SustiNet debate returns to legislature, where cost is the issue

By delivering a more-than 200-page report to state legislators last week, members of the SustiNet board opened the next chapter in the debate over a proposed state-run health insurance plan. It’s a fight that will likely hinge on cost.

Supporters say the proposed health plan, envisioned as a public option that would combine state employees and Medicaid recipients into one insurance pool that is opened up to the public, could help the state save more than $200 million a year.

“I see this as a budget saver, or a cost saver,” said House Speaker Christopher G. Donovan, D-Meriden, who backs the plan and believes it will win legislative support. “I think it’s directly related to the budget as a cost saver.”

But critics aren’t convinced. State Senate Minority Leader John McKinney, R-Fairfield, believes taxpayers will still face significant costs under the proposal.

“How is it that everyone seems to know how much Sustinet will ‘eventually’ save, but no one knows or wants to talk about how much it will cost taxpayers right now?” he said in a statement. “It would be irresponsible to move forward at this time.”

People on both sides point out that much of the projected savings stem from federal health care reform, which will bring millions of dollars to the state with or without SustiNet. In its report, the SustiNet board linked SustiNet and federal health reform in discussions of cost, noting that “beginning in 2014, the proposal we recommend, combined with national reform, would improve the state’s fiscal situation, in several ways.”

To be sure, cost is not the only reason supporters say SustiNet is needed. State Comptroller Kevin Lembo, the former state health care advocate and co-chairman of the SustiNet board, said the proposal could help the state gain more control of the $7 billion it already spends on health care, cover the uninsured, and influence the commercial insurance market.

But with a $3.7 billion budget deficit looming, cost is almost certain to be a central question in the debate over SustiNet’s future.

So where do the projected savings come from?

The largest piece is the result of a move the state already made, converting the state-administered general assistance program, or SAGA, into a Medicaid program. It is expected to save money because while SAGA was fully funded by the state, the federal government reimburses a portion of Medicaid costs. And under federal health reform, the percentage of costs that get reimbursed will increase significantly.

The cost projections, based on modeling by Massachusetts Institute of Technology economist Jonathan Gruber, say the state will save at least $286 million in 2017 because of the SAGA change.

The cost estimates cited in the report compare a scenario in which there is no federal health reform or SustiNet to one in which both are implemented. In the case of SAGA, that means that the baseline used in the calculation does not reflect current policy, but rather the costs the state would have faced had former Gov. M. Jodi Rell’s administration not moved SAGA into Medicaid, a move that was prompted by federal health reform.

If the cost estimates used the state’s current policy as a baseline instead, the savings would be much less than what the board report portrays, Gruber said.

Whether the state sees savings in other areas–including coverage of other Medicaid recipients or state employees–depends on whether SustiNet can slow the growth of health care spending. The SustiNet board recommended several delivery system reforms intended to rein in costs while improving health, including the use of patient-centered medical homes, electronic health records, and paying health care providers for performance, rather than the volume of tests or procedures done.

Gruber modeled two scenarios: A “pessimistic” version, which assumes SustiNet will have no effect on the growth of health care costs, and an “optimistic” scenario that assumes it slows the growth by 1 percentage point per year.

In the pessimistic scenario, the costs of Medicaid, HUSKY and state employee coverage would still increase by 2017, although the SAGA savings would offset them. In the optimistic scenario, the state would save money in those programs.

And in both scenarios, the state would see an increase in tax revenue–$15 million or $19 million–because some employers would stop offering insurance coverage when public coverage becomes available and would likely increase workers’ pay.

By 2019, the annual savings projected in the optimistic scenario, $531 million, are more than double the $226 million in projected savings if health care spending isn’t reined in.

Expanding on Federal Reform

Federal health reform will have a significant financial effect on the state’s $4 billion Medicaid program whether SustiNet is enacted or not. The federal reform law requires states to expand Medicaid coverage to include more low-income people, and heavily subsidies the costs of doing so.

Typically, the federal government reimburses Connecticut for 50 percent of the money it spends on Medicaid. Under the federal stimulus, which is set to run out later this year, the state receives up to 61 cents in federal reimbursement for every dollar it spends on Medicaid.

Health reform requires states to expand Medicaid to include adults earning up to 133 percent of the federal poverty level in 2014, and for the first three years, covers the full cost of doing so. Beginning in 2017, the federal contribution will fall each year until it hits 90 percent of the cost of covering the newly eligible residents in 2020.

The SustiNet board recommended that the state move to capture even more federal aid by expanding the state’s HUSKY program–which largely covers Medicaid recipients–even further than health reform requires.

Beginning in 2014, people who do not receive employer-sponsored coverage and whose incomes are slightly too high for Medicaid will receive subsidies to buy insurance through marketplaces known as exchanges.

But the health reform law also gives states another option for covering the lowest earners in that group, those making between 133 percent and 200 percent of the poverty level. For them, states can provide a “basic health plan,” which would replace subsidies to buy coverage. The federal government would pay the state 95 percent of what it would have spent on subsidies for those individuals.

In Connecticut, under the SustiNet board’s proposal, offering a “basic health plan” would mean adding about 41,000 adults to HUSKY who would not otherwise be eligible. And according to Gruber’s projections, doing so would cost the state less than what the federal government would pay Connecticut to provide the coverage. The extra money would have to be spent on those 41,000 people, and the SustiNet board recommended using it to increase rates paid to health care providers who treat them.

Expanding HUSKY through the “basic health plan” option would also save the state $50 million per year, Gruber projected, by allowing the state to get more reimbursement for people the state already covers. HUSKY currently covers parents who earn up to 185 percent of the federal poverty level, and approximately 16,000 of them could be moved into the “basic health plan” because they fall within the income guidelines. Instead of getting paid 50 cents for every dollar spent covering them, the state could then get more federal funding.

Finding More Money

McKinney raised concerns about potential costs the state could face from SustiNet.

“The fact is, there is no plan to pay for up-front and ongoing costs,” he said.

The board recommended that SustiNet be run by a quasi-governmental agency. Initially, it would be staffed by the comptroller’s office, but by 2013, would need its own staff. The report calls for an executive director to be hired and begin work no later than March 1, 2012, “after sufficient resources are identified outside the state General Fund.”

The board also recommended that the legislature, state agencies and the SustiNet authority find the resources to expand Medicaid to more people before 2014–when the federal reimbursement increases–and increasing rates paid to health care providers treating HUSKY patients.

As described in the report, SustiNet would roll out in phases.

The initial moves would focus on slowing cost growth, the board’s report said, rather than expanding health care coverage to more people. Combining the health plans already funded by the state would be used to form a “common platform” for implementing the delivery system reforms.

The first additional groups allowed to buy coverage through SustiNet would be municipalities. Nonprofits and small businesses would also be allowed to buy in next, and by 2014, the board recommended, SustiNet should be sold to any state residents or employers who want it.

Asked whether the proposal could be taken in pieces, Lembo said it is meant to “hang together,” but noted that it is “incremental in nature.”

“To really bring the results that are envisioned here would require that we do the whole way,” he said. “So any sort of stopping before that’s done would just impact the economic models that are contained in here.”