Part 2: Thoughts on Universal Coverage, Health, Equity and Value

Hon. John Kitzhaber is the former governor of Oregon and continues to be one of the most important thinkers on state health reform in the country. Since leaving public service, he has traveled across the country, working with organizations, leaders, and reformers in health care. 

This commentary is the second part of a three-part series offering Kitzhaber’s thoughts on universal coverage, equity, and value. Part one of the series, which reflects on the recently signed $1.9 trillion American Rescue Plan, is available here. In this part, Kitzhaber discusses his ideas to move the national health policy agenda forward administratively through 1115 and 1332 waivers.



Universal Coverage / Reducing the Total Cost of Care

Let’s start by looking at the health care system in terms of the “three pools” organized by the nature of the public subsidies involved.  Pool 1 and Pool 2 have direct public subsidies and Pool 3 has indirect public subsidies.

Pool 1 is where the coverage problem is most acute, primarily because of the cost of care. Those most at risk are those earning more than 138% of the federal poverty level who are not eligible for Medicaid, but cannot afford the growing cost of premiums, copayments and deductibles in the individual market. Furthermore, twelve states have not yet expanded Medicaid. This is not to say that there are not legitimate challenges/problems in Pools 2 and 3, there are— but these are not primarily coverage problems. Everyone on Medicare has coverage and, notwithstanding the rise in unemployment, the majority of Americans are still receiving coverage through their employer.

As incoming CMS administrator Chiquita Brooks-Lasure has pointed out: “coverage for the lowest income Americans remains the most significant unfinished business of the ACA.” So, if we want to begin to fundamentally change the delivery model across the system, the place to start is with Pool 1. Let me use Oregon as an example.

We know that if even 80% of those in Oregon who are currently eligible for Medicaid, or subsidies in ACA market, were actually to enroll, we could reduce the number of Oregonians without coverage to less than 1%. To do so we must reduce the total cost of care by:

  1. Getting the CCOs back on a true global budget (1115 waiver)
  2. Extending capitation to the ACA individual market (1332 waiver)
  3. Using that market as the public option, starting with people enrolled in the small group market.

Unlike every other health care program that is directly subsidized with taxpayer dollars (including Medicaid, Medicare, the VA and Tricare) the ACA market has no uniform fee schedule. It is a wide-open fee-for-service payment model with no constraints on the total cost of care. Fees are negotiated annually between insurers and providers and those fees mirror rates in the rest of the commercial market, which are usually 300 to 400% higher than Medicaid rates. This means, for example, that a provider providing care for someone earning 138% of the FPL will get paid the Medicaid FFS rate, but will receive three or four times as much reimbursement for someone earning 140% of the FPL, who is getting care through an ACA policy in the individual market.


Move ACA Individual Market from FFS to Capitation

The solution is to use a 1332 waiver to move the ACA individual market from fee-for-service to capitation, with the global budget indexed to a sustainable growth rate. We’re not talking about simple rate caps here, but rather building a global budget making some assumptions around the fee schedule, utilization and benefit. I would suggest using the ACA essential benefit package and assuming moderately well-managed utilization. What we learned from the CCOs is that the real cost of savings are not in the rates but in reducing trend. Even starting with a fairly generous fee assumption, say 200% Medicare plus, as long as the resulting global budget is tied to a growth rate of 2.5 to 3% per member per year, there will be substantial savings which will increase over time. This, in turn, not only helps finance the expanded subsidies in the ACA market, but also creates a delta of savings that can be reinvested upstream in the community.


Use this Restructured Individual Market as the Public Option

This eliminates the need to create an entirely new entity. The ACA market is already heavily subsidized with public resources and commercial insurers are already involved.  I would open this market initially to employers in the small-group market. There are number reasons to recommend this.

  1. Under current law, small group employers can receive tax credits for enrolling their employees in a plan through the exchange.
  2. Both the individual and small group market come under state regulatory authority.
  3. The vast majority of employers in the United States are in the small group market. It is these employers and their employees who have suffered the most during the pandemic, and giving them the ability to purchase affordable, high quality health care with a predictable rate of inflation, would give them a huge boost as we pull out of the current economic crisis.

Part 3 of this commentary is available here