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Pam Gencarella: Another Bubble to Burst in RI?

Thursday, April 17, 2014


Putting forth an edict can make it so in RI. The hard part is paying for it. When Governor Chafee, through an executive order, provided for the Health Insurance Exchange, he saw green. The original request of $65 million in green from the Federal government to create RI’s exchange and (presumably) another $23 million to run it the first year, for a total of more than $80 million.

What did we get for the $65 million we spent in federal funds to create the exchange? Increased competition as was touted by the proponents of Obamacare? Hardly, Blue Cross and Blue Shield covers 98% of RI’s insureds. Reduced insurance premiums? No evidence of that here. More people taken off the uninsured rolls? Absolutely.

The 65,000 of Medicaid new enrollees was beyond what the Governor’s office projected. But at what cost? Two-thirds were added to the rolls as a result of the decision to further expand Medicaid in the state. Although RI will begin paying for a portion of this cost beginning in 2018 (that’s only a few budgets away), we will pick up the full 10% by 2021. Then there is the other one-third of those who signed up for Medicaid who fall into a category (qualified for Medicaid prior to Obamacare) that leaves RI to pick up about 50% of the cost.

According to the Providence Journal (April 4, 2014), RI’s Secretary of HHS, Steven Costantino, said he was pleased the expansion went so well because it will add $500 million into the RI health care economy, but he could not predict the impact on the state Medicaid budget.

And therein lies the problem.

Not knowing the impact on the budget. Former Finance Chairman Mello was quoted as saying “We are just trying to figure out how this is going to work. We don’t know if we’re building a colonial, a mansion or a bungalow. It always seems like we’ll continue with construction (and) we’ll worry about how much it’s going to cost us later ”.

That is precisely why it is the role of the Legislature to provide an open debate and create laws, and it is the role of the Executive Office to carry out those laws. The presumption is that the debate centers around estimating the cost and determining how to pay for it. While it is a noble goal to provide health insurance to all RI citizens, how can our leaders implement this type of sweeping policy change not knowing the impact it will have on the RI budget and therefore on the RI taxpayer? What percent of that $500 million will be coming from the taxpayer?

The RI Center for Freedom and Prosperity published a report on its website about the cost of the Exchange. It shows a timeline of estimates that have left the state not knowing how much the Exchange and the Medicaid expansion will cost the taxpayer. In 2011, original projections estimated 127,000 private plan enrollees through the exchange. In 2013, those projections dropped nearly in half with estimates of 64,000 enrollees and then, ultimately, dropped again by more than half to actual results of only 28,000 enrollees in private plans. Instead of a system created to handle 127,000 private enrollees, it is currently handling less than one-quarter of that. That means the cost per transaction just shot through the roof.

Back in January, business groups in RI provided the Governor and the General Assembly with a position paper that clearly indicated their sentiment about who pays for the $23 million operating cost of the Exchange - not them. The RI Business Group on Health, RIMA (RI Manufacturers Association), the NFIB (National Federation of Independent Businesses) and the Providence Chamber of Commerce all agree that this cost should not be born by businesses that do not use the Exchange, nor should it be born by insurance carriers or health purchasers in general, nor should there be a general assessment fee on all claims paid in the state. However, here’s the rub. If, as reported in the Pro Jo, a total of 92,000 people signed up for health coverage through the Exchange and 70% of the those users are Medicaid recipients, that leaves only 30% of the users to pay for the annual operating cost of the Exchange. Hmmm, if you do the math, at todays level of private enrollees, that’s over $800 a year for those individuals, some of whom already qualify for subsidies. Not a pretty picture. That’s the problem with edicts in a representative government. You can’t just dictate how the bill gets paid.

So, has the Exchange, with an initial set up cost of over $65 million and an annual maintenance cost of $23 million, really turned into a very expensive advertising campaign to increase the number on medical welfare with no plan for funding these handouts and no plan for funding the operating infrastructure that helps hand them out. Where does that leave the RI taxpayer? The cost of both the Medicaid expansion and the operation of the Exchange are just two more bubbles that will need to be addressed at some point in the near future.

Remember the Trojan’s line (paraphrasing), ‘beware of those bearing gifts’.

Next edict on the agenda - turn the Exchange into a one-stop shopping portal for all welfare benefits. In a press release, the Administration announced, “We will continue our work....to create a place where Rhode Islanders not only can compare and buy health insurance,but also check to see if they qualify for Medicaid - and eventually, food stamps and other government programs.”

Who will take control?

The State Senate has asked the Governor to explore the possibility of relinquishing the operation of the Exchange to the Federal government. Even if that comes to fruition, the full cost of maintenance may very well not be covered and it won’t address the issue of expanded Medicaid. At some point, the General Assembly will need to approve a budget that includes the costs of the Exchange, which, as part of the process, should include a robust debate about the allocation of RI’s scare resources and how to deflate the bubble dubbed ‘The RI Dependency Portal’.

Pam Gencarella is a member of OSTPA, a taxpayer advocacy organization in Rhode Island.


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"Although RI will begin paying for a portion of this cost beginning in 2018 (that’s only a few budgets away), we will pick up the full 10% by 2021. Then there is the other one-third of those who signed up for Medicaid who fall into a category (qualified for Medicaid prior to Obamacare) that leaves RI to pick up about 50% of the cost." Fair warning to those business owners who plan to leave the state before this boondoggle hits he fan.

Comment #1 by John Ward on 2014 04 17

the ACA was deigned to fail AND they know it! They want single payer AKA (socialized medicine),they want all the insurance companies out of business,all heath care will be government controlled PERIOD..and we all know how good government is over the private sector when it comes to running a business.LOL

Comment #2 by LENNY BRUCE on 2014 04 17

We pay a far higher % of our GDP on healthcare than any other developed nation, and often we have worse health outcomes. Some of those countries have single payer and some have private insurance.
As a fiscal conservative I want to drive down this down. Watch this 7.5 minute video.


Comment #3 by Redd Ratt on 2014 04 17

The cost of socialism is staggering. We all knew it was designed to fail so that the government would have to rush in and take it over. Obama said as much. It's on a recorded conversation he gave to supporters. Only then he predicted it 'may take 10-15 years'.

Comment #4 by Dave Barry on 2014 04 17

Dave, JO-JO and any others, please watch the segment I linked and then comment. We already have a form of socialized medicine. Hospitals aren't allowed to turn people away. We have skyrocketing healthcare costs and doctors are being squeezed. The idea that we should have maintained the status quo is just ignorant. If healthcare costs are rising three times faster than the economy we got big problems.

We're already paying for everybody that's poor. Let's find a cheaper way to do it. Everyone I know that has educated themselves on the subject have come to see it my way. Well, except for the people that think everybody should be on their own. Those are the deadenders that will never be convinced. Modern societies aren't going to let mass parts of their societies die because their poor. That's reality.

Comment #5 by Redd Ratt on 2014 04 17

The cheaper way to health care is to put health care in the hands of individuals who pay cash, saved for that purpose, who then apply their own self interest to their own health. Costs for care then go down as providers have to provide value based on what people are willing to pay.

Once government amasses and doles out huge sums of other people's money then providers charge more to get their piece of the limitless sums. Just witness the soon-to-go-bust Medicare program.

A return to common sense is needed and the only real solution is wide-spread prosperity and work ethic, not taxes, subsidies and control by bureaucrats.

Comment #6 by Art West on 2014 04 17

34,000 Medicaid sign ups were from people that never had it BUT that qualified last year. Rhode Island will have to pick up the tab for them this year.

One odd thing that I am still seeing is that 'free' clinics are still being funded. Why is that when everyone is supposed to have benefits?

Hospitals should also be able to turn those away that do not have benefits since, again, everyone is supposed to have benefits.

Comment #7 by Jim D on 2014 04 17

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