The Healthy Indiana Plan 2.0 as a form of Medicaid expansion: Part 2 – Policy Analysis

In a previous post, I provided some background on the politics of Indiana Governor Mike Pence’s proposal to use a modified version of the Healthy Indiana Plan as a substitute for the expansion of traditional Medicaid under the Patient Protection and Affordable Care Act (Obamacare). In this post, I will explore in more detail how the original and modified versions of HIP were designed and the implications of this idea in terms of public policy.

When it comes to the issue of health care, I believe that people in my party need to be solutions conservatives. We must never forget that we’re talking about real people, working people, who deserve a better way. Indiana Governor Mike Pence, address to American Enterprise Institute, 5/16/2014

Nuts and bolts

The gist of the original Healthy Indiana Plan program was a health plan with an $1,100 deductible. Beneficiaries had to make regular financial contributions to a savings account known as a POWER account based on a percentage of their income (between 2% and 5%). State and federal Medicaid funds would fill in the difference between those contributions and the deductible and then finance the traditional coverage after the deductible. Then the beneficiaries spent down that account when they got care — so they were supposed to be more price-sensitive.

At first glance, this would seem like a bad deal for beneficiaries when compared with traditional Medicaid that required no financial contributions at all, but HIP did provide some unique advantages. The most important advantage to beneficiaries was this: HIP provided much better access to physicians than traditional Medicaid due to its higher reimbursement rates.

One problem that Medicaid beneficiaries often face, despite having health coverage, is the ability to actually use that coverage to get access to health care because physicians are reluctant to accept Medicaid patients since it’s often a money-losing proposition for them. So even though they are given the means to pay for medical services, they are still often left with little choice but to go to emergency rooms for non-emergent care — which costs everyone more money.

So, despite conventional wisdom about expanding health coverage, an expansion of traditional Medicaid in Oregon actually increased trips to the emergency room instead of decreasing them, and the beneficiaries did not experience much in the way of improved health. Without a requirement to make any financial contributions, beneficiaries did not feel the pinch of using a higher level of care than they really needed. These results were not lost on Governor Pence when he announced HIP 2.0 as a better way forward.

The low reimbursement rates in traditional Medicaid create very real access problems for beneficiaries, and I’m all for bringing those rates in closer alignment with Medicare and private insurance, but that comes at a cost.

One way the original Healthy Indiana Plan controlled costs to taxpayers in spite of the higher reimbursement rates was to set a numeric cap on enrollment, meaning that people who met the income guidelines could still be turned away if the program was “full,” so people not only needed to be poor, they needed to be fast. And turned away they were: as of December 2012, HIP had 36,500 enrollees and 46,388 eligible people on the waiting list.

Changes in HIP 2.0

Pence’s proposal for HIP 2.0 includes some significant changes from the original version of HIP. Here are the most significant:

  • Removal of the enrollment cap: Now anyone earning up to 138 percent of the federal poverty level can participate without being waitlisted. This is perhaps the most significant change to HIP — making it an entitlement program instead of a block grant program.
  • Employer Benefit Link: For participants who are employed but cannot afford to participate in the plans offered by their employers, there is an option to redirect the HIP funding to help pay for their plan at work.
  • Tiered plans: If participants don’t make regular contributions toward their POWER accounts, they will be shifted from the HIP+ plan to the HIP Basic plan. (They can also opt into the HIP Basic plan if they want to.) In the basic plan, participants will not have to make contributions, but they will have copays when they receive services. Because the required contributions to the POWER account are small and on a sliding scale based on income, the HIP Basic plan could lead to higher out-of-pocket costs for participants.
  • Higher deductible: The deductible is increased from $1,100 to $2,500, but participants in the HIP+ plan will only need to make required contributions based on income…the state still funds the remainder of the POWER account up to the deductible.
  • Workforce development: Anyone who applies for HIP will be connected to employment and job training programs.
  • Dental and vision coverage: HIP 2.0 is designed to include dental and vision coverage in additional to health coverage.

Bending the cost curve?

Reforming traditional Medicaid through this kind of market-based, consumer-driven approach is essential to creating better health outcomes and curbing the dramatic growth in Medicaid spending. Indiana Governor Mike Pence, quoted in The Indianapolis Star, 5/16/2014

Despite Pence’s claims about using contributions from HIP beneficiaries to control costs, Indiana’s state actuary reported that expanding Medicaid via the HIP program would actually cost taxpayers more than expanding traditional Medicaid, presumably because the contributions from beneficiaries would not be enough to offset the much higher reimbursement rates to physicians and hospitals. (Note: The Indiana Family and Social Services Administration disputes that, saying that the actuary determined that HIP will cost less than traditional Medicaid.)

I think it’s a great thing. The only thing I’ve asked this governor to do was provide more health-care coverage. It’s better late than never. Indiana Democratic Representative Ed DeLaney, quoted in The Indianapolis Star, 5/16/2014

Democratic Representative Ed DeLaney, often one of Pence’s harshest critics in the Statehouse, has applauded Pence’s move to expand the Healthy Indiana Plan. And so do I.

As long as the financial contributions from beneficiaries don’t become prohibitively high, it’s good to give them a little skin in the game so that they access care wisely. It’s hard to argue with the fact that traditional Medicaid is severely broken, mostly because it’s so difficult to access physicians and hospitals.

My biggest objection to HIP in the past was the enrollment cap that cruelly excluded tens of thousands of people who met the income guidelines just because they didn’t get in line first. That cap has been eliminated in HIP 2.0 so anyone meeting the income guidelines will get coverage…no more waitlists.

Whether this will benefit Pence in a general election for a possible presidential run in 2016 or 2020 (which is quite likely) or hurt him in a GOP primary remains to be seen.

I’m about the last person who wants to say anything nice about Mike Pence (except maybe Ed DeLaney), but I applaud him for trying to come up with a solution. I hope he and the federal government can work it out for the benefit of Hoosiers below or slightly above the poverty line who so desperately need medical coverage.

2 thoughts on “The Healthy Indiana Plan 2.0 as a form of Medicaid expansion: Part 2 – Policy Analysis

  1. Pingback: The Healthy Indiana Plan 2.0 as a form of Medicaid expansion: Part 1 – Background | The Health Policy Wonk

  2. Pingback: What happens to Pence’s HIP 2.0 if Obamacare is repealed? | The Health Policy Wonk

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