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Dunleavy administration awards contract for study of Medicaid block grant proposal

Gov. Michael J. Dunleavy’s administration is looking into making Alaska the first state to transform its Medicaid program into a block grant system, but opponents in the Legislature contend it’s an attempt to justify a predetermined outcome.

Seema Verma, Centers for Medicare and Medicaid Services administrator, during her Senate Finance Committee confirmation hearing in Washington on Feb. 16, 2017. (Bloomberg photo by Pete Marovich)

The Department of Health and Social Services on May 29 issued an intent to award a $100,000 contract to Boston-based Public Consulting Group Inc. to analyze the prospect of implementing block grants for federal Medicaid payments, work requirements for Medicaid enrollees, and shifting some Alaska Medicaid recipients to private insurance.

The tentative contract calls for Public Consulting to draft a paper by June 30 studying whether or not the initiatives will save the state money, according to the request for proposals for the work.

On March 1 Dunleavy sent a letter to President Donald Trump about a number of Alaska-specific policy issues, including Medicaid block grants.

“Your Medicaid Administrator, Seema Verma, has urged us to be the first state to receive Medicaid dollars as a block grant. We are eager to do this, but your support of her on this ‘first’ will keep the proper focus and speed on the application,” Dunleavy wrote.

The letter followed a meeting the governor and president had while Trump was briefly at Joint Base Elmendorf-Richardson during a refueling stop.

State House Democrats wholly denounced the ideas in a letter sent to DHSS Commissioner Adam Crum last month. In it, they argue that a lengthy report done for the state in early 2016 “found that costs of private coverage would be prohibitively high compared to Medicaid coverage,” among other objections.

Medicaid would pay insurance costs such as premiums and other out-of-pocket expenses that are typically paid by the insurance recipient.

That study, known as the Milliman report and done when state lawmakers were debating a suite of Medicaid reforms, concluded that shifting low-income adults enrolled under expanded Medicaid coverage to the individual private insurance market would cost the state an additional $57 million per year growing to $97 million per year over the first five years of the plan.

“Although DHSS’s administrative role and, thus, costs are reduced under this option, DHSS would be responsible for ensuring that the enrollee does not experience costs beyond the allowed Medicaid limits, paying for services not covered by the private coverage benefit plan, and paying co-payments for services paid by the insurer,” the Milliman report states.

Milliman Inc., a Seattle-based actuarial and consulting firm, submitted a proposal for the latest study but was not chosen by DHSS officials.

DHSS spokesman Clinton Bennett wrote in response to questions about the department’s plans that Public Consulting Group will analyze whether enrolling Medicaid recipients in private insurance is feasible and could lead to overall savings for the state.

He noted that “only those with modest health care needs (healthier population) will be eligible for placement in the private market” and the study will identify the parameters of that population.

House State Affairs Committee co-chair Rep. Zack Fields, D-Anchorage, said in an interview that Alaska is probably the least likely state for the concepts to work because of the state’s struggling private health insurance market.

Premiums in the individual private market are among the highest in the country at hundreds of dollars per month and Alaska is generally regarded as having the highest health care costs in the country; both issues can in part be attributed to the state’s isolation and small population.

Also, Premera Blue Cross Blue Shield of Alaska has been the only company offering health insurance on the individual private market in the state since 2017.

“The idea that we’d make half-baked decisions with our largest federal stream of investment, which, by the way, is life or death for 215,000 Alaskans that rely on Medicaid health insurance — it’s just crazy,” Fields said.

Premera officials declined to comment for this story.

The Dunleavy administration initially proposed cutting $225 million to $270 million from the state’s Medicaid program; it’s estimated those state cuts would result in a roughly $480 million corresponding cut to federal Medicaid funds.

DHSS officials later said they could achieve approximately $100 million in cuts in the 2020 fiscal year through administrative and regulatory changes, such as cutting provider payments by 5 percent, without legislative action. They also acknowledged the larger cuts first proposed were targets driven by the Office of Management and Budget and not the result of specific policy reforms.

Economic analyses done for provider groups found that such cuts would likely result in at least 8,000 job losses in the state. Health care — buoyed by federal Medicaid spending — is the one major industry that has continued to grow through Alaska’s three-plus year recession, according to state economists.

According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million.

The state savings is largely attributable to Senate Bill 74 passed in 2016, which started long-term efforts to reduce overall Medicaid costs and utilization, but also shifted as many eligible costs as legislators could find to the federal government.

Fields said the Medicaid reform found in SB 74 is an example of “prudent” policymaking.

“When there were studies in the past the administrations and the Legislature did it right and they took the time to make sure they understood the implications of different policy decisions and if the new administration wants to go in a different direction in terms of Medicaid they need to base it on actual information and legitimate studies and not just kind of create an excuse for them to do something they’ve predetermined to do,” Fields said.

Block grants for Medicaid have long been a policy favored by many Republicans in Congress as a way to rein in spending, but there has never been enough broad support to make the change. Under the concept, the federal Centers for Medicare and Medicaid Services, or CMS, would issue a lump sum for Medicaid to Alaska each year, and it would be up to the state to keep spending within that amount or cover additional expenses.

DHSS spokesman Bennett said via email that the department would need a Section 1115 demonstration waiver from CMS to shift enrollees to private insurance and it’s unclear whether Congress would need to change federal Medicaid laws to allow for block grants.

“CMS will need to provide official guidance on (block grants) before state are fully able to consider this approach to funding for state Medicaid programs,” Bennett wrote.

Fields said limiting health care for Medicaid recipients — which he sees as a likely outcome of instituting a block grants — would simply push more people back to receiving more care through costly and inefficient emergency room visits that are generally seen as an overall cost driver in the health care system.

He also pointed to a May 1 Legislative Legal Services opinion that concludes block grants for the purpose of cost savings would likely be illegal if done through a 1115 demonstration waiver.

Legislative attorney Marie Marx wrote while citing prior cases in Arkansas and Kentucky that a cost-focused waiver would likely be invalidated by federal courts because it wouldn’t further the primary mission of Medicaid laws, which is to provide medical coverage to needy populations.

“I think it’s critical to look at every opportunity to make the health care system more efficient and the Legislature and previous administration’s have been doing that,” Fields said. “My objection is actually to abandoning reform, which is what this effort represents.”

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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