The Magazine

Indiana vs. Obamacare

A conflict of visions.

Oct 22, 2012, Vol. 18, No. 06 • By CLAUDIA ANDERSON and WILLIAM ANDERSON
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“Some people sincerely believe that others just aren’t up to making their own decisions—they’re foolish or they’re victims or they’re not bright enough; for whatever reason, they can’t sort out the complexities of life. But in a free society, people must be trusted with their own decisions,” he says, adding, “We’ll always help people who are down.”

As the driving force behind the introduction of consumer-driven health care in the state, Daniels paid close attention to the system’s design. He made sure that the HSA is the employee’s personal property and goes with him when he leaves his state job. Any unused money in the account at the end of each year rolls over and may earn compound interest. In healthy years, employees’ accounts grow, building reserves for less healthy times that may come. After the worker retires, the account can be used to pay Medicare premiums and deductibles and other health bills. And as long as it remains dedicated to health care, any balance left in the HSA upon the death of the participant passes tax free to a beneficiary named at the time of enrollment.

There’s minimal paperwork. Participants must keep receipts in case they’re audited by the IRS. Otherwise it’s an honor system.

In response to concerns that participants might face hefty health bills early in the year, the state deposits half its HSA contribution in January and the rest in equal increments every pay period. By now the state offers two CDHPs with different premiums, deductibles, and maximum personal cost. The most that participants can contribute tax-free ($3,100 for individuals, $6,250 for families) is laid down by the IRS, not by Indiana.

This chart, taken from the Open Enrollment packet for 2012, shows the costs to Indiana state employees of the two consumer-driven health plans and the traditional Preferred Provider Organization. Preventive care is covered in full under all three plans. As state workers steadily migrated out of traditional insurance over the last seven years, one of the traditional health plans previously offered went out of business, and a second CDHP was created.

In addition to the obvious basics like paying doctors, hospitals, pharmacies, and labs, HSA funds can be used for dozens of “allowable expenses,” from substance-abuse treatment to guide dogs, accommodating without fuss the various needs and preferences of individuals and families. Each plan comes in a tobacco-free variant. If the employee signs a pledge not to use tobacco during the year and to undergo random nicotine testing, the state contributes more to his HSA: The tobacco-free bonus is slated to go up next year from $25 to $35 per paycheck. And if you’re caught cheating? You lose your job.

Even as he prepares to leave office at the end of this year, Daniels is working to refine the system. Soon, a wide range of user-friendly information, including prices charged by different health care providers, is to be posted online. The idea is to make comparison shopping easier, as citizens become more used to controlling their health dollars.

It was Daniels, too, who persuaded Democrats in the legislature and bureaucrats in Washington to let him use a consumer-driven design for the Healthy Indiana Plan. Because it is funded not only from an increase in the cigarette tax but also with money reallocated from the state’s Medicaid account, HIP required a waiver from the federal Department of Health and Human Services. Like the state employees’ plan, HIP combines high-deductible insurance (a choice of three plans) with first-dollar coverage of preventive care and a state-funded HSA, to which participants (if financially able) must contribute. In HIP, the state’s contribution to the HSA rolls over only if routine preventive care is completed each year.

Whatever the success of Indiana’s market-based reforms, their future is fraught with uncertainty. What Governor Daniels calls “the big hairy foot of Obamacare” is poised to crush them.

Or maybe not. It’s impossible to get answers out of Washington these days, say those working on compliance with the Affordable Care Act. Federal bureaucrats are choking on thousands of pages of new regulations that interpret the thousands of pages of the law itself.

In 2011, Indiana legislators of both parties voted to adapt the Healthy Indiana Program as the vehicle for the expansion of Medicaid envisaged by Obamacare. But the state’s request for a three-year renewal of its waiver for HIP was denied; a one-year waiver was granted.

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