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A private examination: DHS Director Jack Reynolds suggests a look at Medicaid privatization.

JACK REYNOLDS WANTS to cut costs within the state Department of Human Services, and the way he hopes to do so is getting plenty of attention.

The DHS director espouses privatization of the struggling Medicaid program as an option for cost reduction. DHS, the largest state agency, administers the Medicaid program, which provides health care to the poor, elderly and disabled in the state.

DHS is operating on a $1.4 billion budget that has been cut more than 30 times this fiscal year. The financially ailing Medicaid program would be maintained with a proposed $514 million increase in the DHS biennial budget.

But Reynolds, in a presentation to the DHS Joint Budget Subcommittee, suggested looking at privatization of the Medicaid system as a means to cut costs.

Privatization is when the government contracts with private companies to deliver tax-financed services to the public.

He admits it's a radical concept. The plan would have people paying for health care costs based on a percentage of their salaries instead of paying a set premium.

Reynolds says some may argue that employers currently not offering insurance won't want to pay. However, he thinks they will as long as fees are reasonable.

With group rates, Reynolds wants to guarantee employers that one person's large bill won't affect their payments.

"Small employers would buy health insurance if it were related to income," Reynolds says.

Radical concept or not, Reynolds doesn't want to see privatization defeated before it's examined.

Not everyone agrees with the DHS director.

Consider this from Arkansas Democrat-Gazette columnist Meredith Oakley in a Jan. 3 column headlined, "Privatization rears ugly head":

"Medicaid is already pushing the state toward bankruptcy. Is Reynolds trying to finish the job?"

Of Oakley's column, Reynolds says, "She didn't understand the fact that we're trying to get the employed that have no insurance involved."

Also, Reynolds says, Oakley didn't realize that privatization would allow someone else to take the risk.

And Reynolds says the concept of privatization isn't supposed to be the hard part. It's the implementation that is complex.

Not everyone is against Reynolds' idea.

"We need to examine it," says Sen. Lu Hardin of Russellville.

Hardin isn't necessarily behind Reynolds. In fact, he doesn't see any big move toward privatization.

However, he says, "Responsibly, we need to study every alternative."

Hardin says he doesn't think anything will happen with the privatization issue during this legislative session. But he and other legislators are researching it and other possible solutions to the Medicaid crisis.

There is potential interest from the insurance industry, too.

Robert Cabe, the senior vice president of external services at Arkansas Blue Cross & Blue Shield, says Blue Cross would be interested in examining any proposals the state made for an insurance company or consortium of companies to run the program.

"This may well be an excellent opportunity to demonstrate the kind of public-private arrangement that may be highly relevant to the national health care reform debate," Cabe says.

But, before any serious action can be taken in the state, Reynolds says there must be at least a three-month waiting period to see what President Clinton does nationally with health care. If no significant changes occur soon, then privatization and other alternatives may be more seriously considered.

Until then, privatization can only be discussed.

And people are talking about it.

"There are some areas that I think government has just gotten so screwed up," says Rep. Pat Flanagin of Forrest City, one of the more ardent supporters of exploring privatization.

"People with a little profit incentive and better experience and an eye toward efficiency might do a better job saving tax dollars.

"They're able to cut through all the mountains of paper work and get down to business and have rewards based upon performance. Those are kind of foreign concepts in the quagmire of government bureaucracy.

"The same principles that make free enterprise work in our economy can be applied to certain pieces of governmental services."

In addition to the contracted company or companies having more of an incentive to perform, Flanagin says it would be easier to get rid of them than if another state agency were created to solve the problem.

If the private companies did not perform well, their contracts would not be renewed.

Reynolds likes the idea of shifting responsibility to those who can perhaps better handle it.

"You need professionals to respond," Reynolds says.

For instance, he says, insurance companies can better negotiate with providers.

Reynolds thinks the providers may even support the privatization of Medicaid because they now run the risk of sometimes not being paid at all.

Although Reynolds admits even private companies have problems with controlling utilization, he says they are better equipped to maintain costs.

Also, private companies can build financial reserves, while the state is prohibited from doing so under the Revenue Stabilization Act.

Reynolds says his plan of offering health care based on a percentage of income would help people forced to choose between staying at a lower-paying job in order to keep Medicaid and a higher-paying job that doesn't offer health insurance.

Until he studies privatization further, Flanagin can only find one drawback.

"If you don't have at least the people in state government properly qualified enough to draw the contracts, you may not get what you think you're paying for," he says.

Flanagin only half-jokingly says that perhaps the state should hire a private company for those contract services, too.

Privatization is gaining momentum nationally.

The Reason Foundation of Los Angeles publishes Privatization Watch, a monthly newsletter. A recent newsletter listed the top reasons in favor of privatization, according to a national survey of leaders in 24 large U.S. cities.

Of those surveyed, 81 percent say privatization can save money; 44 percent say it allows for more services and faster implementation of services and it provides for flexibility; 25 percent say it leads to a higher quality of service; 13 percent say it solves political problems; and 6 percent say it solves labor problems.

The survey also listed the respondents' criticisms. Of those surveyed, 85 percent cite resistance from public employee unions; 54 percent note reluctance on the part of elected officials; 23 percent say there is opposition from citizens' groups; and 15 percent say legal and regulatory impediments exist.

Model States

With 31 states in budget crises, privatization is being more closely examined as a cost-cutting measure.

States that have used privatization in various forms now are being scrutinized by Arkansans exploring the option.

Hawaii is the state with which Reynolds is most familiar. Hawaii's Medicaid program is not privatized, but its State Health Insurance Plan is.

SHIP is a basic health benefit program providing mostly preventive and primary care services to people falling in the gap group between Medicaid and employer-based insurance. Those eligible can purchase insurance on a sliding scale -- as their income increases, so does their insurance cost.

About 98 percent of Hawaiians have public or private health insurance.

That's what impresses Reynolds.

And, while most everyday costs in Hawaii run 30-40 percent higher than the rest of the country, health care costs are uncharacteristically low.

In Massachusetts, which formerly had one of the most bloated state governments, portions of the Medicaid program are privatized. The state is halfway through its conversion process to privatization, which met with very little opposition.

Within two years of implementation, Massachusetts is expected to save $88 million.

"We may find some cost-beneficial things in privatization that we can use," Sen. Hardin says.

Ron Sheffield, deputy insurance commissioner for the Arkansas Insurance Department, says he is not against privatization but would not want a program designed just for Medicaid recipients.

Sheffield wants to see a universal health care program to eliminate the staggering number of uninsured in America. An estimated 36-38 million Americans are uninsured; 400,000 of those reportedly are in Arkansas.

Although he urges caution, Rep. Flanagin says privatization may be a viable option.

"I don't think we have anything to lose by giving it a try," he says.
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Title Annotation:Health Care Update; Department of Health and Human Services
Author:Rengers, Carrie
Publication:Arkansas Business
Date:Jan 25, 1993
Words:1338
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