Delaware's plan to slow healthcare cost growth

Never leave that till tomorrow, which you can do today. Benjamin Franklin

Experience teaches that when problems are ignored, they tend to persist or get worse. Witness the rising cost of healthcare in Delaware, which is now being cited as a major reason for the state government’s budget woes. Get serious about healthcare (editorial), News Journal,

. . . the state government’s healthcare costs rose by 42% between 2010 and 2016, and that’s “utterly unsustainable.” No wonder lawmakers have been forced to struggle to balance the state’s budget, and other priorities have suffered, such as investing in schools, battling the opioid epidemic and maintaining safety in prisons. If we don’t act now, the result could be “huge tax increases and more painful budget cuts” than have been seen already.

The proposed solution is to set a benchmark for Delaware healthcare costs and track it to ensure that costs stop rising faster than the overall economy – and that the quality of healthcare will improve as well. Delaware must control healthcare spending, Gov. John Carney & Secy. Kara Odom Walker, News Journal,

Bearing in mind the adage about things that sound “too good to be true,” we’re not sold on the benchmark approach (as will be discussed shortly). At a minimum, however, the Carney administration deserves credit for acknowledging the budgetary implications of the current healthcare system and expressing willingness to consider changes. This problem has been in the making for years, and it’s about time someone tried to address it.

A. Background – SAFE reviewed the Delaware fiscal picture in 2009, at a time when the state was struggling to close a major budget shortfall brought on by an economic recession; we offered two suggestions for reducing state and local government outlays. Delaware’s fiscal situation: a case study, 4/27/09.

FIRST, consolidate school districts to reduce the number of highly paid administrators, support personnel and headquarters facilities. Thus, a consolidation of Delaware’s school districts (from 19 into 4, one for each of the 3 counties plus a state-wide vo-tech district) could achieve savings for Delaware taxpayers on the order of $45 million per year – as shown by a study that was already in hand.

The potential savings were verified by a study sponsored by the LEAD Committee (Leadership for Education Achievement in Delaware), and conducted by the Boston Consulting Group. Among the study findings was a suggestion that a start be made by consolidating functions now, leading to consolidating districts later.

We acknowledged that school district consolidation would take time and effort, but suggested that “with the push to shore up the government’s finances right now, this would be a great time to get started.”

No action was taken in 2009, but the General Assembly recently established a task force that is conducting public meetings about school district consolidation and will report its findings and recommendations by January 30, 2018.

We continue to believe that significant cost savings are possible, and that a reduction in the population of school district administrators would encourage school building managers (principals & assistant principals) to assume greater responsibility. However, the school district consolidation task force may be inclined to recommend sticking with the status quo. For discussion, see a
forthcoming story in the Conservative Caucus of Delaware newsletter.

SECOND, look for ways to “rationalize Delaware’s Medicaid program.” At the time, enrollment stood at an estimated 157 thousand (over 17% of the state population), and the total government cost (shared about 50/50 by the state and the federal governments) was running about $1 billion per year. Annual cost per enrollee (approximate): overall $6,800 – blind/disabled $17,100 – elderly $17,400. Moreover, healthcare spending was projected to grow faster than other elements of the overall budget, in large part because retirement of baby boomers would swell the number of elderly participants.

“In less than a decade,” according to one study, “the combined spending on Medicaid in the State of Delaware will exceed the amount spent on Education [currently the area with the most state spending] by $600 million.”

The most striking increase since 2009 has been in the federal funding of Delaware Medicaid outlays (the federal government has been picking up most of the cost for newly eligible participants under the Medicaid expansion authorized by the Affordable Care Act). Still, Delaware outlays have been growing at an annual rate of about 6% per year, which is about three times faster than overall US economic growth. Department of Health and Social Services, Fiscal Year 2017, Base Budget Review.

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“What can be done about Medicaid here,” asked SAFE’s 2009 analysis, “before it bankrupts the state government?” Delaware’s fiscal situation: a case study, 4/27/09.

Emulating Massachusetts by instituting some form of mandated healthcare coverage would result in higher (not lower) state healthcare outlays. And Delaware shouldn’t count on getting a rising share of its Medicaid funding from the federal government (we didn’t foresee the ACA provisions re Medicaid expansion).

If there was a solution, it would involve “dialing back the government role in healthcare and relying to a greater degree on free market mechanisms.” To this end: (1) tighten eligibility requirements and concentrate on the needs of lower income patients, which would clearly beat the all-too-common expedient of slashing healthcare reimbursement rates and winding up with substandard care for all Medicaid beneficiaries; (2) explore lower cost options for providing medical services, e.g., walk-in clinics versus hospital emergency rooms; and (3) rely to a greater degree on supply and demand to control healthcare costs.

A contemporaneous entry advocated full state control over Medicaid programs with federal funding to be block granted. SAFE plan for healthcare reform is government-lite, section 4,

Like most people, we believe the poor and disadvantaged should be afforded decent healthcare because it is the right thing to do.  Ideally, such support would come through private charity, but government programs will probably be needed as well. That said, there are major problems with the Medicaid and SCHIP [now CHIP] programs as presently constituted, not the least of which is that joint funding by the federal and state governments creates an incentive for states to keep expanding their programs in order to qualify for more and more federal funding.

Update: a proposal along these lines is currently under consideration by Senate Republicans. It is considered “the last hope” to “repeal and replace” GovCare. [Senator] Bill Cassidy says Obamacare overhaul bill is close to 50 votes, Kimberly Leonard, Washington Examiner,

B. Healthcare cost benchmark proposal – Nothing was done in 2009 to stabilize the Delaware Medicaid program and costs have continued to grow rapidly (see the above recap of 2009-2016 data). Now, eight years later, the Carney administration and state legislators have identified the rapid growth of Delaware healthcare costs (in total, not just state outlays) as a serious problem. Delaware must control healthcare spending, op. cit.

Total healthcare spending is on track to double over the next decade, handily outpacing economic growth and placing a growing strain on taxpayers.

Recent legislation (House Joint Resolution 7) authorizes the establishment of “a healthcare spending benchmark with a growth rate linked to the growth of the state’s economy.” Envisioned benefits: (1) support the concept of paying for health outcomes versus “the number of services offered;” (2) save “tens to hundreds of millions of dollars per year through increased transparency, better efficiency and system-wide innovation;” and (3) achieve “higher standards of care” (DE currently ranks 31st in the nation by America’s Health Rankings).

It is proposed that the Delaware healthcare system be changed to reward healthcare providers/systems for keeping people healthy instead of simply being paid on a fee for service basis. Increased transparency around quality and health outcomes would enable patients to make better informed choices, and encourage employers to design better healthcare plans and spend healthcare dollars more wisely.

Some healthcare providers/ systems would respond to the new incentives by upping the level of their game, while those who didn’t would lose business. Healthcare insurers would steer patients to the best healthcare available.

This vision reminds us of the “all gain, no pain” promises that were made before the Affordable Care Act was enacted, e.g., the previous president’s remarks at a Forum on Health[care] Reform in March 2009. A tale of two summits,

The president stated the purpose of the forum as starting to determine how to “lower costs for everyone, improve quality for everyone and expand coverage to all Americans.” As for how all of these goals could be achieved while reducing government outlays, he pointed to potential cost savings opportunities: “modernize our system and invest in prevention . . . ensure people aren’t overcharged for prescription drugs or discriminated against for preexisting conditions . . . eliminate fraud, waste and abuse in government programs.”

No sacrifices by healthcare consumers were called for: “[If] somebody has insurance they like, they should be able to keep that insurance . . . keep their doctor . . . just pay less. *** The only obstacle was said to be overcoming “entrenched interests” [presumably healthcare providers and insurance companies] so “we will not “arrive back at the same stalemate that we've been stuck in for decades.”

The actual effects of GovCare would be quite different, with many Americans forced to replace their existing healthcare insurance arrangements or change doctors and HCI premiums rising sharply versus declining. The website is fixable, but GovCare has deeper problems, 1

Given this experience, it might be advisable to approach the Delaware benchmark proposal with a bit of skepticism. Just how does the Carney administration propose to achieve such outstanding results, and is the plan realistic? Here’s our impression of where things seem to be headed based on information that has been publicly reported. Delaware launches effort to rein in healthcare costs, Meredith Newman, News Journal,

The goal of the healthcare cost benchmark will be to “allow Delaware to better control the growing cost of healthcare – which is eating up 30 percent of the state’s budget and [is] on track to double in the next decade.” It’s also mentioned that “total personal healthcare spending” (out of pocket outlays by patients?) is projected to increase from “$75 million in 2009 to $148 million [roughly $148 per capita] in 2020.”

This initiative will be led by Dr. Kara Odom Walker (DE secretary of Health and Social Services). A three-year program is envisioned.

•Year one (2018): The state will work with hospitals, insurers and healthcare providers to figure out the best way to determine and implement the benchmark. A $10 million federal grant will be used to “hire the right expertise” and conduct a series of public meetings. These meetings will predictably be described as seeking input on how healthcare costs can be better managed, but the real purpose will be building support for the benchmark initiative.

•Year two (2019): Establish a benchmark authority, “creating a formula to determine the rate,” and holding public hearings on the proposed HHS regulations. This suggests that an array of benchmarks would be employed versus simply tracking overall healthcare cost, and also that the implementation plan would be run on a top-down basis.

•Year three (2020, an election year): Benchmark will go into effect.  

Details are sketchy as to how the Carney administration proposes to bend the cost curve downward, but the key point seems to be more selective use of healthcare services.

The column by Governor Carney/HSS Secretary Walker cited a study showing that Delaware patients are currently not receiving “recommended or appropriate” healthcare more than half the time. If there is cost saving potential in the advocated shift from a fee for services payment model to a health outcomes model, therefore, it would seemingly rest on the premise that people are receiving a lot of healthcare services they don’t need. Delaware must control healthcare spending,
op. cit.

Dr. Walker plans to look into unnecessary healthcare costs, “such as a doctor ordering an X-ray or a patient staying an extra day at the hospital, when it might not be needed.”  She says situations like these can “make up 20 to 30 percent of healthcare costs.” Delaware launches effort to rein in healthcare costs,
op. cit.

Hmm, who exactly is it who should determine what healthcare services are “recommended or appropriate” if not the patient (aided by family members when necessary) concerned and his/her doctor? Isn’t the real problem with the healthcare system that essentially all healthcare bills are paid by government agencies and healthcare insurers versus directly by consumers of the services, which spawns public indifference as to the level of costs involved?

A better way to keep healthcare spending within reasonable bounds, we believe, would be to dial back government healthcare programs and encourage the use of high deductible (true insurance) healthcare plans versus instituting what amounts to a rationing approach. For further discussion, see the
healthcare page of this website.
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