The Agenda

Mike Pence Isn’t Giving In to Obamacare

Republican governors and state legislatures across the country are under pressure to accept Obamacare’s Medicaid expansion, and the Obama administration and health-reform liberals are excited to announce their latest victory: Indiana governor Mike Pence has announced he’ll take the money and buy into the law he’s supposed to want to repeal.

Well, not so fast: Pence isn’t doing what, say, governors John Kasich and Chris Christie (Republican governors of bluer states) did, and decide to expand their state’s Medicaid programs basically as-is. Pence wants to use federal funding to expand an altered form of Healthy Indiana, a program the state’s run since 2008 for people with incomes up to 200 percent of the poverty level. Pence isn’t really “expanding Medicaid,” and the Obama administration can’t really claim that he’s going along with the law — he’s trying to bend it as much as possible.

But that doesn’t mean what he’s doing is a great idea, because there’s only so much he can bend it. Healthy Indiana was praised by many conservatives but criticized by others, and now Pence’s proposal both supersizes it and waters down in order to have a chance at approval from federal health-care bureaucrats.

What did he have to do to it?

A brief explanation of the original Healthy Indiana (“HIP”) program: Everyone earning under 200 percent of the poverty line not already eligible for Medicaid could apply, though the number of spots were limited. HIP enrollees to make contributions between 2 and 5 percent of income every month to a health-savings account, called POWER, which the state would subsidize so that the contributions equaled $1,100 each year. The deductible for their plan was equivalent to that, $1,100, after which they had catastrophic coverage paid at Medicare (not Medicaid) rates. Preventative care was totally free — which is a good thing for the unhealthy population Medicaid serves — and were required if enrollees wanted to roll over their HSA contributions from year to year. (A good simple explanation of the program can be found in this FAQ.)

Before the ACA, lots of states around the country chose, like Indiana, to expand Medicaid beyond its standard federal eligibility categories with their own funds, but HIP was probably the most conservative and most consumer-driven. It certainly was much better than ordinary Medicaid: It required contributions from the enrollees and incentivized them to use the right care and avoid the emergency room, while ordinary Medicaid has almost no cost-sharing at all. It also got them much better access to care because its reimbursement rates were much higher than standard Medicaid’s. It was expensive — more expensive than expected — but getting health insurance for poor Americans is never going to be cheap. It was extremely popular, and though health outcomes weren’t yet clear, preventative care use was up and emergency-room use was down versus normal Medicaid.

But in order to get a waiver to spend the money on offer from the ACA Medicaid expansion — which would allow Indiana to provide the program to a lot more citizens who were eligible — Pence had to change the program to make it more comprehensive and more generous.

Here’s where the problem comes in: Critics of Pence say he’s changed the program so much as to make it unrecognizable, a terrible idea, and basically just any old Medicaid expansion.

They’re wrong: It still is fundamentally consumer-driven in a way ordinary Medicaid is not; it should work a lot better for people’s health than ordinary Medicaid; and it’s a clear rejection of the one-size-fits-all approach of Obamacare.

The plan is far from perfect: The standard insurance under HIP 2.0 is much more comprehensive than it had been, more in line with Obamacare’s exchange plans, and even including vision and dental. This may sound nice, but it raises the costs of the program a lot. The share of the costs that enrollees bear is smaller — they’re now responsible for HSA contributions of $3 to $25 a month. On the other hand, that may sound tiny, but it’s actually not much less than the 2–5 percent threshold under the old HIP, and remember that these are people making below the poverty line. The size of the HSA and the deductible has been increased to $2,500, and there are still co-pays for emergency-room visits (though some suspect these are something the feds will reject). It doesn’t reimburse doctors at Medicare rates like the original HIP, but rates will be higher than ordinary Medicaid.

Those under 100 percent of the poverty line who enroll but can’t make payments are put into a program that requires no enrollee contributions to the HSA and offers fewer services (“HIP Basic”). Unlike HIP 2.0, though, they’ll have copays — so no, this doesn’t involve a whole lot of personal responsibility, but it’s a lot better than regular Medicaid.

What are the other problems? Pence’s plan offers, besides HIP 2.0 and HIP Basic, a third option, called HIP Link, that will use the HSA contributions to subsidize premiums for those under 138 percent of the federal poverty line who have access to employer plans. John Daniel Davidson at the Federalist worry that this specifically means the plan will “crowd out” private insurance. I don’t really see how this is the case — HIP Link will subsidize people earning up to 138 percent of the poverty enrolling in the employer plans that most of them can’t currently afford and don’t buy. Three smart health analysts at Forbes argue that the expansion encourages crowdout in part because it will put people earning 100–138 percent of the poverty level into what’s technically Medicaid and make them ineligible for the exchanges, but the exchanges are incredibly subsidized and highly regulated for these people anyway. It’s true HIP 2.0 is more generous than the existing HIP and will accept people with access to private insurance (HIP wouldn’t), so it’s possible some people will choose it rather than employer insurance they have now. But only 17 percent of HIP-eligible Indianans do buy private insurance.

There are concerns for fiscal conservatives: A certain percentage of HIP 2.0 claims costs, plus the administrative costs of transitioning current HIP enrollees to HIP 2.0 and registering hundreds of thousands of new enrollees, paying for HIP Link — those are all costs Indiana has to pay with its own revenues rather than federal grants (it has a plan to do so). Davidson also worries that people will stay on HIP 2.0 rather than move to private insurance because they’ll lose the money in the HSA if they leave. This isn’t quite right, because they’ll get their own contributions back in cash, so it’s just moving from a heavily subsidized public plan to private insurance — which few of them can afford to do until they earn too much to be eligible for HIP anyway.

Pence’s plan eliminates a perverse element of Obamacare in non-Medicaid-expansion states, where people earning less than 100 percent of the poverty line can’t get subsidized insurance, but those earning more than that do. Davidson objects that HIP 2.0 is a new entitlement for able-bodied adults, but it isn’t really. It’s not new, and it’s the best way so far, under the ridiculous strictures of Obamacare and Medicaid, to ensure that poor people have access to health insurance. Most conservatives consider that an important goal. Flat-out refusing the Medicaid expansion, creating a new coverage gap for genuinely poor people, has the potential to be a problem for Republicans — a problem for which they should seek solutions before a Republican wins the Oval Office.

But is it impossible to find such an answer under Obamacare? Maybe — that’s why I understand people’s objections to Pence’s plan. But he’s made a pretty good effort.

The plan will be officially submitted to CMS for a waiver in June, and opinions on the odds of CMS’s approving Pence’s plan vary wildly: I’ve heard and seen everything from “extremely unlikely” to “pretty likely.” Pence can’t really afford to give an inch in negotiations — he shouldn’t settle for a plan like Iowa’s, Michigan’s, or Arkansas’s.

Those are the policy questions: This is far from a perfect conservative coverage expansion, but such things are basically impossible until 2017 or later.

The politics of this, I would say, are also complicated: Pence’s proposal could weaken the resistance of other red states opposing expansion, even though he clearly isn’t “buying into” Obamacare itself (an impression conservatives therefore shouldn’t foster). I don’t think his proposals here should be seen as a betrayal of conservative principles, making him a weaker potential national candidate in 2016 — he’s trying to be the best federalist he can in the age of Obama.

Patrick Brennan — Patrick Brennan is a writer and policy analyst based in Washington, D.C. He was Director of Digital Content for Marco Rubio's presidential campaign, writing op-eds, policy content, and leading the ...

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