Reduce Care or Raise Taxes

State Lawmakers May Have to Make a Tough Political Choice  

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Legislative Affairs Feature -- May 2001  

By  Ken Ortolon
Associate Editor

Since the 77th Texas Legislature convened in January, state lawmakers have been grappling to find ways to pay for escalating costs in the Medicaid program without busting the budget or enacting a tax increase.

But while Medicaid has garnered most of the headlines, it is not the only area where state health care expenditures are skyrocketing. The cost of providing health care to state prison inmates, health insurance for state employees, mental health and mental retardation services, and many other programs that deliver health care services also are seeing substantial cost increases.

Most legislators predict they can cover these costs without a tax increase this year. But the upward trend in health care costs almost certainly will strain state revenues to the point that lawmakers in future sessions will have to make tough decisions on how much health care the state can afford or pass a substantial tax increase to meet the demand.

Dominating issue  

State Rep. Kyle Janek, MD, (R-Houston) says health care is "without a doubt" becoming the dominant issue in terms of the state budget.

"Health care will be fully a third of the state budget within five or six years," said Representative Janek, who serves on the House Appropriations Committee, as well as a special House-Senate task force looking at Medicaid spending issues. "And, now, we're talking about adding teacher health insurance to the mix. That will increase it even more."

At this point, the problems with Medicaid are well known. Larger-than-expected Medicaid caseloads combined with higher utilization of services and increasing costs, particularly in the price of prescription drugs, created a $600 million shortfall in the Medicaid program for the 2000-2001 biennium. Those factors also mean that Medicaid will need an additional $567 million just to maintain current services during the 2002-2003 biennium.

Rep. Garnet Coleman (D-Houston), who chairs the House-Senate Medicaid task force, says Texas is not alone in this problem. "Medicaid costs, and health care costs in general, are rising all over the country," he said.

Texas, however, may be slow to react to the problem because our legislature meets only every other year. "So whatever adjustments other states may have made by meeting yearly, we have not made, which creates upward pressure in dealing with that medical inflation," Representative Coleman said.

But Medicaid is only a portion of the state health care picture. Those same prescription drug costs that are impacting Medicaid are being felt by the state prison health care system, as well as programs run by the Texas Department of Health (TDH), the Department of Mental Health and Mental Retardation (MHMR), and other agencies.

And, a major cost driver for the state is its employees' health insurance benefits. Bill Barton, chair of the Employee Retirement System (ERS) Board of Trustees, which administers the health plan for current and retired state employees, says rising premiums since 1999 have eaten away virtually all of a $240 million reserve fund. That is despite ERS decisions to increase employee copays and to contract with pharmacy benefits manager Merck-Medco to administer prescription drug benefits.

"Much of that had to do with prescription costs," Mr. Barton said. "We stopped the bleeding somewhat by increasing copays, going to more mail order, and doing some other things, but I don't think we've had any softening of costs."

In fact, the outlook doesn't look much better in the near term, he says. Recently received bids from several of the state's health maintenance organization plans were much higher than expected and may force ERS to reduce the number of plans available to employees, he says.

"I don't see any easing [in health plan costs] in the foreseeable future," Mr. Barton said.

Piling on  

The state is not the only governmental entity facing a health care budget crisis. Local hospital districts in San Antonio and other cities have proposed property tax increases to pay for mounting costs. And, physicians from the Galveston County Medical Society have asked lawmakers to create a pilot indigent health care program that would be funded by adding 1 cent to local sales tax rates across the county.

Galveston surgeon M. Reza Jahadi, MD, says physicians requested the pilot program when the county's commissioners court voted to cut eligibility for its indigent care program from 100 percent of the federal poverty level to 17 percent, cutting off county-paid health care services to some 10,000 people. That, Dr. Jahadi says, left many Galveston residents to depend on local emergency rooms for care.

"Galveston County's publicly financed health care system is in critical condition," Dr. Jahadi said, adding that one-third of the county's residents are either uninsured or underinsured.

State Reps. Patricia Gray (D-Galveston), who chairs the House Public Health Committee, and Craig Eiland (D-Galveston) introduced House Bill 2456 to authorize the pilot program and the 1-cent sales tax increase. Dr. Jahadi said the tax is estimated to generate between $10 million and $14 million to finance indigent health care.

Even if the bill clears the legislature, Galveston County voters still would have to approve both the pilot project and the tax increase, Dr. Jahadi says.

Representative Janek predicts other communities might try a similar approach.

"I believe we will see similar efforts, particularly in the large urban areas that are being clobbered with indigent health care," he said. "I think they will look at a more regional effort at funding indigent care."

While budget writers are struggling to meet rising health care costs and find money to maintain other current state services, there is growing pressure for even more health care spending.

Public school teachers are lobbying hard for state-subsidized health insurance benefits. Physicians, led by the Texas Medical Association, are seeking Medicaid provider fee increases to shore up a crumbling provider network that has been hit hard by reimbursement rates that fail to cover the cost of providing care. And, consumers, physicians, and others are seeking to streamline the Medicaid enrollment process to make it easier for low-income Texans to get into the program and stay in it longer.

The teacher health plan is estimated to cost anywhere from $1.5 billion to $3 billion, while the proposed Medicaid fee increases and streamlining could add another $500 million to state spending.

All of those issues have considerable support in the legislature despite the price tags and the tight budget. Whether they will be enacted, however, is yet to be seen. A $111.7 billion budget bill approved by the Senate in late March included some funding to begin a teacher health plan but not to cover the full premiums for the state's 500,000 public school employees.

The "R" word  

With state leaders already saying "no" to new taxes this session, lawmakers are working hard to find a way to pay for the increasing cost of existing health care services and provide some of the new programs. The Medicaid task force has been asked to identify as much as $500 million in potential savings in the Medicaid program.

Meanwhile, Representative Gray, state Sen. Mike Moncrief (D-Fort Worth), and others have filed a series of bills to create a state agency bulk purchasing pool and to require drug wholesalers to provide the state with the actual prices they pay drug manufacturers to give the state more clout in negotiating prescription drug prices. The bulk purchasing pool would include TDH, MHMR, the Texas Department of Criminal Justice, ERS, the Teacher Retirement System, and any other state agency that purchases prescription drugs.

Even if these measures are successful in bringing down or at least slowing the growth of state health care expenditures, political observers say health care costs likely will continue to rise and lawmakers ultimately will have to face a decision over whether to cut services or raise taxes.

As early as 1999, some members of the legislature were already expressing concern about the impact health care was having on the state budget.

"A member of the Senate Finance Committee came to us last session and said we had to start working together to get a grip on health care costs," said Kim Ross, TMA vice president for public policy. "Health care is going to be the singular most important issue going into the next decade and well into the new millennium."

Lawmakers must address the issue of what priorities to set, he says. "For example, one question the budget writers might face is, do we pay for the same quality and intensity of services for the lifer felon in Huntsville who is positive for hepatitis C or HIV that we pay for the Medicaid-eligible patient with the same clinical diagnosis? And what about the non-Medicaid-eligible working poor patient who shows up in the emergency room?"

He says the state must reach a consensus on what's most and least important. "We're going to have to stare right down the gun barrel of the financing of palliative care, end-of-life care, and futile care at one end of the spectrum, and, on the other end of the spectrum, how much more should be invested with regard to the young and healthy population -- especially children and pregnant women."

Lawmakers are tackling these issues on a case-by-case fashion now, Mr. Ross says, but they will carry their concerns over into the interim and next legislative session, if not the next several sessions. "The whispering that's going on is choosing between some form of rationing and a tax bill."

Rep. Rob Junell (D-San Angelo), chair of the House Appropriations Committee, admits that rationing is a possibility.

"We're going to have to either cut back services or cut back programs because we have a finite amount of money to spend and it's just getting eaten up by the escalation of costs," Representative Junell said. "We can have as much health care, as much education, as much criminal justice as the people of the state of Texas are willing to pay for. But if the people want to have more health care, they're going to have to provide more funds for us to do that with."

The Oregon Trail  

While admitting that the state cannot fund an unlimited amount of health care services, Representatives Junell, Janek, and Coleman were not prepared to go down the road traveled by the state of Oregon. At least, not yet.

Beginning in the late 1980s, Oregon began rationing care in its Medicaid program. It created a health services commission to compile clinical information from physicians, treatment costs benefit data, and community values from the public. The commission used that data to rank more than 10,000 services on a prioritized list. The Oregon legislature then set funding levels that essentially drew a line on that list. The state Medicaid program would pay for only those services above the line.

To date, Oregon is the only state to address rising health care costs through such an explicit rationing system, and the program remains controversial. An article in the February 1999 edition of the  Journal of Health, Politics, Policy and Law charged that political pressures have prevented the full implementation of the rationing system envisioned by the drafters of the Oregon plan. The authors said the state had "failed to demonstrate the successful application of quantitative cost-benefit analysis to resource allocation in medicine."

Still, Oregon Medical Association lobbyist Scott Gallant says the plan has helped that state reduce its uninsured population and control health care costs, although he admitted that some would argue that it has accomplished the latter through low physician reimbursement rather than by limiting services.

Representative Janek says limiting services is not the approach he'd take to control health care costs. Instead, he favors giving patients more rights and responsibilities for their own health care, including requiring some copays that would give them a financial stake in the health care decisions they make.

For the working uninsured, medical savings accounts might provide a mechanism to increase coverage and reduce state costs, he says, particularly for those who work for small employers who might be willing to contribute to a medical savings account but whose employee pool is too small to make purchase of a group health insurance plan feasible.

"Medical savings accounts are the only logical way to put the decision-making rights and responsibilities back on the doctors and the patients," Representative Janek said.

"Eventually, in any economic system, somebody has to make determinations about what will and will not be paid for," he said. "The government can make the decision that we will pay for items one through 390 on a list and that we won't pay for items 391 and on. Or patients can make decisions about health care."

Ken Ortolon can be reached at (800) 880-1300, ext. 1392, or (512) 370-1392; or by email at Ken Ortolon.  

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