Oregon Health Plan Cuts

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Featured in half-yearly report: Health Policy Developments Issue 3

Abstract

Oregon is finalizing a spending cuts plan that will slash the state’s expanded Medicaid program, known as the Oregon Health Plan (OHP), eliminating health benefits for the “working poor”. The spending cuts were triggered when voters rejected a tax increase that would have enabled the state to salvage the OHP, and come after a series of reforms that have progressively chipped away at the plan that was once considered a national leader in the provision of universal health care for the poor.

Purpose of health policy or idea

During this study period, the Oregon Department of Human Services (DHS) announced plans to eliminate state health insurance coverage for the "working poor" adults (that is, adults who earn too much to qualify for traditional Medicaid, but fall below the federal poverty level) that had received coverage under the state's Oregon Health Plan (OHP).  Although it has undergone significant reforms since it's inception in 1994, the OHP originally aimed to provide uniform, universal Medicaid insurance coverage to both the Medicaid-eligible population[1] and the working poor.  It was able to do this by developing a prioritized list of health services (as defined by a broad range of stakeholders) and using the list to ration health services. 

The plan worked well at first, but rising costs and a falling economy made it harder and harder for the state to maintain uniform universal coverage.  A series of cost cutting measures and reforms (known as OHP2) during the 2001-2003 biennium made different benefits packages available for the federally mandated and the optional expansion populations covered under the plan.  During the 2003-2004 budget cycle, when the state's budget crisis threatened all state programs, the Oregon legislature attempted to preserve OHP coverage and the spirit of the plan by proposing additional funding sources and establishing priorities with regards to populations and services to be covered.  However, voters were able to block the most important source of additional funding (notably an $800 million tax increase to cover many state programs), and the other proposed revenue sources faced a potential fight from federal regulators and state health care providers.  

When it became clear that additional funding would not be forthcoming, the Department of Human Services used the coverage priorities articulated during the legislative session to help create a budget cuts plan that was presented to the legislature in April 2004.  This plan called for the elimination of coverage for the working poor and used the savings from this cancellation of coverage to "buy back" services that are not federally mandated but are prioritized by the state (e.g. prescription drug, dental, mental health and chemical dependency treatments, and medical equipment benefits) for those recipients remaining on the plan (which included those eligible for traditional Medicaid and children and pregnant women up to 185% of the poverty line). 

While a number of factors could affect the implementation of the DHS' plan, it is clear that the proposed cuts signal the end of Oregon's experiment with state insurance coverage for the working poor.  Affected by this will be the 50,000[2] "working poor" OHP recipients that will lose health and prescription coverage effective August 1st, and those members of populations that were to be included in OHP under planned expansions that have been canceled.

At the next legislative session, based on these cuts and the outcome of the next federal Medicaid waiver, the state may decide to take this as a signal to end OHP's particular method of rationing health services with its prioritized list, and return to a more traditional Medicaid program.   


[1] Those eligible for traditional Medicaid include children and pregnant women 0-170% of the federal poverty level (FPL), those on Supplemental Security Income (the elderly, the blind and the disabled) 0-74% of the FPL, and those on public assistance 0-43% or 0-52% of the FPL. 

[2] Recent changes in benefits, premiums and enrollment requirements caused enrollment of the working poor in the OHP to drop from a high of around 100,000 to 50,000 by September of 2003.

Main points

Main objectives

Eliminating health coverage for the working poor under the Oregon Health Plan in order to maintain other health plan services and comply with state-mandated budget cuts.

Type of incentives

By cutting coverage for the working poor, the state can maintain optional services such as mental health and substance abuse treatment benefits for those that qualify for traditional medicaid. 

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

Political and economic background

The Oregon Health Plan (OHP) is the state's version of Medicaid.  Medicaid is a partnership matching funds program between federal and state governments that is intended to ensure a minimum level of health coverage for the country's most vulnerable populations.  These populations, termed the "categorically eligible", include those on public assistance, elderly and disabled persons, and low-income women and children.  States are required to provide package of mandatory health services to categorically eligible populations to qualify for federal matching funds.  States can choose to provide additional "optional" services (including prescription drug, dental, mental health and chemical dependency treatments or medical equipment benefits) and to extend coverage to "optional" expansion populations.  Although federal Medicaid guidelines are fairly rigid, states can apply for waivers of certain mandatory services and populations guidelines to allow them to adjust Medicaid to their local context. 

The OHP was created under such a waiver.  From it's inception in 1994, the OHP aimed provide uniform, universal health coverage to traditional Medicaid populations and also members of the so-called working poor (those who did not qualify for traditional Medicaid, but who earned less than 100% of the federal poverty level) through an innovative "prioritized list" of health conditions and treatments. To develop this list, the state, lead by liberal governor (and ex-physician) John Kitzhaber, brought together advocates from many different groups to develop list of prioritized conditions coupled with their most effective treatments.  Based on available state and federal funds, the state legislature then drew a line through the prioritized list of services and everything above the line was included in the basic package.  The prioritized list benefits package excluded some medical benefits included in the traditional Medicaid basic package, but included many previously "optional" services (like prescription drugs, mental health and chemical dependency services, and medical equipment).  Money saved was used to expand the prioritized list package to "optional" expansion populations. Those categorically eligible for Medicaid approved of the OHP method, because many "optional" services were covered under the prioritized list of basic services, obviating the need to fight for these services each legislative session.  For those in the expansion population who before had not been eligible at all, the OHP was understandably a welcome change. 

Although it worked well for several years after its much-lauded launch in 1994, the OHP has suffered from growing pains, rising costs and shrinking budgets.  A series of reforms during the 2001-2003 biennium (during which the plan was officially renamed OHP2) altered the original spirit of uniform universal coverage for all poor Oregonians, however, maintained coverage in some form for expansion populations.  The current budget cutting plan from the Department of Human Services (DHS), that will totally eliminate coverage for these expansion populations, is thus at the end of a series of reforms that have chipped away at the original OHP. The following paragraphs discuss these reforms and the pressures that lead to them in more detail.  

As stated above, the OHP got off to a promising start in 1994.  However, the plan's own success (high enrollment), the rapidly rising cost of health care, especially prescription drugs, conspired against it.  As more and more people enrolled in the program, and as the cost per enrollee grew, the state began to try to cut costs, but with only modest success.  Adding to the problem of high health care costs, managed care plans began to pull out of the OHP because it was not profitable, forcing and the state had to give out more and more "open cards" (fee for service benefits) which was more expensive for the state.  To make matters worse, the economic downturn that began in 2001 shrank available funds, making cost containment for all state programs a high priority.  As the second largest item in the state budget (after schools), the OHP was an attractive target for budget cutters.

When initial cost-containment measures were not successful, the Republican-controlled (Republicans traditionally oppose big government and taxation) legislature undertook a series of reforms during the 2001-2003 biennium (when the waiver request had to be resubmitted to the federal Centers for Medicare and Medicaid), modifying the original OHP into a program known as OHP2.  Under OHP2, OHP recipients were divided into two groups: the OHP plus population (those categorically eligible for traditional Medicaid and children and pregnant women up to 185% of the federal poverty line) and the OHP standard population (those who earned less than the federal poverty line but did not qualify for traditional Medicaid[1]).   The OHP2 Medicaid waiver maintained services for the expansion populations, but rationed services to an even greater degree, and enabled the state to cut benefits from the OHP standard benefits package without federal approval.  These reforms had the effect of altering the original aim of uniform universal coverage for the state's poor, however, the working poor (now called OHP Standard) still got some services. 

Gradually, as the budget grew tighter, the state dropped all "optional" benefits for the OHP standard population (except for the prescription drug benefit), implemented copays for the OHP standard population, and became stricter about disqualifying OHP standard beneficiaries from services if they did not pay monthly premiums on time.  These reforms during the OHP2 period lead to depressed demand and declining enrollment in the OHP standard program, which dropped from a high of around 100,000 to around 50,000 beneficiaries by September of 2003.  The declining enrollment in the face of the reforms led some conservative members of the legislature to question the importance of maintaining the OHP standard program at all.

A further weakening support for the OHP expanded coverage model occurred when former governor John Kitzhaber, the architect of the OHP and the plan's greatest champion, left office in January of 2003, leaving the 2003 legislature to debate the direction of the health plan for the next biennium under the leadership of incoming governor Ted Kulongowski.

[1] The OHP2 waiver allowed for the expansion of the OHP standard population to include coverage for 100-185% of the FPL if state funds became available.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

The DHS plan to cut the OHP was shaped by three factors:

1. The groundwork laid by the 2003 legislature,
2. The unified message presented to the agency and the legislature by advocates of health plan recipients,
3. The message of the hospitals and health centers with regard to the proposed provider tax.

Together, these forces pushed the department almost inevitably towards their ultimate plan: eliminating coverage for the OHP standard population, and using funds freed up to support mental health and addiction services coverage for the OHP plus population in addition to basic health benefits.  When the 2003 legislative session ended in the fall, it had done three things that would impact the formation of the DHS plan:

1. It proposed a state budget that relied number of prospective additional revenue sources,
2. It outlined a backup spending cuts contingency plan in case voters rejected the additional revenue sources, and
3. With specific reference to the OHP, the legislature laid in law which populations and services the state should prioritize coverage for. 

The budget plan that Lawmakers had managed to cobbled together at the end of the 2003 session proposed three "solutions" to cover the budget gap and restore or maintain health and other social services.  The proposed "solutions" included: a "provider tax" on hospitals to leverage federal matching funds (subject to federal approval and the cooperation of hospitals and health centers).  The legislature also proposed a  "line shift" in the priority list of treatments, further trimming the prioritized benefits package list (which the federal government largely rejected).  Finally, and most significantly, the legislature passed an $800 million tax increase, which among other taxes included an extension of the cigarette tax specifically earmarked for the OHP. Because Oregon law allows voters to call referendums on new taxes, legislators also developed and passed a contingency plan with the 2003 budget - a "disapropriations" bill that outlined how cuts would be distributed across departments and service clusters if the tax increase was rejected, including $179 million from the department of human services, the bulk of which would come from the Oregon health plan. 

Led by a taxpayer watchdog group called "Citizens for a Sound Economy", opponents of the tax increase were quickly able to gather the necessary signatures to call a referendum, and in February, the tax measure (known as measure 30) was soundly defeated.  The defeat of the tax measure triggered the a series of spending cuts that had been outlined by the legislature as a contingency plan in case the tax measure failed.  DHS, like other state general fund departments, had to submit a plan outlining how they would implement the outlined cuts and balance their budget.  To help the DHS decide how to administer these cuts, the legislature had also passed house bill 2511 that prioritized populations and necessary/effective services.  As laid out in the bill, the state's priorities were as follows:

• The OHP Plus population was eligible for and would continue to receive federally required medical services, as well as physician services, ambulance services, prescription drugs, laboratory and X-ray services, medical supplies, mental health and chemical dependency services.
• The OHP Standard population would receive federally mandated health services (such as hospitalization coverage) if there were funds available, but priority would be given to coverage for physician services, ambulance services, prescriptions drugs, laboratory and X-ray services, medical supplies, mental health and chemical dependency services, and emergency dental services.
• The "medially needy" population[1] was eligible for prescription drug coverage, mental health and chemical dependency services, with priority given to prescription drug coverage (this was likely affected by a successful lawsuit brought by members of the medically needy population against the state when the state tried to cut the prescription benefits previously).  Also allows the state to limit enrollment in the program.

In a nutshell, the bill gave priority for coverage to the federally required OHP plus population, expressed a desire to protect at least some services for the OHP standard population, and a need to protect minimal benefits for a possibly limited portion of the medically needy population.  The bill overall showed a prioritization of mental health and chemical dependency treatment services, which, as advocates have long pointed out, are essential if the state wants to avoid more expensive acute care in the medium term.   Advocacy groups representing the full spectrum of OHP recipients have uniformly pushed for complete funding for both the OHP plus and the OHP standard populations, and have emphasized the importance of "optional" services like mental health and chemical dependency benefits to avoid more expensive emergency care.  Advocates describe the Oregon state government as very accessible; formal and informal dialogue between lawmakers, bureaucrats and advocates is occurring constantly, allowing the message of the patient advocates to easily reach and influence the legislature and the DHS.  However, because patient advocates tend to agree, debate between and the relative strength of different advocacy groups was not especially important in shaping the specifics of the legislature's priorities or the DHS's final plan. 

Hospitals and other care providers are stakeholders whose position and actions are tied into the financial future of the plan.  As they are interested in keeping the uninsured out of expensive emergency rooms and hospitals, care providers agreed during the 2003 legislative session to a provider tax, which would leverage federal funds to pay for hospitalization services and other services for the OHP standard population.  The tax (which is still awaiting public approval) requires the cooperation of providers for its implementation, however, and providers have indicated that they will pull out of the deal unless there is a direct benefit for them (i.e. hospitalization coverage for OHP standard).  Given this threat, the DHS was limited in what it could plan to do with the prospective provider tax funds; hospitalization services were very low on the priority list for OHP standard, but had to be included if the hospitals were to agree to pay the tax.  Ultimately, the DHS prepared a plan that did not count on revenues from the provider tax, although it left open the possibility that those funds could be used, if a consensus could be reached between the state, the federal government and the providers.

Ultimately, the DHS weighed the legislative mandates, the position of the patient advocacy groups and the position of the hospitals and developed a plan for spending cuts that calls for the following:

• All coverage will be eliminated for the OHP standard population effective August 1, 2004.
• Health services will continue for the OHP plus population, including mental health, chemical dependency and prescription drugs benefits "bought back" with funds freed up by lower than expected enrollment in OHP standard and other programs.
• Planned expansion of OHP plus coverage for women and children up to 200% of the poverty line will not take place.
• Other state mental health, chemical dependency, and acute psychiatric care programs will be maintained
• The redesigned prescription drugs program for the medically needy, will not be implemented.  Funds will be made available to cover HIV and transplant anti-rejection medications for those persons already covered, however, no additional patients may be added to the plan. 
• Services restored to seniors and disabled persons effective July 2004.  Services had been eliminated for this population in 2003, however, now that they are restored, the federal government will make it difficult for the state to eliminate them again in the future.

[1] The medically needy include those who have incomes above the federal poverty line but who have extraordinary medical expenses, such as those living with HIV, or persons who have undergone organ transplants and require expensive anti-rejection drugs.

Stakeholder positions

Stakeholders in this debate include OHP recipients, hospitals and care centers, taxpayers and the federal government.  There are around 360,000 people on Oregon Health Plan, about 50,000 of which are in the OHP standard population, and the remainder in the OHP plus.  Another 40,000 people receive state health services in non-Medicaid programs that are sometimes considered part of the Health Plan, including the medically needy program and other health programs. 

Representatives from the OHP standard population have, with some success, challenged past cutbacks and restrictions on their benefits in court.  Members of the medically needy population have also challenged past cutbacks to their program in court with initial success that has since been largely rolled back.  Although groups representing different recipient populations have, at times, gone to court to protect their own interests, advocacy groups for all recipients have uniformly lobbied for full funding of coverage for both the OHP plus and the OHP standard populations, and have emphasized the importance of maintaining mental health, chemical dependency and prescription drug coverage as a way of saving the state money on acute care.  This unity of message is likely the result of the broad, consensus-building process that was undertaken when the original OHP prioritized list was developed.

Hospitals and health centers have a strong interest in keeping uninsured patients out of expensive emergency rooms, through preventative medicine, planned hospitalizations, and insurance.  They reluctantly agreed to allow the legislature to pass the provider tax in order to leverage federal funds to pay for services for the OHP standard population.  However, they have indicated that they will pull out of the plan if they do not get a direct benefit from the way the tax is used. 

Even stronger in their opposition to new taxes, tax watchdog groups have successfully fought new taxes to support programs and a state budget that they see as fiscally irresponsible.  They want government to cut waste, and to adjust its budget thinking from the boom years of the late 1990s to the more austere present. 

The federal government has not indicated one way or the other how it stands on the issue of spending cuts and changes to the OHP.

Ultimately, the Department of Human Services and the State Legislature are responsible for weighing the conflicting needs and coming up with a compromise solution.

Influences in policy making and legislation

The 2003 legislature produced two pieces of legislation that shaped how the cuts were put into effect: One outlining how the state should distribute cuts if voters rejected the tax increase, and another describing which populations and health services should be prioritized under the OHP as it was cut.  Because the OHP operates under a federal Medicaid waiver, the legislature could not simply make changes; they had to get approval from the Centers for Medicare and Medicaid Services (CMS).

When voters rejected the legislature's tax increase and triggered $544 million in spending cut, each department was asked to prepare a budget rebalance plan explaining how they would implement the cuts assigned to their department.  The Department of Human Services had to cut $179 million, 90% of which came from health services, the bulk of which is the Oregon Health Plan.  The plan was to be guided by the priorities established by the legislature and a number of other considerations, including stakeholder positions and federal approval.

The DHS rebalance plan will be submitted to the legislature's Emergency Board April 6, where it will be reviewed during the Board's April 8-9 meeting.  Because the bill has been developed in cooperation with legislators and the governor, the plan is likely to be approved.  The plan will take effect and become law as soon as it is signed by the governor and federal approval from the Center for Medicare and Medicaid Services (CMS).

The DHS rebalance plan has changed significantly since its early stages because declining enrollment in the OHP standard and other programs has freed up some unexpected funds, which can be used to "buy back" programs slated for elimination.  The plan calls for the elimination of coverage for the OHP standard population August 1, 2004, however, if the federal government approves the provider tax, some services for this population could be reinstated.

The legislature has a special session planned for June where further modifications could potentially be made.

Adoption and implementation

The Department of Human Services (DHS) will be responsible for implementing the cuts according to the spending cuts plan, if the emergency board and the governor approve it.  Modifications to the rebalance plan may come during the emergency board meeting in April, or during the Legislative session in June.  If the federal government approves the provider tax, the state will use the tax to restore some, though not all, services for the OHP standard population. Even if the federal government approves the tax, however, providers may pull out of the deal.  Another factor that could influence implementation of the cuts include the possibility that excluded populations will file lawsuits to force the state to continue coverage.  Another possibility is that an economic upswings or reduced enrollments may increase the resources that can be made available for the OHP plan or other health services during the next budget rebalance (the budget review and adjustment process that happens at regular intervals). 

Monitoring and evaluation

During the budget rebalancing process, the legislature and the department will evaluate how effectively cuts have been implemented and how much money has been saved out of the overall budget. 

Patient advocates from all affected populations will be keeping a close eye on the implementation of the cuts, and the DHS will be keeping a close eye on the impact of the cuts as well.  The federal government, particularly the Centers for Medicare and Medicaid, will also be monitoring the program, to ensure that federally mandated populations continue to receive coverage.

The incentive is a negative one, as if the cuts are not made and the budget is not balanced, DHS will simply not be able to pay for the program.

Expected outcome

The Cuts will achieve their short-term goal of balancing the department's budget while maintaining basic services for the most vulnerable populations. 

The 50,000 people cut from OHP standard will most likely seek medical and mental health care from emergency rooms, which are bound by law to receive patients in crisis regardless of their ability to pay.  This will result in more unpaid emergency room bills, a cost that must be born by the state and private hospitals, and will be passed along to insurers in the form of higher hospital costs, higher insurance premiums, and lower net wages as employers pass those higher costs along to workers. 

Oregon's once leading health plan has now been cut back to the point that, if more money is not found, at the next legislative session and Medicaid waiver application process the state (or the federal government) could easily decide it is time for the state to return to a traditional Medicaid program.  Many advocates wish to maintain the structure of the OHP, believing that the prioritized list of treatments is a more effective package than that offered by traditional Medicaid.   They also hope that if more money becomes available, coverage can be reexpanded.  However, all acknowledge that without stable funding, strong political support, and a mechanism for re-building demand for the services, reexpanding coverage in a sustainable way for the expansion population is unlikely.

Given the convincing defeat of the proposed tax increase in February 2004, it is highly doubtful that voters will approve any further tax increases to increase revenues.  Unless the provider tax can be used to provide hospitalization benefits for OHP standard, it is unlikely that providers will allow it, even if federal approval is obtained.  However, the US congress could potentially authorize bailout money for the states, temporarily increasing federal matching funds for state Medicaid programs in crisis giving the state the ability to buy back further services. 

The drastic reductions in the OHP, once a national leader in the rational provision of care, underscore the national Medicaid crisis, the rising cost of health care, and the rapidly swelling ranks of the uninsured in the United States.

References

Sources of Information

The Henry J. Kaiser Family Foundation, Commission on Medicaid and the Uninsured: http://www.kff.org/about/kcmu.cfm

Oregon Department of Human Services: Oregon Health Plan: http://www.dhs.state.or.us/healthplan/

 

Author/s and/or contributors to this survey

Sarah Weston, Institute for Global Health, UCSF; Carol Medlin, Institute for Global Health, UCSF

Suggested citation for this online article

Sarah Weston, Institute for Global Health, UCSF; Carol Medlin, Institute for Global Health, UCSF: "Oregon Health Plan Cuts". Health Policy Monitor, April 2004. Available at http://www.hpm.org/survey/us/c3/5