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Arkansas Health Care Reform Act (HB1965)

PHASE I Recipient-Centered, Economically Driven and Accountable

SPONSOR Representative Bruce Westerman, Majority Leader

STATEMENT OF PRINCIPLE True reform must be based from the perspective of what is the best policy for hardworking Arkansas taxpayers and the recipients of entitlements. Rather than relying upon the so-called experts who believe there is no social or economic problem government cannot fix, or showing undue deference to providers, HCRA calls for limited government that respects the natural family as the fundamental social unit that can function independently without supervision, ensures results through performance accountability, and promotes innovation through competition and creativity. HB1965 puts forward the position that government must be modernized both in personnel and technology, lean, performance driven and accountable to the taxpayers.

CHALLENGE According to the U.S. Census Bureau, the number of people living in poverty in 2010 is the largest number in the 52 years for which poverty estimates have been published. More alarming, however, is that while the poverty rate has hovered around the same level, there has been a dramatic growth in programs and spending since the 1970s. This alarming dependency on the system has affected the sustainability and efficiency of Arkansass budget and agenda for their welfare programs. For example, over the past eight years, the budget for Arkansass Department of Human Services grew by more than 50 percent, an expansion that cannot be attributed solely to recession-related spending. Promoting personal and family responsibility, encouraging recipient independence and providing temporary benefits are at the core of these proposed reforms.

GOAL The goal of the Health Care Reform Act (HCRA) is to furnish services using private sector solutions so that individuals and families can attain independence, self-care and economic freedom.

PROBLEM Without immediate change, the Arkansas Medicaid program is projected to grow at a rate of approximately 6% to 7% per year.1 This rate of expenditure growth is unsustainable, causing

The DHS claims that because of payment reform the growth is actually down to 2.5% for the past 12 months.

decision-makers to face difficult choices regarding other important state priorities like education, transportation and job creation. Without significant reform and redesign, Medicaid will consume approximately 50% of the state budget by the year 2025. The state of Arkansas has not been able to effectively reform its Medicaid program to focus on competition, prevention, wellness, personal responsibility, choice, recipient empowerment, independence and economic freedom. The focus has increasingly been on meeting the needs of the providers and not the person. Further, there has been a lack of attention paid on rooting out fraud, waste and abuse.

SOLUTION The Health Care Reform Act will be a global transformation of Medicaid and all public entitlement programs to create a recipient-centered system of care that will focus on health care prevention and wellness, quality improvement, job creation, employment, technical job training, upward mobility, economic freedom, competition, performance, independence and self-care. HCRA sets in motion sweeping changes to our publically operated health care programs that will make them more efficient, cost effective, accountable and taxpayer valued. The Arkansas HCRA reform proposal establishes a revolutionary state-federal compact that provides the state with substantially greater flexibility than allowed under Medicaid guidelines and new flexibility within the Health Benefits Exchange to be able to offer alternative health plans and care management options other than the heavy handed federally mandated choices, in exchange for federal budgetary certainty. The state will seek any federal waiver(s) necessary to ensure HCRAs success. The state will use the flexibility afforded under this compact to redesign the states Medicaid program to provide cost-effective services that better meet the changing needs of recipients, drive down costs and improve quality to ensure that they receive a chance at economic freedom. This ground-breaking reform will be accomplished in two phases each of which will include new quality care initiatives, wellness and prevention, performance, value and outcomes based purchasing, competitive contracting, independence accounts, transparency, technology enhancements, long term cost containment, employment initiatives, a health, education and employment screening for all recipients and program integrity. o Phase I, called The Health Care Reform Act focuses on abled-bodied or low-risk adults and proposes to revolutionize the manner and methods by which the government utilizes benefits to drive personal responsibility and employment, encourage education, provide quality health care and ultimately increase economic freedom and independence from government programs. o Phase II (added to the HCRA at a later date) focuses on redesigning the long-term care system and its programs to provide seniors and those with disabilities with new models of care to increase choice, independence and freedom.

This proposal focuses on Phase I. According to the Concise Encyclopedia on Economics, The U.S. welfare system would be an unlikely model for anyone designing a welfare system from scratch. The dozens of programs that make up the system have different (sometimes competing) goals, inconsistent rules, and overlapping groups of beneficiaries. Phase I of the Health Care Reform Act seeks to begin fixing the chaos created by the myriad of federal means-tested benefits programs so that they are focused on creating economic independence and freedom. Escalating health insurance costs at the state and federal level are not sustainable. A new compact with the Federal Government with alternate means to provide health care coverage are needed to mitigate the economic impacts of a health care system that continues to consume an increasing share of the Gross Domestic Product. Providing a more cost-effective approach to health care coverage will be increasingly necessary due to the expected impacts of the Affordable Care Act of 2010. The Affordable Care Act is expected to increase the adult Arkansas Medicaid population by 287,000 people. The additional long-term cost of the current and new Medicaid population baseline is not sustainable. This proposal provides a lower cost health care plan that is recipient-centered, sustainable, accountable and minimizes negative impacts to the recipient. Provide Quality Health Care HCRA enables competition throughout the system by providing low-income recipients with a quality low cost and modest health benefit either through a health plan or an alternative care management system like a local community health center. Benefits It is important to redesign and simplify benefit packages for Medicaid recipientsa one size fits all health care system is not sustainable. The flexibility to offer basic benefit packages that align with the core needs of consumers with additional options through a cost-sharing component will meet the needs in a sustainable manner. The flexibility to enroll consumers in health care plans or equivalent that align with free market options available to the average working person enables Arkansas to serve more individuals and promote improved quality, personal responsibility and independence. This proposal streamlines basic benefits for Medicaid recipients. The self-screening process will identify whether an individual has high or low health risks. High-risk adults will have a health care package with options to address chronic health needs. Low-risk, healthier adults will have a basic health care package with options to address elective health care needs. Basic benefit packages include preventative care, primary care, and hospitalizations, however each will provide optional coverage to address other needs. The proposal promotes individuals access to commercial insurance by aligning basic coverage with that of the commercial market to ensure greater continuity of coverage and decrease the incentive to stay in subsidized Medicaid plans. The initial self-screening (SEE below) will remove barriers for individuals to access commercial insurance and will promote the purchase of 3

commercial insurance. All insurance carriers would be required to offer health insurance to Medicaid recipients at a fair market price both as an option for Medicaid coverage and for individuals who transition off Medicaid to a privately administered health plan. Through an alignment of Medicaid and commercial coverage, recipients would no longer have the incentive to limit personal economic growth to keep subsidized services. For recipients at a higher level of income, we would design a premium copayment schedule to smooth the transition from financial dependence on government programs to independence. Basic Needs Self-Assessment Screening The current eligibility determination process is inefficient, confusing and has evolved over many years in response to various and changing federal mandates, regulations, program requirements, and guidance. Numerous state and county personnel conduct eligibility and program enrollment determinations based on the wide variety of available welfare programs. Consistency is an issue, and at times it is difficult to accurately determine whether the services being provided align with the consumer needs or mandated benefit packages. Through a basic self-screening process barriers to independence, care, employment, program eligibility and service needs will be identified and a seamless determination to link eligible recipients to appropriate programs and services will be accomplished. Implementing this new screening process will facilitate the identification of a persons needs and place that individual into appropriate programs that address their barriers. Low-risk consumers would be provided a basic health care plan or equivalent. High-risk consumers would follow the traditional Medicaid route until health plans are identified that are fiscally feasible and meet the recipient needs. The information collected during the self-screening process will serve as the foundation for Arkansass person-centered approach to service planning, delivery and ensuring that recipients are on the road to independence. The self-screening process will also allow for personal responsibility in determining service needs, and will promote consistency and objectivity through the use of a standard method of addressing needs. The self-screening process will objectively place adult individuals into the low-risk or high-risk pool and assess health, employment and education. The self-screening process would use information provided by the recipient and obtained throughout the current eligibility system and interface with primary care doctors, employers and educational institutions. This solution provides a single point of entry and view for the recipient and DHS to determine health care service needs, as well as other service needs that may be provided and funded through other DHS programs. Independence Accounts (IA) Flexible Accounts Independence Accounts are a revolutionary feature of the HCRA reforms that will decrease government dependence, increase economic freedom and ultimately move recipients off of public assistance permanently, which should be the goal of any public assistance program complete independence. This will create the greatest possible quality of life for the recipient and ultimately reduce expenditures so that all taxpayers benefit. The most important missing ingredient in the current welfare health care system is the absence of the recognition that employment and education/training improve health. People are generally healthier when they are active, working and engaging their mind. The IA will engage recipients and promote a holistic system that is focused on improving the overall person. Without incentives to change 4

behavior, the dependency on entitlements will also continue. Minimal increases in co-pays will not change behavior unless the consumer is incentivized to change. Independence Accounts will encourage economic freedom, healthy choices and increase the information available to recipients about their health care and other welfare related expenses. For each recipient, Arkansas DHS will deposit a certain amount of money into this account and will calculate the value of benefits for which he or she is eligible; however, rather than dictate the specific level and scope of benefits available to a recipient, DHS will empower recipients to purchase a level and scope of benefits that addresses their specific needs. Additional funds (points) could be earned by recipients and deposited into their Independence Account for completing certain preventive services, engaging in wellness with results, choosing low cost health care settings, participating in self-management activities, obtaining employment, completing work/job training or educational activities (related to employment) and getting and staying married. Cost-savings from the Independence Accounts would be shared between the recipient and the state, and recipients would be allowed to use any unused funds in their Independence account to pay for approved expenses like co-pays or that would improve their quality of life, help break the cycle of poverty and ultimately create economic freedom for themselves and their family. The account will grow tax-free and be an interest bearing account. Although Independence Accounts will promote increased recipient choice and personal responsibility, not every recipient will have the means or ability to effectively manage his or her services. The Department may choose to develop a public welfare coaching program, Independence coaching services that will be made available to recipients who require additional assistance to manage their service needs. These coaches will be managed by a third party agency to promote objectivity in recipient choice. When a recipient is able to achieve independence and leave the state welfare system, money from the Independence Account will be saved in the event that the recipient returns to DHS assistance, or after 24 months of continuous employment, the money saved in the account will be rolled into an IRA or HSA. In order to track each recipients performance and reward them accordingly, the state will develop an individual scorecard that will measure outcomes and healthy behaviors. Transparency To help incentivize recipients to make wise choices, the state will create (either through the health plans or on its on own) a health care transparency tool so that recipients can make health choices about where they choose their care settings. One reason health care expenditures are through the roof is that the system generally favors not only the more-costly care options but also pays top dollar for services. Few health plans currently offer comparison shopping for consumers. The system, therefore, is often required to pay for the highest cost settings or procedures in the private sector or within public programs when comparable ones exist in the same geographical area at just a fraction of the cost. Studies demonstrate that costs for the same medical procedure in the same market can vary by more than 200 percent, sometimes within a short distance of each other. A colonoscopy at one hospital costs about $3,000. A short way away at another hospital, the same colonoscopy costs 5

$1,200, and close by at an endoscopy/surgical center, the cost runs around $700. Moreover, the medical community freely admits that costs bear little relation to quality, so a lower cost can mean lower morbidity rates and thus better quality. The HCRA establishes the first statewide public program where recipients will be encouraged and incentivized to shop for cost effectiveness and quality and be rewarded for making the right choice. This will increase competition, improve quality and dramatically drive down the cost of health care. Further, cost comparison data will be available in real-time to the general public so that all consumers will be able to see the true cost of care. Employment Encouraging individuals to seek and maintain employment helps low income individuals to selfsufficiency along the path to independence and will move them completely off of government assistance. Our redesigned benefit packages will be aligned with promoting work activities, encouraging educational training, improving health and encouraging self-sufficiency. Gainful employment is a key piece of attaining independence from the public welfare system. This initiative will help provide supports to engage in gainful employment, including people with disabilities. The growth in the IA accounts will provide supports that prepare people to be job ready. The IA expenditures for job readiness would also reduce the burden on the state budget for providing these supports. All enrollees will have to meet the same work requirements that individuals must meet to gain eligibility for the traditional welfare cash-transfer program (TANF). Work is the best anti-poverty program and solution. Engaging Fathers The DHS in conjunction with the State Division of Child Support Enforcement shall create and implement a program to ensure that all fathers help pay for the medical cost for their children including pre-natal through labor and delivery. Program Integrity Within this new compact, the HCRA seeks to enhance the reduction of fraud, waste and abuse by establishing a new agreement with the federal government to incentivize the state to establish a laser-like focus on program integrity. If the state invests more resources into fraud reduction and saves money, the federal government will share the federal savings with the state. This money will be redirected into job creation and technical job training for means-tested eligible recipients. Spending Cap Global Cap: In exchange for maximum federal flexibility, HCRA proposes an overall spending cap (capped allotment) of 5% growth. The Department of Human Services reports that expenditure growth from FY2012-FY2013 is at 2.5%. HCRA proposed cap of 5% provides an ample growth factor to take into account modest growth in the program. If growth reaches 4.5%, a trigger occurs to establish a waiting list until growth diminishes. If growth exceeds 5% in the program the state is responsible for all expenditures thereafter or the program can be dramatically reduced or suspended. The cap will force the bureaucracy, private partners and providers to monitor spending and deploy the most cost effective care options available to keep

growth to a minimum. A capped allotment on all acute care services is the closest mechanism to a block grant. Savings If the state saves money over the lifetime of this experiment, the state seeks to keep 25% of the federal savings and redirect those funds into job creation and technical job training for this recipient population. Management The state will deploy private sector management methods like project management and six sigma and new information technology to closely monitor spending and create real-time dashboards to ensure that all government managers are held accountable. Federal Flexibility The State of Arkansas will seek the maximum amount of flexibility from the federal government to be able operate its means-tested welfare programs free from burdensome and onerous federal rules that make public programs costly and inefficient. Waivers of flexibility will be sought from the Department of Health and Human Services in order to be able to utilize private options on the Health Benefits Exchange, Medicaid and other programs in the most cost-effective manner possible and from the Department of Agriculture (Food and Nutrition Services) to closely align nutrition and health care. A waiver from the Social Security Administration will be sought and developed to tighten the definition of disability to ensure that Arkansas public assistance recipients will be working. Here is How Arkansas HCRA Solution works Instead of forcing low-income people onto the broken Medicaid program, the HCRA would give each eligible beneficiary a $1,000 annual contribution deposited into a new account called an Independence Account. The family would choose a high deductible health insurance plan or an alternative. The $1,000 would be used to pay for the individuals deductible. The family would be responsible for all co-pays according to the plan. If the family is eligible for Cash Assistance (Temporary Assistance for Needy Families TANF) or Food Stamps, that money will also be deposited into the account to ensure that the money is used to aid nutrition (remember, the new name of the program is the Supplemental Nutrition Program SNAP) to improve the overall health of the individual or to pay for co-pays.2 Whatever money is not used at the end of the year will roll over and grow tax free with interest. The family will be able to keep 75% and the state will recoup 25% of the money left in the account at the end of the year. Every adult enrollee would have to meet the same work requirements that individuals must meet to gain eligibility for the traditional welfare cash-transfer program (TANF). A waiver from the Social Security Administration will be sought so that strict disability guidelines will be followed. When a recipient is able to achieve independence and leave the state welfare or health care public assistance system, the account will be kept open and dormant in the event that the recipient returns to DHS assistance, or after 24 months of continuous employment, the money saved in the account will be rolled into an IRA or HSA for the individual.
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The electronic card used will be able to create multiple accounts to ensure that the deductible is used solely for health care. Many families that are eligible for Medicaid are also eligible for SNAP. SNAP money is considered nutrition and thus an integral component of the recipients health care.

Unlike Obamacares subsidized insurance exchanges, which force insurers to adhere to a bevy of mandates and regulations in order to participate, the Arkansas plan allows insurers to sell a broad range of insurance products and also allows for a care management (i.e. community health centers) alternative to be sold. The HCRA spends far less state money than Obamacare does, directly benefiting Arkansas taxpayers. Recipients will also be provided with far more freedom to pursue the type of health coverage that is best for them and become engaged in the cost of their health care.