Major cuts are coming to the Oregon Health Plan, the state’s free healthcare program covering 1.4 million children and low-income adults. But the group of experts Gov. Tina Kotek charged with minimizing the harm of those cuts has given her no definitive recommendations.
Instead, this week they gave the governor a report listing more than 40 different options for reducing spending on the program, with no consensus on which to choose.
That means Kotek still has no clear path to plugging a $421 million hole in the state’s upcoming two-year budget, with five months left before her budget plan is due to the state legislature.
That hole has opened as rising prices for healthcare and increased spending on addiction and mental illness are driving up state costs, while Republicans in Congress have passed the steepest federal cuts to Medicaid since the program began.
“We shouldn’t be in this situation,” Kotek said in a statement. Kotek said she plans to review the cuts and seek additional feedback from Oregonians. “My goal in convening the advisory group was to gather options to keep as many people insured with the best level of care possible.”
The cuts will hit Oregon harder than most states in part because Oregon has expanded government-funded coverage to so many people.
Kotek and other Democrats have long used Medicaid as a tool to push toward universal health coverage, expanding the program to single adults and adding coverage for undocumented immigrants who meet the program’s income threshold. One in three Oregonians and more than half of children in the state now have healthcare through the program.
That’s helped drive down the uninsured rate in Oregon, from about 15% of Oregonians in 2011 to about 3% today, according to state data.
But its push to insure more people left Oregon even more dependent on the federal funding that’s now being cut as part of HR1, President Donald Trump’s major tax and spending cut bill.
Kristina Narayan, a senior advisor to the governor and one of the leaders of the Medicaid-focused panel of 18 people, said it has been looking for a way to soften federal cuts she said were “designed to kick people off health insurance.”
Kotek directed the group to prioritize proposals that avoid people losing their coverage. Even without any state policies targeting enrollment, the health authority projects that the work requirements in HR 1 could lead up to 200,000 Oregonians to lose their health insurance. OHA has projected that Oregon will lose a total of $9.4 billion as a result of the bill.
Kotek also directed the group not to propose cuts to long-term services and supports for people with disabilities, services that are funded through Medicaid but not by the Oregon Health Authority.
She told them to look for opportunities for administrative savings, reductions in benefits, and cuts to provider pay.
The group has met in private every two weeks over the last six months. OPB obtained its meeting notes through a public records request.
The records make it clear that achieving the needed $420 million in savings, using only the strategies the group has identified, will be a stretch.
“Very difficult choices”
Narayan and former OHA director Bruce Goldberg, who was brought on to work on Medicaid sustainability, released the group’s final report Tuesday during a little-publicized video conference meeting that was attended mostly by staff from the Oregon Health Authority.
“Ultimately, the governor and the legislature are going to have very difficult choices to make,” Goldberg said. “We have had 10 years of continuing to add to our budgets.”
While the group generated lots of ideas for the governor to consider, few of them amount to any significant progress toward a $420 million target.
And records show the most aggressive cost-saving measures listed, which include a hard limit on non-medical administrative spending, generated the most opposition from within the advisory group.
Getting to the $420 million target would likely require some combination of cutting benefits that are optional under federal law, reducing spending on prescription drugs and administration, and cutting payments to the contractors that administer Medicaid, known as coordinated care organizations. That in turn could mean lower pay for doctors, clinics, and hospitals.
One strategy the group considered is to eliminate benefits that Oregon currently pays for that are optional under federal rules.
For example, adult dental care is one of those optional benefits. Eliminating it could save the state nearly $88 million in the next biennium. But records show the advisory group offered little support for that measure out of concern that it could lead to people seeking more dental care in the emergency room.
Other optional services that could be cut include physical therapy and occupational therapy, behavioral health case management, acupuncture and chiropractic, and prosthetics.
The state could also choose to limit some benefits to fewer visits per year. The proposal considered by the group to do that would only generate about $55 million in total savings, a small fraction of the total gap.
The group also considered ways to reduce spending on mandatory benefits. It worked with an actuarial firm, Mercer, to comb through healthcare claims data and find where Oregon’s Medicaid program appears to be spending more than Washington and Idaho, and to explore other strategies to identify and target care that might be high cost and low value.
Based on that analysis, the advisory group believes Oregon is overpaying for care in several areas of behavioral health.
Options the group developed include limiting the number of talk therapy visits OHP pays for, generating an estimated $12 million in savings. A 4% rate cut for talk therapy providers could save up to $23 million. And implementing more stringent oversight of a treatment for youth with autism known as Applied Behavioral Analysis could save the state about $9 million.
Another approach the group considered is holding coordinated care organizations and hospitals to more stringent standards — and withholding payments more aggressively — over potentially unnecessary emergency room visits or hospital admissions, a change that could save up to $19 million in the biennium.
The group proposed some larger systemic changes that could generate more significant savings. Those include reducing the number of coordinated care organizations, a hard cap on non-medical administrative spending, and switching to a single prescription drug list.
That option would create one list of approved prescription drugs for all Oregon Health Plan members. It’s an approach that would allow the state to more aggressively seek rebates from drug companies, big discounts off the list prices of drugs it could get in exchange for not including a generic on its list. It’s an approach that’s been tried in other states and could potentially save the state up to $24.3 million.
Mercer estimated that if the state made such a switch, about 90% of Medicaid members’ current prescriptions would remain covered and on the preferred list. Drugs that are more likely to require prior authorization or not be covered include insulins, oral diabetes medications, and targeted immune modulators.
Bigger cuts ahead
Goldberg, the governor’s advisor, acknowledged that achieving cuts through a series of complex, specific policy changes across a dozen or more different areas could be unpredictable and burdensome for healthcare providers.
“To administer that is really difficult,” he said. That prompted the group to consider whether a simple, across-the-board cut could be more efficient and predictable for providers.
According to the report, the advisory group showed the most support for a broad 2% cut to the Oregon Health Authority’s Medicaid spending. That would generate $168 million in savings, but it could have unpredictable effects on patient services and potentially lead some providers to stop seeing patients on Medicaid.
Goldberg said finding more long-term ways to slow Medicaid’s cost growth is critically important. The cuts to federal funding in HR 1 phase in and get larger over time.
By 2029, the state will need to cut twice as much from its Medicaid budget.
OHA estimates that by then, the size of the funding hole in the state’s budget will double to $868 million.
