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Obama Administration Denies Waiver for Indiana's Popular Medicaid Program

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Medicaid, of course, is the nation’s government-run health insurance program for the poor. In theory, it’s jointly run by the federal government and the states, but in reality, any time a state wants to make the tiniest changes in its Medicaid program, it has to go hat-in-hand to the U.S. Department of Health and Human Services with a formal request for a waiver, and these waivers are usually denied.

Indiana succeeded in gaining a waiver in 2007 because it was seeking to expand Medicaid to a group of people who weren’t then eligible for the program, and because the state's effort required no additional outlays from the federal government (the Medicaid expansion was paid for with a 44-cent increase in the state’s cigarette tax.)

Structure of Indiana's consumer-driven Medicaid plan

Beneficiaries get a high-deductible health plan and a health savings account, called a POWER account, to which individuals must make a mandatory monthly contribution between 2 to 5 percent of income, up to $92 per month. Participants lose their coverage if they don’t make their contributions within 60 days of their due date. After making this contribution, beneficiaries have no other cost-sharing requirements (co-pays, deductibles, etc.) except for non-urgent use of emergency rooms. The state chips in $1,100, which corresponds to the size of the would-be deductible.

Those who have money remaining in their POWER accounts at the end of the year can apply the balance to the following year’s contribution requirements, if they have obtained a specified amount of preventive care: annual physical exams, pap smears and mammograms for women, cholesterol tests, flu shots, blood glucose screens, and tetanus-diphtheria screens.

“We did a lot of reading on criticism of health savings accounts,” says Seema Verma, who was the architect of the Indiana program. “One of the criticisms was that people didn’t have enough money to pay for preventive care. So we took preventive care out, made that first-dollar coverage. Also, people said that people didn’t have enough for the deductible, so we fully funded it. Then, you have to make your contribution every month, with a 60-day grace period. If you don’t make the contribution, you’re out of the program for 12 months. It’s a strong personal responsibility mechanism.”

Indiana’s Medicaid successes

The program has been, by many measures, a smashing success. “What we’re finding out is that, first of all, low-income people are just as capable as anybody else of making wise decisions when it’s their own money that they’re spending,” Mitch Daniels explains in a Heritage Foundation video. “And they’re also acting more like good consumers. They’re visiting emergency rooms less, they’re using more generic drugs, they’re asking for second opinions. And some real money is starting to accumulate in their [health savings] accounts.”

The program has been overwhelmingly popular in Indiana. There’s a large waiting list—in the tens of thousands—to enroll in Healthy Indiana; enrollment was capped in order to ensure that the program’s costs remain predictable. 90 percent of enrollees are making their required monthly contributions. “The program’s level of satisfaction is at an unheard-of 98 percent approval rating,” Verma told Kenneth Artz. Employers didn’t dump their workers onto the program, crowding others out, because you needed to be uninsured for six months in order to be eligible for it.

A 2010 study by Mathematica Policy Research found that the program dramatically increased the percentage of beneficiaries who obtained preventive care, from 39 percent in the first six months of enrollment to 59 percent after one year. Of the members who had money left in the POWER accounts at the end of the year, 71 percent met the preventive care requirement and were able to roll the balances over to the following year. (The remaining 29 percent could roll over their personal contributions, but not the state contributions to their POWER accounts.)

This is an astounding achievement, given that the biggest problem with Medicaid is the way that it ghettoizes its participants, preventing them from gaining access to routine medical and dental care. This lack of physician access is the biggest reason why health outcomes for Medicaid patients lag far behind those of individuals with private insurance, and even behind those with no insurance at all. Healthy Indiana has completely reversed this trend, achieving preventive care participation rates that are higher than the privately-insured population.

The program is not without blemishes. In 2009, the costs of the program exceeded the revenues gained from the cigarette tax, a problem that may continue in the current economic environment. But because enrollment is capped, the program can’t cause the kinds of runaway fiscal problems that have roiled most states.

HHS declines to renew Indiana’s waiver

Unfortunately for Indianans, the Healthy Indiana Plan’s waiver expires at the end of 2012. And Kenneth Artz is reporting that the Obama Administration has denied Mitch Daniels’ request for an extension. “We applied for an extension with the Department of Health and Human Services in March,” Seema Verma told Artz. “They turned us down because they hadn’t written the regulations for Obamacare yet.” (H/T Ben Domenech.)

According to Verma, the state will now have to file a much more complex “State Plan Amendment” that may not get approved before the Healthy Indiana program is set to expire. Gov. Daniels has also written to HHS Secretary Kathleen Sebelius, asking her for permission to use the Healthy Indiana Plan to handle Obamacare’s mandatory expansion of Medicaid. He hasn’t heard back.

How can it be that the Obama Administration, which claims to side with the poor, is willing to destroy a popular program that provides the poor with superior health care? Perhaps it’s a bureaucratic issue, as HHS told Verma. Perhaps it’s an ideological suspicion of consumer-driven reforms. Whatever the reason, tens of thousands of people will be needlessly harmed, and it will be a black mark on those who are responsible.

UPDATE: Claudia and William Anderson write about the conflict between Indiana and Obamacare at The Weekly Standard.