Budget cuts may soon force out some 36,000 low-income people from Washington's Basic Health Plan, a state-subsidized insurance program. Officials are looking at five possible ways to decide who gets bumped — including a potentially controversial lottery.

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Steve Hill is about to make a tough decision that no one in state government wants to touch — including him.

Hill’s dilemma? Deciding how to eject some 36,000 people from Washington’s Basic Health Plan, the popular state-subsidized insurance program for the working poor.

Because of the state budget crisis, the Legislature has cut the program’s two-year funding nearly in half. As early as this week, Hill must render a decision on how to whittle the plan’s 100,000 members down to a target of 64,000 by January.

Health-policy experts call his dilemma one of the thorniest cases of rationing they’ve seen. While several states have frozen or pared back enrollment in Medicaid by lowering income thresholds, Basic Health may be the first public-health plan to consider a wide range of arbitrary options in how to boot off members.

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“What do you do if you cut people off and they need health care? ‘Sorry?’ ” said Karen Pollitz, research professor at Georgetown University Health Policy Institute. “This is a very extreme” move.

After weeks of analysis led by Hill’s deputy, Preston Cody, Basic Health officials have narrowed to five the potential options for “involuntary disenrollment”: jacking up premiums; lowering the income cutoff; eliminating members based on when they enrolled — either “first in/first out” or “last in/first out” — or tossing the whole quandary into a lottery.

All five approaches have drawn both fervent support and dissent from various advocacy groups.

“We are faced with a whole bunch of options, none of which is attractive,” said Hill, administrator of the Washington State Health Care Authority, the agency that oversees Basic Health.

A contemplative man, the 62-year-old Hill is a former Weyerhaeuser executive who also has worked for the U.S. Department of Energy. He says the impending decision, which he will make in close consultation with Cody and other key advisers, has caused him sleepless nights.

“We’ve had some difficult decisions before, but nothing like this,” Hill acknowledged.

Granting priority to people who are seriously ill, for instance, could endanger the whole program by eliminating the healthy people who subsidize the pool. Even simply raising premiums and co-pays to boost revenue and prod members to leave on their own could backfire.

“People who are really sick are more willing to pay, so you end up with sicker people,” said Katie Rogers, state programs manager for Community Health Plan of Washington, a nonprofit group that is the largest insurer of Basic Health members.

Janet Varon, executive director of Northwest Health Law Advocates, which works with low-income clients, has urged officials to exhaust every option before resorting to disenrollments.

She argued for weeding out members who have substantial savings, or for tapping payments from hospitals — which, after all, will be beset with demands for charity care if thousands suddenly become uninsured.

Varon warned officials against acting too swiftly.

“It’s just at these times when you have to step back, take a deep breath and say, ‘What are we doing here?’ ” Varon said.

Uses state dollars only

Unlike the state-federal Medicaid program — which does not accept nondisabled, childless adults no matter how poor they are — Basic Health is open to all state residents who earn less than twice the poverty level, or $36,620 for a family of three.

When it began as a pilot program in King and Spokane counties in 1988, it was the nation’s first public insurance plan to subsidize premiums using only state tax dollars.

Even now, only five other states operate similar programs, in part because they’re so expensive.

Over two decades, enrollment in Washington’s plan has climbed as high as 140,000 people. It now has about 100,000, 57 percent of whom get by on poverty-level incomes or less.

A majority are in their 20s, 30s and 40s. Some are disabled or unemployed, but many work.

Among them are people like Stephen Schreck of Sedro-Woolley, whose wife, Mary, is battling terminal cancer, and Ralph Widman of Seattle, a photographer who ekes out a living selling his work at Pike Place Market.

On average, members pay $36 a month toward their premiums and the state pays the rest — $209 a month on average. The plan doesn’t includes vision or dental benefits, but covers most everything else for a modest co-pay and an annual deductible of $150.

All told, the subsidies cost the state about $300 million a year. But because of the recession, the Legislature in April voted to slash Basic Health’s budget by 43 percent between 2009 and 2011.

That left $338 million — enough, officials hope, for 64,000 slots, a reality that has prompted panicked members to beseech officials to spare their coverage.

Hill said the pool must shrink quickly in order to align it with the austere new budget.

Members must be given at least two months’ notice of termination, meaning some could lose coverage as early as September, with the others off the rolls by January.

The state already is pursuing several relatively uncontroversial trims.

Some 8,000 slots could be vacated by more stringent income checks and tougher penalties for missed premium payments. Another 7,000 people could be removed if they already are on Medicaid or are eligible for that or another source of insurance.

Administrators also are exploring whether they could limit coverage to U.S. citizens or legal residents.

Because the plan is funded solely with state money, Washington is free to offer tax-supported coverage to low-income adults who are illegal immigrants, something it also provides to their children under a separate program.

Would lottery be fairer?

Yet Hill said those partial remedies are expected to add up to 20,000 slots at most, or roughly half of the needed cuts. An additional 16,000 to 25,000 people must be dropped through other means, depending on the size of the savings from each option.

• One of the options under consideration is lowering the Basic Health income cutoff to 125 percent of poverty level, or $22,890 for a family of three.

But because higher-income members also pay the highest premiums — as much as $283 a month — bumping them off the plan would yield proportionately smaller savings, said Cody, deputy administrator of the Health Care Authority.

Cody also said the plan needs to keep at least 60,000 members to remain viable, and that lowering the income threshold could cause enrollment to dip below that, to as low as 55,000 people.

• The advantage of another approach — substantially raising premiums, including doubling the lowest rate to $34 a month — is that members, not the state, would decide who goes and who stays.

A danger is that too many of the healthiest might leave.

• Questions remain about the enrollment-date option.

While 48 percent of members have had coverage for less than two years, 11 percent have been on the plan for 10 years or more. Actuaries are still running the numbers to determine whether “first in, first out” or “last in, first out” would preserve coverage for the most members.

• Perhaps the most straightforward — albeit controversial — solution might be a lottery.

Random selections would shrink the insurance-pool size without altering its demographic mix. Hill calls it an “elegant” fix and Cody agrees, even as both men acknowledge moral qualms.

“From a logical standpoint, a lottery makes sense. I’ll be honest with you,” Cody says.

But some patient advocates vehemently reject it as too capricious. Daphne Pie, a health-care benefits outreach educator with Public Health — Seattle & King County, said health care is too important to leave to chance.

“What people want to know is, are they eligible or not eligible?” Pie said. “Not all that gray. Yes or no. Let people deal with it.”

New vs. old members?

People on the plan are just as divided.

The Schrecks, of Sedro-Woolley, enrolled in January, two months after the couple lost their private insurance. Mary, who sold real estate, quit working in December because of a recurrent breast cancer that has metastasized.

Stephen, 56, gratefully calls Basic Health “a lifesaver program” but believes it should be a temporary bridge, not a lifetime crutch. Longtime members “have had their turn,” he argues.

Widman, a single man who has epilepsy, disagrees. He sells his “painterly” photographs of iconic Seattle images at Pike Place Market, and says that in bad years, after expenses, he barely breaks even.

Now 58, he joined Basic Health a decade ago and currently pays $22.50 a month in premiums. As a self-employed artist, he values his coverage as much as the Schrecks do — and believes he’s no less deserving of it than newcomers like them.

“Losing my health insurance has been my greatest fear,” Widman said. “Basic Health means everything to me.”

Whatever method the state chooses, Pie, the public-health educator, says an even more wrenching challenge lies ahead.

“What do we do with 40,000 people who are uninsured?” she wonders.

Kyung Song: 206-464-2423 or ksong@seattletimes.com

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