By Rebecca Adams, CQ HealthBeat Associate Editor

October 19, 2012 -- Beyond the impact next month's presidential elections will have on the nation's health care policy, the winners of gubernatorial contests will have an important role in implementing the federal overhaul. The outcomes of three tight state races in particular will determine the future of Medicaid and health insurance marketplaces in those states.

If President Obama is re-elected, governors will have considerable sway over whether to expand Medicaid or operate their own state-run health insurance exchanges in 2014, among other policy choices. If former Massachusetts Gov. Mitt Romney becomes president, he is likely to try to stall or derail the 2010 health care law (PL 111-148, PL 111-152). However, unless the GOP wins a majority in the Senate, Romney would likely not be able to get an outright repeal of the law and governors would still face significant choices about health care in their states.

In the November elections, Republicans are favored to expand their gubernatorial advantage over Democrats—which could mean fewer states might accept the Medicaid expansion the health care law calls for than under the current lineup of governors.

The National Governors Association says that Republicans could have the greatest number of governors since 1922 if current polling holds. Of the 11 governorships up for grabs this year, Democrats are defending eight, while Republicans only have to maintain three.

Most polls indicate that the GOP is poised to have as many as 34 governorships after the election, up from the 29 they have now.

Republicans haven't had more than 32 governors at one time since the Great Depression, according to Republican Governors Association spokesman Mike Schrimpf.

Three of the gubernatorial races are toss-ups: Montana, New Hampshire and Washington. Although health care is not the top issue for voters in any of those contests, residents of those states ignore their candidates' stances on the subject at their peril.

University of Washington political science professor Mark Smith said that health care is something of a sleeper issue in that state's race. "It's a minor theme in the campaign overall," he said.

But that doesn't mean voters should be ignoring it.

"It's huge," said Fred Lynch, an associate professor of political science at Claremont McKenna College in southern California. "The problem with health issues is people don't think about them. The last thing people see coming is a health care crisis."

New Hampshire

In a state that is attuned to politics through its role as arbiter of presidential primary opponents, the Republican and Democratic candidates have clearly defined positions on Medicaid that line up with the national parties. Democratic former state Senate Majority Leader Maggie Hassan would expand Medicaid, while her opponent Ovide Lamontagne, a business attorney and former chairman of the State Board of Education, would not, according to their campaign staffs.

Current Democratic governor John Lynch, who has served for eight years and is not running again, has not said he would have committed the state to expanding Medicaid.

Lynch also signed a state law blocking New Hampshire from creating a state-run health insurance exchange without the consent of the legislature. The law does not prohibit the state from sharing data and cooperating with the federal government on an exchange.

The race to succeed Lynch is extremely tight. Two polls released this week showed Hassan two or three percentage points ahead of Lamontagne, while another showed the GOP candidate two points ahead.

"Maggie believes we should accept the $1.1 billion available for Medicaid expansion so we can expand access to more families," said Hassan spokesman Marc Goldberg.

Lamontagne spokesman Tom Cronin said that the Republican "opposes the expansion of Medicaid under Obamacare, as the Medicaid program is not designed to support able-bodied individuals who can access the private marketplace."

"Simply expanding the program beyond individuals with disabilities, poor women and children, and senior citizens for whom it was designed would not be the most efficient use of state nor federal dollars," Cronin said. Instead, Lamontagne would prefer a block grant approach that would provide the state more options. "By using these dollars to create a high-risk pool, for example, lower-income men and women in New Hampshire will be able to access the pool for assistance with purchasing care through the private market. The plans that can be designed in the private market have significantly more flexibility."

When it comes to the exchange marketplaces that are supposed to start in 2014, however, both candidates said they would be open to operating a state-run exchange if it feasibly can be done but are not sure that a state-only exchange is possible given the time constraints.

Hassan's staff said that she is interested in whatever approach is best for New Hampshire residents. Lamontagne's staff said that he is opposed to the health care law, but if it is clear that the federal government is prepared to implement an exchange in the state, he would work to try to create a state-run market instead.

Montana

The health care law is unpopular in Montana, and ads supporting former GOP Congressman Rick Hill have sought to tie Democratic Attorney General Steve Bullock to the overhaul. Bullock did not join the 26 state attorneys general who challenged the constitutionality of the law, a suit the Supreme Court decided in late June.

Montana—under Democratic Gov. Brian Schweitzer, who took office in 2005 and could not seek re-election because of term limits—is undecided on whether to expand Medicaid.

The race is neck and neck. A public poll released Sept. 21 showed Bullock one point ahead, while an Oct. 11 Democratic poll had Hill up by one point.

Bullock appears to be ducking the question of whether he supports broadening Medicaid; when asked by Montana media, he didn't say whether he would expand the program. There's no indication from his campaign materials whether or not he would support a state-run exchange.

He said at a health care forum in Helena in September that he needs to study the issue and its consequences more closely, according to the Associated Press. Bullock's staff did not return messages seeking comment on his position.

Hill, however, is clearly against the overhaul. Spokesman Brock Lowrance said Hill would not expand Medicaid.

"Medicaid expansion could put Montana taxpayers at risk, and Rick is not going to take actions that would threaten the solvency of our state or cause tax increases for Montanans," Lowrance said. "Rick will not support the Medicaid expansion if it puts Montana taxpayers at risk and increases the cost of health care in Montana. He believes we need to look at other mechanisms to solve the problem."

Hill, who once served on the board of directors for the state Blue Cross and Blue Shield Association affiliate, said at the September forum that he is open to operating a state-based insurance exchange. However, Republican legislators have voted to prevent the state from creating its own exchange, and Lowrance said Hill is not inclined to pursue a state-run exchange.

"If someone can come up with a valid reason on why Montana should have its own exchange, Rick is happy to listen to the argument," Lowrance said. "At present he doesn't see how a state-run exchange would be beneficial to Montanans."

Washington

The Democratic candidate is Rep. Jay Inslee, who voted for and is an outspoken supporter of the health care overhaul. He has said that the Medicaid expansion, especially with the federal government initially paying all or most of the costs, would benefit not only those who gain coverage, but also insured people whose costs sometimes are increased when providers shift the costs of covering patients without insurance to them.

Inslee's position is in sync with current Gov. Christine Gregoire's. Gregoire, who was first elected in 2005 and is not running again, has supported the Medicaid expansion in her state.

At an Oct. 2 debate, Inslee called the expansion a "no-brainer," according to local news reports, and said that insured people pay about $1,000 a year to subsidize the costs of uninsured people who are unable to pay their emergency room bills.

Inslee also has backed his state's existing plans to create a state-based insurance exchange.

The race in Washington remains within the margin of error. In three polls released this week, Inslee was one point to three points ahead of McKenna.

Of the Republican gubernatorial hopefuls in these races, Rob McKenna has the most detailed plan for how he would handle health care in his state.

An opponent of the central tenets of the health care law, McKenna joined the challenge by the GOP attorneys general. He notes that states eventually would have to pay some of the costs of expanding Medicaid. He cites an Urban Institute study showing that almost one-third of state residents would be eligible for Medicaid in 2014 if the state expanded its program, a statistic he calls "rather shocking."

Instead, McKenna wants to ensure that as many people as possible get private insurance, according to a policy plan on his website that shows an affinity for consumer-directed health plans, such as health savings accounts.

As part of McKenna's interest in private insurance, he is willing to operate the exchange as a state-run market. Washington has moved in that direction, and McKenna said that "if done right, the exchange can be a crucial element of extending coverage."

But he warns that the exchange must have "a broad range of choices for consumers."

"Our state must avoid the temptation to increase mandates, regulations and red tape that would drive new insurance carriers away from our market while increasing the cost of coverage," McKenna wrote.

Instead of expanding Medicaid, he would rather get grants from the federal government to replace the Medicaid entitlement.

Further, he suggests that states are in a good position to strike a hard bargain with the Obama administration if the president is re-elected.

The Supreme Court ruling "provides significant leverage for states to negotiate with the federal government for Medicaid reforms that allow us to provide better care and lower costs for the current population, before we consider the prospect of adding 328,000 new lives to the case load," he said on his website.

McKenna said that a per capita spending allotment "would realign incentives" and be "free of unnecessary and cumbersome federal constraints."

One thing McKenna would like to do is increase and give some teeth to the co-pays and other cost-sharing that Medicaid recipients pay.

"Washington is one of few states without meaningful cost-sharing for the bulk of its Medicaid enrollees," McKenna wrote. "Enforceable cost-sharing for current and new eligible populations must be allowed by the federal government as a means of curbing unnecessary utilization."

But Smith, the University of Washington professor, said he doubts that McKenna would really push hard for a block grant if he was elected or turn away federal funding, even if strings are attached.

"That's easy to say when the money is not sitting on the table," Smith said. "Most people think this is pure blustering because it's nine federal dollars for your one state dollar. At end of the day, that deal is too good for anyone to pass up."

Republican gains this year, regardless of whether they include Washington, will continue to erode Democratic control. Just five years ago, Democrats held the keys to the governors' mansions in 28 states, while Republicans did in 22. That represented the highest mark in 14 years for Democrats. But in elections since then, Republicans have moved ahead, with major consequences for Medicaid and the health care industry.

By Jane Norman, CQ HealthBeat Associate Editor

October 15, 2012 -- A market-based, privatized Medicare system is at the heart of the presidential candidates' battle over the system's future, and a recent Kaiser Family Foundation study bolstered Democrats' contention that shifting to premium support would mean higher costs for many seniors.

But Republicans pushed back hard, saying that the nonpartisan study by one of the nation's most respected health research organizations was little more than an academic exercise injected into the ongoing debate. Republicans also said that the analysis didn't make any attempt to quantify how much budget savings there would be and how Medicare's projected insolvency would be forestalled if a premium support system were adopted.

The Obama campaign in turn highlighted the study in a blog post on its campaign website, saying that "it's long been clear that Mitt Romney's plan to turn Medicare into a voucher program would have devastating consequences."

The Kaiser study, by Gretchen Jacobson, Tricia Neuman and Anthony Damico, found that six out of 10 Medicare enrollees would pay higher premiums on average for the same Medicare benefits they now have. That would include more than half of those signed up for traditional fee-for-service Medicare and nearly 90 percent of those in a Medicare Advantage private plan.

In addition, Medicare premiums would vary widely depending on where seniors live, assuming they kept the same plans they now have. In five states—California, Michigan, New Jersey, Nevada and New York—enrollees would pay $100 to $199 a month more for traditional Medicare because Medicare spending per enrollee is higher in those states. While beneficiaries in traditional Medicare all pay the same premium, what the system spends on them varies. In Florida, Medicare beneficiaries would pay an additional $200 per month than they pay now if their wanted to stay with their current plans, the study found.

A separate poll indicated that higher Medicare premiums or cost sharing are not popular. A new survey by the Pew Research Center said that 57 percent of Americans disapprove of making people on Medicare contribute more for their health care costs, though that was down from the 64 percent disapproval found for the same option in a 2010 survey.

Foundation analysts stressed that they were not trying to model any specific proposal in looking at how much premiums would rise if seniors received a set payment for their care to use for a private plan or traditional Medicare. That would require more detail than the Republican presidential candidate has disclosed so far in his advocacy of a premium support plan as well as assumptions about future demographics, spending and enrollment, the Kaiser authors said.

Another big difference is that the Kaiser study used data on current seniors, while Romney specifically says his plan would not affect anyone now 55 or older and wouldn't launch until 2023. Any new plan also likely would be phased in rather than implemented all at once.

But the study did say that the plan would be "similar" to the fiscal year 2013 proposal advocated by House Budget Committee Chairman Paul D. Ryan of Wisconsin, the GOP nominee for vice president.

"This analysis, therefore, should be viewed as a device for illustrating the potential effects of a fully implemented premium support system for Medicare beneficiaries, based on an approach to premium support put forward by several policy makers," the authors said.

Government Payments Tied to Benchmarks

Under the analysis, built on plan choices made by beneficiaries in 2010, federal payments to seniors would be tied to the second-lowest-cost Medicare Advantage plan offered in a geographic area or tied to traditional Medicare, whichever cost less. That plan would be considered the benchmark for payments. If a senior wanted a plan that cost more than the benchmark, he or she would have to pay more.

In addition, the analysis used 2010 Medicare expenditures by county and the 2010 costs of proving Medicare through private Medicare Advantage plans. Medicare Advantage receives a capitated amount of money from the Centers for Medicare and Medicaid Services to provide all Part A and Part B benefits, while government payments in traditional Medicare are simply tied to provided services.

And the analysis also assumed that in order to better compete, private plans would lower their bids by 5 percent across the board.

In 2010, about 25 percent of beneficiaries, or 11 million men and women, were enrolled in Medicare Advantage, though the share of people by county varied widely. In some places as few as 10 percent of enrollees opted for the private plan while in other areas it was as much as 50 percent.

The analysis found that 59 percent of Medicare beneficiaries, or 25 million people based on 2010 figures, would pay more than they do now for the same plan. That's because their set government payment would be tied to the benchmark and the benchmark would not be as generous as their current benefits, whether through a private plan or traditional Medicare.

The remainder of beneficiaries would pay the same amount or less, the study said.

Among those in traditional Medicare who opted to stay in traditional Medicare, they'd pay, on average, $60 a month more in additional premiums. And among those in private plans who wanted to stay in the same plan, they'd pay $87 a month more.

However, Chris Jacobs, senior policy analyst on the Senate Republican staff for the Joint Economic Committee, said in a critique of the Kaiser study that many changes have taken place in Medicare Advantage since 2010, including the first phases of cost reductions mandated by the health care law (PL 111-148, PL 111-152).

In addition, Jacobs said, the study doesn't explain the real problems with geographic disparities in Medicare in the current system and instead seems to attribute those problems to the premium support idea. Seniors in low-cost states like Wisconsin now pay the same Part B premiums as seniors in high-cost states like Florida, thus subsidizing higher spending in the Sunshine State, he said. That's really an argument against the status quo in traditional Medicare in which high-cost areas for too long have enjoyed a subsidy from lower-cost states, Jacobs said.

Democrats, however, said that the study showed that unless a senior in Miami paid thousands in additional costs, that senior would be forced into a new private plan that limited choice among doctors, unlike traditional Medicare. That means that the Romney plan could mean people with complex, chronic health needs lose access to their current doctors. Plus, the study just looked at the impact of premium support in a single year and didn't figure in the effect of a cap on the growth of the payments allocated to seniors, Democrats said.

• Kaiser Study on Medicare Premium Support (PDF)

By John Reichard, CQ HealthBeat Editor

October 19, 2012 -- The head of the $10 billion Medicare and Medicaid innovation center says he's "thrilled" with the response to a grant program announced this summer that aims to transform state health care delivery systems, one by one.

The program would accomplish that in large part by uniting government and business health care purchasers behind new payment models that spur providers to deliver more efficient care.

"It's all about being multi-payer," Richard Gilfillan, head of the Center for Medicare and Medicaid Innovation, told state officials at a meeting this week sponsored by the National Academy for State Health Policy.

Announced in July, the grant program is a $275 million initiative that aims to foster collaboration among health care purchasers, including business who pay for insurance and government programs. The application period for the first round of grants in the State Innovation Models program closed Sept. 17.

Up to 25 states will each get $2 million to develop plans for collaborating with employers, federal officials, and providers on retooling health care in the state. The remaining $225 million will be divided among the five states with the most promising "ready to go" state transformation models, Gilfillan said.

Why Multi-Payer Matters

"Multi-payer" might sound like more mushy policy jargon. But it could be key to new forms of payment that allow doctors and hospitals to actually reorganize treatment services to do the things many wonks want: more team-based care, access to doctors and nurses by phone and email, smarter use of health information technology, and better preventive care.

Why is it key? Because a medical practice, for example, can't reorganize to deliver care in promising new ways unless most or all of the insurers that cover its patients agree on a common payment approach that rewards the practice for the new model of treatment.

Gilfillan's comments struck a responsive chord with two fellow panelists at the conference in Baltimore: Andrew Webber. president of the National Business Coalition on Health, which represents 56 employer health care purchasing coalitions around the country; and Alan Weil, president of the National Academy for State Health Policy.

Gilfillan gave a concrete example of how multi-payer collaboration works: the Innovation Center's Comprehensive Primary Care Practice Initiative.

That pilot pays medical practices in seven markets to serve as "medical homes" for chronically ill patients. Patients get round-the-clock access to doctors and nurses, including the ability to email their doctors. Health care professionals call them to check on whether they are taking their medicine and getting other preventive care. The practice is supposed to coordinate their overall treatment, including care other doctors provide, to avoid wasteful tests and prevent medication mix-ups.

Practices get a per capita payment each month to provide these services. The practices can afford to make this change because virtually all the insurers they deal with—from Medicare to commercial health plans—have agreed to provide the monthly payment.

In the seven markets, 70, 80 or 90 percent of the patients in the participating primary care practices are covered by purchasers who are part of the coordinated project, Gilfillan said. "And what we're looking for in the state innovation model is to do the same thing in the states."

Gilfillan said CMS has convened panels to review the proposed system redesigns submitted as part of the Innovation Models program. States that have submitted these system transformation proposals include Maine, Colorado, Arkansas, Ohio, and Minnesota.

Gilfillan said the program also aims to enlist providers in system redesign efforts. He said they too want to coordinate in an efficient way with their peers to better take care of patients.

"We need to figure out a way to support our health care providers in delivering what they always went to school for," said Gilfillan. "Nobody went to school to deliver fragmented, expensive, unsustainable care. We think the state innovation model is actually the most powerful way for us to work together and create a world in which providers, other participants in the health care system, can pursue that."

Webber echoed that point. Innovative providers walk through his door every day saying that "we're ready to go" on retooling treatment, Webber said. They need employer unity on quality measures, new forms of payment, and benefit redesign that allow that to happen, he added.

Webber sees employer cooperation as key to making this project work. "I'm glad we're pointing the finger back at us as sort of the engine to make payment reform possible," he said.

He added that it isn't just a case of purchasers needing to come together, but also of purchasers needing to come together with providers.

Making It Happen

Weil, the panel's moderator, focused on how to take this conceptual agreement and turn it into a practical plan for collaboration. He prodded Webber and Gilfillan on that point.

Gilfillan replied that the innovation center is working with the federal Office of Personnel Management on a more unified approach to health care purchasing. Webber said employers and other purchasers must be persuaded to emerge from their "silos" to talk about a common approach, and that he's been thinking about how to get them "in the same room."

"That convening function is critically important," Webber said. Something along the lines of a "Value-based Purchasing Council" could be formed to bring together not only employers but also providers to discuss system redesign, he suggested. The council would need a business model that would let it be self-sustaining, he added.

The three speakers noted that system redesign would have to be customized to fit local markets. In some markets, care is relatively well coordinated. In others, it's very fragmented with little cooperation among local medical practices and hospitals. That means purchasers can't insist on one form of payment across the board, such as up front per capita payments for patient care. Why? Because providers may not be at a point where they can function in such a system and still must practice under the piecework, fee-for-service system until they organize and master team-based care.

Gilfillan said that's why the Innovation Models program approaches system redesign on a state-by-state basis. Experts don't yet have the knowledge to be able to say which approaches will work best, but "it will come."

Weil pressed further on how to get employers to come together.

At one point, the Rhode Island health Commissioner Christopher Koller stood up in the audience and joined Weil in that effort. Koller said that in his state he's been able to get health plans and government purchasers to the table. But the hard part is local self-insured employers that are branch offices of large national corporations. "We don't even know who to talk to," he said.

"Mea culpa," Webber replied, acknowledging the difficulty. He said that when he urges employers to become "change agents" in health care delivery they say "this is not what I was put on earth to do." But despite the frustrations involved, state officials need to try to engage the corporate headquarters of national self-insured employers, Webber advised.

He also noted that employers have a strong self interest in uniting despite their reticence. Their desire to have a more competitive workforce puts them "in the game of population health management."

But the challenges of bringing purchasers together are not to be underestimated. One of the big issues in bringing purchasers such as Medicare, employers and insurance exchanges together is that "everyone wants to have control," Webber noted.

By John Reichard, CQ HealthBeat Editor

October 16, 2012 -- It's widely assumed that the Obama administration is holding up action on major regulations in the weeks leading up to the Nov. 6 election—a tactic that may avoid political headaches but also is delaying efforts to implement the health law.

States and insurers are awaiting the issuance of at least a half-dozen regulations before they can make key design decisions on insurance exchanges and prepare health plan offerings to be sold in the new marketplaces. The rules they are waiting for are nowhere to be seen on the White House Office of Management and Budget (OMB) Web site that tracks which regulations federal budget officials are reviewing.

Since OMB review of regs can take weeks and months to complete before they are formally published, it's unclear how quickly the regulations would or even could be issued once the election is over.

That in turn heightens the uncertainty about whether insurance exchanges will be ready to enroll people on Oct. 1, 2013, as the health care law (PL 111-148, PL 111-152) requires, and whether there will be a plentiful choice of plans once they do.

Among the proposed regulations still not out: rules governing state insurance markets; rules on the federally facilitated exchange, which steps in to offer coverage in a state that chooses not to open its own exchange; regulations on essential health benefits; a notice concerning benefit and payment provisions, which includes risk adjustment to pay plans based on the health status of their enrollees and reinsurance to protect them from unusually high early losses in the exchanges; rules on establishing the actuarial value of a plan sold on an exchange; and rules on exchanges that would deal with such matters as appeals of eligibility determinations and oversight of health plans offered on exchanges and the financial integrity of those plans.

The administration has been creative about finding ways to move planning forward, through the issuance, for example, of guidance documents rather than full-blown regulations. But even health care law supporters appear to be getting nervous about the absence of new rules coming out of the regulatory pipeline.

"Reginfo.gov does not show any ACA regulations pending" at OMB's Office of Information and Regulatory Affairs, said Washington and Lee University Law School Professor Timothy Jost, a supporter of the law who closely tracks its implementation. "I do think it is important that we get regulations out soon on a lot of 2014 reform issues, including the EHB, the market reforms, the exchanges, and others and think that it is unfortunate that the regulations are not out or visibly moving," Jost said in an email.

"You always want stakeholders who want to implement this to have enough information to do so," said Senate Finance Committee Democratic aide Tony Clapsis at a Washington, D.C., forum last week. However, Clapsis suggested that any difficulties occurring right now are manageable and will ease in coming weeks. "I think, for states who want to implement exchanges, and if you talk to those states that are really active in trying to do so, they feel they have more than enough information." Much state activity is occurring on EHBs, or essential health benefits, he added. "You're starting to see kind of all of that. I think you'll see that accelerate very quickly as soon as we get past this election," he told the forum sponsored by Politico.

For their part, insurance industry officials say plans are busily preparing for the new law. But "there is a tremendous amount of work that needs to be done," emphasized Dan Durham of America's Health Insurance Plans in recent testimony before the House Ways and Means Health Subcommittee. "There is an urgent need for more regulatory clarity with respect to exchanges and insurance market reforms," he said.

"Unless such guidance is forthcoming, it will be difficult for health plans to complete product development, fulfill network adequacy requirements, obtain necessary state approvals and reviews, and ensure that their operations, materials, training and customer service teams are fully prepared for the initial open enrollment period that begins on Oct. 1, 2013," Durham said.

Administration officials declined to comment on when the regulations would be issued. But they have consistently said the law will be implemented on time. A Health and Human Services official repeated that prediction in an email this week. "HHS has worked to give states maximum flexibility in implementing the law and consumers in all fifty states will have access to an exchange" by next October, the official said.

By John Reichard, CQ HealthBeat Editor

October 17, 2012 -- A controversial program to let states move up to 2 million chronically ill low-income Medicare enrollees into managed care plans will roll out much more slowly than its architects originally envisioned.

The slower pace could blunt criticisms by lawmakers, some Medicare experts, and a top hospital industry official that the so-called duals demo is moving far too quickly to safeguard care for its vulnerable enrollees. Overall, some 10 million Americans are duals, shorthand for people eligible for both Medicare and Medicaid. Many of them are in fragile physical or emotional condition, or are cognitively impaired.
The Centers for Medicare and Medicaid (CMS) official in charge of the demo, Melanie Bella, updated state officials on the status of the program at a conference in Baltimore sponsored by the National Academy for State Health Policy.

Bella said that 25 states have applied to take part. She said 14 of those requested permission to launch their programs in 2013. The remaining 11 would begin in 2014.

In remarks at the conference and in an interview afterwards, Bella described her agency as moving at a very deliberate pace in handling applications from the states. She underscored the fact that so far only one state—Massachusetts—has received the go-ahead for its program, which is supposed to launch next spring. The review process is rigorous, she added, indicating that the fact that a state applies is no guarantee it will be approved.

Complex Politics

Bella's comments come against a backdrop of effusive praise for the demo from some observers, and at the same time of strong criticism from others. The reaction does not break down along party lines.

For example, Medicaid policy experts say the program, launched under the health care law (PL 111-148, PL 111-152) is long overdue. The status quo for the duals is unacceptable, they say, because too often these patients have no one to oversee their complex treatment needs. In many instances, they have a number of doctors and take a variety of medications.

The lack of oversight leaves them without protection against dangerous drug interactions. It means they don't take their medications on time and don't get other forms of preventive care that would reduce the need for costly hospital admissions and readmissions. It can mean unnecessary and duplicative testing. And, properly managed care could improve their health and safety. Also, it could cut billions of dollars in federal and state spending, experts say.

Federal and state officials hope the demo will be one piece of a complex solution to rising debt that threatens the nation's economic well-being.

Bella's plans for the demo earned her virtual rock star attention and admiration earlier this year at a meeting of the Medicaid and CHIP Payment and Access Commission (MACPAC). State officials have voiced strong support, notably Matt Salo, executive director of the National Association of Medicaid Directors.

But the large-scale shift of duals into managed care plans the demo envisions creates potential dangers too if not administered carefully. And depending on the tactics used by states, it could violate the legal right that Medicare enrollees have to choose their own doctor or hospital. Managed care plans often limit a patient's ability to see the provider of his or her choice. If a Medicare beneficiary freely chooses to enroll in a managed care plan, that's one thing. But if that choice isn't made without the beneficiary fully understanding the consequences, it's a violation of legal beneficiary protections, patient advocates say.

Beyond the patients themselves, many other players in the health care system have a strong stake in the demo. Hospitals and doctors treating the duals now could lose lots of revenue if they don't participate in the new managed care networks formed to treat these patients more efficiently. Members of Congress are wary about provoking a backlash from seniors if their care is mishandled. And policy experts who have long championed better managed care of the duals worry if the demo moves too quickly, efforts to streamline their treatment could be set back for years.

Policy leaders ranging from Federation of American Hospitals President Chip Kahn to Georgetown University professor Judy Feder have warned that the demo could violate the traditional right of Medicare enrollees to choose their own providers. The Medicare Payment Advisory Commission (MedPAC) has expressed concern that since for some duals and their families it takes many years to develop the right set of relationships with doctors and hospitals to facilitate the delivery of their treatment, that a shift to a managed care plan could cut off that care with dangerous consequences.

At a House Ways and Means Health Subcommittee hearing earlier this spring, MedPAC Chairman Glenn Hackbarth, anxious to assure the long term success of the demo, urged lawmakers to scale it back to a few states, to better learn how to manage care of the duals without causing them harm.

Keeping It Big, Moving It Slow

If lawmakers thought the hearing would be sufficient to pressure CMS to scale back the demo, they were disappointed. Bella sought to reassure the health community that duals would have free choice over whether to enroll in a managed care plan in the demo or stay in traditional Medicare.

She also explained why federal officials have stuck to their guns despite the pressure to back off.

"The leadership of CMS and the leadership of HHS—Secretary [Kathleen] Sebelius on down—is fully committed to these demonstrations,'' Bella said. "I mean the secretary having been a governor [of Kansas] faced much of the frustration that the states do in terms of really wanting to get solutions to this issue. So she's been on board since day one. Actually, well before day one.

"We've gotten a lot of concern over the size and the speed," she acknowledged, but "we've only approved one." The fact that 25 states have applied for the demo "means nothing about what CMS is approving."

Bella added that "it may be that not all states go forward." And when states do launch programs, their start dates will be spread out over two years.

Massachusetts, the first state, doesn't start until April of 2013 and California, which may be the next state approved, wouldn't start until June.

But clearly there are big obstacles to overcome. CMS is allowing states to request "passive enrollment," which means they can assign a dual to a managed care plan. The dual could then choose to opt out. This approach is thought likely to shift more duals into managed care plans than if duals had to "opt in."

CMS will require that beneficiaries get notification letters at least two months before the passive assignment explaining the new program and what their enrollment options are.

But that's likely to generate many, many questions, considerable confusion and anxiety, and require much individual counseling of duals or their families to help them decide what to do.

Bella acknowledged that "we had an opportunity about a week or so ago to field test some of our letters" in Massachusetts. "And let me say I think we failed miserably. Basically, all our feedback was 'We do not understand. Who is Medicare? We have MassHealth. What is Medicaid?' And all sorts of other things, like 'why are you sending me this letter in this envelope?' All of the stuff that you would expect, but it's a good exercise for us to go through.

"I just want to reinforce the importance that were placing on having a network of resources available to help beneficiaries understand choices," she added. CMS is pushing states to require the use of independent enrollment brokers and "choice counselors" to walk duals and their families through the options.

"We made funding available for the aging and disability resource centers and for the senior health insurance programs" to help with counseling,'' Bella said. "And then we will be working with advocacy organizations at a national level and each of the states on how we make sure that the messaging is clear."

CMS also is denying requests from states to "lock in" duals into managed care plans and keep them from leaving right away once they are enrolled.

In response to concerns about moving too quickly to learn from mistakes, CMS is requiring rigorous evaluation of the programs that includes the use of comparison groups to test how well a particular approach is working. "We have every reason in the world to have as rigorous an evaluation as possible because we don't these to just be demonstration in perpetuity," Bella said.

"This is hard," Bella concluded. "And these are complex issues. And you can't go at lightning speed. And so our commitment is to show that we are diligently and thoroughly working through these issues."

Capitol Hill, to say nothing of the health industry widely, will be watching.

By Melissa Attias, CQ Staff

October 15, 2012 -- All but one of the 50 states had joined Medicaid by 1972, seven years after the federal-state health insurance program for America's poor was created. Wary both of having to follow federal requirements and of the potential stress on its own budget, Arizona held out for 10 more years until the lure of federal health care dollars persuaded state officials to implement a program.

The concerns about Medicaid expressed by Arizona decades ago have persisted not only for that state but also for others across the country, and they have been exacerbated by the recession and the economy's tepid recovery. Medicaid enrollment climbed by almost 4 million people from December 2008 to December 2009, the largest one-year jump since the late 1960s, according to the Kaiser Commission on Medicaid and the Uninsured. Medicaid covered more than 67 million individuals, about one in five Americans, for at least one month in fiscal 2010, according to the program's 2011 actuarial report.

As the loss of jobs and health insurance pushed people onto the rolls, the federal government gave states roughly $90 billion in additional Medicaid money through the 2009 stimulus law and later provided $16 billion more to extend the aid for six months. But that money is long gone, leaving states to manage a significant increase in their costs. Importantly, states have had to maintain their eligibility standards for the program under provisions in the stimulus and the 2010 health care law.

"I don't know any state that sort of eagerly goes and takes health insurance away from people. But you cannot understate how much fiscal pressure states have been under in the last few years," says Alan Weil, executive director of the National Academy for State Health Policy. "They've been forced to make decisions they don't want to make."

The current strain on state budgets is evident and likely to persist, but that's only part of the story about this central pillar of the nation's safety net. States also face uncertainties about the direction the program will take down the road. The Supreme Court ruled in June that the Medicaid expansion in the 2010 health care overhaul is essentially optional, so each state now is weighing whether to participate. For those that decide to move forward, there's still a concern that the federal government might not sustain the financial commitment included in the law. And there's also a question of whether to turn the program into a block grant, as proposed by Wisconsin Republican Paul D. Ryan, the House Budget Committee chairman and his party's vice presidential nominee.

To Expand, or Not

Under Medicaid, the federal government matches state spending on the program based on a formula. The federal share is at least 50 percent in every state, according to the Kaiser commission, and was stretched as high as 74 percent in the poorest state in fiscal 2012.

As construed by the Supreme Court, the health care law gives states the option of extending their Medicaid programs to include individuals under age 65 with annual incomes up to 133 percent of the poverty level, with an enlarged matching rate. The federal government would cover 100 percent of the costs of those newly eligible from 2014 through 2016, with its share gradually decreasing to 90 percent in 2020 and thereafter.

Although some Republican governors have said their states won't participate in the expansion, many others are weighing whether the benefits of expansion outweigh the costs.

"I liken it to, you walk into a shoe store and there's a $200 pair of shoes marked down to 20 bucks," Weil says. "One way to look at it is, 'Wow, I can get a $200 pair of shoes for 20 bucks.' But if you look in your wallet and you only have 10, then it doesn't feel like much of a deal. And I think both of those are happening."

Among the things for states to consider is the relative health of those who would become eligible for the program. Beyond that is the potential of added costs for those who were already eligible for Medicaid and therefore would not be covered by the enhanced federal match but turn up on the program's rolls for a variety of reasons. Cutting the other way is the potential for savings from state health programs that might no longer be necessary as a consequence of the expansion or because of coverage provided through state insurance exchanges.

States also have to consider other provisions of the overhaul that will take effect even if they decide not to expand their programs, says Matt Salo, executive director of the National Association of Medicaid Directors. One example is that the law cuts payments to so-called disproportionate-share hospitals, which have large numbers of low-income patients. Those cuts begin in fiscal 2014.

"You're going to have state hospital associations who are looking at their future and saying, 'Well, we're getting hit. And if we get hit and we don't get the benefit of the Medicaid expansion, we're in real trouble,'" Salo says.

States also are grappling with the politics of any decision linked to the highly politicized health care law, as well as ideological issues about the proper role of government.

"State taxpayers and federal taxpayers, they're the same people at the end of the day," Salo says. "And there's a very strong concern in a lot of parts of this country that taxpayers in general are spending too much money."

The Federal Commitment

With no deadline for states to decide whether to expand their programs, it's likely to be some time before Medicaid's future becomes clear. For instance, some states are interested in phasing in the expansion and want to know whether that will be possible, says Joy Johnson Wilson, health policy director and senior federal affairs counsel at the National Conference of State Legislatures.

For those states that end up participating, there are concerns about whether the federal government will meet its financial obligation. "There's a pretty strong feeling out there that that current commitment to 100 percent phasing down to 90 is going to be hard to maintain," Salo says.

"No Congress can bind future Congresses," Weil says. "So you can read the law and see what the federal share is, but in the future that could change." States could withdraw from the expanded program, he says, "but states are also aware that it's hard to pull back something that you've done."

A proposal included in President Obama's 2011 deficit reduction plan already has produced some unease that the federal contribution to Medicaid might be targeted to be scaled back. Known as a "blended rate," the approach would replace the formulas for calculating federal payments for Medicaid and the Children's Health Insurance Program with a single matching rate for each state beginning in 2017.

"That's an immediate concern given that we're approaching serious deficit reduction talks next year," Wilson says. "We don't know how much traction it has, but that's problematic and yet another way of reducing the federal contribution to the program."

Obama also proposed phasing down how much states can tax providers to help raise state matching funds that can be used to increase federal matching payments. Reducing or eliminating those taxes might yield a "pretty big chunk" of federal savings, Salo says, but might also have a "pretty disastrous impact on a number of states."

Republicans proposed a similar limitation as a way to offset the cost increase of extending a reduction in student loan interest rates this past summer, and both the provider tax limitation and the blended rate ideas were included in the president's fiscal 2013 budget proposal.

Block Grant in the Future

Republicans have been campaigning for repeal of the health care law and pushing the concept of Medicaid block grants as a way to constrain the program's rising costs. Exactly how block grants work would depend on the details of the legislation. But, generally speaking, Congress would set a spending level and allocate that money among the states, Weil says. Lawmakers also might set standards for what states have to do to get the money.

The idea is that a block grant approach would provide states flexibility to make broad changes in their programs more readily. Proponents say states would run more efficient programs compared with the current structure, where the more money states spend the more they get from Washington.

"The states would theoretically no longer have an incentive to spend and spend and spend because at some point the federal dollars just run out," Salo says.

Some observers have doubts that the federal government would give states much flexibility. Block grant opponents worry that states would end up having to pick up the difference if the federal payment rates are set low, and they remain concerned about the potential for costs shifting back to patients.

"I think what complicates the conversation for states is that the Medicaid block grant in Washington is a deficit reduction strategy, not a health reform strategy," Wilson says. "If the idea is to save the federal government money, it's either going to cost states more or something has to not happen—as opposed to a strategy to improve the product and the services for the beneficiaries, not saying that they're mutually exclusive."

The conversation is also one that's infused with politics. President Bill Clinton vetoed legislation that included language to convert Medicaid into a block grant, and, more recently, Ryan included the idea in his fiscal 2013 budget proposal. The 2012 Republican Party platform supports block-granting the program, while Democrats officially are opposed to it.

As with other potential changes to Medicaid, the future of the block grant concept is linked to whichever party controls Washington. Although states are concerned that Congress might make things worse no matter which course it takes, "the primary concern right now is the program today," Salo says. "The program today is unsustainable and not delivering the best care possible."