December 11, 2007

Public Comment on Proposed Medicaid Cuts in RI
Ted Almon CEO Claflin Company

First, let me make it clear I am not here to be critical of the Governor or the administration. I believe they face a particularly vexing problem in balancing the State budget and are earnestly seeking the most practical and humanitarian solutions. I also realize that we are reacting to a recommendation from the Dept. of Human Services not yet adopted into the budget proposal expected in January.

Having said that; I am here as a businessperson to question the fiscal soundness of the recommendation. Just as tax cuts are often touted as a way to stimulate government revenue, government spending, perhaps especially Medicaid where the majority of the dollars come from the federal government, is subject to State taxes on many levels as the money trickles down through our economy. Savings from Medicaid cuts could well lead to tax revenue declines that minimize or even eliminate the savings.

The loss of substantial reimbursement within the medical infrastructure could cause employment losses and the attendant cascade of costs, and the substantial total reduction in dollars flowing through, is sure to have a chilling effect on an economy we are trying to grow not shrink.

But perhaps the most compelling argument against cuts to these programs is that the cost of providing care to this population will not go away. DHS is not proposing we stop caring for these people as far as I know, but their access to care is likely to be more difficult for them, and more costly for the rest of us. We could well be exacerbating the problem we set out fix.

Medicaid programs are already heavily subsidized by health care providers, and ultimately by those who purchase commercial health insurance, principally the business community. Even incremental cuts to Medicaid by the State will only further shift this burden while doing little else to address the fundamental cost problems in our healthcare system.

The State budget situation in RI could well be described as a crisis, but those of us in business know crises can often hold opportunity, and that is a terrible thing to waste. If allowed to chide our political leadership at all I would point to their lack of will to reform healthcare financing, which is widely seen as their responsibility to the community they serve. I am hopeful we will seize this opportunity to start this public debate in earnest.

Thank you,

November 25, 2007

Why RI can't mimic MA Health Reform

As the healthcare reform discussion advances on many fronts in our State, there is increasing focus on the program in place in our neighbor to the north. As the MA plan passes its first birthday, it is increasingly seen as a bold and broad effort toward the goals all States seek in their healthcare systems, universal coverage at an affordable cost. Together with high quality, these are the three legs of the healthcare stool and it is recognized that reform must balance these critical elements to avoid unacceptable disruption of the parts of the system that do work acceptably.

But you have to start somewhere, and MA made the access, or universal coverage leg of the stool the initial focus of their reform. They intend to accomplish this with an elegant if somewhat broad stroke-mandatory insurance. Everyone in the State will be required to buy health coverage or face tax penalties. Employers who do not provide acceptable coverage will be fined, and subsidies for low income families will be made available. The "Commonwealth Connector" is an Insurance plan exchange intended to aggregate payment from all sources and to regulate benefits and premiums. To date the plan, as yet still not fully implemented, has been well received. Recent opinion polls show encouraging acceptance by both business and labor. Naturally the idea of such an individual mandate would be of interest for its potential of appeasing both the left, by greatly extending coverage to the uninsured, and the right since it is based on individual responsibility to buy coverage. So what are we waiting for?

Well for one thing, there are a few dark clouds on the northern horizon, the most significant being that the cost of basic coverage is somewhat higher than planners had hoped. This is triggering an overrun in the budget for subsidies of nearly $160 million. Keep in mind that the State had already planned a cost of approximately $450 million to achieve near universal coverage. And the "near" is of concern to advocates too. It will be admittedly difficult to attract healthy individuals at the low end of the non-subsidized scale by tax penalties that may be of little consequence in their bracket. Still there is optimism because the Commonwealth's robust economy should be able to handle the costs, and the long term benefits of having nearly everyone covered when subsequent cost control measures are considered is a powerful tool. Herein lays the unfortunate contrast with the fiscal situation in RI.

The individual mandate is a technique that requires some investment up front in building what could eventually be a more efficient healthcare delivery infrastructure. Our State, facing a daunting structural deficit already, simply lacks the ante to get into the game this way. We need a plan that either addresses the cost leg of the stool first, or at least at the same time as access is expanded-a pay as you go solution, so to speak.

Even discussing "Universal Healthcare" in any bi-partisan forum is a torturous exercise. One can imagine that MA planners, facing the loss of an enormous pool of Federal matching funds if they failed, must have had to proscribe many potentially fertile reform ideas in reaching consensus. For example, the MA plan relies on traditional commercial insurance to pay for care. Critics of the individual mandate decry this as merely a public subsidy of private companies that may be inefficient and profitable at the same time. Insurance companies are also a powerful interest group with considerable influence in the political arena, but MA had a broad array of carriers participating in their market as compared to RI, with only one dominant and one secondary insurance player. Could it be that a solution that would pare some costs from the profit and heavy administrative burden the payers impose could be possible here?

Another structural problem MA planners faced is that in spite of the plethora of health plans, actual health care in the State is very expensive. Experts point to the relatively more advanced stage of the competitive healthcare provider market, now dominated by Partners Healthcare System and other Harvard Medical School affiliates who have tended to set a ceiling, rather than a floor in the cost of medical services. On the other hand the MA economy has benefited generously from the exporting of these cutting edge medical capabilities. Again, the situation in RI is a study in contrast. We have a lower cost provider infrastructure which will make near term improvement more difficult, but we are an importer of care among Rhode Islanders who routinely seek care in greater Boston. Businesspeople know that improved productivity is much easier with expanding volume. One strategy RI could consider might be to improve our inter-state competitive stance by building a truly world class academic medical center here, such as that proposed by Brown University, and Lifespan through its merger with Care New England. This would be accomplished with private money at no cost to the State. We could then dismantle our intra-state competitive hospital market in favor of a more collaborative and efficient "centers of excellence" model.

Eventually, unless healthcare reform ever graduates to the national political agenda, all states will have to focus on the reimbursement system for providers if important progress in controlling healthcare costs is to be achieved. The dilemma is that this is nearly impossible with the fragmented financing our employer based, insurance funded system provides. Massachusetts has made important progress in establishing the Commonwealth Connector and in de-coupling coverage from employment through the individual mandate. If they can afford the cost of delaying significant cost control they could yet be successful. Rhode Island will need an even bolder and more nimble approach in light of our fiscal capacity.