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GOP's Privatization Future is Indiana's Nightmare Present

June 28, 2011

At the heart of the Ryan budget plan backed by 98% of Republicans in Congress are two very bad ideas whose time has never come. Privatization of government services and the devolution of their federal funding to the states promise to dramatically raise costs and slash benefits for millions of Medicare and Medicaid recipients. But in Indiana, the Republican future is now. There, residents are already encountering lost benefits, rising error rates and backlogged private bureaucracies as politically well-connected firms reap massive windfalls at taxpayer expense.
That's the word from the Los Angeles Times, which detailed the aftermath of Governor Mitch Daniels' decision to turn to the private sector to administer the Hoosier State's public assistance programs. And as exemplified by the case of Louise Cohoon, whose 80-year old mother had her Medicaid benefits dropped without warning by a private company after she "failed to call into an eligibility hot line on a day in 2008 when she was hospitalized for congestive heart failure," the picture isn't a pretty one:

Cohoon's mother, now suffering from Alzheimer's disease, was one of thousands of Indiana residents who abruptly and erroneously lost their welfare, Medicaid or food stamp benefits after Republican Gov. Mitch Daniels privatized the state's public assistance program -- the result of an efficiency plan that went awry from the very beginning, the state now admits.
Though the $1.37-billion project proved disastrous for many of the state's poor, elderly and disabled, it was a financial bonanza for a handful of firms with ties to Daniels and his political allies, which landed state contracts worth millions.

As it turns out, Daniels' privatization scheme went forward without legislative approval. And as the Times noted, "the only public hearing occurred after he announced he would proceed with the project." So it should have as no surprise that Daniels' cronies made out very well as the tragedy for Indiana taxpayers unfolded:

Key players involved in the process had ties to Affiliated Computer Services, the company that benefited the most from the deal. Mitch Roob -- a Daniels appointee who ran the state's Family and Social Services Administration when it awarded the contract -- was a former ACS vice president. As the state began the project, Roob occasionally sought advice from former Indianapolis Mayor Stephen Goldsmith, a political ally of Daniels and fellow privatization advocate who also had been an ACS vice president.

For his part, the would-have-been presidential candidate Daniels denies any impropriety. But as GOP-led states around the country look to replicate the Indiana model, John Donahue of Harvard University's Kennedy School of Government said, "People tend to be paranoid about conflicts of interest, and for good reason," adding, "Contractual hygiene is pretty important."
Ultimately, however, even the best run and most well-intentioned privatization efforts are no antiseptic for the fatal flaws of the Ryan budget plan backed by 235 House Republicans and 40 GOP Senators.
Currently, the $300 billion Medicaid program serves roughly 60 million Americans. On average, the federal government picks up 57% of the tab, with poorer states like Mississippi and Alabama getting 75% of the funding from Washington. Averaging 21.8% of states' spending, Medicaid is now the largest budget item for most. Medicaid not only pays for a third of nursing home care in the United States; it covers a third of all childbirths. (In Texas, the figure is one-half.) As with Medicare, Medicaid provides insurance for substantially less than private insurers (27% less for children, 20% for adults.)

In contrast, the Ryan budget would privatize and inevitably ration the government insurance program for 46 million seniors. As Paul Krugman warned, "If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper." Meanwhile, with their backing for the 2012 Ryan budget proposal, Republicans voted to slash Medicaid funding by more than $1 trillion over 10 years while sending the remaining dollars as block grants to the states. As it turns out, that gambit would not only gut the 2010 Affordable Care Act law, but guarantee than millions of lower income Americans are deprived of health care.
Writing in the New Republic, Jonathan Cohn explained the dynamic which would ensue:

"That's not to say plenty of governors wouldn't take advantage of block grant status to change their Medicaid programs in ways they cannot now. They surely would--by capping enrollment, thinning benefits, increasing co-payments, and so on."

Which is exactly what they are already doing now. Ezra Klein summed up the findings from a recent study by Kaiser Family Foundation and the Bipartisan Policy Center:

Twenty states implemented benefit restrictions in the past year. In fiscal year 2010, 39 states implemented Medicaid provider rate cuts or freezes (up from 33 in fiscal year 2009), and 37 states have provider rate restrictions planned for the next fiscal year.

And the carnage is worst where Republicans poll best.
Take, for example, Governor Haley Barbour's Mississippi. At the National Governors Association meeting earlier this year, Barbour called for the Medicaid program to be converted into block grants for the states to control. To make his case, Governor Barbour updated Ronald Reagan's old myth of the "welfare queen":

"We have people pull up at the pharmacy window in a BMW and say they can't afford their co-payment."

That whopper didn't merely earn a "Four Pinocchio" rating from the Washington Post. It also obscured the fact that Haley Barbour's Mississippi is already home to perhaps the least generous Medicaid program in the nation:

Mississippi provides some of the lowest Medicaid benefits to working adults in the nation. A parent who isn't working can qualify only if annual family income is less than 24 percent of the poverty line. Working parents qualify only if they make no more than 44 percent of the federal poverty level. Seniors and people with disabilities are eligible with income at 80 percent of the poverty line...
Translated from the federal poverty guidelines, that means a working Mississippi couple with one child could earn no more than $8,150 a year and still qualify for Medicaid, seniors and people with disabilities could earn no more than $8,700, and a pregnant woman could earn no more than $20,000 a year.

But those numbers don't begin to capture the failure of the Mississippi health care system. In its 2009 state scorecard, the Commonwealth Fund ranked Mississippi dead last in its assessment of health care access, prevention, equity, affordability and lifestyles. In December, the "America's Health Rankings" project also put Mississippi at 50th among the states. And in 2009, another UnitedHealth Group funded study concluded that Haley Barbour's home state had the unhealthiest residents in America.
Mississippi isn't the only Republican health care horror story. There's Texas, ranked a dismal 46th by the Commonwealth Fund. With his cash-strapped state already leading the nation in the percentage of residents (30%) uninsured, last fall Governor Rick Perry floated the idea of opting out of Medicaid altogether. The idea of foregoing $15 billion in federal funds (60% of his state's Medicaid costs) went by the wayside when a study by the state Health and Human Services Commission found that "up to 2.6 million Texans could lose health coverage if the state opts out of Medicaid." Facing a massive $27 billion, two-year deficit due in part to reckless tax cuts and a refusal to raise revenue now, Lone Star State Republicans are nevertheless looking at savaging its Medicaid program now serving 3.1 million people:

The total effect of the cuts -- estimated at $7.6 billion a year, or roughly a third of Texas' Medicaid spending -- will kill jobs, strain the state's economy and put people's lives at risk, experts across the state have said in recent weeks.

Meanwhile, Governor Jan Brewer's real-world death panels are already offering a glimpse into the national dystopian future that is Arizona nightmare present. Still strugglingto stop the growing body count from draconian cuts to the state's transplant surgery program, Governor Brewer last week proposed new Medicaid fees for "adults who lead unhealthy lives." (As McClatchy noted, "A 2008 study by Arizona State University found that that state's structural deficits could be traced to 15 years of tax cuts, mainly income-tax reductions that 'were not matched by spending cuts of a commensurate size.'")
Under Republican rock star Chris Christie, even solidly blue New Jersey wants to take an axe to Medicaid. As the Washington Post reported last month:

New Jersey Gov. Chris Christie, who has tangled with Democrats and their core supporters by demanding deep concessions from public employees unions, is planning to formally ask the Obama administration to allow his state to dramatically tighten Medicaid eligibility for New Jersey adults...
Christie's proposal would deny new Medicaid coverage to adults in a family of three who earn more than $5,300 a year, down from the current cutoff of $24,645.

And American taxpayers should be especially wary of handing their federal Medicaid dollars over to the likes of Florida Governor Rick Scott. As Mother Jones explained in March, the man whose firm became the poster child for Medicare fraud is at it again in the Sunshine State:

Scott and Florida Republicans are currently trying to enact a sweeping Medicaid reform bill that would give HMOs and other private health care companies unprecedented control over the government health care program for the poor. Among the companies that stand to benefit from the bill is Solantic, a chain of urgent-care clinics aimed at providing emergency services to walk-in customers. The Florida governor founded Solantic in 2001, only a few years after he resigned as the CEO of hospital giant Columbia/HCA amid a massive Medicare fraud scandal. In January, according to the Palm Beach Post, he transferred his $62 million stake in Solantic to his wife, Ann Scott, a homemaker involved in various charitable organizations.

Regardless, Republicans at the state and national level push their twin agenda of privatization and block grants. But you don't need a crystal ball to see how the GOP's dream future will turn out. Just look at Texas, Mississippi, Arizona, Florida - and now Indiana - today.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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