The most likely conflict zone between Pence, Obama

There were still “differences” last week after Gov. Mike Pence met with the Obama administration to discuss his HIP 2.0 plan. But Pence wouldn’t say what they were.

I don’t have any specific information on the differences. But I have a good hunch of what they are, which I’ll lay out below.

The day before Pence met Sylvia Mathews Burwell, Obama’s health secretary, on July 30, I sat down with all the key players on Pence’s health policy team to understand what for them are the essential (read: non-negotiable) elements of the Healthy Indiana Plan, which they want to expand to cover as many 450,000 Hoosiers.

“Core items of what’s keeping HIP HIP” is how Ryan Streeter, Pence’s policy director, described it.

It was a helpful meeting because, for the most part, these are not the same people who created HIP  back in 2007. And I had not heard their views on the program in detail.

Also it was helpful to hear how the Pence team justifies its significant alterations to HIP as fundamentally conservative, even though they have faced blistering criticism from the right for using HIP as a flimsy cover for just taking the money offered by Obamacare for expanding Medicaid.

Pence’s goal is “to reform Medicaid, not expand it,” Streeter said.

Which neatly sums up the most likely point of contention.

Obama thinks Medicaid helps low-income people and wants to expand it. Pence thinks Medicaid at best does nothing for low-income people and, at worst, harms them.

This is the 50-year-old disagreement between liberals and conservatives on the true source of poverty and the best way to fight it, which I described at length back in January.

Liberals think everyone works as hard as they can but, because of circumstances beyond their control, they sometimes end up in poverty and need help. Government programs provide that help—without producing long-term dependence on it.

“These programs are almost always temporary means for hardworking people to stay afloat while they try to find a new job or go into school to retrain themselves for the jobs that are out there, or sometimes just to cope with a bout of bad luck,” Obama said in a December speech.

But conservatives like Pence and his staff think people, whatever their income, respond rationally to the incentives in front of them. If they can live relatively comfortably on government aid without working, many will do so—or will do so longer than they really need to or ought to.

“We want to make sure the program is consistent with our efforts to get people to work,” Streeter said.

The first version of HIP, or HIP 1.0, tried to fight that perceived tendency to not work by requiring participants to contribute at least 2 percent of their incomes into a health savings account. In other words, HIP participants needed some sort of job to stay in the program.

Seema Verma, the original architect of HIP, tried to keep that original HIP program largely intact in what is now called the HIP Plus plan, which is one of three coverage options Hoosiers could choose in HIP 2.0. The major difference is that the total amount of money in each health savings account will rise from $1,100 per year now to $2,500.

I don’t see that as a point of contention for the Obama folks. They don’t like health savings accounts and the high-deductible health plans they’re typically matched with. But they’ve resigned themselves to the concept because it is increasingly the only way health insurers and employers are keeping the costs of their plans down.

The differences are likely focused on what HIP 2.0 does with Hoosiers below the poverty line who either don’t or don’t want to make contributions to a health savings accounts.

For those folks HIP 2.0 will require co-pays on medical care. Those co-pays could actually exceed the $36 to $300 per year that HIP Plus participants pay in contributions to their health savings accounts. HIP Plus participants pay nothing for their care after making those payments.

“So across the board there’s cost sharing. There’s nothing like that in Medicaid,” said Verma, who served a as consultant to Gov. Mitch Daniels during the creation of HIP and now is doing the same kind of work for Pence.

The HIP 2.0 plan for those under the poverty limit, called HIP Basic, will also offer skimpier benefits than either the HIP Plus plan or traditional Medicaid. For example, the HIP Basic plan will not offer dental or vision coverage. and will have a narrower range of prescriptions drugs it covers.

Brian Neale, Pence’s health care policy director, said HIP 2.0 deliberately tried to make the benefits at all levels of the program more like those available via commercial health insurance plans, rather than the broader benefits of Medicaid, so Hoosiers would not face worse health coverage if and when their incomes grow beyond the poverty limit.

“We didn’t want to give people a disincentive to work their way out of poverty,” Neale said.

And HIP 2.0 went further, making the coverage better in the HIP Plus plan, so even Hoosiers with incomes below the poverty line would be encouraged to make health savings account contributions.

Neale said that structure will “give them a value proposition to make contributions.”

But I have to believe the Obama administration is going to be very careful about signing off on a big expansion of what some are already calling “HSAs for Medicaid”.

“I think it’s safe to say that moving to a consumer-driven model is a stretch for them,” Streeter said. “They are trying to wrap their minds around how that would work.”

If there’s any other possible point of contention, it will come with HIP 2.0’s third type of health plan, called Employer Benefit Link. If HIP participants choose that option, the state will put money into a health savings account for them, which HIP participants can then use to pay their share of premiums on their employer’s health plan, or to cover actual medical expenses under that plan.

I would be surprised if this is a major source of friction, since Obamacare includes several provisions designed to keep employers offering coverage. (The employer mandate tax is the most obvious provision.)

However, the Obama folks might be wary to sign off on using what using funds dedicated for Medicaid to subsidize employer plans. That could encourage Indiana employers, at least those that have predominantly low-wage workers, to shift more costs to their workers than they otherwise would, since the government will be subsidizing the worker's share. (The Pence team noted that employers still must pay at least 50 percent of their health plan's premiums, and that their plans must cover Obamacare's essential benefits and meet its minimum value requirements.)

It could also mean fewer employers buy coverage via the Obamacare exchanges, where the generally younger and healthier folks who are employed are needed to offset the medical bills of those who have come into the exchange risk pool with high-risk illnesses.

Pence struck an upbeat note after his meeting with Burwell and, if I had to bet, I’d still wager HIP 2.0 will become a reality. It will hinge on whether Pence’s non-negotiables on HIP trigger any non-negotiable principles on the Obama side.