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Health Affairs Article Dissects The Rise And Fall Of The Oregon Health Plan

Lack of Cost Controls, Insufficient Revenues, And Failure To
Understand Beneficiary Behavior Helped Derail Plan, Oberlander Says

Bethesda, MD -- What went wrong with the Oregon Health Plan (OHP), and what does it say about the prospects for coverage expansion initiatives in other states? Those are the questions addressed by Jonathan Oberlander in a Health Affairs Web Exclusive published today.

When it was first enacted in 1989, and approved by the federal government as a Section 1115 Medicaid demonstration project in 1993, OHP represented a leading state policy innovation that sparked a national debate on rationing health care. OHP was “intended to expand Medicaid to more people by covering fewer services,” says Oberlander. But now the plan is “covering both fewer services and fewer people, and the elimination of entire benefit categories and rollback in enrolled beneficiaries looks more like the arbitrary cuts common in other states than the rational and equitable model of prioritization to which Oregon aspired.”

Initially OHP aimed to finance a Medicaid expansion to all Oregonians at or below the federal poverty level by offering recipients a benefit package more limited than that of traditional Medicaid and by placing Medicaid enrollees in managed care plans. Medical conditions and treatments were listed in order of clinical effectiveness and “net benefit”; then, “depending on how much it decided to spend on Medicaid, every two years the state legislature would literally draw a line in the list, with Oregon Medicaid paying for all services above the line and no services below it,” Oberlander explains.

A mandate on Oregon employers to provide coverage was also part of the original OHP design, but the mandate never went into effect. Even so, early experiences were positive. OHP helped reduce Oregon’s uninsurance rate from 18 percent in 1992 to 11 percent in 1996.

Failure To Anticipate Enrollee Price Sensitivity
Turned Coverage “Increase” Into Coverage Decrease

The trouble began in 2002, however, when state officials modified OHP through a new federal Health Insurance Flexibility and Accountability waiver. “OHP2” featured a Medicaid expansion to 185 percent of the federal poverty level, to be paid for by further cutting benefits for Oregonians for whom Medicaid coverage was not mandated by federal law. “Mandatory” Medicaid beneficiaries continued to receive benefits based on the state’s prioritized list under “OHP Plus,” while those in the “expansion” population received benefits valued at approximately 78 percent of the OHP Plus package.

OHP2 was meant to increase coverage, but instead the opposite happened: In the year following OHP2’s implementation, enrollment in the Medicaid-expansion population fell more than 50 percent, dropping from 104,000 in January 2003 to 49,000 in December 2003. In the next 18 months, expansion enrollment fell another 50 percent: Only about 24,000 remain in OHP Standard, which has been closed to new enrollment since 2004.

What went wrong? One problem, Oberlander says, is that Oregon failed to anticipate how price-sensitive OHP enrollees were. As premiums and cost sharing in OHP Standard were raised, and benefits such as outpatient mental health and chemical dependency treatment were cut, “OHP Standard’s insurance value … eroded, making it less attractive to many enrollees.” Moreover, enrollees had trouble navigating the new system, which replaced the original OHP’s simple income threshold for eligibility with distinctions between mandatory and expansion beneficiary populations. Thus, the OHP experience represents “a cautionary tale for states enamored with consumerism and the prospect of having Medicaid recipients put more ‘skin in the game’ through added cost sharing.”

Narrow Revenue Base, Lack Of Cost Controls
Left OHP Vulnerable To Economic Downturn, Medical Inflation

However, Oberlander cautions, Oregon’s failure to understand the behavior of low-income state residents is hardly the whole story: “In fact, if enrollees had not left the plan en masse, ‘voluntarily’ through attrition, the state would eventually have had to cut them off the plan anyway because of deteriorating fiscal conditions.” During 2001-03, medical cost growth accelerated even as economic growth slowed.

In this period, Oregon had the highest unemployment rate in the nation, and the state’s personal income tax receipts -- which, in the absence of a general state sales tax provide 70 percent of Oregon’s revenue -- declined 19 percent during 2002-03. Income tax receipts had been robust for a decade prior to this, but the state had been unable to build up reserves because of an unusual “surplus kicker” law that requires it to pay out tax refunds whenever collected revenues exceed forecasts by 2 percent or more. Oberlander acknowledges complaints by Oregon officials that the federal government did not allow the state’s prioritized list to work as intended, but he argues that “even if Oregon had been allowed to move up the list, this would not have generated sufficient funds to save OHP. Rationing is no substitute for revenues.”

In 2003 Oregon’s state legislature passed an $800 million revenue package that included a $542 million tax increase, which promised at least short-term fiscal stability for OHP. However, anti-tax forces succeeded in subjecting the new law to a state ballot referendum, where it was defeated 59 percent to 41 percent. The result signaled a deterioration of political support for the OHP, stemming from the departure of its champion, Gov. John Kitzhaber (D); state legislative turnover; growing partisan conflict and a conservative shift in Oregon’s Republican party; and decreasing support among stakeholders disenchanted with the lack of savings and provider payments perceived as inadequate.

According to Oberlander, the most important lesson of the Oregon experience for other states “is that the task is not simply to enact coverage expansions--it is to sustain them.” He suggests that the strongest challenge to sustainability is increasing medical costs, which leads to a catch-22: Avoiding cost controls, and thus avoiding fights with medical industry stakeholders, “is perhaps the key to short-term political success.” However, the absence of cost control “may be, in the long run, the Achilles’ heel of state-led health reforms.”

Oberlander’s article can be read at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.26.1.w96



Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at www.healthaffairs.org.


©2006 Project HOPE–The People-to-People Health Foundation, Inc.