Sorting Out the Rationale for Sinking Millions in HealthSource RI

It would be natural to wonder what benefit there could possibly be to spending four hours or so in the Rhode Island General Assembly House Finance Committee room for a hearing on H7817, which would eliminate HealthSource RI and put Rhode Island on the long list of states utilizing a federally run health benefits exchange in order to comply with the Affordable Care Act (ACA).

For me, the reward for all of that lost time was the mounting sense that advocates for the exchange will say just about anything in order to preserve the state’s high-cost, government-run start-up company.  They will do so because they’ve got another, longer-term target in mind — namely, complete government control of healthcare.

If you’d like the same reward for your time, watch the two-part video from May 28 on the House Finance page of Capitol TV.  For my part, I left the State House with four basic observations.

1. They’re making stuff up.

This was a continual observation, during the hearing (and before), but here’s one concrete example.

In a press conference last week, HealthSource RI Director Christine Ferguson suggested that bringing in the federal government to operate the exchange would result in $17.3 million in fees to insurance members in Rhode Island.  As RI Center for Freedom & Prosperity adjunct scholar Sean Parnell and I found, that would require enrollment in the exchange of somewhere around 100,000 people, assuming a rough average of $400-per-month premiums.

Yet, during the presentation with which it opened Wednesday’s hearing, the House Fiscal Advisory Staff estimated the total relevant market, in Rhode Island, to be around 82,000 people.  Using the same assumptions as the 100,000 number, that would put the absolute maximum assessment — if every single person in this market went through the exchange — below $14 million.

The problem isn’t so much that the numbers don’t match.  Assumptions and interpretation can differ a bit, after all.  The problem is that multiple people have asked for insight into the math behind Ferguson’s claim and hit a dead end.  That leads to:

2. They’re trying to fool the public.

All of the benefits of the HealthSource panacea are in the future — promised, but not anywhere evident.  The exchange will save money while ensuring better coverage while making the healthcare system more “transparent”… somewhere down the road.

Even on the transparency promise, though, the evidence isn’t encouraging.  As we watch the exchange and the entire ACA come together, there don’t appear to be any rules to the decisions being made; major news concerning millions of dollars apparently hinges on private phone calls between government agents.

As mentioned above, a federal government exchange is projected to cost “the state” $17 million dollars… but then it isn’t.  The House Fiscal Staff puts the estimate where I put it the other day: at just under $5 million with current enrollment.  Even House Fiscal’s higher-end estimate is only $9.7 million.

On one day, the state government has to come up with $4.6 million of state money for the exchange in the upcoming budget. On another day, it doesn’t, apparently after a one-on-one phone call to Ferguson.

Federal law and the governor’s executive order creating the exchange forbid use of federal funds for operations, but now, it seems, federal operating dollars are going to be phased out over several years, at least according to Ferguson’s testimony.  Is this the “transparent” pricing healthcare consumers can expect?

My favorite example on this list is that the exchange was going to cost $23 million per year, but now maybe it’s $17 million.  That issue produced an instructive pair of video clips from the hearing.

Here’s Rep. Deborah Ruggiero (D, Jamestown, Middletown) — apparently a booster of the state-based exchange — asking House Fiscal Analyst Sharon Reynolds Ferland questions about the differences in services that would be provided by a federal exchange versus HealthSource RI.

Message: If the Rhode Island government wants to provide specialized, targeted customer service to users of a federal health benefits exchange, then they’ll have to pay extra for it, beyond the feds’ fee.

To be clear, the federally run exchanges are not devoid of customer service.  Just like the state exchange, the federal one contracts with companies to help process applications and answer questions.  Ruggiero is talking about an added level of service — gold-plated, if you will.

With that mind, watch this later clip, in which Rep. Lisa Tomasso (D, Coventry, West Greenwich) asks Ferguson how much of her requested $23 million is for “core” operations.

Viewers should make their own observations about Ferguson’s demeanor and also note that Tomasso was clearly talking about one-time versus recurring costs (which she subsequently pointed out).  The relevant point, here, though, is that the super-duper, enhanced (gold-plated, if you will) customer service is one of three sacrifices that would lower the operating cost of HealthSource RI from $23 million to $17 million.  In other words, even with the state-run exchange, we have to pay extra for the high-end services that so concerned Ruggiero.  And it’s still much more expensive than the federal system.

While we’re on the point, it’s worth noting, too, that the  federal government’s fees to Rhode Islanders would scale to the number of enrollees, while HealthSource’s cost is a flat. Whether there are 28,000 people in the exchange or 82,000, HealthSource RI will cost upwards of $17 million.  Moreover, the federal government imposes a flat rate across all states, meaning that it covers additional costs for any given state. If HealthSource finds its budget falling short, it must come directly back to the people of Rhode Island to fill the gap, one way or another.

3. The lack of planning is (or ought to be) scandalous.

The hearing kept coming back to a critical point: The federal government is putting a great deal of pressure on HealthSource RI to develop a “sustainability plan” — that is, to figure out how they’re actually going to pay for the exchange year after year.

Pause and think about that for a moment.  We’re now years into development.  The organization has spent tens of millions of dollars.  The system has gone live.  The federal dollars were supposed to dry up just seven months from now, and Rhode Island’s government-run start-up still has no idea how it can pay its bills.  That tells you something about how government agents formulate a business plan.

As Current-Anchor readers are already aware, it looks like Governor Lincoln Chafee and the developers of the exchange fully expected the system to be such a major success that simple user fees would be relatively insignificant.  Instead, they’ve had to define “success” down.

That same thinking permeated the House Finance hearing.  Ferguson, for example, speculated that HealthSource RI will be able to generate revenue by leasing out its components  or intellectual property, but offered no evidence of having researched the possibility, let alone being able to offer an estimate for the amount of the cost it would cover.

It’s almost as if the government agents don’t really care whether it works, because (1) they’ve got taxpayers as a fallback, and (2) they’ve got another objective in mind.

4.  They just want control.

Another thing promised again and again at the hearing was cost containment, but not only is that outcome pure speculation, but it isn’t at all clear how an exchange can help in that regard.

Back before there was a HealthSource RI, Lt. Governor Elizabeth Roberts was advocating for a similar exchange, to be called HealthHub RI.  As part of the development of that idea, Faulkner Consulting Group (whose client list contains a heavy representation of Rhode Island government agencies) worked with Roberts and other RI officials on an issue brief, which says:

Establishing an exchange that drives system affordability is often cited as a critical goal by state policymakers. However, it is important to recognize that none of the exchanges established to date have focused on this as a primary goal. In fact, there is little evidence regarding how an exchange can help with cost containment. Policymakers must be careful to set appropriate expectations about the mechanisms needed to drive system affordability and whether the exchange could and should be a vehicle and location for this activity.

The authors go on, in a call-out by the “Conclusions” section:

It is conceivable that a large exchange with market exclusivity could help drive system affordability through creative benefit design and product standards but an exchange is not a necessary or sufficient element to constrain the growth of health care costs.

In other words, a central argument for keeping the ObamaCare exchange as a project of state government — cost containment — isn’t something for which an exchange is necessary or something that an exchange can do on its own.  Even if the government forces every health insurance plan in the state to pass through the exchange, it’s still only “conceivable” that it “could help” contain costs.  Advocates for the exchange who make such promises, in other words, must view HealthSource RI as a means to another end, as a syringe, if you will, through which to inject a different kind of medicine.

Dr. Nick Tsiongas, Chairman of HealthRIght, an advocacy group funded by the RI Foundation, put it quite plainly:

The bottom line: One way or another, they want control.  What might that control look like?  Fortunately, back during the summer of ObamaCare-related town hall meetings, while the American people were sending Congress every message they could not to go forward with the ACA, Tsiongas elaborated when he appeared beside then-Congressman Patrick Kennedy (D, RI).  At the time, I put together a video blog explaining the principles behind Tsiongas’s healthcare vision for his neighbors and the reasons that it will inevitably expand.

Obviously, his argument, now, is much more constrained than it was, back then.  Still, viewed as part of the long-standing arguments of advocates like Tsiongas, the arguments for keeping HealthSource RI on Rhode Islanders’ tab seem mainly a response to the national debacle and failure of the ACA.  Even if the rest of the country comes to its senses and pulls back from this terrible, partisan experiment, big-government Rhode Islanders who’d like to place control of healthcare in their own hands want to make sure that they can keep moving forward with the expensive experiment, which seems to conflict with reality whenever it’s actually tried, as HealthSource’s new, diminished definition of “success” illustrates very well.


Featured image: Screen shot from Capitol TV coverage of the House Finance committee hearing on May 28, 2014.

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