As Republican moves to repeal and replace the Affordable Care Act race forward, states are likely to gain more flexibility in the form of block grants, enhanced waivers, and flexibility to redesign programs for the uninsured and for Medicaid. But what about big, blue states like California and New York? California, in particular, is the sixth largest economy in the world, with a Democratic supermajority legislature. What could a super-blue state achieve in the new era of states rights?
I’m going to take the long-term view and explore possible scenarios for a California-first strategy to expand Covered California, transform Medicaid, and combine public and private payment reform initiatives, as well as possibly create new regulatory and tax schemes. A new California governor will be elected in 2018, and he or she may play a pivotal role in defining the state’s, and perhaps even the nation’s, health policy for the decades ahead.
A big state
With nearly 40 million people, Apple, Google and Disneyland, we Californians are kind of a big deal. We have a huge, diverse economy that is doing well. We have a state that is running a budget surplus. And like other big, blue states, we pay more in federal taxes than we get back in federal benefits (even after the ACA).
We have a governor and a legislature with high approval ratings. And we have Democratic supermajorities in both legislative chambers.
We embraced the ACA to the max, and it is going well: We have reduced the uninsured by more than 5 million (a quarter of all the national improvement in coverage). We have a high-functioning exchange, Covered California, that is a model for the country.
And it is raining like crazy (at least where I live in Menlo Park), so the drought worries are pretty much gone.
Life is good here.
Except for the election.
Californians voted overwhelmingly Democratic; indeed, President Donald Trump would have easily won the popular vote nationally had it not been for losing California by 4.2 million votes.
But remember: Within the state, California is politically diverse. “California is a big, blue state with a thick red stripe down the side,” California Healthcare Foundation CEO Sandra Hernandez told me an interview, referring to the more conservative political orientation of the Central Valley, most of rural California and parts of Southern California.
Challenges under the new administration
We have a Trump administration and a Republican Congress. What happens now for a mostly Democratic California?
I interviewed more than a dozen friends and colleagues who are all key players in the California health economy, and I had conversations on this issue with more than a dozen more. I talked with insurers, providers, employer groups, health plans, government officials and foundation CEOs. I did it off the record, though many agreed to be quoted on the record for this column.
I asked two basic questions:
- Will California be able to protect the $20 billion per year of net new federal dollars that flowed to expand coverage ($15 billion for Medicaid coverage expansion and $5 billion for exchange subsidies)? If not, what happens?
- Is there an opportunity for California stakeholders to step up and rethink our overall marketplace to protect the gains we have made and to build on our strengths?
My overwhelming sense from the interviews is that the Trump administration's policies will create serious challenges ahead for California health care, particularly in protecting the gains we have made in coverage, payment reform and the value-based redesign of health care, but especially in protecting the flow of federal funds to support those gains. There was also a remarkable sense of optimism, however, among all the respondents and a strong determination to roll up their sleeves and (as Californians always do) try to be creative and innovative in improving on those gains in a way that is consistent with California values.
I will do my best to represent the spirit of the discussions here. I take full responsibility for the prose. And this essay of course does not represent in any way the official views of the American Hospital Association, as we always make clear in these columns.
Gains from the ACA
“We were all in on Obamacare” — almost all California stakeholders voiced this view.
There is indeed evidence that the ACA is working for all Californians. Consider this:
- According to the Centers for Disease Control and Prevention, the uninsured rate in California dropped to 7.1 percent by September 2016 from 17 percent in 2013.
- The uninsured rate dropped for all racial and ethnic groups, with the greatest gains among Latinos. Between 2013 and 2015, the number of California Latinos who were uninsured fell by 1.5 million, and the uninsured rate in this population fell from 23 percent to 12 percent.
- Covered California announced in February 2017 it has added 412,000 new consumers in the most recent (its fourth) open enrollment period for a total of 1.5 million Californians enrolled.
- An additional 750,000 Californians bought identical (same price, same benefit design) “nonsubsidy” plans off the exchange.
- A full 90 percent of Covered California consumers receive a subsidy of on average $440 per month, making coverage affordable for lower- and middle-income consumers.
- Covered California rate increases over a three-year period have averaged 7 percent per year, more modest than the national picture.
- Medi-Cal has added 3.7 million Californians to coverage with nearly a third of all Californians now covered by California’s Medicaid program.
- For a whole host of access-to-care, coverage and utilization-of-service measures tracked by a variety of organizations and research groups from the CDC to the Commonwealth Fund, Californians have seen their access to health care services and their health improve because of the ACA.
The health care industry
Recently, I had lunch with Joe Swedish, Anthem’s CEO, after a fireside chat we did for a group of health care system CEOs. I asked him what should happen nationally and in California.
“Nationally, we need to repair, restructure and rebuild the Affordable Care Act. In California, it is imperative that the coverage gains made through Medi-Cal expansion and Covered California are maintained and that sensible insurance market reforms help us cover even more Californians,” he said.
California is a big deal for Anthem: “California is a very important state to us across all lines of business: individual, exchange, small and large group, Medicaid and Medicare,” Swedish said. “It accounts for close to a quarter of our members, and we have very important initiatives in the state including Vivity and our reference pricing pilots with CalPERS,” the state's public employee pension system.
Anthem Senior Vice President Pam Kehaly, who is responsible for all of Anthem’s business in the West and for specialty services including all exchanges, confirmed in an interview that indeed a full 22 percent of all Anthem members are in California and stressed Anthem’s leading position in the Covered California marketplace and in the state’s Managed Medicaid initiatives.
Anthem has a big stake in California. But for Kaiser Permanente, California is even more important, accounting for almost three-quarters of its membership, with recent California coverage expansion being a major part of Kaiser’s growth. For Blue Shield of California, virtually all of its $5 billion in revenue is earned in the state.
The same is true for some giants in health care delivery based exclusively in California. The University of California campuses are each multibillion-dollar health care enterprises, and California is home to other multibillion-dollar, nationally prominent academic systems including Stanford Medicine, Cedars-Sinai and the University of Southern California.
The state has major “California only” health systems such as Sutter Health in Northern California, Sharp HealthCare and Scripps Health in San Diego, and MemorialCare Health System in Southern California.
There are also multistate, multibillion-dollar players with a big California presence such as Dignity Health, Providence St. Joseph Health, Centene, Molina Healthcare and DaVita/HealthCare Partners, all of which have large shares of their national business in California.
What happens to the California health care ecosystem will affect a lot of nationally prominent institutions as well as 40 million Californians.
Weathering the repeal-and-replace storm
Kaiser Family Foundation CEO Drew Altman told me, “If Medicaid expansion stays in place, and tax credits are sufficient to maintain coverage, and block grant details are decent, then California has a fighting chance, including the opportunity to maintain its insurance reforms, provided they are not upended by insurance being sold across state lines.”
That is a lot to ask. Will California do well in the coming food fight for federal dollars in a year of repeal and replace?
Altman was wise to point out that “we are not going to have a real debate about this until we have an actual repeal-and-replace plan on the table.”
What is at risk
While it is still early in the policymaking and legislative process, at this time, it is still useful to ask what is at risk for California.
The short answer is money. As stated earlier, California is getting an estimated $20 billion in new federal money. Clearly that would be at enormous risk in a repeal without an adequate replace scenario.
“But it is more than just the $20 billion,” as Robin Arnold Williams of Leavitt Partners told me. “California has pursued waivers and initiatives such as maxing out provider fees and other special funding arrangements that go far beyond the $20 billion of expansion dollars.”
A forthcoming report from the Public Policy Institute of California on funding the Medi-Cal program lays out in considerable detail the complex financial and policy options involved in funding Medi-Cal, especially because, as the report shows, 65 percent of California’s Medicaid program is federally funded, partly as a result of the expansion and other initiatives.
Would the Trump administration enjoy fiscal retaliation against California? As one interviewee stated, “There are some folks who would absolutely relish taking it away.” Another experienced observer told me, “The politics don’t line up for California.”
My interviewees repeatedly pointed, however, to three factors that would mollify the tendency for overt political retribution against California:
- Governors in expansion states: A full 32 states have expanded Medicaid, including the vice president’s home state. Sixteen of those states have Republican governors (17 if you count Alaska, a normally red state with an independent governor). They do not want Medicaid expansion to go away.
- Replace requires bipartisanship: Repeal is easy. Replace is hard and requires bipartisan support, a view that is backed up by law and logic. Budget reconciliation is handy for repeal, not so useful for replace. Moreover, former Utah Gov. Mike Leavitt and other wise voices are urging Congress to make this new reform effort bipartisan and not “overreach” with a partisan plan that lacks legitimacy, a valid criticism often leveled at the ACA.
- The role of career civil servants: Andrew Croshaw, president of Leavitt Partners Consulting, pointed to the continuity that the civil service plays in maintaining consistency in policymaking. Anyone who has seen the British TV series Yes Minister can attest to the many ways that gung-ho politicians are thwarted and talked down from political overreach by lifetime civil servants.
Nevertheless, as one senior longtime observer of California health care told me: “Overall, California is exposed politically, exposed financially and exposed in terms of current level of provider rates; this is not a good base to be negotiating from.”
Medicaid block grants
Block grants seem to be the rage. Talk is everywhere. My colleagues at Leavitt Partners believe that block grants in the rigid form we’ve seen in one isolated example (Puerto Rico) are not likely to happen. More likely is honoring the spirit of a block grant to provide federal fiscal discipline and flexibility to the states, which can be achieved through the considerable waiver authority granted to the secretary of health and human services through Section 1115 Medicaid waivers and ACA Section 1332 waiver authority applied to exchanges. If this is the policy choice, block grants would be more virtual than actual.
But any way you cut it, "block grant" probably means less money.
If we do go down the block grant road toward per capita caps, three key questions will be important, according to industry sources:
- What is the base year and base amount that the block grant applies to? Is it current spending with expansion dollars included, pre-ACA levels or some yet-to-be-determined redesign of federal matching in Medicaid?
- What is the annual inflation factor?
- Will state general funds and other nonfederal sources be maintained?
California will have an uphill slog to preserve the flow of federal funds.
A range of choices
An extremely wise and experienced public affairs professional counseled me: “Don’t get too smarty-pants, policy-wonk on this thing you are writing. Just keep to the broad sketch map of choices.” So here goes:
- Left-wing isolationism: Single-payer advocates see this “crisis” as an opportunity to revive aspirations for a single-payer system. Getting the Employee Retirement Income Security Act and Medicare waivers needed, or the massive increases in taxes on the rich that would be required to sustain it in California, would be unlikely, but that will not stop them from being proposed. Replacing the ACA Medicare tax on high-income earners (at the state level) may be an early target if the repeal-and-replace legislation removes it at the federal level.
- Massive Medicaid à la New York: New York is a big, blue state. Its exchange is puny, with fewer than 300,000 members. Instead, New York elected to opt for a basic health plan to expand its already generous Medicaid program. Most of the gain in coverage that has resulted is in Medicaid. A basic health plan idea will be advanced, with considerable pushback from providers. Dude, a third of Californians are already on Medi-Cal — can we realistically add more to the rolls in a Trump administration, particularly if we have to do it with mostly state money?
- Public purchasing power à la Washington state: Some proposals may emerge to leverage public spending by Medi-Cal, CalPERS, Covered California, and other state and local government employees and entities, much in the way that states like Washington and Arkansas have done (a topic I explored in a previous column).
- A competitive managed care marketplace: When I came to California more than 30 years ago, I met and learned from managed competition guru Alain Enthoven of Stanford. Over the years, I came to believe that Enthoven got it right: Competing integrated delivery systems with cost-conscious consumer choice was the right American compromise. The colleagues I talked to recently showed great positive energy for a revitalized competitive marketplace based on value, where competition was not just on perceived quality but on price. They described it as a market where consumers faced meaningful and simple standardized benefit plan designs that encouraged competition not based on actuarial trickery and marketing sleight of hand but on the underlying performance of the delivery system partners. Covered California could be the vehicle for that marketplace, and stakeholders (including insurers and providers) are willing to come to the table to discuss how such a redesigned delivery system and marketplace might be fashioned, starting with coverage-expansion populations. Other respondents cited Oregon’s approach of Medicaid contracting directly with provider groups that form coordinated care organizations as another variant to be considered by California policymakers.
- California Darwinism: As the old saying goes, “There is a danger that as the pie shrinks the table manners suffer.” Without multistakeholder cooperation and leadership there is a high probability that each stakeholder (from community clinics to academic medical centers and all points in between) hunkers down to protect recent gains and hopes to cut a deal to preserve what it can. This may be likely, but it is not desirable and could hurt a lot of Californians. In addition, as the California Health Care Foundation’s founding CEO, Mark Smith, told me, driving decisions to the state level may aggravate the “political guild steeplechase” that takes place on issues of reform such as scope of practice and telehealth rules, and licensing regulations such as certificate of need.
Common hopes and dreams
In my conversations, there were several themes that emerged for the future, and there was considerable consensus that California stakeholders need to rally around them.
- Preserve the gains: Don Crane, CEO of the California Association of Physician Groups, voiced the concerns of many when he told me, “Most California stakeholders want to preserve the gains we have made under Obamacare.”
- Create a glide path for the individual market: Nationally, the individual market will collapse without a glide path reassuring insurers that a market may be viable. This is not a uniquely California problem, but Covered California is the second largest exchange in the country behind Florida’s.
- Behavioral health integration: Almost all interviewees spontaneously and independently identified the need to integrate behavioral health with medical care more effectively within the state. They see this as a huge opportunity to improve efficiency, quality and patient experience, particularly for vulnerable populations. For example, through a greater focus on the social determinants of health coupled with behavioral health integration and elimination of waste, Crane said, “We can save billions.”
- Celebrate our advanced delivery models: Crane and others stressed the importance of preserving and enhancing California’s “unique winning model” of capitated-delegated provider groups underlying much of California’s managed care plans.
- Don’t lose momentum on value purchasing and payment reform: Whether employers, insurers or providers, respondents were in agreement that the momentum gained in the Obama years toward value-based purchasing and payment reform should not be lost in the repeal-and-replace process, and that is even more true in California than in the nation as a whole.
- Remember the most vulnerable: As we have seen, California had one of the highest rates of uninsured before reform. The ACA reduced that number, particularly for low-income Californians and people of color. Most repeal-and-replace proposals will hurt the most vulnerable, especially in those states with a history of social, economic and racial injustice that has been ameliorated by a federal response.
- Getting along with Trump’s CMS: There is a new sheriff in town, and Trump’s Centers for Medicare & Medicaid Services will have different views on waivers and regulations than Barack Obama's. Californians may have to think about options a little more like Arkansas’ all-payer reforms or Indiana’s cost-sharing provisions, no matter if they hurt left coast sensibilities. As Smith said, “Let’s not get too smug about it.”
- Revisit the two-plan model for Medi-Cal: California’s Medi-Cal has evolved as a system “separate but unequal” from the rest of California health care, as Smith told me. And it is complicated, because California has also institutionalized a complex two–health plan infrastructure of local and commercial plans in most counties. Many observers urged that policymakers take this new reform opportunity to revisit the Medi-Cal models over the next decade.
A lot of interviewees told me we need to continue to reform health care but do it in a way that reflects California values.
People throw around the "values" word a lot. Let me tell you what I know about California values having lived here for more than 30 years.
We value diversity, decency, innovation and entrepreneurship. It’s why we love Uber and public schools, science and Burning Man, our phones and our surfboards, virtual reality and real reality.
Most of us are immigrants, most of us are nonwhite, many of us are poor, and some of us lucky ones are really rich and pretty much willing to help the less fortunate. That is who we are. As the great Lady Gaga says, “We were born this way.”
We are informal, fun and laid-back, but incredibly hardworking.
We love food, and we grow most of yours. We are always the future ... and proud of it.
My analogy for repeal and replace is that it is like breaking up the Beatles and just keeping George and Ringo and expecting it to sound good. Whatever happens in Washington, D.C., Californians will need to “Come Together” (to use another Beatles analogy) to respond to a new environment. We can work it out.
Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.
The opinions expressed by the author do not necessarily reflect the policy of the American Hospital Association.