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Reform on the Ropes in Louisiana (Part 1 – Healthcare)

True fiscal conservatism supports privatization of government services wherever possible because the private sector is almost always more efficient than the government.

Although he has not kept a national profile as high as that of some other Republican governors like Chris Christie or Scott Walker, Louisiana Governor Bobby Jindal has been quietly and competently reforming state government in Louisiana since his election.  Jindal has successfully reduced bottom-line spending in Louisiana by 26% since he took office, an impressive accomplishment in its own right. However, Governor Jindal recognizes that merely cutting spending is not enough; in order to make a lasting change on the size of Government’s footprint, spending cuts must be accompanied by reforms that change both the manner and extent to which the government provides services. Many of these reforms, which have been carefully planned out and in the works for years, are coming to a head right now during the current Louisiana legislative session. Given that Republicans in Louisiana have finally taken control of both chambers of Louisiana’s legislature, one would hope that Jindal’s reforms – which read like a lengthy wish list for long-time conservative activists – stand a good chance of passing.

However, due to some reticent Republicans in the Louisiana House, substantially all of Jindal’s reform agenda is now in danger. Sadly, it appears that Republicans may be preparing to shoot themselves in the foot in Louisiana and blow yet another golden opportunity to reform the way government works, choosing short-sighted temporary cuts over meaningful, long-term reform. As a result, Republicans may well be preparing to back themselves into a corner where a compromise with Louisiana Democrats – a compromise which would necessarily include tax increases – will be necessary to get a budget passed:

To help deadlock some of the governor’s legislative plans, Republicans have been joined by Democrats angered by Jindal’s refusal to consider tax increases or the removal of tax breaks to lessen cuts.

Add in the implications of an election year, and the political scene was ripe for complications for Jindal.

Leading the disputes is Republican House Speaker Jim Tucker, who has suggested backhandedly that Jindal isn’t nearly as much of a fiscal conservative as he claims.

Tucker, from all the news accounts available, is attempting to sell himself as the “true conservative” in this fight, and is dismissing Jindal’s attempts at reform as unnecessary gimmickry.

Thanks to the good folks at the Republican Party of Louisiana, RedState has been given a front row seat here in Baton Rouge to see this fight plays out in the final four weeks of the legislative session. Over the next several days and beyond, I will be covering this fight as it plays out on the House and Senate floor. To help RedState readers understand what is at stake, I will explain each of Governor Jindal’s reform proposals, along with the objections raised by Tucker and others. It is my hope that I will be able to sit down with Tucker and other Republicans in the legislature and speak with them personally about their objections and concerns.

The first and most fundamental reform proposed by Governor Jindal is a reform of Louisiana’s Medicaid system.

Currently, Louisiana is one of the last 14 states in the country in which all of its Medicaid patients are managed on a fee-for-services basis. What this means, essentially, is that all of the State’s Medicaid patients, when they need to see a doctor, merely present themselves to the doctor, receive services from the doctor, and then the state later cuts a check to reimburse the doctor for the services rendered.

The problems with this approach ought to be manifest, especially given the fact that Medicaid does not provide any incentive for patients to get annual checkups, physicals, or preventative visits. In fact, many primary care physicians will not take Medicaid patients and will force them to pay cash for those visits (Medicaid will pay for a once-a-year wellness visit for children, but not for adults. The end result of this is that adults on Medicaid tend to not develop a relationship with a primary care provider. Since adults are obviously the ones responsible for taking their children to the doctor, the practical result is that very few Medicaid patients of any age take advantage of wellness visits or ever visit a primary care physician). As a result, Medicaid patients – particularly in Louisiana with the hospital system set up by Huey Long –  tend to treat hospital emergency rooms as their primary care physician. Obviously, as anyone who has had to pay an emergency room bill out of their own pocket knows, this is hardly the ideal health solution, from a cost standpoint.

Additionally, this approach leads to less-than-desirable health outcomes. Patients with chronic health problems such as diabetes and heart disease do not receive the preventative health care that they need and tend to be readmitted to the emergency room over and over again due to mismanagement of their health conditions.

Louisiana has attempted to combat these problems in a number of ways. One way has been through the adoption of the “Community Care” program under Jindal, which reimbursed primary care physicians a fee of $3 per month per member for those primary care physicians who saw Medicaid patients in order to encourage Louisiana Medicaid patients to develop a relationship with primary care physicians. This program met with mixed results, even after reforms to change the Community Care program to provide incentives for primary care physicians to serve Medicaid patients more effectively. Louisiana remains near the bottom of national health rankings in nearly every category, and lack of relationship with primary care physicians remains a main driver of these problems.

Accordingly, Jindal has proposed that Louisiana follow the lead of some 36 other states who have contracted with private companies to provide managed care to Louisiana’s Medicaid population in a coordinated care network. Under this proposal, Louisiana would ask private companies (like United, Humana, BCBS and the like) to bid for a flat fee to manage a certain segment of Louisiana’s Medicaid population. Under Governor Jindal’s proposal, each region of Louisiana would be served by at least two providers, giving the state’s Medicaid population a choice between providers and creating healthy competition. In exchange for this flat fee per member, the private insurance companies would then reimburse doctors and hospitals for the services used by the Medicaid population for which they are responsible.

The benefits of this approach are obvious. Private insurance companies have market-tested means of managing costs and giving care in appropriate settings. The private companies have an incentive to include in their plan offerings coverage for things like annual wellness visits for adults and children, annual OB/GYN visits for women, preventative care for diabetes and other chronic conditions, and the like – because these measures will in the long run decrease their aggregate cost. Because of the insurance companies’ expertise, they can provide care to Louisiana’s Medicaid population at much less cost than Louisiana’s current straight fee-for-service arrangement. More importantly, these companies will improve health outcomes for Louisiana residents.

Louisiana has been planning the implementation of this program for years. The State has retained an independent firm (Mercer) which has estimated that moving the state’s Medicaid program to a private managed care model, based on widely accepted actuarial estimates, will save the State of Louisiana $8 million dollars this year, and $135.9 million dollars in next year’s budget, both from the slower rate of increase for the cost of the Medicaid program and for saved costs from the fee-for-service program.

Given all this, one might wonder what sort of conservative would oppose such a plan. The plan cuts costs and helps move the State’s Medicaid system from a government-provided model to a private model. Tucker’s objection is to the startup cost of the coordinated care network program. Currently the state has to cut a check at the end of every month for services rendered to medicaid patients. If Governor Jindal’s reform is implemented, the state will have to pay the private insurance companies their fees up front. Additionally, there remains a backlog of Medicaid claims that will have to be paid as they come in throughout the year. This will create a one-time transition cost of the program that amounts to approximately $80 million – a cost that will of course be more than recouped in less than a year. Governor Jindal has proposed to pay for this $80 million with the sale of 3 prisons to private companies that would manage them – a move which Tucker opposes (more on this later).

Therefore, rather than spend $80 million, which the State could have available, to save countless millions over the lifetime of the prorgram (and over $140 million just over the next two years!), Tucker has proposed in his budget a flat cut of $80 million to the state’s general Medicaid fund. If it strikes you as questionable strategically to cut $80 million this year rather than implement a reform that could cut over $100 million annually in perpetuity, the reality is that Tucker’s plan is actually much worse. See, the Federal government reimburses the states essentially three dollars for every dollar the states spend on Medicaid. Therefore, reducing the budget for the general Medicaid fund by $80M means that the State of Louisiana will lose $240M in matching funds from the federal government.

In other words, this cut of $80M will actually end up costing the State of Louisiana $160M.

Of course, the State of Louisiana does not have $160M laying around to cover the shortfall that would be created by these cuts. So the reality is that the state’s Medicaid fund will lose the $80M that Tucker is proposing plus the $240M in Federal matching funds. What this means is that doctors – who are already leery of taking Medicaid patients because of the notoriously low Medicaid reimbursement rates – will have to take a severe rate cut in their Medicaid reimbursements. It is not difficult to predict that many doctors and hospitals, faced with these cuts, will simply refuse to continue seeing Medicaid patients. The end result: the health problems that currently plague Louisiana Medicaid patients will merely get worse.

Conservatives who have been in the movement for a long time know that merely making one-time cuts to government is not enough. Again and again we have seen that these cuts can be undone by Democrats (or squishy Republicans) when they return to power. We have all seen this play a hundred times before – a Republican makes cuts in a haphazard manner which causes a reduction in services, angering the public. The public responds by electing a Democrat or more moderate Republican, and that Democrat comes along and puts back in the money that was cut, plus some extra for good measure. True fiscal conservatism rejects such a short-sighted approach in favor of long-term reform.

Further, when dealing with recurring entitlement programs, the structural features of these programs cause them to grow and inflate over time unless they are reformed at the structural level. Thus, a one-time $80M cut this year will not address the long-term growth (in fiscal terms) of the program whatsoever.

Cloaking this maneuver in the mantle of “fiscal conservatism” while at the same time intentionally spiking a reform measure that would create real, long-term savings while at the same time changing the structure of the program itself to be more cost efficient will not fly with conservatives, who have been trying to implement reforms like this for decades. True fiscal conservatism supports long-term privatization of government services wherever possible because the private sector is almost always more efficient than the government. And true fiscal conservatism supports changes in the long-term cost structure of entitlement programs, rather than one-time fixes which could drastically affect citizen services and which ultimately merely kick the can down the road.

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