Health Reform Interrupted: The Unraveling Of The Oregon Health Plan
- Jonathan Oberlander (oberland{at}med.unc.edu)
Abstract
The Oregon Health Plan (OHP) has received national and international attention for rationing medical care based on explicit priorities. However, in recent years OHP has lost substantial enrollment and struggled to live up to its core principles. This paper explores what went wrong in OHP and the implications of Oregon’s experience for state-led health reform.
Once held up as a health reform model, Oregon struggles to keep its promises to its poor, uninsured citizens.
States have again risen to the forefront of American health policy. Perennial problems (rising costs, growing uninsured populations, strained Medicaid budgets) and persistent federal inaction (more than a decade has passed since the Clinton plan’s demise) have spurred states such as Massachusetts, Maine, and Illinois to go their own way in health reform. Liberated from the partisan polarization and policy inertia in Washington, D.C., these states have crafted innovative programs to cover the uninsured, prompting speculation about whether others might soon follow their lead.1
As the new wave of state health reform unfolds, the lessons of prior reforms are worth considering. Perhaps no state reform has attracted as much controversy and attention as the Oregon Health Plan (OHP) and its (in)famous prioritized list of medical conditions and treatments. Yet Oregon overcame early controversy surrounding its embrace of explicit rationing to earn widespread praise for its success in expanding insurance coverage to the uninsured. That success, however, has proved difficult to sustain. Based on interviews with stakeholders and key participants in Oregon health policy, as well as analysis of state data and documents, this essay explores the declining fortunes of health reform in Oregon since 2003. I explain why OHP, buffeted by economic, fiscal, and political pressures, has unraveled and discuss the prospects for its revival. Finally, I consider the broader lessons of Oregon’s experience for state-led health reform.
Background
In 1989 Oregon enacted a series of health reforms with the goal of securing universal coverage in the state, including an employer mandate.2 However, the mandate never went into effect, and the state’s health reform efforts instead focused primarily on the Medicaid-expansion component of OHP.3 Put simply, Oregon intended to expand Medicaid to more people by covering fewer services. Expanding coverage for the poor—all Oregonians with incomes below 100 percent of the federal poverty level were made eligible for Medicaid—would be made affordable by offering recipients a basic health benefit package, one more limited than traditional Medicaid. A prioritized list that ranked medical conditions and treatments based on clinical effectiveness and “net benefit” was developed. 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. In addition, the state sought to improve access and control costs by enrolling Medicaid recipients in capitated managed care organizations.
Oregon’s novel plan, which required a federal waiver to implement as a Section 1115 Medicaid demonstration project, triggered a national debate over rationing, and the state’s waiver application was not approved until 1993. Studies of OHP’s early performance (1994–1998) were generally favorable. OHP drew positive reviews for extending Medicaid coverage, on average, to more than 100,000 “new eligibles” each month, helping reduce Oregon’s uninsurance rate from 18 percent in 1992 to 11 percent by 1996. Moreover, fears of rationing’s impact on Medicaid patients were allayed by OHP’s generous benefit package and the absence of extensive rationing. Early experiences with enrolling beneficiaries in managed care plans were also encouraging. Finally, a bipartisan political coalition supported OHP, leaving it relatively unscathed from initial budget battles, and voters twice approved referenda raising state cigarette taxes to fund the health plan.4
Moving Forward Under Duress: The Advent Of OHP2
In 2002 state officials moved forward with plans to expand OHP, submitting a federal waiver through the new Health Insurance Flexibility and Accountability (HIFA) initiative to amend their demonstration project by creating OHP2.5 Oregon’s waiver application proposed increasing OHP by 46,000 enrollees.6 The aim was to raise the eligibility level for OHP’s Medicaid-expansion population from 100 percent to 185 percent of poverty—an increase to be phased in over time as budgetary circumstances permitted—and to gain federal matching funds for the Family Health Insurance Assistance Program (FHIAP), which would enable it to expand greatly (FHIAP, a premium subsidy program for private insurance, had been previously funded solely through state funds). The waiver came during a downturn in the Oregon economy and budgetary pressures, yet the state nonetheless pursued plans to extend health coverage to low-income Oregonians.Gov. John Kitzhaber (D) would soon be term-limited out of office, and OHP2 represented his final push to move Oregon closer toward universal coverage.
No new state funds were available to extend OHP coverage, so reform had to be self-financing. OHP2 drew on the original logic of health reform in Oregon: Provide fewer services for more people. Benefits for existing enrollees were to be reduced so the state could generate finds to bring more uninsured Oregonians into OHP. John Santa, director of the Office for Oregon Health Policy and Research, remarked that “it comes down to an old issue. Is it better for everybody to have something than for some to have a lot and others to have nothing?”7
The expansion to 185 percent of poverty would be financed by dividing the health plan into two parts, OHP Plus and OHP Standard. OHP Plus would cover populations categorically eligible for Medicaid (such as pregnant women and children), and its benefits remained based on the prioritized list. OHP Standard would cover the expansion population: single adults, couples, and parents not eligible for Medicaid under federal guidelines. OHP Standard enrollees would receive a reduced benefit package estimated at 78 percent of OHP Plus’s value. As originally proposed, it excluded vision services and nonemergency transportation and introduced copayments, including a $250 hospital copayment per admission. Covered services would still be ranked according to the prioritized list.
Premiums for OHP Standard enrollees were also increased, and program enrollment rules were tightened; providers could now refuse to see those who could not make their copayments.8 And in a dramatic departure from OHP’s original tenets, Oregon requested federal permission to set an enrollment cap for OHP Standard that would enable it, based on funding availability, to stop accepting new enrollees or establish a lower poverty level for eligibility. The waiver also gave Oregon the authority to reduce the OHP Standard benefit package if necessary, depending on available revenues, to a level actuarially equivalent to the federally mandated Medicaid minimum, without further approval from the Centers for Medicare and Medicaid Services (CMS). The request reflected Oregon’s frustrating experiences with obtaining federal permission to move up its prioritized list and cover fewer services. The CMS had sharply constrained Oregon’s ability to use the list as a cost control instrument. Consequently, the state was locked into a “very rich and fixed benefit.”9 The new waiver, state policymakers believed, would give Oregon the necessary flexibility and tools to limit OHP spending.
A bipartisan coalition in Oregon supported these changes. For Governor Kitzhaber and Democrats in the legislature, the new cost-sharing and premium policies were the price that had to be paid to expand coverage and reduce the state’s uninsured population, given fiscal constraints. This was an Oregon-style meld of fiscal pragmatism and progressivism: conservative means to achieve liberal ends, with revenues redirected from existing enrollees to cover more people. Republican lawmakers liked the fact that the reduced OHP Standard benefit package, with its copayments and increased premiums and consequences for non-payment, more closely resembled commercial insurance and emphasized enrollees’ “personal responsibility” in contributing to their own medical care. In addition, much of the planned enrollment increase would come under FHIAP, the state’s premium-subsidy program, which appealed to Republican legislators who preferred to expand access to private insurance rather than Medicaid.
The Unraveling
The CMS approved Oregon’s waiver in October 2002, and OHP2 began operations in February 2003. But although the benefit reductions were implemented, the planned coverage expansions mostly never came to pass. Rather than serving as the cornerstone of OHP’s renewal, the implementation of OHP2 triggered a meltdown in OHP Standard enrollment. In the year following OHP2’s implementation, enrollment of the Medicaid-expansion population in the health plan fell 53 percent, dropping from 104,000 in January 2003 to 49,000 in December 2003.10 And in the ensuing eighteen months, OHP Standard enrollment fell by another 50 percent. Only about 24,000 enrollees remain in the state’s Medicaid-expansion program, and it has been closed to new enrollment since 2004. Oregon’s uninsurance rate has climbed to 17 percent—virtually the same level that prevailed in Oregon before OHP began operation in 1994. Moreover, no state general funds are used to pay for OHP Standard (now financed entirely from provider taxes and beneficiary premiums), a staggering retreat for a state that had been a national leader in expanding coverage for the uninsured.
What went wrong in the Oregon Health Plan? How did a beacon of American health policy go in just two years from a program embarking on a 50 percent expansion to one that lost 75 percent of its enrollment?
Policy miscalculation.
OHP’s new cost-sharing and premium requirements, born of fiscal imperatives and the politics of personal responsibility, had a devastating impact on enrollment.11 State officials badly miscalculated the effects of new OHP policies. Indeed, Oregon’s federal waiver application had forecast “no negative impact on access due to cost sharing.”12 However, within four months of the introduction of OHP2, enrollment among the OHP standard population fell by nearly 40 percent. Much of the decline came after the imposition of new premium payment policies: Under OHP2, people who failed to pay their premiums were disenrolled from the program and subject to a six-month “lock-out” before they could reapply. Premiums were raised, and even zero-income beneficiaries were required to pay premiums; as a result, their enrollment in the plan sharply declined. A state study found that “most (72%) clients who lost coverage remained uninsured” and experienced major unmet needs for medical care.13 Cost-sharing requirements also deterred access for those still enrolled in the health plan.14
OHP Standard beneficiaries were asked to pay higher premiums for a shrinking benefit package. In response to budget shortfalls, in March 2003 the state eliminated OHP Standard coverage of dental care, medical supplies, outpatient mental health, and outpatient chemical dependency services. Prescription drug coverage was also eliminated, although it was restored two weeks later (outpatient mental health and chemical dependency services were not restored until August 2004). Coupled with increased cost sharing, benefit cuts meant that OHP Standard’s insurance value had eroded, making it less attractive to many enrollees. The elimination of chemical dependency and mental health benefits was particularly harmful, as patients lost access to services not easily obtainable without Medicaid.15
The differentiated benefit packages, new premium policies, and shifting of covered benefits sowed confusion around OHP. One of OHP’s original achievements was its simplicity, moving beyond traditional Medicaid standards of categorical eligibility to create one eligibility criterion based on income. With OHP2, that simplicity was lost, as beneficiaries, providers, and administrators struggled to keep pace with changing coverage and cost-sharing rules. Complexity and confusion thus contributed to access problems for OHP enrollees.16
In retrospect, OHP2 revealed a clear mismatch between policymakers’ understanding of low-income populations and their actual behavior. Oregon failed to anticipate how price-sensitive OHP enrollees were and their troubles navigating the new system, 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.17 But miscalculation is hardly the whole story. Even if OHP2 policies had not unintentionally triggered sharp enrollment declines, OHP would still have been in trouble. 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.
Economic and budgetary woes.
During 2001–03, Oregon had the highest unemployment rate (7.4 percent) in the nation.18 The economic downturn had a profound impact on state revenues. During five of the six biennia (Oregon’s budget runs on a two-year cycle) between 1989 and 2001, state general revenues increased more than 15 percent and twice exceeded 20 percent. Those revenue increases fueled OHP’s initial success. But during 2002–03, personal income tax collections declined 19 percent in Oregon.19
The decline in income taxes was crucial because Oregon has a narrow financing base. Oregon is one of only five states without a general sales tax; about 70 percent of its tax revenue comes from personal income taxes.20 Furthermore, an unusual budgetary provision that requires the state to pay out tax refunds whenever collected revenues exceed forecasts by 2 percent or more—the “surplus kicker”—prevents Oregon from building up reserve funds, making the state more vulnerable to abrupt revenue declines. Because there is a two-year lag between forecasts and the kicker trigger, as Oregon’s economy and budget floundered in late 2001, the state found itself in the incongruous position of sending out $254 million in kicker rebates.21
The state’s revenue shortfall could not have come at a worse time for OHP. Health costs were once again increasing, in Oregon and nationally, as the moderate growth of the mid-1990s gave way to renewed medical inflation. Oregon’s rationing system provided only a limited defense against rising costs: The prioritized list does not control costs for covered services, and Medicaid managed care proved no cure-all for medical inflation. Moreover, the recession, high unemployment, and a growing uninsured population generated pressures on Medicaid as more people qualified for public insurance. Indeed, overall enrollment in Oregon Medicaid (including OHP Plus) increased even as OHP Standard enrollment declined. Just when OHP needed more revenues, its financing base was withering.
The situation was exacerbated by the peculiar workings of the Federal Medical Assistance Percentage (FMAP). Since state FMAP shares are calculated on the basis of three-year averages, FMAPs can fall out of sync with a state’s current economic circumstances.22 As Oregon’s economy plummeted during 2001–02, its FMAP paradoxically declined during a period when the state would have benefited from additional federal revenues.23
Deteriorating fiscal conditions made for difficult political choices. In 2003 Oregon held the longest legislative session in state history, as lawmakers wrestled with budget cuts and ways to make up the state’s revenue shortfall. The legislature ultimately passed an $800 million revenue package that included a $542 million tax increase. The package appeared to offer at least short-term fiscal stability for OHP. But anti-tax forces put the new law to a state ballot referendum that, if rejected, would repeal the budget package and tax increase.
Measure 30, which Oregon voters rebuffed in February 2004 by a margin of 59 percent to 41 percent, triggered $542 million in automatic cuts in the state budget, including $40 million in cuts from OHP Standard (larger cuts were averted only by $70 million in savings from rapidly declining OHP enrollment). Gov. Ted Kulongoski (D) took Measure 30 to mean that voters wanted no new taxes and no general revenue financing for the Medicaid-expansion population. The state subsequently eliminated all general revenue funding for OHP Standard, exemplifying Oregon’s flagging commitment to Medicaid expansion. The governor’s budget director declared that the defeat of Measure 30 meant that “the Oregon Health Plan as we know it is gone.”24
Eroding political support.
OHP was not the central issue in the campaign over Measure 30; it was fought over broader questions of taxes and spending. The vote reflected an anti-tax strain in Oregon politics (a similar ballot measure had been defeated in 2003). Yet the governor explicitly warned that Measure 30’s defeat would result in draconian cuts in OHP. That those warnings were not enough to catalyze support for the measure revealed the limits of OHP’s popular support.
However, signs of the program’s ebbing political strength extended far beyond Measure 30, which after all did not place OHP directly on the ballot. In the program’s early years, John Kitzhaber, first as state senator and later as governor, played a crucial role in advancing health reform in Oregon. OHP was viewed as “Kitzhaber’s plan.” In contrast, Kitzhaber’s successor as governor—Democrat Ted Kulongoski—did not initially make health care the same priority and was not the eloquent guardian of OHP that Kitzhaber was. A perceived void in political leadership on the health plan emerged, reflecting the impact of Kitzhaber’s departure and the legislature’s past deference to him on health policy issues.
Meanwhile, growing partisan conflict, a conservative shift in Oregon’s Republican party, and turnover among state lawmakers means that bipartisan support for OHP in the state legislature is weaker than it was during the 1990s. As more time passes from its establishment, OHP is seen less as a brave experiment in health reform and more as a fiscal burden. Outside of the legislature, support among key interest groups for OHP has also been shaken, as stakeholders increasingly question whether Oregon’s health reform model can work and wonder what happened to promised savings as well as to the promise of adequate provider payments.
Lost Revenues, Eroding Principles
What is the current state of OHP? Available funds can only support OHP Standard at 24,000 enrollees, and it remains closed to new enrollment. Moreover, the provider tax that is sustaining the program can pay for only a limited benefit package: OHP Standard enrollees now have access to a limited hospital benefit, and the plan does not cover any physical, speech, or occupational therapy or home health care, although copayments have been eliminated as a result of a court decision, and legislation has eliminated premiums for the lowest-income enrollees.
It is no longer a trade-off of covering fewer services in order to cover more people. OHP is now 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. The state is trying to hold onto its core principles in health reform, but its grip has weakened considerably. Indeed, the environment in Oregon today resembles that in the years preceding OHP’s enactment, as the state has fallen into the very cycle—rising costs, growing numbers of uninsured people, Medicaid eligibility cuts, increased emergency room use, and cost shifting—that OHP was created to avoid.
State officials argue that federal inflexibility has prevented their prioritized list from working as intended; however, 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, and without that financial commitment, large-scale public insurance expansions cannot succeed, in Oregon or elsewhere.
A Brighter Future Ahead?
It would be a mistake to count out Oregon’s health reformers, who have proved resourceful and adaptive in their drive to expand coverage. Now that Oregon’s economy is recovering from its calamitous fall, reformers are once again on the march. There is an emerging consensus in the state around the idea of extending insurance coverage to Oregon’s 117,000 uninsured children, with financing from a new tobacco tax, the one funding source relatively immune to Oregon’s anti-tax politics. Governor Kulongoski made expanding coverage for children a prominent theme in his successful 2006 reelection campaign, and the state legislature will take the issue up when it reconvenes in 2007. Insuring children would represent an incremental achievement that reformers hope sets the stage for further expansions as an improved economy provides them with the fiscal flexibility necessary to restore OHP. Oregon is also reordering its prioritized list, with the aim of emphasizing chronic care and preventive services and with the hope that reprioritization will generate savings that enable expansion of OHP Standard enrollment (although the reality is that Oregon’s familiar formula of fewer benefits for more people has a decidedly mixed record in living up to expectations).
Still, OHP is a long way from being back. The move to cover children departs from the plan’s original emphasis on covering low-income Oregonians regardless of demographic category. OHP is not so much being restored as being reinvented, and it is unclear what place it will have for tens of thousands of low-income adults whom it no longer covers and who do not command the political sympathy that children do. Oregon is still trying to overcome the loss of its employer mandate, which reduced the state’s multipronged expansion strategy largely to a Medicaid foundation that has proved increasingly difficult to leverage to cover the uninsured.
Oregon’s improving economy is also a double-edged sword. The state’s kicker mechanism has again been triggered, and state taxpayers are slated to receive a $1 billion rebate in 2007. If that happens, fiscal pressures on OHP will mount, and prospects for expansion beyond children may dim, at least temporarily.
Health politics in Oregon has long been defined by a persistent gap between the grand aspirations and ambitions of health reformers on the one hand, and the state’s sobering fiscal constraints and political realities on the other. OHP’s future ultimately depends on Oregon’s unrequited search for a sustainable funding source that can withstand the pressures from escalating health care costs and eroding employer-sponsored insurance that are beyond the state’s control.
Lessons For State Health Reform
The unraveling of OHP raises broader questions about the promise and limits of state health reform.25 Policymakers and analysts should not generalize too much from any one state’s experiences. States vary in political culture and fiscal circumstances; consequently, they confront different challenges and opportunities in pursing innovative health policies. OHP’s fate is explained partly by political and fiscal circumstances unique to Oregon and partly by the limits of the state’s chosen reform strategy of explicit rationing. Other states have proved more resilient and stable than Oregon in maintaining Medicaid expansions; failure is hardly an inevitable outcome for states that extend coverage to the uninsured (although universal coverage is a more elusive target). Yet the parallel meltdown of TennCare suggests that this is not strictly an Oregon story.
What can states now embarking on health reform learn from Oregon? The most important lesson is that the task is not simply to enact coverage expansions—it is to sustain them. State-led reforms must navigate their way through changing political environments as reform pioneers fade from the scene, political coalitions fray, and fiscal pressures mount.26 As Oregon has discovered, sustaining political commitment is no easy feat.
The strongest challenge to sustainability, though, may come from rising medical costs. As medical inflation increases, and with it the number of uninsured people who lose employer-sponsored coverage and qualify for public insurance, the price tag for maintaining—let alone broadening—coverage expansions also increases, and retrenchment may supplant activism on the agenda. And as Medicaid spending consumes a higher percentage of state budgets, outpacing revenue growth and threatening to crowd out spending for education and other politically popular priorities, ambitious plans to cover the uninsured become more difficult to fulfill. Economic downturns exacerbate these pressures, especially since states must live with balanced budget requirements. Cost control, which triggers intense opposition from medical-industry interests that profit from the status quo, requires much more political will to impose than insurance expansions do. Avoiding cost control and gaining the support of system stakeholders is perhaps the key to short-term political success. However, its absence may be, in the long run, the Achilles’ heel of state-led health reforms that seek to move toward universal coverage without serious mechanisms to control spending in their own programs and without limits on medical care inflation in the broader health system.
These obstacles are not insurmountable. Some states find the political will and fiscal capacity necessary not only to craft innovative programs, but also to hold onto hard-won gains and push farther ahead, even when economic conditions sour and political environments shift. Yet the faltering of health reform in Oregon, a state that has invested two decades of efforts in moving toward universal coverage, reminds us just how hard it can be for states to build and sustain large-scale coverage expansions. For states like Massachusetts, the real challenges have just begun.
Footnotes
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Jonathan Oberlander (oberland{at}med.unc.edu) is an associate professor in the Departments of Social Medicine and Health Policy and Administration, University of North Carolina–Chapel Hill.
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The author gratefully acknowledges the generous support of the Greenwall Foundation for this research. He also thanks Bob DiPrete, Mike Bonetto, Leighton Ku, Frank Thompson, and two anonymous reviewers for their comments and suggestions.
