PharmExec Blog

State Surprises as Obamacare Starts Up

by Tom Norton

This past week or so, with Obamacare’s start up less than a year away, we have been treated to several entertaining vignettes as the nation’s governors begin to wrestle with the realities of the new healthcare law.  Consider these:

California

In California, where substantial personal income and sales tax increases were recently passed, Governor Jerry Brown said last week that, in fact, the newly flush state perhaps shouldn’t be solely responsible for shouldering the burdens of Obamacare.   Apparently now fully comprehending the cost of the program, Brown cavalierly suggested during his State of the State address that California’s counties should share the tab.  Stand by for reaction to this idea from California’s 58 counties.

Colorado

Meanwhile, in Colorado, Governor John Hickenlooper has projected that his Medicaid budget, due to include 160,000 new Medicaid patients under Obamacare, will increase his state budget by $128 million over the next decade.  Responding to that obligation, Hickenlooper has proposed $280 million in cuts to Colorado Medicaid over the same period of time. Entitle them and then take it away?

Mississippi

And, finally, in Mississippi, who’s on first? Governor Phil Bryant and state insurance commissioner, Mike Chaney, are fighting over who is really going to run that state’s variant of Obamacare: the federal government or the state?  What’s interesting is that both are Republicans and both are strong opponents of Obamacare.

What can I tell you?  There are many more state tales out there, and I am sure, many more to follow.  But these “policy pirouettes” are not what I’ll focus on today.  Instead, I would like to zero in on several key states that qualify as the true ‘surprises’ in the Obamacare start-up.  First, a few givens:

First Given:  Under Obamacare, the states really are important.  If the states don’t cooperate, Obamacare won’t work.  But courtesy of last summer’s Supreme Court decision, the Feds cannot threaten or otherwise force the states to cooperate on this new law.  If they do, they will answer to the Supreme Court.

Second Given:  Right now is the leverage point for the states.  In effect, over the next 11 months, HHS needs the states more than the states need HHS and Obamacare.  So now is the time for states to ask for specific accommodations on Obamacare from HHS.

Third Given:  This state of affairs won’t last long.  Soon, within the next year or so, the states that don’t play along with HHS will likely be sorry.  There’ll definitely be a point of diminishing returns for those that hold out.

OK, with our “givens” in place, let’s check the stats.

The Yes’s, The No’s, and The Fence Sitters

First, as of today, how many states have said “yes;” how many have said “no;” and how many are sitting on the fence?

The best chart I found is from the Kaiser Family Foundation.  Here we learn that 18 states and the District of Columbia have approved Obamacare; 25 states have rejected the concept of setting up the state exchanges — defaulting to the so-called “Federal Exchanges”; and seven are sitting on the fence with no formal action.

Considering the national population, this breakout is fascinating. The 18 states and DC currently comprising the “yes” states equal 112 million individuals, or about 36% of the country, while the “no” states opposing Obamacare equal  161 million citizens, or 51% of the population.  The “fence sitting” states are another 40 million, or about 12% of the country.

That means even if all the “fence sitting” states were to join the “yes” group today, more than half of the country, led by Republican governors, is still saying “no” to Obamacare: 51% to 48%, in January 2013.

And how are the Republican “no” states managing this unique moment?  Let’s explore some of the more interesting surprises that have already occurred, and look at a few more that may be occurring, soon.

Arizona

In the currently Republican state of Arizona, we have big surprises developing.  Governor Jan Brewer who said “no” to Obamacare as late as November, 2012, has had a change of heart.  What happened?  An election and the future of Arizona’s demographics.

In Arizona and actually, the entire Southwest, the Hispanic electorate is rapidly increasing, to the point that, for example, in both New Mexico and Nevada, Republican governors have recently “decided” that implementing Obamacare is a good idea. This seems a good call since the vast majority of those individuals in those two states who will be newly entitled by Obamacare will be Hispanic and, who, by the way, also voted heavily for Obama in this last election.

In Arizona, it also seems the famously “hard-edged” Gov. Jan Brewer has been reviewing the same demographic reports.  Indeed, she not only announced this week that Arizona is supporting the law, but she also went one step further by proposing an Arizona “circuit breaker” law which says the state will automatically provide 80% of coverage for childless adults, should Obamacare welch.

So what is going on here?  Many are suggesting that by extending this new Medicaid coverage to those Arizonans who are predominantly Hispanic, Brewer is actually attempting to soften the hard edge she has on another Hispanic hot button: immigration.  All of this is seen as preparation for a possible Brewer run for governor in 2014.

North Dakota

To the north, it appears a fourth Republican, Governor Jack Dalrymple, of North Dakota has also decided it’s time to accept Obamacare.  Unlike his Republican colleagues in New Mexico, Nevada, and Arizona, however, demographics have nothing to do with his decision. Instead, Dalrymple’s rationale is simple: “In the end, it comes down to are you going to allow your people to have additional Medicaid money that comes at no cost to us, or aren’t you?” In other words, take the money and run, Jack?

Florida

Certainly a leading public proponent of “making a deal on Obamacare” is Gov. Rick Scott of Florida.  In numerous statements following the election, Gov. Scott confirmed his “strong opposition” to Obamacare; but in the same breath, repeatedly stated his fervent desire to sit down and talk about Obamacare with HHS Secretary Kathleen Sebelius.

Secretary Sebelius got the message.  She and Scott had a much hyped DC meeting early in January. The outcome? Surprise! Scott reportedly was looking for a deal in return for his support of Obamacare.  According to the Wall Street Journal, Gov. Scott asked the Secretary “to approve changes to the state’s Medicaid program, which, among other things, would allow managed-care plans to participate in a long-term care program for seniors.” It’s worth noting that Scott was an insurance executive in his previous life!

So will Sebelius find a way to give the governor of the nation’s fourth largest state what he wants?  I’d bet on it.

Other surprises in the offing

Despite the set “battle lines” on Obamacare, other Republican governors continue to “evaluate” the law.  Consider these developments:

Virginia

Although Virginia Governor Bob McDonnell has been a strong Obamacare opponent from the beginning, his actions last week suggest that not only will a federal exchange be functioning soon in Virginia, but also very likely there will be at least ‘one VA partnership with the federal government’, i.e., a ‘state exchange,’ operating by Oct. 1st.

Indiana

Newly elected Republican Governor, Mike Pence, who opposed Obamacare in Congress has indicated he is evaluating the position taken in opposition to Obamacare by his predecessor, Mitch Daniels.  Pence is suggesting that it may be fiscally prudent to incorporate Obamacare “proportionately” into the existing Indiana health insurance program set up by the Daniels’ administration.

I must say, my third “given” — the window of opportunity for Republicans to deal – may be cranking shut pretty quickly here!  At this rate, within the next 11 months, I would bet well over 50% of Americans will be in “yes” states and at that point, HHS no doubt will have little time for Republican governors who “want to make a deal on Obamacare.”

So what do all of these “surprises” mean to the Rx Industry?  First, there is going to be a lot of chaos.  The transition is clearly going to be messy for several years, and for those hold out states, trying to figure out what to do with all the new Medicaid patients looking for service from the “federal” exchanges will only lead to medical service headaches.  Secondly, trying to plan for Rx marketing to this segment will also be difficult. How do you set up programs for your target groups that may or may not be reimbursable?  And finally, on the other hand, how does industry walk away from 40 million new patients who all of a sudden have some kind of drug coverage?  That’s concerning to any Rx manufacturer, no matter what the confusion factor maybe.

At best, I am guessing the companies will just “make it up” year to year as each state comes on line. Or, at worst, the Rx business will throw up its hands and tell Obamacare administrators, “We’ll check back with you in five years.”

That’s my point of view.  I would be interested to hear your thoughts on my observations.

Tom Norton is Principal, NHD Smart Communications of Illinois, Inc. He can be reached at tnorton@nhdcomm.com

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