Washington state must bend trend lines on health care costs

STATE lawmakers will spend much of the next two months — or more — grappling with a multibillion-dollar budget shortfall. There is no question that health-care policy will dominate the debate.

The state constitution mandates that education is Washington's paramount duty; yet health-care spending has somewhat quietly become the fastest-growing part of the state budget during the past decade. In the late 1990s, health-related spending accounted for a quarter of the state operating budget. Today, it's a third. Left on this current trajectory, it'll eat up core funding for vital services — like higher education and K-12 — and threaten economic recovery and growth.

Gov. Chris Gregoire put the health-care problem at the top of her 2011 State of the State address, pointing out that health-care costs had doubled during the past decade, reaching $5 billion. This cannot continue.

This year, we have an opportunity to restore balance to the state budget, while improving health-care outcomes. A recent report for Thrive Washington, a partnership between the Washington Roundtable and Washington Research Council, suggests what can be accomplished.

To meet the challenge, lawmakers must tackle three core areas of health-care spending: Medicaid, the Basic Health Plan (BHP) and state employee health-insurance costs.

Begin with Medicaid. Launched in the 1960s as a federal-state partnership, Medicaid pays for health and long-term care for low-income individuals and families. Over the decades, it has grown from a small, focused program into one that dominates state budgets across the nation.

The National Association of State Budget Officers reports that Medicaid now represents the largest part of state spending nationwide, topping K-12 education. Last year's federal stimulus package further obligated states to maintain their Medicaid expenditures, even as the federal match recedes.

Relief is possible, without unduly jeopardizing vital services. Several states, including Washington, have successfully applied for waivers that provide more flexibility in program administration.

For example, in 2005, Florida initiated a managed-care demonstration that allowed Medicaid participants to select from a choice of health-insurance programs, with the state paying the premium. Five years later, the state reports savings of more than $4 billion. Similarly, the Healthy Indiana Plan provides recipients with a high-deductible health-insurance policy and a health savings account. The state covers preventive care.

Washington, an innovator in health-care policy, is positioned well to take advantage of program waivers to improve health care and control costs.

Our state also offers a health-care plan for low-income residents who do not qualify for Medicaid. The Basic Health Plan began as a pilot program in 1987 and became permanent in 1993. As the recession crimped state revenues, the program was cut back significantly. Gov. Gregoire's 2011-13 budget proposal eliminates it entirely.

If lawmakers choose to retain the BHP, they should adopt requirements to target enrollment and assure better care. We recommend requiring enrollees in the subsidized BHP to complete a health assessment, which would allow for better case management, preventive care and increased patient responsibility. Further, as the program's goal is to provide coverage for people who cannot afford unsubsidized insurance, administrators should require disclosure of assets, as well as income.

In addition to paying for the health care of low-income residents, state government will spend $2.6 billion in the current budget for health-insurance coverage of state and public-school employees — double what it spent a decade ago. The primary reason for the high cost: The state pays an extraordinarily high proportion of the premium.

Currently, state employees pay just 12 percent of their premium costs, individual or family. This year, the employee unions and governor agreed to increase the employee share to 15 percent, far less than the 26 percent the governor had initially sought. According to the Kaiser Family Foundation, the typical employee share — public and private sector — is 19 percent for single coverage and 30 percent for family coverage.

The cost differentials are substantial. State workers enrolled in the most popular plan pay just $1,476 a year for family coverage, about one-third what private-sector workers typically pay. Moving closer to parity with the private sector is simply good public policy. And it would free hundreds of millions of dollars to fund other state priorities.

Too often, health-care costs have been treated as uncontrollable-products of immutable entitlement policies and collective-bargaining agreements. This year, the governor and Legislature can change direction, bend the trend lines, craft a sustainable budget, and preserve essential programs. It must be done.