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TMA Respectfully Declines HHS Uninsured Plan

February 18, 2008

Albert Hawkins, Executive Commissioner
Texas Health and Human Services Commission
Brown-Heatly Building
4900 N. Lamar Blvd.
Austin, TX 78751-2316

Dear Commissioner Hawkins:

As you well know, Texas leads the nation in the percentage of uninsured, a position our state has held for more than a decade.  Senate Bill 10 envisioned a strategy to finally relinquish Texas’ title as the uninsured capital of the nation.  The financing assumptions for this initiative are laudable -- moving from a public system that is heavily invested in payment for uncompensated care to a system that mitigates the demands for uncompensated care through the provision of primary and preventive care.  As envisioned, SB 10 would use market forces and government subsidies to pave the way for low-income Texans to find affordable insurance, and in the process help to relieve over-crowded emergency rooms and the strain of uncompensated care in hospitals. 

Over the past year, the Texas Health and Human Services Commission has dedicated countless hours to the creation of a plan that will meet the important goals of SB 10.  While we commend the effort, we must respectfully point out that the plan as articulated is not supportable in its current form for some very important reasons.  While we have attempted to convey these concerns in a variety of ways, it is not clear that these concerns have been fully appreciated.  It would be a significant disservice to the experience and judgment of the hospital industry and the physicians of Texas to dismiss these concerns as our collective reluctance to change. In point of fact, every day we live with the untenable demands of caring for a growing number of the uninsured  as we also try to  attend to the health care needs of this state, and understand the realities of our fragile health care system.  We must change dramatically the way in which we provide health care, which means we also must change the way we pay for health care.  At the same time, we must take care not to make that change at the peril of the current system that labors to meet the very real demands of today. 

The financing strategy for SB 10 is essentially predicated on the fact that we spend substantial dollars to partially defray the cost of uncompensated care for hospitals, and that by improving access to primary and preventive care through a variety of means, including subsidized insurance, we can reduce the demand on our hospitals, and uncompensated care payments can be redirected to support efforts to reduce the uninsured.  We wholeheartedly support the basis of that financing strategy; however, any effort to reduce funding to hospitals without a corresponding reduction in demand will create unmanageable strain on an already weakened health care safety net.  According to the latest SFY 2008 DSH calculation files produced by THHSC, current annual Medicaid payments to hospitals are some $1.2 billion less than the cost to provide those services. 

Additionally, the same files report more than $2.6 billion in annual uncompensated care, calculated at current cost, not charges. These figures illustrate the staggering financial strain under which safety net hospitals must operate.  It has been suggested in the THHSC plan that dollars appropriated by the Legislature to rebase hospital rates ($150m GR) would reduce the need for Disproportionate Share (DSH) payments to those hospitals in a like amount.  That simply is not true.  Hospitals that qualify for DSH payments by virtue of their significant amounts of uncompensated care fall hundreds of millions of dollars short each year of receiving DSH payments adequate to cover their uncompensated care and Medicaid shortfalls.  The dollars for rebasing hospital rates provide for an important reduction in that gap, but even after those payments are received, the demands of uncompensated care are enormous.  It is absolutely imperative that we not begin to move money from uncompensated care payments to subsidies paid through the Health Opportunity Pool until we first reduce the current level of demand for uncompensated care.  It is not clear that the THHSC plan in its current form acknowledges this reality. 

We believe that there are three important questions with regard to the THHSC plan that must be addressed to ensure sustainable success in our efforts to address the problem of the uninsured:

Will the benefit package appeal to the target population?
THHSC recently previewed two limited-benefit packages, one of which will be offered to low-income parents who enroll in the HOP, but do not have ESI. Both options are essentially the same (see attached chart), except one eliminates inpatient hospital care while the other offers a very minimal inpatient benefit.  While we are pleased that both options include what we consider essential benefits -- physician primary and specialty care, preventive health screenings, prescription drugs and behavioral health -- we are concerned that the proposed limits for these benefits may be insufficient and patients not find the benefits meaningful. Additionally, it is not clear that the benefits are designed to achieve Texas’ broader public health policy goals, such as promoting smoking cessation, weight management and use of adult vaccines, such as for flu. The experience of other states, such as Utah, indicates that limited-benefit packages have limited appeal to physicians, health care providers and patients, resulting in very low enrollment. Without additional market analysis, including extensive focus-group testing with potential enrollees, THHSC cannot say with any certainty whether low-income parents will be receptive to the model and seek coverage.

Will the benefit design reduce uncompensated hospital care?
To reduce uncompensated care, offering insurance is not enough.  Texas must provide the right mix and level of services targeted to the patients most likely to use hospital services – the chronically ill. The two benefit designs modeled by THHSC are based on the needs of a relatively healthy adult population, not those considered hospital “frequent fliers.” A truism in health care is that 20 percent of the population contributes to 80 percent of the costs.  To reduce inappropriate emergency department visits and avoidable hospitalizations, Texas must invest resources to better manage the sickest of the uninsured, providing not only comprehensive primary and preventive care, but also appropriate specialty care, behavioral health services, prescriptions, ancillary services, and, perhaps most importantly, extensive care coordination and case management. The experience of Project Access Dallas, for example, is very instructive. By providing chronically ill patients a primary care medical home supplemented with extensive case management and patient education, the model has reduced hospital emergency department visits by 61 percent and avoidable hospital stays by 75 percent.  Project Access currently enrolls only a fraction of the uninsured in Dallas (about 1,000 patients), but an independent analysis indicates that extending the program to all Dallas County uninsured could save $23 million in hospital-related costs annually. 

Will the model promote and encourage a physician “medical home”?   While SB 10 is predicated on a market-based approach to expanding health insurance, the proposed benefit package assumes the state will reimburse physicians, hospitals and other health care providers at Medicaid rates.  These rates are insufficient to develop an adequate physician and provider network and will undermine efforts to promote community-based care.  Most hospital district-based programs now in operation pay Medicare rates or better in order to secure an adequate network.  Successful development of medical homes also will depend on providing physicians practice tools to manage the population, such as the community case management model used in Project Access Dallas, patient registries, and other patient tracking and management systems used in other states.

While we cannot support the THHSC proposal in its current form, we believe that there are steps that can be taken immediately to reduce the demand for uncompensated care and to facilitate market- based opportunities for the uninsured.  We believe the following initiatives should be the very first response, which can be enhanced at a later date with perhaps some form of a new insurance product as now proposed by THHSC once it has the benefit of further study.

Phase I

• For parents with access to employer-sponsored insurance, subsidize  the individual’s premium payment so that they may purchase coverage directly through their employer. Impact: Of the 2.1 million low-income adult Texans who are uninsured, some one-fourth to one-third are estimated to have ESI; 
• Implement a robust outreach strategy to enroll children who are eligible but not enrolled in Medicaid or CHIP.  Impact: Of the 1.4 million Texas children who lack insurance, THHSC estimates 850,000 children qualify for one of these programs; 
• Allocate a portion of the HOP dollars to support existing hospital-district or county-based health coverage arrangements, such as the Bexar County CareLink program, as well as other innovative programs such as Project Access, currently operating in Dallas and Austin.  Impact: These programs already serve the target population and with additional resources could expand not only the number of patients served but also the types of services offered, including improved care coordination and case management needed to measurably reduce hospital costs; 
• Reinstate the Medicaid medically needy program.  Impact:  It is estimated that some 13,000 to 14,000 adults with chronic and serious illnesses would qualify annually for the program.  These patients account for a significant amount of uncompensated care.  Extending Medicaid coverage to them would result in a measurable reduction in these hospital costs.
• Delay reductions in hospital uncompensated care funds until there is a quantifiable reduction in uncompensated care;
• Fund Phase I initiatives using Certified Public Expenditures as the state match.

Phase II

• Define how HOP-based coverage will integrate with existing state and local programs, including the County Indigent Health Care Program, the women’s health waiver, and hospital-district and county-based programs. Texas’ health care system is already enormously complex. The current proposal does not discuss how existing programs will mesh with new coverage, nor how the already overburdened eligibility system will manage the transition.
• Invest in extensive market analysis and focus-group testing to determine what benefit design(s) appeal to Texas’ diverse uninsured population and the relative impact of those designs on Texas’ uncompensated care costs; 
• Using data from the market-analysis, implement pilot regional urban and rural health insurance programs to evaluate the impact of the models on hospital uncompensated care.  Data from the pilots can be used to fine-tune benefits as additional geographic areas of the state are added;
• Fund Phase II initiatives through the redirection of DSH payments once the demand for uncompensated care has been diminished.

Our organizations appreciate the work of the Texas Health and Human Services Commission to create a meaningful roadmap to reducing the burdens of the uninsured in Texas.  We recommend the continuation of the work that you have begun to define an insurance product that will be responsive to the needs of the uninsured.  By implementing the more immediate and predictable initiatives that we have suggested, we believe that the needed changes in the financial support for the uninsured can be accomplished in a balanced and effective manner.  Thank you for your consideration.

Sincerely,

cc: Joint Committee on Oversight of Medicaid Reform

Last Published: 2/25/2008