state-sponsored healthcare to shift to the employer when they get a job and the employer policy is available and appropriate. Next, we must promote healthy behaviors and personal responsibility in our health initiatives and reform efforts.

Next, we need to maximize state flexibility versus a federal one-size-fits-all approach.

And, finally, cost savings, efficiency, and controls must be a part of any plan. These are my principles. These are the principles by which I will judge and weigh our decisions down the road as to what kind of reform we need to enact in Arkansas.

Now, we should pause for a moment and answer an important question: What is wrong with the status quo? What is wrong with the use of the current Private Option to accomplish the goals which I just recited?

The answer is we can do better. The answer is that those who pushed for the Private Option initially said there are going to be changes down the road, we’re going to have to make adjustments. It’s not perfect. Let’s learn from it. It’s a pilot program. As Director Selig has mentioned a number of times; we don’t know all the answers yet because it’s a pilot program.

Clearly, from my experience, we need to make changes. We can do it better. And we need to have a new system. First of all, there is the future unsolved cost problem. There’s no plan under our current system for the $50 to $60 million coming down the road as an account payable. We cannot hope that away. We must be prepared to pay the cost.

Next, the Private Option does not have enough controls to incentivize work.

And thirdly, the current Private Option does not encourage employer-sponsored insurance when it is available and affordable. As many of you know, there are those who go to work, they have employer-sponsored plan that is ACA-compliant, but they don’t want to pay the deductible, they don’t want to pay the co-share, and so they go back and revert to the Medicaid expansion dollars.

It’s not the ideal, and we need to change that.

So let’s look at the future. Let’s look at some directions we can go. Let me re-emphasize that you will determine the future of Medicaid reform in Arkansas. I understand this is premature in some ways. You have not gotten all your reports yet. You have more analysis to do. But, it is time that I offer some ideas for you to consider.

Sometimes as Governor you need to put some ideas out there to be shot at. …

Here are seven elements of a potential plan. Some of these are controversial, some are not controversial. I expect you to evaluate these, knock some of them off and say that’s not going to work in Arkansas. I expect you to add to them. But I want to give you some things to think about in our presentation.

This new chart outlines the points. The first element of a new potential plan would be that we must implement mandatory employer-sponsored insurance (ESI) premium assistance. Currently there are many employees who have employer-sponsored insurance available that is ACA qualified. But the employee opts out of the employer-sponsored plan so they can get the coverage on the Private Option. Why do they do that?

Because under the employer-sponsored plan, you’ve got a deductible, you might have a co-pay, you’ve got a premium that the employee pays. It might be modest, but it’s money. We need to implement a way where they take the employer insurance and we give them premium assistance to make them whole. The change is we would meet the mandate that when employer insurance is available, they have to take it. Obviously it has to be ACA compliant. The premium assistance would be available to the employee to help with the deductible and co-pay. That way, it can be comparable to what they would have if they were on the Private Option but they would be utilizing the employer-based policy.

The premium assistance could also be available in creative ways to help small employers. I think that’s something you might want to explore as well. This would encourage employer-based insurance to grow. It would help those working Arkansans who make less than 138 percent of the federal poverty level, the employer-based insurance will help them pay the deductible and help them pay the co-pay. But it has to be mandated. And this would require a section 115 waiver from the federal government to accomplish this.

This is a good first element.

The second element is that we need to implement premiums for individuals with incomes more than 100 percent of the federal poverty level.  Currently, there’s no requirement under the Affordable Care Act for anyone making the federal poverty level to pay any portion of the health insurance coverage. At the same time, an employee working for the same company may be required to pay a deductible and other employee costs. That doesn’t make sense to me. A premium requirement of up to 2 percent of household income for those making above the federal poverty level may be imposed.

That is a good element of a plan.

For those below 100 percent of the federal poverty level, they don’t have to share in the 2 percent cost. But as you get over the federal poverty level, it’ll be 2 percent of the income to be used for payment of the premium. This is consistent with the federal marketplace.

The reason is, of course, that this requirement is consistent with those you get in the private market with private coverage. They contribute to their plan when they’re working and they’re above the federal poverty level. A section 1115 waiver would be required for this as well.

Another element would be work training to incentivize work, encourage work, push people to work, provide them an opportunity to work. So work-training referrals would be required for the unemployed or the underemployed. Currently, there is no linkage to work whatsoever under the Private Option. Initially, 40 percent that signed on to the Private Option were at zero percent of the poverty level at the time of enrollment. There needs to be a linkage to work.

Like Utah, if an individual is able, unemployed or under-employed, based on income thresholds, then that individual would be required to be referred to Arkansas’ work-training and employment-assistance programs. That makes sense. It is consistent with our goal as a state of enhancing worker training, employment and work incentives. The good news is there’s not even a waiver required to accomplish this.

The fourth element of the plan is to eliminate non-emergency medical transportation coverage. Currently, an individual on the Private Option has coverage consistent with traditional Medicaid. This includes transportation assistance for medical care, including non-emergency medical trips. The change here is the state would eliminate the reimbursement or coverage for non-emergency medical trips. This would save about $14.7 million.

What’s the rationale for this? Again, this change would discourage unnecessary medical visits and make the coverage comparable to a private-sector plan. Right now if you have a private-sector insurance plan, you are not covered except for emergency trips. You’re not covered for routine medical trips.

The fifth element. Pay attention to this. You got bored on the first four. The fifth element: Limit access to private market coverage to working individuals. This takes some explaining.

Currently under the Arkansas waiver, the state purchases the private insurance coverage for all who make up to 138 percent of the federal poverty level. The change I would propose is, let’s restrict the private insurance coverage to a variable percent of the federal poverty level. In addition, you could add on students, those who are in work training and others who qualify for the private market coverage, but it would not mean a system where everybody who is zero to 138 percent of the federal poverty level is automatically granted access to the private insurance market.

So what happens to those who don’t qualify for the private insurance market? Those individuals with incomes below that percent of the federal poverty level would be enrolled in traditional Medicaid fee-for-service programs. This is adjustable as to what percent of the federal poverty level would be applied. It’s adjustable to achieve the right balance and cost savings.

What is the rationale for this? It rewards work; it places those who are working on the same ground as others who are working; and it will allow for cost-reduction measures for the traditional Medicaid population.

A waiver is required for this, a section 1115 waiver.

Let me go back over this. Right now, in the private insurance marketplace, we have everyone, 220,000, in the Medicaid expansion program. If you break that down and toggle it… if you said, well, maybe the right number is 20 percent of the federal poverty level or 25 percent of the federal poverty level should go on private insurance and below that would go on traditional Medicaid. … If you wanted to cap the private insurance market at 150,000 instead of 220,000, then you’d have 150,000 on the private insurance market and 70,000 in the traditional Medicaid program. What does that accomplish? It allows us to have more savings. Whenever you enact your reform proposals, then we’re going to have some very cost-effective means to reform Medicaid. And if you reform that Medicaid side, then you’re going to save state dollars by another 70,000 who would be on that Medicaid roll.

You might determine that the numbers are different. You might decide that we want 175,000 on private insurance and fewer on the Medicaid rolls. You toggle it. It’s adjustable based upon the percent of the poverty level.

What this accomplishes is it’s a work incentive; it also gives those on the private marketplace greater access. Medicaid has good access, but you’re going to be able to go to any insurance-reimbursable doctor who accepts your insurance plan. It’s improved access. It’s cost savings for the traditional Medicaid program.

Take a look at that. It’s a different approach. I think it incentivizes work, allows us to save money and it allows us to continue pilot programs.

The sixth goal is something you’re already working on and that is cost savings. My goal is to have the state revenue share of Medicaid expenditures limited to pre-private option dollars plus inflation. This means we must realize $50 million in savings per year from the current Medicaid program and the expanded program. This is 3.4 percent of the state contribution currently. It’s manageable, we can save that money, but it’s going to take some work.

It is doable and it is necessary.

If you remember one of my original charts, if you look at 2020, when the accounts payable comes due, that is $50 to $60 million that’s going to be taken out of the state’s general revenues. We’ve got to figure out a solution for that. My solution is to accomplish that through the broad savings in the Medicaid budget.

The options for savings include reducing the reimbursement rates, improved efficiencies overall, managed care with one or more elements of Medicaid, or expansion of the payment improvement initiative.

Some of you might say I don’t like those. I don’t like managed care. I don’t like the payment improvement initiative. I don’t want to reduce the reimbursement rates. You can say no to one or more of those, but you can’t say no to all of them. You’ve got to say yes to some of them because you have to realize a savings.

I am asking you to accomplish $50 to $60 million in annual savings, so that we can accomplish the Medicaid expansion to cover the 220,000 who are currently covered by the Private Option.

As part of this cost-savings initiative, Arkansas should request a global waiver from the federal government, similar to a block grant approach, in which we are provided federal Medicaid dollars combined with the flexibility to manage our program, create efficiencies, provide work incentives and to plow that savings into the expanded coverage and more support for private coverage.

The specifics on these savings should be based upon your work and the report of the John Stephen Group. The key is that we’ve got to realize those savings.

The seventh element of the plan that I would suggest to you is to strengthen the program integrity. It is essential that those who receive the benefit qualify. The program should be audited, checked and verified on a regular basis. As of July 1, there were more than 250,000 on the Private Option. As I said, I expect that number through the reverification process to be reduced to about 220,000. The cost difference for that 30,000 is $15 million per month. Or $180 million a year. I believe program integrity is important. I believe that those who are in the program need to qualify based upon the income guidelines.

Now we have to balance program integrity requirements that you might impose with the administrative burden on DHS and the cost associated with compliance. I’ve learned some things, and one is that there are administrative challenges to some things that you do legislatively. Please consider that regulatory burden, the administrative costs, and be practical.

Those are my seven elements. I did not see anyone break out into applause at one particular element. That’s okay. I am putting this out there because I wanted you to hear some of my views. I wanted to put out some options and a plan that you could pick at, that you could work on, that you could noodle on. You might have better ideas. You probably are working at those, and I applaud you for that effort.

As Governor, I would accept the continued expansion dollars from the federal government if we can achieve the 1115 waivers that are needed. These are the requirements that we need to accomplish our objectives, reinforce our values and to afford our future.

Business as usual is not acceptable. Washington, D.C., accounting does not work in Arkansas. We have to plan for the future.

Now let me make a couple of other side comments to challenge you all on. If you look at the seven elements of my plan, none of those seven elements require a 1332 waiver. All of those seven elements can be enacted with section 1115 waivers. That means that we don’t have to have the sophistication of a state-run exchange. Right now we’re building a state-run exchange with a $99 million grant from the federal government. And I am asking the question why are we building a state exchange rather than relying upon the continued partnership with the federal exchange? The answer that I get is that we need room for innovation. The innovation that I outlined are section 1115 waivers, flexibility, work requirements, referrals, some very innovative ideas. They can be done in the federal marketplace, in the federal exchange that we are partnering with right now.

So I would ask Mr. Chairman, Mr. Co-Chairman, to consider the direction of the task force that we need to recommend on the state exchange. If you have innovative ideas that require the state exchange, then we might need to continue to build it. But under this plan, you only need section 1115 waivers and it’s not required to have that state exchange.

Secondly, I would offer one more thought. Timing-wise, y’all will make your decisions this year, we’re going to have to have a legislative session to adopt any changes and debate these and get that high margin of vote that we need, and then we’ve got to work with the federal government for the waivers that are needed for our plan to work. We’re on a short time frame.

We’re going to be negotiating with this administration. Some of you might way, well we may be able to get more flexibility in a subsequent administration. Some of you might say we’re going to get less flexibility in a subsequent administration. But elections do make a difference. So the timing of when we get these waivers and  is important.

We’re going to do it now, but you van have a permanent solution or you can have a sunset solution so that we have two opportunities to seek the waivers and the flexibility we need. But I as governor want to have the maximum flexibility so that we can run the program in Arkansas that meet Arkansas’s objectives.

Let me say thank you for your attention today. Thank you for giving me an opportunity to present some ideas. I’ve offered a specific approach. You can improve upon the ideas, but please be politically realistic and cost-minded and please set aside why and how we got here. Because guess what? Why and how we got here is not necessary for the decisions we make for our future.

I stand ready to work with you. Thank you for your time today. Thank you for your efforts.

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