Oregon experience can influence state reform efforts

With states attempting to take the lead in health care reform, and especially doing things to reduce the number of uninsured, the reform lessons learned by the state of Oregon through its Oregon Health Plan and prioritized list of medical conditions and treatments may help other states avoid some mistakes. That's the thesis of a Dec. 19, 2006, Health Affairs report on "the unraveling of the Oregon Health Plan" by University of North Carolina-Chapel Hill associate professor Jonathan Oberlander.

Mr. Oberlander says that while Oregon overcame early controversy surrounding its embrace of explicit rationing to earn widespread praise for its success in expanding coverage to the uninsured, that success has been difficult to sustain. And he urges all state policy analysts to be very aware of the potential pitfalls in sustaining the plans they develop.

Oregon has been at health care reform perhaps longer than any other state, starting in 1989 with a series of steps, including an employer mandate, intended to achieve universal coverage in the state. But the employer mandate never took effect and the state's health reform efforts moved to a Medicaid expansion as part of the Oregon Health Plan.

"Put simply," Mr. Oberlander says, "Oregon intended to expand Medicaid to more people by covering fewer services. Expanding coverage for the poor—all Oregonians with incomes below 100% of the federal poverty level were made eligible for Medicaid—would be made affordable by offering a basic health benefits package that was more limited than traditional Medicaid."

A prioritized list ranking medical conditions and treatments was developed and, every two years lawmakers literally drew a line in the list, with Medicaid paying for all services above the line and none of the services below it. The state also sought to impose access and control costs by enrolling Medicaid recipients in capitated managed care organizations.

Early reviews of the Oregon Health Plan were generally favorable, with positive attention paid to the expansion of Medicaid coverage to more than 100,000 "new eligibles" each month that cut the state's uninsurance rate from 18% in 1992 to 11% by 1996. Also, fears about the impact of rationing on Medicaid patients were eased by the plan's generous benefit package and the absence of extensive rationing.

In 2002, however, state officials moved ahead with plans to expand the Oregon Health Plan, submitting a federal waiver through the Health Insurance Flexibility and Accountability initiative to amend their demonstration project by creating the Oregon Health Plan 2. The aim was to raise the eligibility for the Oregon Health Plan's Medicaid expansion population from 100% to 185% of poverty over time as budgetary circumstances permitted and to gain federal matching funds for the Family Health Insurance Assistance Program, enabling it to expand significantly.

While the waiver was approved during budget pressures and a downturn in the state's economy, officials still pursued plans to extend coverage to low-income Oregonians. No new state funds were available to extend Oregon Health Plan coverage and so reform had to be self-financing, primarily looking to the original logic for health reform in Oregon: provide fewer services for more people. Benefits for existing enrollees were to be reduced so the state could generate funds to bring more uninsured people into the Oregon Health Plan.

Expansion to 185% of poverty was to be financed by dividing the health plan into two parts—OHP Plus and OHP Standard. OHP Plus was to cover populations categorically eligible for Medicaid such as pregnant women and children with benefits still based on the prioritized list. OHP standard was to cover the expansion population such as single adults, couples, and parents not eligible for Medicaid under federal guidelines. OHP Standard enrollees were to receive a reduced benefits package.

OHP Standard premiums were increased and enrollment rules were tightened so providers could refuse to see those who could not pay copayments. The state also asked federal permission to set an enrollment cap for OHP Standard so, based on available funding, it could stop accepting new enrollees or establish a lower poverty level for eligibility. The waiver also gave state officials authority to reduce the OHP Standard benefit package, if necessary, depending on available revenues, to a level actuarially equivalent to the federally mandated Medicaid minimum.

OHP 2 operating since 2003

The Centers for Medicare & Medicaid Services approved the waiver in October 2002 and OHP2 began operating in February 2003. Mr. Oberlander says although the benefit reductions were implemented, the planned coverage expansions mostly never came to pass. "Rather than serving as the cornerstone of OHP's renewal, the implementation of OHP2 triggered a meltdown in OHP Standard enrollment," he says. "In the year following OHP2's implementation, enrollment of the Medicaid expansion population in the health plan fell 53%, dropping from 104,000 in January 2003 to 49,000 in December 2003. And in the ensuing 18 months, OHP Standard enrollment fell by another 50%. Only about 24,000 enrollees remain in the state's Medicaid expansion program, and it has been closed to new enrollment since 2004. Oregon's uninsurance rate has climbed to 17%, virtually the same level that prevailed in Oregon before OHP began operation in 1994. Moreover, no state general funds are used to pay for OHP Standard (now financed entirely from provider taxes and beneficiary premiums), a staggering retreat for a state that had been a national leader in expanding coverage for the uninsured."

Mr. Oberlander says a significant cause of the problems is that state officials badly miscalculated the likely effects of new OHP policies. While the waiver application projected "no negative impact on access due to cost-sharing," within four months of the introduction of OHP2, enrollment among the OHP Standard population had dropped by nearly 40% and much of the decline came after new premium payment policies were implemented. Under OHP2, people who failed to pay their premiums were disenrolled from the program and subject to a six-month "lock-out" before they could reapply. Premiums were increased, and even zero income beneficiaries were required to pay premiums, with a result that their enrollment in the plan sharply declined.

In retrospect, Mr. Oberlander says, OHP2 "revealed a clear mismatch between policy-makers' understanding of low income populations and their actual behavior. Oregon failed to anticipate how price sensitive OHP enrollees were and their troubles navigating the new system, a cautionary tale for states enamored with consumerism and the prospect of having Medicaid recipients put 'more skin in the game' through added cost-sharing."

But miscalculation is not the only issue, according to Mr. Oberlander. Even if OHP2 policies had not unintentionally triggered sharp enrollment declines, he says, OHP still would have been in trouble. If enrollees had not left the plan en masse through attrition, the state would have had to cut them off due to deteriorating fiscal conditions.

Currently, according to the report, available funds can only support OHP Standard at 24,000 enrollees and it remains closed to new enrollment. Also, the provider tax that is sustaining the program can only pay for a limited benefit package. OHP Standard enrollees now have access to a limited hospital benefit, and the plan doesn't cover any physical, speech, or occupational therapy or home health care, although copayments have been dropped as a result of a court decision and legislation has eliminated premiums for the lowest-income enrollees.

"It is no longer a tradeoff of covering fewer services in order to cover more people," Mr. Oberlander says. "OHP is now covering both fewer services and fewer people and the elimination of entire benefit categories and rollback in enrolled beneficiaries looks more like the arbitrary cuts common in other states than the rational and equitable model of prioritization to which Oregon aspired."

States face unique challenges

According to Mr. Oberlander, it would be a mistake to discount the work of Oregon's health reformers, saying they have proved themselves to be resourceful and adaptive in their drive to expand coverage. Now that the state's economy is recovering, he says, reformers are once again at work and there is an emerging consensus around the idea of extending insurance coverage to Oregon's 117,000 uninsured children with financing from a new tobacco tax.

Policy-makers and analysts should be wary of generalizing too much from one state's experience, Mr. Oberlander says, because states vary in political culture and fiscal circumstances and thus confront different challenges and opportunities in pursuing innovative health policies. "OHP's fate is explained partly by political and fiscal circumstances unique to Oregon," he points out, "and partly by the limits of the state's chosen reform strategy of explicit rationing. Other states have proved more resilient and stable than Oregon in maintaining Medicaid expansions; failure is hardly an inevitable outcome for states that extend coverage to the uninsured (although universal coverage is a more elusive target). Yet the parallel meltdown of TennCare suggests that it is not strictly an Oregon story.

"The most important lesson is that the task is not simply to enact coverage expansions—it is to sustain them. State-led reforms must navigate their way through changing political environments as reform pioneers fade from the scene, political conditions fray, and fiscal pressures mount. As Oregon has discovered, sustaining political commitment is no easy feat.

"The strongest challenge to sustainability, though, may come from rising medical costs. As medical inflation increases, and with it the number of uninsured people who lose employer-sponsored coverage and qualify for public insurance, the price tag for maintaining—let alone broadening—coverage expansions also increases, and retrenchment may supplant activism on the agenda. And as Medicaid spending consumes a higher percentage of state budgets, outpacing revenue growth and threatening to crowd out spending for education and other politically popular priorities, ambitious plans to cover the uninsured become more difficult to fulfill. Economic downturns exacerbate these pressures, especially since states must live with balanced budget requirements. Cost control, which triggers intense opposition from the medical industry interests that profit from the status quo, requires much more political will to impose than insurance expansions do. Avoiding cost control and gaining the support of system stakeholders is perhaps the key to short-term political success. However, its absence may be, in the long run, the Achilles' heel of state-led health reforms that seek to move toward universal coverage without serious mechanisms to control spending in their own programs and without limits on medical care inflation in the broader health system."

Still, Mr. Oberlander says the obstacles are not insurmountable, noting that some states find the political will and fiscal capacity necessary not only to craft innovative programs, but also to hold onto hard-won gains and push farther ahead, even when economic conditions sour and political environments shift.

Speaking with State Health Watch, Mr. Oberlander stresses the importance of the really difficult issue of sustainability. He notes the impact of rising health care costs and the fact that states have little influence over them. And, he says, it is difficult to find the political will in states to change the financing system.

No state has yet achieved universal coverage, he tells SHW, and suggests that Massachusetts' highly touted reform program will not get there and California's latest reform proposal will not make it through that state's legislature. "There's only a small universe of states that can do anything significant towards universal coverage," he says.

Overall, Mr. Oberlander says, it's exciting to see what states are doing. "If the federal government was willing to come up with serious money to finance the states that want to do the right thing, they could do still more," he says.

An abstract and pay-per-view access to the report is available at http://content.healthaffairs.org/cgi/content/abstract/26/1/w96. E-mail Dr. Oberlander at oberland@med.unc.edu or telephone him at (919) 843-8269.