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Breaking: Memo on Governor Pence’s Medicaid Expansion Announcement

TO: Indiana Legislators and Conservative Health Policy Leaders

FROM: Jonathan Ingram and Christie Herrera, Foundation for Government Accountability

RE: Governor Mike Pence’s Medicaid Expansion Announcement

DATE: May 15, 2014

Today, Governor Mike Pence announced plans to implement ObamaCare’s Medicaid expansion using tenets of the Healthy Indiana Plan. Now in its seventh year of operation, the Healthy Indiana Plan currently extends health coverage to all Hoosiers earning up to 100% of the federal poverty level (FPL). Unlike traditional entitlement programs, enrollment in the Healthy Indiana Plan is capped, based on available funding.

Right-leaning health policy observers have long debated the merits of the Healthy Indiana Plan. Those who opposed the plan will certainly find flaws in Gov. Pence’s expansion proposal.

But for supporters, one glaring point remains. Any CMS-approved Medicaid expansion plan will likely gut the critical elements of the original Healthy Indiana Plan—relegating Gov. Pence’s proposal to Medicaid expansion by another name. Consider:

Gov. Pence’s proposal creates a new entitlement for able-bodied adults without children. Although a small number of childless adults previously qualified for the Healthy Indiana Plan, their enrollment was always subject to available funds from other Medicaid savings initiatives. The program capped the number of childless adults who could enroll at 36,500. Gov. Pence’s new plan turns that small, limited program into a massive new entitlement for childless adults. More than 284,000 able-bodied childless adults (and 91,000 parents) will become eligible for Medicaid expansion, an increase of nearly 700%. And unlike the Healthy Indiana Plan, there is no cap on enrollment, obligating the state to provide benefits to those individuals regardless of the availability of funds.

Gov. Pence’s proposal increases Medicaid eligibility under ObamaCare. Currently, the Healthy Indiana Plan only serves individuals earning below the federal poverty level, though it once served individuals with higher incomes. Gov. Pence’s ObamaCare expansion proposal not only lifted the enrollment cap, it also increased the eligibility threshold from 100% to 138% FPL. Individuals earning more than 100% FPL are currently eligible for subsidies through the ObamaCare exchange. They would be forced out of the exchange and into Medicaid under Gov. Pence’s proposal.

Gov. Pence’s proposal reduces skin-in-the-game and incentivizes costly ER use. The Healthy Indiana Plan requires contributions ranging from 2% to 5% of income, with a minimum contribution of $160 per year. The plan also attempts to incentivize childless adult patients to avoid using ERs for non-urgent needs by imposing a $25 copayment. These contribution and incentive provisions have long been celebrated by Healthy Indiana Plan advocates. Gov. Pence’s plan, however, greatly reduces the required contributions, giving enrollees less skin-in-the-game. In fact, these monthly contributions are completely eliminated for three-quarters of the expansion population if they choose the “Basic” plan option and are as low as $3 per month for plans that include extra benefits like dental and vision coverage. Pence’s plan also reduces some copayments for unnecessary ER use to just $8, though it attempts to keep the $25 copay in some situations. Based on what CMS has denied in the past, the final deal will likely replace the $25 copayment altogether, imposing only the nominal $8 copayment currently allowed by Medicaid rules. After all, if CMS rejected Iowa’s proposal to increase this copayment to $10, it is unlikely Pence’s plan would be able to keep the $25 copayment whatsoever. Reducing this copayment to nominal amounts will surely incentivize enrollees to make unnecessary ER visits more than they would under the Healthy Indiana Plan’s initial design.

Gov. Pence’s proposal crowds out private insurance. Under the original design of the Healthy Indiana Plan, individuals could only become eligible if they had been uninsured for at least six months and without access to employer-sponsored insurance. These requirements are nowhere to be found in Gov. Pence’s proposal, ensuring that taxpayers will be forced to pick up the cost of people who drop private insurance to enroll in taxpayer-paid Medicaid, as has happened in other states that have expanded Medicaid eligibility. Gov. Pence’s proposal also shifts individuals who qualify for subsidies in the ObamaCare exchange into Indiana’s Medicaid program, increasing crowd-out even further.

Gov. Pence’s proposal replaces a limited benefit package with ObamaCare benefits. The Healthy Indiana Plan’s benefit package had previously been approved by the federal government and is limited in nature. It does not meet ObamaCare’s standard of “benchmark equivalent” coverage and does not offer all the benefits as traditional Medicaid, including maternity coverage and non-emergency medical transportation. Additionally, the Healthy Indiana Plan has annual and lifetime limits on benefits. Gov. Pence’s proposal replaces this limited benefit package with more robust ObamaCare benefits, losing the design flexibility Indiana had previously secured. In fact, Pence’s “Plus” plan covers additional benefits not even required by ObamaCare, such as vision and dental.

Gov. Pence’s proposal turns required contributions into mere suggestions. Under the Healthy Indiana Plan, enrollees who failed to make their required contributions into so-called “POWER Accounts” were automatically disenrolled from the program and barred from enrolling again for at least 12 months. Those individuals also forfeited 25% of the remaining funds they had contributed to their accounts. Gov. Pence’s proposal eliminates the ability to disenroll those below the poverty line by eliminating any required contributions. For those above the poverty line, Pence’s plan cuts the lock-out period in half to just six months. But even this six-month lockout period is likely to be denied by CMS, if its approved waiver agreement with Iowa is any indication.

States like Arkansas and Iowa were flamboozled into supporting ObamaCare’s Medicaid expansion with the federal government’s false promises of flexibility. What those states were left with was an ObamaCare Medicaid expansion with some free-market window dressing.

Gov. Pence and Indiana legislators shouldn’t make this same mistake. The best course of action is to walk away from any Medicaid expansion proposal that subverts the original intent of the Healthy Indiana Plan.

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