Marathon talks yield good deal for hospitals in Pence’s HIP expansion

Leaders from the Indiana Hospital Association showed up at the Statehouse on May 9 at 7:30 a.m. to hash out the terms of the key funding mechanism for Gov. Mike Pence’s health insurance expansion.

Not until 10:30 that night did hospital association president Doug Leonard and Pence’s budget director, Chris Atkins, sign on the dotted line.

That marathon session, which involved Pence health care advisers Brian Neale and Seema Verma, appears to have generated a deal that both sides like.

Contributions from hospitals will make up more than two-thirds of the funding needed to expand the Healthy Indiana Plan by 2020. The program is projected to bring in revenue of $459 million that year, and $1.6 billion over the next six years.

When Pence unveiled his plans to expand the HIP program on Thursday, he boasted that he’s expanding health coverage with no new taxes–although, technically, Pence is taxing hospitals to pay for this. Still, by avoiding taxes on common citizens, it gives Pence a claim that could help him in a 2016 presidential run.

Yet hospitals as a whole will receive more benefits than they’ll incur in costs under Pence’s HIP 2.0 plan.

“Is this overall, the totality of this, is this still a good deal? Yeah,” said Brian Tabor, a lobbyist for the Indiana Hospital Association who led the hospitals' negotiations with the state. He added, however, that there is still work to be done to make sure the expansion doesn’t hurt some hospitals or that, if it does, adjustments are made to help those hospitals. “Are there probably some issues that need to be looked at down the road? Yeah.”

By 2020, benefits for hospitals will include:

-    An estimated 350,000 customers covered by the Healthy Indiana Plan, which will pay the same prices as Medicare pays now, according to a projection by Milliman Inc., the actuarial firm hired by the state government.
-    An extra 89,000 new customers covered by state contributions toward employer-sponsored insurance, which pays doctors and hospitals at a significant profit, according to Milliman’s projections. There may some some countervailing reduction, however, in the numbers of low-income Hoosiers enrolled in private health insurance, as some of them move over to the HIP program.
-    A 25 percent increase in reimbursement rates for the patients that remain covered by the poor-paying Medicaid program.

And what will hospitals have to contribute?

Nothing in the first two years of the expansion. Then in 2017, they’ll pay assessment that are 15 percent to 20 percent higher than they're paying now.

Those assessments are used by the state to increase its Medicaid payments to hospitals, which triggers additional federal funding at a roughly 2-for-1 rate.

So every additional dollar hospitals chip in brings them and the state $2 in additional federal money.

That funding mechanism, known as the hospital assessment fee, is currently generating nearly $800 million in additional payments to hospitals to help offset the losses they incur on Medicaid patients.

The HIP 2.0 will bring down even more money: $125 million in 2017, ramping up to $346 million in 2020.

Those funds, combined with about $112 million per year in cigarette tax revenue, is how Pence will fund the state’s portion of the health insurance expansion.

The rest of the money will come from the federal government as part of Obamacare—the law Pence still wants repealed. But if the Obama administration accepts Pence’s HIP 2.0 plan, Obamacare plan will bring Indiana $17 billion in additional federal funds over the next decade.

No wonder Indiana’s hospital executives had a spring in their step this week.