Medical Device Daily Washington Editor

As the state of Massachusetts embarks on its attempt to provide a healthcare safety net for its residents and California’s governor, Arnold Schwarzenegger, rolls out a proposal to provide universal coverage for residents of the Golden State, administrators and elected officials in other parts of the nation watch with more or less jaundiced perspectives. After all, they have seen such dramas unfold before, with a recent example from the Pacific Northwest fresh in their minds.

In an article in the Dec. 19 edition of Health Affairs, Jonathan Oberlander, PhD, an associate professor of health policy at the University of North Carolina (Chapel Hill) details some of the impediments that the state of Oregon encountered in its attempt to provide coverage for the uninsured by expanding its Medicaid offerings. While the phrase “cautionary tale” is often overused in this context, the author argues that the lessons learned by those in the Beaver State might well apply to those who are headed down a similar road.

Oregon’s effort commenced in 1989 with a two-pronged objective, consisting of enrolling all residents whose incomes were at or below federal poverty guidelines into the state Medicaid plan, and a mandate to employers to subscribe to a plan for employee enrollment or pay a tax for failure to find a healthcare contractor. That latter provision required federal congressional action to avoid the snare of 1974’s Employee Retirement Income Security Act (ERISA), which contained a number of healthcare provisions, but the state’s inability to persuade Congress to provide the exemption ended the employee enrollment part of the plan.

Still, the capitated managed care plan for those under the federal poverty level moved forward after Oregon obtained a Medicaid demonstration program waiver in 1993, and according to Oberlander, reviews of the Oregon Health Plan (OHP) in 1998 “were generally favorable ... extending coverage, on average, to more than 100,000 new eligibles each month.” By 1996, the ratio of those without health insurance in Oregon had dropped to 11% from 18% four years earlier. These first few years saw a generally positive response from enrollees and the state’s voters approved two referenda to boost the tax on tobacco to fund the effort.

In 2002, the state decided to elevate the enrollment criterion from 100% of federal poverty to 185%, a move that officials anticipated would bring another 46,000 Oregonians under the OHP umbrella. The idea was to implement the increase “as budgetary circumstances permitted, and to gain federal matching funds” for a family health insurance plan that the state had previously financed on its own.

However, Oregon’s move coincided with a downturn in the state’s economy, “yet the state pursued plans to extend the health coverage” to the expanded target population. Then-Governor John Kitzhaber (D) was close to the end of his term-limited time in office and Oberlander wrote that OHP2, as the expanded program was called, “represented his final push to move Oregon closer toward universal coverage.”

Despite the tobacco tax, the state’s overall financial condition was inadequate to fund the increased coverage, however, and the state opted to reduce coverage for the original cohort in order to expand the covered population. The state does not have a sales tax, but has an income tax that takes 5% for those whose incomes are below $2,600, 7% for incomes between $2,601 and $6,500, and 9% for incomes higher than $6,501.

The reduced coverage for the original enrollees in OHP dropped the projected value by 22% and premiums rose. Providers were allowed to refuse patients who failed to make co-pays, and the state requested a federal exemption to allow cessation of enrollment, which the Centers for Medicare & Medicaid Services granted. Oregon also dropped subscribers in the upper income category from the OHP2 program for failure to pay premiums, and small premiums were also demanded of the original OHP program enrollees.

This set of events preceded, and probably triggered, an exodus of enrollees rather than an increase in enrollment. Total enrollment in January 2003 was at roughly 104,000, but is now at approximately 24,000, and the ratio of the uninsured to the total state population now stands at about 17%, nearly identical to levels seen prior to the roll-out of OHP.

Oregon took a heavy hit in the post-9/11 recession, with an unemployment rate of 7.4% in 2003. The biennial tax intake dropped by nearly 20% in the 2002-03 fiscal period, and the fact that Oregon depended on income taxes for more than two-thirds of its revenues put the state in a serious financial bind. The addition of general increases to healthcare costs finished any prospects for turning the programs around in the short term.

Measure 30, a tax increase proposal offered to the voters in 2004 that would generate an additional $800 million for the state’s coffers, failed by the hefty margin of 59% to 41%. However, Oberlander commented in his article that “OHP was not the central issue in the campaign over Measure 30,” only 5% of which would have gone toward the OHP programs. On the other hand, voters knew what to expect because “the governor explicitly warned that Measure 30s defeat would result in draconian cuts” to the OHPs.

As matters stand, the OHP can charge no co-pays due to a recent court decision and the legislature dropped the requirement for premiums among the state’s poorest. Oberlander remarked that despite the insistence on the parts of state officials that inflexibility in the program doomed the OHP effort, “without ... financial commitment, large-scale public insurance expansions cannot succeed.” The current governor, Ted Kulongoski (D) is pushing a plan for the state’s 117,000 children, but the effort is in its early stages. The author of the article commented that while other states “have proved more resilient and stable than Oregon in maintaining Medicaid expansions ... the parallel meltdown of TennCare [in Tennessee] shows that this is not strictly an Oregon story.”

Oberlander also reminded the reader that “the strongest challenge to sustainability may come from rising medical costs” rather than idealism. “Cost control ... requires much more political will than insurance expansion does,” but while aversion to such controls might foster short-term success in rolling out public health plans, “its absence may be, in the long run, the Achilles’ heel of state-led health reforms.”

“For states like Massachusetts,” Oberlander closed, “the real challenges have just begun.”