Mitch Daniels' Free Market Health Care Plan

By Paul   09/02/09 09:25 PM

The state of Indiana enacted the Healthy Indiana Plan (HIP), a health insurance plan that provides highly subsidized health insurance to the working poor. HIP is operating under a federal Medicaid waiver, one of the conditions of which is that only a certain number of citizens within specified demographic groups can be insured. Thus, if one group (in this case single individuals) receives a surplus of applicants and another (families with multiple children) a deficit, Indiana cannot enroll the single individuals (even though they need the insurance and are willing to pay for it) and instead leave the money idle to wait until multichildren families apply.

When Indiana saw this occurring, the state requested a waiver from the federal government to increase the cap on single individuals --- and the Obama-led Department of Health and Human Services refused to grant a waiver. Now, there are six thousand people who want health insurance in Indiana, qualify for HIP and the Obama administration is refusing to allow them to be covered. What is so terrible about a plan that went from nothing to oversubscribed in less than two years?:

  • The HIP plan provides $500 of free preventive care every year to each enrollee: physicals, mammograms, colonoscopies, etc. This is a direct subsidy for preventive care, the same kind of care that some people campaigned on.
  • The HIP Plan expands access to insurance coverage to individuals who could not previously afford it (or qualify for other government programs), much like some candidates claimed that they wanted to do.

In addition, the plan actually puts money in people’s pockets if they do not spend all of the state provided funds during their first (or any subsequent) year in the plan. Thus, after the first year, a person can maintain health insurance with no out of pocket cost.

In other words, the HIP plan is accomplishing President Obama’s goals, but he is refusing to allow it to expand. This would seem illogical, except for a few points:

  • The HIP plan is administered by private health plans --- with incentives to ensure that participants receive preventive care.
  • The HIP plan is paid for with Medicaid money, but reimburses at Medicare rates (which are higher). This has led some liberal groups to claim that the plan is fiscally irresponsible. This would be a reasonable objection, execpt for the fact that government-run Medicaid has proven to be a bad option for consumers.

Probably the biggest issue the Obama administration has with the program is the stipulation that participants pay for their insurance (at a highly subsidized rate). Those funds are then deposited into a personal account that the individual can use to pay medical expenses. As indicated above, if money remains in the account at the end of the year, it is rolled over to the next year and can be used to pay the premium. (Participants are essentially able to apply a government subsidy to make their personal payments to provide themselves already subsidized care, i.e. allowing the market to work even though the overwhelming majority of money is government money).

Thus, Mitch Daniels developed a bi-partisan, pro-market, pro-individual health insurance initiative that has gone from zero enrollees to a waiting list in less than two years. Barack Obama has not even provided a plan, yet he is sure of one thing: refusing more Hoosiers the health insurance they want … and are willing to pay for.

Read about HIP plan:

Basic Facts and FAQ:

Presentation Made by Indiana Official:

Reader Comments

  1. Posted by Johnathan Grant on Mar 8, 2010
    Should I mention that Mitch Daniels (nor anyone else in Indiana, that I'm aware of) ever wanted the cap on childless adults? The state's plan all along (approved on a bi-partisan basis) was to run HIP as revenue-neutral to the federal government, with no restriction on the total population served, other than the total funding limit available.

    However - the Bush 43 HHS dept forced Indiana to accept the cap. My guess is that any HHS dept in any administration would not want to change existing Medicaid waivers when such a big health reform package is fairly close to passage. Because they might be in a position of having to go back and redo it in less than a year anyway.

    By the way, HIP has now "carved out" prescription drugs and pays for all of them at Medicaid rates, not Medicare rates (as all other services under HIP are paid). I just think it's interesting that even a conservative administration such as Mitch's was able to see that there is a lot of value in putting government-funded business into one big negotiating pool to get lower drug prices. When it comes to the big pharma companies, I don't see why the government should be any less tough of a negotiator, to get taxpayers (and HIP ratepayers) the most for their money. What doesn't make sense is something like Medicare Part D, where the government literally has no power to lower prices for those enrolled.

    In fact, the savings from the carve-out of Rx is what's allowing HIP to attempt to expand the childless adult cap while remaining revenue neutral. Not sure of the status of this request to HHS. My guess is that, again, HHS may be reluctant to go ahead when a broader health reform is just around the corner.

    (Also, my understanding of the most recent version of the Democratic (Senate-based) health bill is that while it would expand Medicaid to 133% of FPL, it would also allow states who choose the option to begin or maintain a HIP type of program for those between 133-200% FPL.)

    Honestly, with all the disagreement over health reform, I have to wonder if we should just instead propose some level of block grants to states, with the only requirement being that they show a continuing decline in the number of uninsured, and a decline in the % of income paid for health expenses by those under 200% FPL.

    However - are there any Republicans in the House or Senate who would even vote for a block grant system? Many seem to be proud naysayers these days, just voting no for it's own sake.
  2. Posted by Paul on Mar 8, 2010
    It is my understanding that Daniels' administration asked for a waiver, but are still waiting on the ruling.