State of the States-2009

8/14/2019 State of the States-2009

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State of the State

State of the StateS

January 2009

Chig Cus:

Preparing for the Future,

Learning from the Past


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State of the StateS

Abu SCI

The State Coverage Initiatives (SCI) program providestimely, eperience-based information and assistance

to state leaders in order to help them move health

care reform forward at the state level. SCI offers an

integrated array of policy and technical assistance

services and products to help state leaders with

coverage epansion efforts as well as with broader

health care reform. Our team of policy eperts tailors

its approach to meeting state decision makers needs

within the context of each states unique scal and

political environment. SCI is a national program ofthe Robert Wood Johnson Foundation administered

by AcademyHealth. For more information about SCI,

please visit our Web site www.statecoverage.org.

S Cg Iiiis Pgm SffEnrique Martinez-Vidal, DirectorIsabel Friedenzohn, Deputy DirectorShelly Ten Napel, Senior Associate

Anne Bulchis, Associate

Colin McGlynn, Program Coordinator

State of the StateS


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Stateof the

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4 Eecutive Summary6 Surveying the Landscape14 State and National Health Care Reform: A Case for Federalism20 Lessons Learned from State Reform Efforts26 State Coverage Strategies: Evolving with Time and Effort28 State Coverage Strategies: Success Varies; Vision Remains

46 SCHIP Moves Forward in the Face of Uncertainty48 State Reform Efforts Target Small Employers

54 Cost Containment and Quality Improvement Prioritized by States60 Looking Forward61 Endnotes

Wrien By: Shelly Ten Napel, Anne Bulchis, Margaret Trinity, Enrique Martinez-Vidal,Colin McGlynn and Isabel Friedenzohn

Manain Edir: Shelly Ten Napel

Cnribuin Edirs: Enrique Martinez-Vidal, Isabel Friedenzohn, Anne Bulchis,

and Kristin Rosengren

Exernal Reiewers: Bob Carey, Deb Faulkner, Barb Langner, and Scott Leitz

Ar Direcin: Ed Brown

table o contents


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4 State of the StateS

charting a course:

PreParing or the uture,learning rom the Past

State of the StateS

With the election o Barack Obama to the

Presidency, Congressional leaders have begun

to set ambitious goals or the 111th Congress,

including comprehensive coverage and

systemic reorms to promote quality care and

cost containment. For this reason, this years

report not only analyzes the experience o

states in the past year, but also explores

the relationship between states and theederal government.

The states will be watching reorm eorts

at the national level, rst or their possible

immediate impacts (or example, a short-

term boost in the ederal Medicaid matching

rate to address the states budget shortalls)

and then to see how broader ederal

reorm may impact their particular states.

Particularly in light o severe budget decits,

some states may choose not to act in 2009 inthe hopes that ederal coverage expansions

and other reorms will be orthcoming.

Federal health policymakers can learn rom

the experience o states that have pursued

innovations in both coverage expansions and

delivery and payment systems reorms. Since

state eorts have dominated reorm eorts

recently, in part, because there has been

little to no ederal action, there is a wealth o

experience and lessons that can inorm the

national discussion regarding health reorm.

As the discussion continues in 2009, some

critical questions will need to be resolved:

n How can the states and the ederalgovernment best work together in the

context o national reorm?

n How can the ederal government provide

leadership that empowers the states to be

eective partners?

n Which tasks are best undertaken at which

level o government?

Given the large variation between states in

coverage rates, health care delivery system

models, insurance market structures, income

levels, and a variety o other aspects, ederal

reorm will certainly impact states dierently.

How can states and the ederal government

work together to reduce undesirable

variation while still allowing or creativity

and innovation at the state and local levels?

The analysis in this report explores these

challenging issues. It also provides the

necessary context or readers as they lea

about state-level innovations and reorm

Perhaps the two most signicant themes

that emerge rom a review o 2008 state-

level health reorms are: 1) the impact o

the recent economic downturn; and 2) t

emerging trend among states to addresscost and quality together with access as t

consider comprehensive reorms.

Surveyig the Lscpe. This sectio

analyzes trends in health care cost and

coverage. It notes that while employer

coverage rates have held relatively steady

the last ew years, declines will be inevita

as the current recession takes hold. Wh

many people will lose their employer-

sponsored coverage as the unemploymerate climbs, more will become eligible o

state Medicaid programs. This will urt

pressure already burdened state budgets

December 2008, at least 41 states and th

District o Columbia were reporting mi

year budget gaps, amounting to an estim

$43 billion shortall.1 Forecasters predic

that these budget gaps will only worsen

states struggle with declining revenues.2

This years State of the States will review the full range of state activity on health reform during 2008 while also look

ing to the future, particularly in light of the epected impact of the economic downturn and the possibility of federa

action. This is a time of both challenge and possibility for policymakers, and the nation. The eperience of states

can inform the ongoing discussion.

ecui Summ


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Stateof the

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Stte Coverge Strtegies. While

election year politics slowed the rate o

state reorms relative to 2007, signicant

progress was accomplished in several states.

Massachusetts and Vermont continued

implementation o their comprehensive

reorms, with Massachusetts reporting

that 97.4 percent o its residents are now

insured and Vermont launching two o threecoordinated community pilots under its

Blueprint or Health.

Minnesota, Iowa, and New Jersey all passed

signicant health reorm legislation in

2008. Minnesotas legislation was broad

in scope and included major provisions

that address improved health care coverage

and aordability, payment reorm and

price/quality transparency, chronic care

management, administrative eciency, andpublic health.3 Iowa lawmakers expanded

childrens coverage to 300 percent o the

Federal Poverty Level (FPL), called or a

medical homes program and several other

quality and transparency initiatives, and set

up a task orce to develop a plan to provide

comprehensive coverage to all Iowans in

ve years. New Jersey also expanded health

coverage or kids and passed a mandate that

all kids be covered; they also expanded health

coverage or parents up to 200 percent FPL.

Several other states attempted major health

reormsmost notably Caliornia and New

Mexico. While their ambitious goals were

not achieved in 2008, they advanced the

health care discussion in their states.

Finally, a handul o states used 2008 as a

consensus-building year, putting together

comprehensive plans or health care reorm

in the coming years. These states include

Arkansas, Connecticut, Ohio, Oregon, and

Utah. While the economic picture in each

o those states has darkened considerably

during recent months, there are stillhopes o enacting at least some o the

recommendations being proposed.

Stte Chilres Helth Isurce

Progr. Ten states passed legislation in

2008 to expand childrens health coverage,

either through increased eligibility levels or

stepped up enrollment eorts. The ailure o

ederal lawmakers to pass a reauthorization

o the State Childrens Health Insurance

Program (SCHIP) in late 2007 and theimpact o a restrictive ederal directive

limiting the use o ederal unds to expand

coverage above 250 percent FPL had a

dampening eect on SCHIP expansions.

Stte Refor Efforts Trget Sll

Busiesses. Because o declining coverage

rates in the small business market and the

diculty o nding aordable small business

coverage, many states have developed

interventions to bolster the small businessmarket. These include providing premium

subsidies, oering reinsurance programs,

restructuring benet plans, providing tax

cuts and credits, or some combination o

these approaches.

Cost Cotiet Qulity

Iproveet. The U.S. health care sy

has seen dramatically rising costs in rec

years. These increases have impacted t

budgets o individuals, employers, state

and the ederal government. The quali

o care, unortunately, is not improving

at a commensurate rate; indeed, high

spending does not correlate with highquality. There is a growing consensus t

payersincluding statesare not getti

good value or their health care dollar.

States have undertaken a series o strate

to improve value by containing costs an

improving quality. These include: 1)

investing in primary care through med

homes and care coordination; 2) welln

initiatives; 3) eorts to promote patien

saety and prevent medical errors; 4)price and quality transparency initiativ

5) health inormation technology and

exchange; and 6) eorts to reduce

preventable hospital readmissions.

Lookig Forwr. The immediate ut

in health care policy is uncertain. Whi

many states have laid the groundwork

signicant reorm in the last ew years,

budget shortalls and the potential or

ederal reorm are likely to dampen sta

eorts. Nevertheless, the coming year

will put the spotlight on health reorm

ederal lawmakers consider the issue an

more businesses and individuals eel th

pinch caused by the economic downtu

It remains to be seen whether the natio

discussion around health reorm excite

dampens state eorts and what role sta

might play in a changing ederal system


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surveying the landscaPe

State of the StateS

Finding ways to epand coverage to the uninsured continued to

dominate state policy agendas in 2008. The year saw a multitude

of state efforts aimed at developing, legislating, and implementing

reforms. While forecasters projected that 2009 would bring renewed

energy to many states coverage efforts, the nations serious eco-nomic ills are causing an about-face such that state ofcials are now

concerned whether progress by states can continue to be made.4

Declining economic conditions have considerably darkened the

outlook for 2009 and will perhaps thwart many states reform efforts.


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Stateof the

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This section uses various data sources to

explore the current landscape. Despite some

variation in data across sources, the overall

trend is consistent. Moreover, given that data

sources typically lag current conditions by a

year, the numbers (particularly the national

rates o uninsurance) paint a rosier picture

than the reality aced by many states. This

section looks behind the numbers to project

the potential impact o the nations altered

economy on statestheir budgets, public

programs, and eorts to expand coverage to

the uninsured.

UnInSUred deClIne In 2007

For the rst time since 2004, the number

o uninsured declined, dropping rom 47

million in 2006 to 45.7 million in 2007.8

Several actors contributed to the decrease.

First, the rate o employer coverage remained

relatively stable between 2006 and 2007

(although there were modest declines),

most likely because o the continuation

into 2007 o the economic improvements

experienced between 2004 and 2006, a period

in which real median income increased as

the poverty rate dropped.9 Second, public

coverage expanded between 2006 and 2007.

Health insurance reorm implemented in

Massachusetts during 2007 also signicantly

contributed to the decline in the number o

uninsured nationally.10

But the decline in the uninsured masks a

sobering reality: an estimated 50 million

people were uninsured or some time during

2007. And nearly two-thirds o adults

116 million peoplewere uninsured or

part o the year, were underinsured,experienced problems paying their medical

bills, or deerred needed health care because

o its cost.11

Furthermore, given the economic

downturn, the 2007 decline in the numb

o uninsured may prove to be a minor

aberration in an otherwise upward traje

that has prevailed since 2000. The U.S.

unemployment rate reached a 16-year

high o 7.2 percent in December 2008,12

increase that will almost certainly lead to

drop in employer-sponsored coverage an

an increase in the number o uninsured.

act, orecasters predict that the number

uninsured will jump by at least 2 million

2008, and might go even higher given th

unemployment outlook in late 2008.13

State FISCal CondItIonS

darken

Ater several years o scal stability, states

are navigating a bleak economic landscap

Undoubtedly, declining state revenues

will severely undermine uture spending

and coverage plans. As the impact o the

nations worst nancial crisis since the Gr

Depression ripples through state econom

many states are already experiencing

diculties. The collapse o the housing

market and growing cost o energy have t

a toll on state revenues, creating budget g

and the urgency or short-term borrowin

States routinely borrow to meet short-te

spending obligations, particularly given

calendar fuctuations in incoming reven

accordingly, lenders typically count on s

to repay their loans.14 In all 2008, howev

a slump in the credit markets caused len

to restrict access to loans, causing many

businesses and states to worry about the

ability to borrow short-term cash. Calioand Massachusetts were the rst states to

raise the alarm that a credit reeze might

jeopardize their short-term borrowing n

Like others, these two states may need to

turn to the ederal government as a lend

last resort.

During the current economic downturn,

ordinary citizens will eel the crunch o

high health care costsor premiums, cost

sharing, and the out-o-pocket cost o care.

Health care reorm consistently polled as

one o the top three issues or voters in 2008,

and, i the issue can be linked to economic

worries, its relevance could increase even

more.5 As states ace tightly constrained

budgets, they may need to respond to

low- and middle-income voters who nd

themselves swamped by health care bills and

worried about loss o coverage.

The national election attested to voters

growing concerns with the economy and

especially about the cost o health care.

Wage growth has ailed to keep pace with

increases in out-o-pocket health care costs.6

In spring 2008, a Kaiser Health tracking poll

ound that more people reported diculty

in paying or health care than paying or

ood or housing. As the new president

and Congress respond to calls or relie by

enacting a stimulus package, the poll data

provide an important reminder that many

Americans are seeking relie rom a range o

economic burdens.7


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emp off rs l off i 2008

f lg dci17

n i 2008, 63 p p p, 60 p p w 2007. t w 69 p 2000.

n ep-p . n (99p) w 200 p , 49 p w p .

n w p . w wk w w pp w-w wk( w 35p wk $22,000) k .

ris i Pubic Pgm em

n m pp w m 2007. t p pp m 13.2 p 12.9 p 2006.18

n

m pp p. t pp p 27 p 2006 27.8 p 2007.

Hh Isuc Pmiums G Up, M

tw High ducib Hh Ps1

n s 1999, p 119 p. t p w(34 p), f (29 p) p .

n h p 2008, 5 p 200

t p 2008 w $4,704 p

w $12,680.

n Wk w p ps wk p 15 p wkp 26 p p. t w w p, w - wk p wk p 25 p p.

n W pw , p p w w kp p

t p wk p ( $1,000 ) jp12 p 2007 18 p 200

a w 3 199 p, 16 p35 p.

numb Pc f Uisu

dcss15

n t 2007 45.7 47 2006.

t p 15.8 p 15.3 p.

n t 1994 - pp .

n dp , p pp p 67.9 p 2006 67.5 p 2007.

n r

. o , mw n w (11.4p ), w W(16.9 p), s (18.4 p).s w w hw (8.3 p), m(8.3 p), m (8.5 p),w w tx (24.4p), nw mx (21.9 p), (20.5 p).

n n

: K, Kk,l, nk, nw J, nwmx, nw yk, n c, tx.

n w : c,i, m, W v, W, d c. m 22 p .16

UnInSUREd In amERICa:THE FACTS

$4,704

$12,680

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000

Single

Family

Worker Contrib

Firm Contribut

$3,354

$3,983$721

$9,325

Figure 1 averge aul Fir Worker Cotributio to Preius Totl Preius for Covere Workersfor Sigle Fily Coverge, all Pls, 2008

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benets, 2008


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STATEOF THE

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Increasingly, these high-deductible

plans are being coupled with a healthsavings account, where an employee(and employer, if so inclined) can setaside a portion of their income on apretax basis and then use that to cover

In 2008, 13percent of employers offered plans witha savings option. While this does notdiffer statistically from the 10 percent that

than the 7 percent of employers thatoffered them in 2006.

Who are the Non-Elderly Uninsured?20

Although the number and percentage ofuninsured dropped in 2007, there continues

to be marked economic and social disparity

within the non-elderly uninsured population.

A majority of the uninsured are members of

families with a family head who works during

the year (almost 83 percent). Only 17.4

percent of the uninsured are members of the

families where the family head did not work

at any point during the year.

Those with low incomes represent a

disproportionate share of the uninsured.

Nearly one-third (32.5 percent) of the

uninsured in 2007 live in families with

incomes below $20,000. More than 35

percent of individuals in families making less

than $10,000 were uninsured as compared

with 6.6 percent of individuals in families with

annual incomes of $75,000 or more.

Uninsurance varies considerably by industry.

Those employed in blue-collar jobs such

share of the uninsured (36.5 percent).

In 2007, minority groups were more likely to be

uninsured than whites. While 12.7 percent of

whites were uninsured in 2007, 33.5 percent of

Hispanics, 20.9 percent of African America

and 17.7 percent of other ethinicities (primaAsians) were uninsured.

Country of birth also impacts insurance

coverage with 33.2 percent of foreign-bo

individuals being uninsured as opposed

to only 12.7 percent of native-born

individuals.21

Young adults continue to have the highes

uninsured rates; those aged 18-24 and

25-34 have uninsured rates at 28.1 perc

and 25.7 percent, respectively.22

Employer-Sponsored 61%

Private Non-Group 5%

Uninsured 17%

37%

29%

17%

8%

10%

400% FPL

300 399% FPL

200 299% FPL

100 199% FPL

Medicaid/Other Public 16%

Source: The Uninsured: A Primer,

Kaiser Commission on Medicaid

and the Uninsured, October 2008.

Figure 2 The Nonelderly Uninsured As a Share of the Population and by Poverty Levels, 2007


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only a portion o the states budgetgap, necessitating urther spending

reductions.26

MedICaId enrollMent,

SPendInG Set to SWell

In FY 2008, state Medicaid rolls

increased by 2.1 percent as states began

experiencing the eects o a weakening

economy. With a deteriorating economy,

unemployment rises and people ace

the loss o both employment-based

coverage and wages, making them more

likely to be eligible or public programs

such as Medicaid. As a result, Medicaid

enrollment is expected to jump even

higher (by 3.6 percent) in FY 2009.27

By law, most states must balance theirbudgets. When the economy sours, states

cannot run decits and must close budget

gaps by cutting expenditures, raising tax

revenues, or drawing rom rainy day unds

or reserves. For many states, the worst

nancial crisis in recent times will mean

layos and program cuts. Virginia is one

such example. Faced with a $2.5 billion

shortall or its two-year budget, Virginia is

laying o 570 state workers, leaving vacant

an additional 800 unlled positions, and

instituting a hiring reeze. The state also

plans to close several older correctional

acilities and will reduce the budgets o

higher education institutions by 5 or 7

percent. These cuts, however, address

Even beore the nancial crisis, many stateswere acing budget decits that orced

them to raise taxes, cut spending, or both.

In act, in early 2008, 29 states had already

conronted budget shortalls totaling $48

billion as they prepared their scal year

(FY) 2009 budgets. which typical begin on

July 1.23 By December 2008, new mid-year

budget gaps emerged, leading to budget

gaps in at least 41 states and the District

o Columbia, amounting to an estimated

$43 billion shortall totaling 8.8 percent

o state budgets.24 The projected gaps or

scal year 2010 total 16.8 percent, based on

states that are already reporting projections.

Forecasters predict that these budget gaps

will only worsen as states struggle with

declining revenues.25

NH 11

MA 7.

RI 9.7

CT 9.4

NJ 15

DE 11

MD 13

DC 10

VT

10.7

ME

9.1

NY

13.6

PA

9.8

WV

13.8

OH

10.9

VA

14.1

NC

17.2

KY

14.6

TN

14.0

IN

11.6

MI

11.0

SC

16.2

GA

17.6

AL

13.6

WA

11.6

OR

17.3

CA

18.5

NV

18.4

ID

14.6

MT

16.4

WY

14.1

UT

15.1CO

16.8

AZ

19.6 NM

22.7

ND

11.1

SD

11.0

NE

12.8

KS

12.5

OK

18.4

TX

24.8

MN

8.8

WI

8.5

IA

9.9

MO

12.9

IL

13.7

AR

17.5

LA

20.2

MS

19.8

AK

17.4

HI

8.2

FL

20.7

more than 1

14% to 17%

11% to 13.9

less than 11

Figure 3 Percetge of People Without Helth Isurce by Stte, 2006-2007 averge

Source: DeNavas-Walt, Carmen, Bernadette D. Proctor, and Jessica Smith, U.S. Census Bureau, Current Population Reports, P60-235, Income, Poverty,and Health Insurance Coverage in the United States: 2007. U.S. Government Printing Ofce, Washington, DC, 2008.


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Stateof the

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59.3 percent in 2007, down rom 59.7percent in 2006.32 The decline continue

trend o decreasing employer-sponsore

coverage that began in 2000. Furtherm

the percentage o employers oering

health insurance coverage has allen ro

69 percent in 2000 to 63 percent today,

a worrisome drop given that employer

sponsored coverage is the primary sour

o coverage or most people under age

And, or small employers, the trend is malarming; whereas 57 percent o rms w

three to nine workers oered coverage

2000, the gure has dropped to less tha

hal today (49 percent).34

Health insurance premiums continued

their upward march in 2008, increasing b

percent rom 2007 average premiums. Th

uninsured and would increase Medicaid andState Childrens Health Insurance Program

(SCHIP) enrollment by 1 million adults

and children, resulting in an additional

$1.4 billion in state Medicaid spending.30

Given that the unemployment rate increased

by 1.5 percentage points rom June 2007

to August 2008, analysts expect to see an

increase in Medicaid and SCHIP coverage o

approximately 700,000 adults and 900,000

children, barring cuts in eligibility.31

eMPloyer CoveraGe

ContInUeS ItS SloW eroSIon

Although there were some signs o a brie

stability between 2006 and 2007, the number

o people covered by employer-sponsored

insurance continued to decline, alling to

Total Medicaid spending increased by5.3 percent in FY 2008; or FY 2009, state

legislatures adopted Medicaid appropriations

that are 5.8 percent higher than Medicaid

expenditures in FY 2008.28 Increases

in Medicaid enrollment and spending

combined with budget constraints raise the

strong possibility o Medicaid program cuts

as states try to manage growth in their public

programs with ewer resources. In act, two-

thirds o Medicaid directors project Medicaid

budget shortalls, which could translate into

decreased eligibility or provider payments or

both.29

A recent analysis ound that a 1 percentage

point uptick in the nations unemployment

rate would result in 1.1 million additional

NH 8.0

MA 11.5

RI 24.5

CT 3.2

NJ 14.2

DE 10.1

MD 10.0

DC 3.6

VT

10.3

ME

8.6

NY

11.7

PA

6.0

WV

OH

6.8

VA

13.8

NC

3.7

KY

7.8

TN

12.0

IN

5.8

MI

2.7

SC

11.7

GA

12.9

AL

15.0

WA

3.4

OR

2.1

CA

35.5

NV

19.6

ID

4.4

MT

WY

UT

10.4CO

7.7

AZ

32.8 NM

7.5

ND

SD

2.2

NE

KS

2.9

OK

1.7

TX

MN

7.9

WI

7.1

IA

7.0

MO

3.8

IL

13.4

AR

2.4

LA

3.7

MS

2.2

AK

HI

4.0

FL

22.2

more than 24%

16% to 24%

8% to 15.9%

less than 8%

No Budget Gap

Figure 4 Size of FY 2009 Buget Gps: Totl Gp as Percet of FY 2009 Geerl Fu

Source: Center on Budget and Policy Priorities, State Budget Troubles Worsen. Table 3. http://www.cbpp.org/9-8-08sfp.htmNote: These numbers are based on the estimated revenue shortfall before the FY 2009 budget was adopted, plus the mid-year gap for FY 2009.


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Stateof the

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$2,196

$2,471

$2,689

$3,083

$3,383

$3,695

$4,024

$4,242

$4,479

$4,704

$5,791

$6,438

$7,061

$8,003

$9,068

$9,950

$10,880

$11,480

$12,106

$12,680

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

on the current system o private and

public insurance. Some eatures o his

proposed plan resemble the Massachusetts

comprehensive reorm plan. He has

proposed that all employers, except small

employers, either oer health insurance

to their workers or contribute to the cost

o coverage. His campaign proposal called

or a National Health Insurance Exchange

that would allow individuals without

coverage to purchase a plan similar tothat oered to ederal workers. President

Obamas proposal also called or expanded

eligibility under Medicaid and SCHIP.39

impact on states. Following that recession,

unemployment hit a high o 6.3 percent,

a gure this recession surpassed in the

all o 2008. Without the $20 billion in

temporary ederal relie provided to states

in 2003, the impact o the 2001 recession

would have been even harsher. Even now,

orecasters suggest that a similar ederal

intervention may be neededsooner

rather than later.38

Health care reorm was a major issue

in the national election. President

Obama campaigned on the promise o

a universal coverage plan that builds

To what extent the dramatically altered

economic outlook will aect the

Presidents health care reorm plans

remains to be seen. He has signaled his

intent to move quickly to repair the

economy, starting with an economic

stimulus package. At the same time, he

indicated that health care reorm tops h

agenda alongside clean energy, educatio

and tax relie or the middle class.

Ambitious health care reorm proposalmay wait until ater Congress addresses

a stimulus package, although increased

unding or SCHIP and other smaller

agenda items with bipartisan support m

see early action.40

Figure 6 averge aul Preius For Sigle Fily Coverge, 1999-2008

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benets, 1999-2008


14/64


State of the StateS

Because the new U.S. President, Barack Obama, campaigned on a

platform that prominently featured health reform, and is welcomed to

Washington by a Congress that has put health care near the top of its

agenda, interest in and energy around broad federal health reform is

gaining momentum. A sense of optimism by reform advocates has

remained, even in the face of the nations dismal economic situation.

If health reform does move forward, policymakers will need to nd

a balance between the role of states, who have traditionally led the

movement to reduce costs, epand access and improve quality, and

the federal government, which has provided the policy setting and

nancial foundation for such reforms.

state and national

health care reorm:a Cs f Fism


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Stateof the

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some states have moved orward and w

continue to try to expand or maintain

coverage rates, there are a large numbe

states that need signicant ederal supp

It is extremely dicult, i not impossib

to construct an eective and ecient

national health system one state at a tim

Importantly, as currently evidenced by varying levels o public program eligibi

investments in public health, and quali

measures, a state-by-state approach

without sucient national standards an

support leads to inequity in the overall

system.43 Many states will not achieve

universal coverage without a national

ramework and ederal unding. This is

key argument or some ederal reorms

Dierences in the way that state and e

governments are able to address budgeissues also suggest advantages to edera

leadership on reorm:

n Counter-cyclical Budgeting: The ed

government is able to maintain spen

levels during times o recession beca

they are not constitutionally mandat

to balance their budget every year.

Almost all states have annual or bien

budgets that must balance, which m

coverage expansions more challengior states as they may not be able to

aord to maintain benet and eligib

levels during economic downturns.

n Multi-year Budgets: Because the ed

government does multi-year budget

they have the capacity to score savin

in the Medicare and Medicaid progr

that will be realized in uture years.

This makes it easier or ederal

policymakers to nd resources or

program expansions rom cost-savin

approaches because the savings rom

these programs are oten realized sev

years in the uture.

States play a critical role in advancing

coverage expansions and other health

reorms by testing new ideas, both politically

and practically. Because health care delivery

is largely local, states are closer to the action

when it comes to implementing some o the

delivery and payment systems changes that

are needed to truly transorm the health care

system. This proximity and fexibilityin system redesign is a key strength or states.

In addition, states have rst-hand knowledge

o their local landscape and relationships

with the stakeholders that will be necessary

to change the system. Much o the work

related to implementing insurance reorms,

delivery system redesign, and public

health strategies traditionally have been

led by states.

On the other hand, there are numerouslimitations or states in these areas as well,

including some structural and nancial

constraints that keep certain potential levers

out o their reach. In these areas, the ederal

government oers key advantages.

FInanCInG, ContInUIty, and

otHer Federal StrenGtHS

While many states are attempting to move

ahead with reorm, they are not all equal

in their capacity to address these large and

complex problems. Signicant variation

exists across states in terms o resources,

capacity, demographics, number o

uninsured, insurance market structures,

public programs, state unds available to

invest in reorm, employment base, political

priorities, and a host o other relevant actors

that must be considered i health reorm is

to succeed. For example, state uninsured

rates vary rom just under 8 percent to

almost 25 percent and, generally, where

those rates are the highest, the states have

the least resources in terms o a tax base or

population income levels to support unding

or needed coverage expansions. So while

Within our structure o ederalism and

given the complexity o the health care

system, it is imperative to build upon

the respective strengths o both state and

ederal governance to ashion health reorm

solutions with the greatest potential or

success.41 This section looks at the strengths

o states and the ederal government, and

outlines a potential ramework or mergingthe two, inormed by a growing body o

research based on state reorm eorts.

IMPleMentatIon, SySteM

redeSIGn, and otHer State

StrenGtHS

In recent years, a lack o national consensus

about how to address the growing number o

uninsured people has prompted work at the

state level to enact incremental, substantial,

and comprehensive coverage reorms as

well as other initiatives that address cost

and quality. These states could not wait;

due to the immediacy o constituent

concernso individuals, employers,

and other stakeholders in the health care

systemstate governors and legislatures

elt compelled to act. Results were mixed.

States have experienced both important

successes and enlightening ailures that can

help inorm a national plan and help rame

the best structure or any new ederal-state

partnership.


16/64


Several clear ederal changes would allo

states to require ERISA-protected healt

care purchasers to participate in payme

reorm collaboratives, quality improvem

eorts, Medicaid premium assistance

programs, and all-payer databases. Stat

could be allowed to collect enrollment

and benet inormation rom ERISA

plans. An explicit allowance could permstates to apply premium taxes to emplo

plans. Due to ederal preemption, state

are not able to dene the scope o bene

provided by ERISA plans; the ederal

government thereore could also set a

national foor on benets. Finally, whil

consumer protections or those covered

by ERISA plans are currently provided

at the ederal level, states have more

inrastructure and experience in these

areas. Oversight responsibility, usingederal standards, could be shited to th

state level.

Public Progrsmeici the

Stte Chilres Helth Isurce

Progr (SCHIP): Medicaid and SCH

are currently based on a ederal-state

partnership. Overall, the Medicaid prog

provides more than 59 million America

with health coverage and long-term car

services.47 The ederal government provbroad guidelines within which each sta

must operate and the states are respons

or implementing the programs on the

ground. These programs allow, to a cer

extent, variation in eligibility levels, ben

structures, payment parameters, and

breadth o optional populations covere

In recent years, this partnership has bee

strained. The allowance or fexibility

through the waiver process has been

granted by Congress in several laws

governing these programs. However,

many states believe that ederal regulat

oversight has become too infexible and

administratively cumbersome, and tha

States are limited in their ability to engage

with employers regarding the provision o

health insurance. States can regulate insurers

and the business o insurance but ERISA

is oten an issue when state law appears to

aect whether and how employers oer

worker health coverage. The ederal law

preempts state laws that relate to private

sector employer-sponsored benet plans. Ineect, health benets oered by sel-unded

employers have been exempted rom any

state regulatory oversight. This exemption

limits the scope o cost-containment, quality

improvement, and coverage expansion

eorts o states.

States recognize the need or large multi-state

employers to have national standards within

which they can operate more eciently.

However, states who seek to innovate,especially through the use o public-private

partnerships, are hampered by their lack

o oversight and ability to engage. Tension

between these two legitimate concerns is

inevitable.

Federal policy steps could be taken to address

employer concerns while still allowing or

state innovation. For example, two states

have recently imposed assessments on

employers to help und health care accessinitiatives but, because the question about

whether they are subject to ederal ERISA

preemption has only been tested through

the judicial system, other states have been

reluctant to even consider such a nancing

mechanism.46 While Massachusetts managed

to enact a very limited employer mandate

that requires certain employers to oer

coverage to employees or pay into a state

und to support public health programs,

states have mostly elt the need to steer clear

o requirements on employers to contribute

to the nancing o coverage expansions. The

ederal government could provide clarity

on permissible state actions and/or allow

sae harbors.

n Revenue Raising Capacity:In addition,

the ederal government has the capacity

to raise revenues in a broader ashion. In

a hypothetical example, i $100 billion

was needed to cover all o the uninsured

nationally, each state would have to

increase their taxes by more than 13

percent. The ederal government, on its tax

base, would only need to increase taxes byabout 4 percent to raise the same unds. 44

This example demonstrates the important

dierence in the scope o revenue-raising

capacity at the two levels o government.

a Federal-State PartnerSHIP

Given the respective strengths and challenges

o either an all state or all ederal approach

to health reorm, a strong ederal-state

partnership that builds upon the best o

both could be a useul approach. In this

scenario, the ederal government would

use its leverage as the largest purchaser in

the country to set minimum standards and

guidelines upon which states can build; it

would also provide the necessary resources

to the states to acilitate reorm. States would

then be responsible or implementing the

programmatic aspects o health reorm

within an overall ramework established

at the national level. Key eatures o this

approach are outlined below.

Regultig Isurce mrkets.States

have signicant and lengthy experience with

insurance market oversight and consumer

protection.45 However, while they have the

advantage o being more directly accountable

to consumers and providers, their purview

over some employers is limited by ederal

law (e.g., Employment Retirement Income

Security Act o 1974 [ERISA]). In addition,

many o their residents are covered by ederal

insurance programs such as Medicare,

the Veterans Health Administration, the

Indian Health Services, and the Federal

Employee Health Benet Plan (FEHBP),

and are thereore also beyond the reach o

state regulation.


17/64

Stateof the

State

In addition, in a directive dated August

17, 2007, the Centers or Medicare &

Medicaid Services (CMS) announced t

states would be barred rom extending

SCHIP coverage to children in amilies

with incomes above 250 percent o the

Federal Poverty Level (FPL) unless the

state can demonstrate that 95 percent o

their residents who are eligible under 2percent FPL are enrolled in the program

That directive impacted 23 states10 t

had already increased eligibility beyond

percent FPL and 14 others had propose

doing so. (Washington State alls into b

categories.)57 This directive has not bee

modied nor rescinded.

Many Medicaid and SCHIP observers

expressed rustration that the ederal

government had not sought state inputor greater understanding o the potenti

impact o these policy changes, which

severely reduce the fexibility that states

have in their public programs and seve

impact their budgets, beore moving

orward. CMSs statutory authority to

even issue the August 17 directive has a

been called into question.58 I the eder

government wants to continue to supp

innovation and coverage expansions by

states, it will need to rescind the Augusdirective and pursue a more collaborat

regulatory process.

Syste Reesig/Qulity Iprove

States have increasingly recognized tha

coverage expansions must be accompan

by value-enhancing strategies that

contain costs and improve quality. The

implementation o delivery system

redesign and payment reorms, as well

the integration o public health strateg

into other health care reorms, happen

primarily at the state and local level. St

are able to convene stakeholders and he

provide a ramework or collaboration

move these eorts orward. State health

care system redesign eorts can provid

capita than other Medicaid beneciaries,

both state and ederal governments need

to be concerned about the impact o these

individuals on both public programs.

The ederal government could support

eorts to integrate care to overcome

administrative and operational hurdles

and nancial misalignments between the

Medicare and Medicaid programs througha single delivery system.51

While both states and the ederal

government share the goal o maximizing

public program enrollment and preventing

ineligible individuals rom taking advantage

o benets to which they are not entitled,

the ederal government added citizenship

verication guidelines to the program that

have proven to be severely burdensome to

states. Many state ocials report that thecost-saving benet o trying to identiy those

individuals who are not eligible or programs

is ar outweighed by the administrative costs

o implementing and maintaining such a

verication eort.52 In addition, many states

have reported that the requirements have

the unintended consequence o denying

benets to those who otherwise would be

eligible but have no proo o citizenship. The

ederal government should consider allowing

a waiver rom the citizenship requirementi the state can demonstrate it has eective

verication standards in place.53

Changes to ederal Medicaid regulations

designed to control the rate o growth in

these programs have also caused concern

or a number o states. States view these

proposals as reversing long-standing

Medicaid policy. The regulations, most

o which are currently under a one-year

moratorium, also severely limit state eorts

to use their public programs as a building

block or coverage expansions.54 A state

survey noted that a vast majority o states

indicated that the regulations would have

a real and signicant impact on states and

beneciaries.55

proposed ederal changes to the program

have been taken unilaterally with little or no

consultation with states nor with any regard

to the impacts those changes will have to the

program on the ground.48 National reorm

should address these tensions, particularly

with regard to waivers, dual eligibles,

citizenship requirements and other Medicaid

policy changes, and SCHIP limitations.

While there are currently processes or

approving State Plan Amendments and

also or granting waivers that, ostensibly,

allow or state fexibility, those processes are

now viewed as being too time-consuming

(oten years), adversarial, and capricious.

Waiver parameters that had been granted

to some states are denied to others, leaving

states with no guidance as to what may be

acceptable. The waiver process needs to bemore timely and collaborative. States are

currently at the oreront o experimenting

with payment reorms to contain costs and

improve the delivery system; they need a

better ramework and an expedited approval

process or payment reorm demonstrations

that allow them to experiment and move

rom a ee-or-service system that incents

quantity and disregards quality to one

that pays or value by rewarding quality

improvement.

Another substantial change to the parameters

o the ederal-state program that should be

considered is related to the dual eligibles

the almost 7.5 million individuals who

receive both Medicare and Medicaid benets.

Currently, or dual eligibles, Medicaid pays

Medicare premiums and cost sharing and

clinical benets such as long-term care that

Medicare does not cover.49 Dual eligibles

represent more than 40 percent o all

Medicaid spending and almost a quarter

o Medicare spending.50 Some states have

argued that all health care or the duals

should be the responsibility o the ederal

government. Because dual eligibles have

substantial medical needs and cost more per


18/64


I it can be assumed that national reorm

will occur in the near uture and it will

have a ederal-state partnership as its

oundation, it will be critical to recogniz

that a national strategy will not lead to

uniormity overnight. While working to

equity and less unwarranted variation in

the cost and quality o care across states

critical, equity should not necessarily beequated with uniormity in the way that

programs are implemented across all sta

Understanding the diversity across the

country means that any uniorm nation

strategies, especially those targeting the

uninsured, will have varying impacts an

not guarantee uniorm national outcom

One major area where extreme variatio

exists is in insurance market rating

requirements; in essence, there are 50dierent health insurance markets, so

it will be important to understand how

a national plan will aect each o those

markets. As another example, ocusing

the variation in public program eligibil

levels, the eects o a ederal policy to a

all adults up to 133 percent FPL into th

Medicaid program will vary across stat

depending on previous eorts to expan

coverage to adults. In addition, many

o the states that have not enacted prioexpansions may not have the nancial

resources to provide the required state

match under such a requirement.

Three major possible solutions could

address this variation in impacts across

states; the ederal government could: 1)

make no attempt to address the variatio

impact and let each state end or itsel

provide variable assistance, both nanc

and technical, to the states based on eac

states need; or 3) recognize that it may

need to allow states to comply with the

ederal guidelines in a sequenced way o

o uniorm interoperability standardsthat

separate data rom sotware applicationsso

that providers and health systems that

purchase electronic medical record systems

and other HIT can be assured that those

systems will be able to exchange key medical

inormation. While states are moving ahead

in this area in a somewhat limited ashion,

it is dicult or them to proceed, in part,because many health care systems, hospitals

and employers cross state lines and they do

not want to invest in inormation systems

that will not operate across those borders

and across systems. States recognize that

it does not make sense or 50 states to set

50 dierent standards, so they are waiting

or ederal regulators to set the needed

benchmarks so that investment in HIT can

move orward.

There is a dearth o ederal standards and

guidelines in the area o quality metrics. To

reduce duplication o eort and capitalize

on eorts underway, most states are using

quality measures that have been approved

by the National Quality Forum or national

accreditation organizations such as the

National Committee on Quality Assurance

and the Joint Commission. However,

variation in quality and eciency across the

country remains60 and a national strategyand national benchmarks coupled with the

necessary resources are needed to reduce this

variation and the unacceptable amount o

poor quality.

State varIatIon In tHe

Context oF Federal reForM

While there may be broad agreement among

the many stakeholders in the health care

system and across political parties about the

overall objectives or health care reorm

expand access, improve quality, and contain

costs, there is substantial disagreement about

how to achieve these goals.

lessons about how to take on this work and

how to overcome challenges. In addition,

most o the necessary health inormation

technology (HIT) inrastructure needed to

support these redesign eorts must be built

on the groundstates have been playing an

extensive role in this area as well.

While states have been moving ahead onthese issues, the ederal government has a

number o levers that allow it to have, in a

certain way, substantially more impact on

the health care system than any individual

state. By leveraging and aligning the

purchasing power o the ederal programs

o Medicare, Medicaid, the Veterans Health

Administration, the Indian Health Services

as well as the FEHBP, payment reorms to

encourage better processes and improved

outcomes could be accelerated.

Federal programs could provide the

leadership to emphasize evidence-based

care and to use their claims data to establish

better baselines; set goals or improving

population outcomes; improve risk-

adjustment methodologies; and reward

results.59 The ederal government could also

promote the use o comparative eectiveness

research in benet design, value-based

purchasing, and or determining best clinicalpractices. The ederal government could

consider including state programs (e.g.,

Medicaid, public employees) in any Medicare

demonstration projects on payment reorm

and delivery system redesign. However,

because states can move more quickly, the

ederal government could also assist states by

developing a new process to allow Medicare

to participate in state-based all-payer

databases and other state pilots.

Federal leadership and support to encourage

the rapid adoption o HIT and the use o

requisite interoperability standards are

critical. The health care sector is in dire need


19/64

Stateof the

State

Despite the need or collaboration betwee

ederal and state governments, many state

ocials ear that some ederal reorms co

have a negative impact on states. This is b

on the experience o the CMS August 17

directive, the citizenship requirements un

DRA, the clawback provisions under thMedicare Part D legislation64 and infexib

burdensome Medicaid regulations. The

ederal government has oten made chang

to ederal-state programs without approp

consultation and communication with

aected states. As a result, states have bee

orced to shoulder additional nancial bu

in the context o ambiguous or confictin

directives rom the ederal government.

While states may be skeptical about thepossibility o national reorm and anxio

about the parameters o such reorm,

inaction is not an option. A collaborat

ederal-state partnership that builds on

the respective strengths o each oers r

potential and should be considered.

ConClUSIon: BUIldInG a

StronG State-Federal

PartnerSHIP

Many o the ideas related to essential

elements o a ederal-state partnership

are not newduring the national reorm

discussions in the early 1990s, the Reorming

States Group provided recommendations

that still hold true today, including the

establishment by the ederal government

o a timetable or action, standard core

benets, and standards or access to

and quality o care, cost containment,

administrative eciency, and portability o

coverage between states, [and that] the

ederal government should grant the states

fexibility to implement reorms that meet

ederal requirements and that equitably and

eciently address access, coverage, and cost

containment...63

time.62 A combination o variable assistance

and sequencing could be the best method

to help states comply over time. Any ederal

nancial assistance should also aim to

not penalize those states that have been

able to expand coverage recently. While

maintenance o eort is almost alwaysencouraged when new programs are enacted,

those states at the oreront should benet

in some way rom any new ederal unding

that may accompany requirements to

increase eligibility.

Arguably, states will always want more

unding rom the ederal government

and also maximum fexibility; a huge

open question is what are the minimum

requirements that should be expected romthe states in exchange or this unding and

fexibility? The variability between states

also impacts this tension between the need

or both leadership and fexibility rom the

ederal government.


20/64


State of the StateS

As national reform is discussed during the upcom-

ing year, current state reform efforts can provide

some guidance about the process and policies

of reform. Other states can also learn from the

efforts of those who have been pioneers in thearea of health reform.

lessons learned rom state

reorm eorts


21/64

Stateof the

State

n Find supporters wherever possible

I it is dicult to get important

stakeholder groups to support prop

reorms, it may be possible to convi

key leaders who represent those

groups. For example, i support rom

the statewide business organization

dicult to obtain, it may be possibl

nd support in a local chapter or a kbusiness leader.

n Get supporters on the record.

Initial support or reorm can ade

through a long negotiating process.

In addition, key allies may not deliv

the needed political and nancial

assistance to gather support or reo

Gathering supporters early and gett

commitments or the ways they pla

help is critical.

n Keep your eyes on the prize

Part I. While legislators or groups

may have signicant concerns abou

specic pieces o reorm legislation

it is important to not lose sight o t

bigger picture in order to maintain

strong overall support or reorm.

Reorm eorts can easily ail in the

ace o strong opposition i support

lackluster or begins to wane.

n Keep your eyes on the prize

Part 2. The perect should not be th

enemy o the good. There are states

which a moderate, bipartisan reorm

proposal was unable to pass due to

opposition rom the right and the le

Particularly or those who strongly

support universal coverage, it may b

worth supporting a plan that is not

preerred option in order to achieve

shared goal o expanding coverage.

While having an open and inclusive

consensus-building process has been

important in several states, it is possibl

overstate its role and importance in hea

CoMProMISe and ConSenSUS

BUIldInG

As health reormers seek to learn rom the

experience o states, it quickly becomes

apparent that there are undamental dierences

in the political possibilities in some states

compared to others. While there is growing

consensus around the policy o coverage

expansion, there are still huge hurdles tosurmount in working out the politics o reorm,

both in Statehouses and among the interested

stakeholder groups. Specic reorms may be

stymied or suddenly become possible based

on the personalities and infuence o particular

groups in a given state. With that caveat, there

are several lessons learned related to building

political support among stakeholders that can

be observed across states.

n Leadership is essential. Leadership

in both the executive and legislative

branches is critical or reorms to be

enacted. I there is no strong political

leadership behind a reorm eort, it

will likely ounder as it encounters the

inevitable vested interests that would

preer the status quo.

n Be inclusive. An inclusive consensus-

building process is transparent and gives

stakeholders real input. While it may notbe possible to gain the support o all the

interested groups, a process that gives

the relevant groups real infuence and

a seat at the table can prove helpul or

gathering needed support.

n Build relationships early. It is important

to start building trust and relationships

with stakeholders early. Once a reorm

proposal begins to move, it may move

quickly and there may not be time

to build the alliances that could helpsupport reorm. Early relationship

building also contributes to a sense that

reorm is inevitable and participation is

better than exclusion.

CoMPreHenSIve reForM IS

PoSSIBle: MaSSaCHUSettS

SetS tHe Standard WItH a

PUBlIC-PrIvate aPProaCH

When Massachusetts passed its health

reorms in 2006, the policy environment

changed in a undamental way:

Massachusetts demonstrated not only

that comprehensive reorm is possible but

that it can be accomplished in a bipartisan

manner. Throughout 2008 policymakers

watched uninsurance rates all as various

aspects o the reorm became eective

(see page 30 or a ull description o the

progress o Massachusetts health reorms).

Massachusetts succeeded by using a mixed

public-private approach, representing a

compromise between those who support a

single payer plan and those who advocate

or an entirely private model. This general

strategy was resoundingly accepted and

incorporated by all the states that developed

or proposed serious plans or reorm,

including Caliornia, Colorado, Maine,

New Jersey, Oregon, Pennsylvania, Vermont,

and others. All aimed or practical solutions

that build on the current system.


22/64


Redirect Money Currently in the Syste

Peter Orzag, when he was director o th

Congressional Budget Oce, stated tha

a variety o credible evidence suggests

that health care contains the largest

ineciencies in our economy. As much

$700 billion a year in health care servic

are delivered in the United States that d

not improve health outcomes.66 For threason, it would seem attractive to attem

to und coverage expansions by redirec

money in the current system. The prob

with this approach is that unding or

coverage expansions is needed immedi

while the savings garnered through del

system reorm can oten only be realize

the longer term. In addition, it is dicu

to quantiy these savings and then unn

them back into paying or coverage.

Maine attempted to und their coverag

subsidy through a Savings Oset Paym

(SOP), which was designed to capture

and redistribute savings in the health c

system resulting rom multiple reorm

initiatives under the Dirigo Health Reo

Act. These included limits on annual ca

investments and savings to providers r

reduced uncompensated care. While it

enacted with more than two-thirds sup

in 2003, in practice the SOP proved tobe politically controversialespecially

regarding the methodology by which c

savings are calculatedresulting in a

court challenge in 2007. Although Main

Supreme Court upheld the SOP, nearly

parties have agreed or some time that

new unding source was needed to ensu

the continued viability o the Dirigo

reorms.67

States that have pursued eorts aimed

at lowering the growth o health care

spending over time have had some succ

Minnesota Governor Tim Pawlenty set

goal in 2007 o reducing health care co

FInanCInG

Finding sucient and sustainable unding

or comprehensive reorm has been a

challenge or every state. The same will be

true or the ederal government. States have

taken several dierent approaches that may

be instructive.

Provider Taxes: A number o states havehad provider taxes in place or some time.

For example, 43 states have some kind o

provider tax, and 30 states taxed more than

one category o providers.65 A majority o

these taxes were used to increase provider

reimbursement levels, but a ew states

also used them to expand health coverage.

Minnesota, or example, established a tax

on health care providers in 1992 that has

proved to be a reliable source o unding or

their coverage eorts. This assessment onproviders is broad-based, as opposed to a

premium tax, in that it taxes everyone who

uses health care, including those who are

sel-insured. Funds collected through this

mechanism have risen with health

care infation, a key consideration as health

care infation has continuously outpaced

general infation.

During the Caliornia reorm eort, the

nal bill included a provider tax on hospital

services, but not on physician services.

Hospitals agreed to this assessment because

they ound thatin generalhospitals

would recoup the cost o the tax through

reductions in uncompensated care.

(Physicians, who are not required to serve

the uninsured in the same way that hospitals

are, would see uneven benets rom

expanded coverage based on the number o

uninsured patients they see.) In this way, a

hospital provider tax is a useul mechanism

or the state to recoup some o the savings

to the health system that will result rom

reorm. For more inormation on provider

taxes, see the Provider Tax box on page 34.

reorm. There are examples o reorm

proposals conceived by a ew key individuals

in leadership (Maryland 2007) and also o

ailed state eorts where signicant resources

were invested in promoting compromise

between stakeholder groups (New Mexico

2008). Comprehensive reorms have ailed

and succeeded or a variety o reasons.

Consensus-building is no magic bullet, butkey stakeholder opposition to proposed

legislation never helps either.

States that have established a consensus-

building process around comprehensive

health reorm have done so or several

reasons. These include:

n Government leaders are seeking input

and assistance putting a plan together. A

given governor or legislative leader maymake increased access to health coverage

a priority, but needs time and help

putting a nal plan together.

n A stakeholder process may be a way

to educate key interest groups and

government ocials on the issues related

to health reorm. Inormed leaders will

make better decisions than those without

much exposure to the issues.

n I a leader has made health coverage apriority but does not have the political

ability to pass reorm immediately, a

stakeholder process may be a way o

sustaining interest in the topic until the

political situation is more avorable.

n Implementation is notoriously dicult

and key stakeholders will be needed

during the implementation stage to

ensure that any reorm proposal is

ultimately successul. A collaborative

process builds support that will be

needed when the program inevitably

encounters obstacles later in the process.


23/64

Stateof the

State

purchase insurance i they can aord it

Businesses are assessed a ee i they do

not oer insurance to their employees.

Government also pays a portion. O co

Massachusetts is also an exception in th

the state already had signicant

unds available in the orm o their

uncompensated care pool.

A potential downside o this approach

is that shared responsibility also may

mean shared pain. It may result in mo

opponents to a reorm proposal than

advocates, particularly i the necessary

nancial resources being spread to vari

stakeholders are large. Caliornia and N

Mexico also used the language o shar

responsibility as a principle to guide th

ultimately unsuccessul eorts to und

comprehensive reorm.

SUStaIned eFFort

Many states are learning that health re

takes sustained eort over several years

This has played out in several ways:

n Massachusetts did not pass

comprehensive health reorm until

its third attempt. Both incremental

and ailed attempts at health reorm

can be seen as laying the groundwo

or uture eorts. Either can be a

good educational process or both

government and stakeholder group

They can also build momentum an

support or uture eorts.

n States like New Jersey, Iowa, and

Wisconsin are taking a phased

approach, also reerred to as sequen

reormor incremental reorms wi

a vision. Policymakers are developmulti-year plans, enacting building

block reorms and planning to pass

additional reorms in subsequent ye

most do have some disproportionate

share hospital (DSH) unding that can

be redirected into coverage expansion. In

Caliornias plan, they sought to recoup

unds that were being spent by counties

on indigent care. States and the ederal

government should use caution in tapping

saety net unding, however. Saety net

providersespecially those providing carein underserved areasmay need transitional

unding as they make the shit rom caring

or those without insurance to the newly

insured. In addition, extra resources may

still be needed to maintain services or hard-

to-serve populations. Finally, no coverage

expansion is likely to reach everyone, so

consideration must be given to continuing to

provide health care or residual populations

who may remain uninsured.

Sin taxes: Finally, many states have used

tobacco taxes to und their coverage

expansions. This has proven to be a popular

unding source with state legislatures because

it promises to also achieve the public health

goal o reducing smoking, especially among

younger smokers. The concern about this

unding source is that revenues are likely to

decline over time while health care spending

is likely to grow. States have also considered

taxing soda, wine, and beer. Other unhealthyoodslike candy or snackscould be next.

But such taxes are not without their critics.

In both Oregon and Maine, these so-called

sin taxes ailed in public ballot initiatives

Oregon ailed to pass a tobacco tax to und

their childrens health program and Maines

beverage tax was repealed when put to a

public vote.

Shared Responsibility: The Massachusetts

reorm is the most notable example o a state

that explicitly aimed to have each group that

would benet rom the reorm contribute

to unding it. Individuals are required to

by 20 percent (rom projected spending

based on current rates o growth) by 2011.

This emphasis on cost containment can be

seen in Minnesotas 2008 health reorm law.

The law contains a provision that requires

the measurement and assessment o the

cost savings eectiveness o the reorms. I

certain cost containment targets are met,

the repayment o a transer o unds romMinnesotas provider tax und to its general

und is triggered.

The state is working toward that goal with

several initiatives:

n Administrative simplication, which

requires all payers and providers

to conduct routine administrative

transactions electronically by the end o

2009 and requires payers to use a single

statewide implementation guide or

claims interpretation;

n Requiring electronic prescribing or all

prescriptions by 2011 and electronic

health records (EHRs) by 2015 or all

providers;

n Standardized statewide quality

measurement o all providers and a

transparent ranking o state health care

providers based on cost and quality o

care, using a newly established all-payer

database;

n Transormation o the payment system

in the state through a statewide quality

incentive payment system and payment

or baskets o care; and

n Public health initiatives and unding to

reduce the disease burden in the state

over time, with a particular ocus on

those diseases linked to obesity and

tobacco use.

One source o current spending that is

being tapped by states is saety net spending.

While ew states have a large, well-unded

uncompensated care pool like Massachusetts,


24/64


the amount o uncompensated care

that health care providers must oe

The cost o these uninsured patients

currently is passed on to other healt

care purchasers. Thereore, a manda

would reduce cost shiting rom the

uninsured to the insured.

n System-ness. A mandate reduces t

current ragmentation o care, with

uninsured patients currently seekin

care rom emergency rooms and

other saety net providers. In theory

i everyone had insurance, they cou

maintain a continuous source o car

with consistent preventive and prim

care, which would improve their ov

health and reduce long-term costs t

overall system.

BeneFIt deSIGn and

aFFordaBIlIty

The Massachusetts Connector Board

was orced to grapple with both

aordability standards and benet desi

in the context o the Commonwealths

individual mandate. Massachusetts bas

their aordability standard on income,

premiums, age, and geographic locatio

They then set minimum creditable

coverage standards to ensure thatindividuals have adequate coverage.69

Many advocates have argued that an

aordability standard should include

out-o-pocket costs like deductibles,

coinsurance levels, and co-payments.

There is considerable debate about the

appropriate levels or the cost o these

variables but, in general, there is agreem

that levels o both premium and out-o

pocket costs should be related to incom

and the ability to aord those costs.

States have grappled with benet desig

their Medicaid and SCHIP programs a

also as they have regulated their private

insurance markets. States have had to

will create this sense o urgency among state

and ederal leaders. In any case, states have

learned that it is dicult to build and sustain

support among aected stakeholders without

a sense o urgency or inevitability, because

there are so many who are heavily invested in

the status quo.

IndIvIdUal MandateThe individual mandate included in the

Massachusetts reorm has generated signicant

interest nationally, yet the idea o making

insurance compulsory is a complex one. I

the aim is to achieve near-universal coverage,

state experience so ar has demonstrated that a

voluntary system is not sucient. Nevertheless,

an individual requirement to buy insurance

raises serious political, administrative, and

policy questions.

From a policy perspective, those pursuing an

individual mandate must consider: a) how

to make the policy aordable to those who

are being required to buy it; b) the richness

o the package o benets that people are

required to purchase; and c) how to enorce

the requirement. In general, researchers have

ound that the eectiveness o a mandate

depends critically on the cost o compliance,

the penalties or noncompliance, and the

timely enorcement o compliance.68

While the policy challenges are signicant,

the benets are substantial. They include:

n Distribution of Risk. An individual

mandate requires everyone to be part o

the risk pool, which prevents people rom

waiting until they get sick to buy coverage.

It more broadly spreads risk and allows the

premiums o healthy people to support the

costs o those in need o medical services;

this is the very purpose o insurance. It also

enables the government to require insurers

to sell policies to everyone, regardless o

health risk.

n Fairness. Because a mandate brings

everyone into the system, it reduces

n Many stateslike Oregon, Colorado,

and New Mexicohave developed a

stakeholder process or putting together

a reorm proposal over time. In Oregon

this process was set in place by the

legislature, and was led by multiple

working groups. In New Mexico,

Governor Richardson led a three-year

process o gathering input and puttingtogether a plan.

Sustained eort is also needed once

legislation has passed. States have learned

that reorm proposals can succeed or ail in

the implementation process. Programs must

have simple, understandable rules. Outreach

and education are crucial. Government

ocials must continue to work with

stakeholder groups to ensure the programs

meet their needs and do not have negative

unintended consequences. Plus, strong

evaluation mechanisms must be put into

place at the outset. Evaluations allow policy

makers to adapt the program as needed as it

moves orward.

a SenSe oF UrGenCy CreateS

oPPortUnIty

One o the major reasons Massachusetts

was ultimately able to pass their healthreorms was the threat o losing signicant

ederal unds that wereat the timebeing

directed to care or the uninsured. The

ederal government told state ocials that

they needed to convert their Medicaid saety

net unds into an insurance model or risk

losing ederal nancing or care o those

individuals. Reorm was viewed as inevitable,

so all the relevant stakeholders had an

incentive to stay at the table to improve the

bill rather than try to deeat it.

Reormers in other states have wondered

how to create a similar sense o urgency

in their own states and whether reorm is

possible without a perceived crisis. It remains

an open question whether spiraling health

care costs and the current economic crisis


25/64

Stateof the

State

legislation in 2008 that will reorm payment

policies, promote health (medical) homes,

emphasize prevention and public health,

and lead to even greater cost and quality

transparency.70 O course, Minnesota has also

been a quiet leader in the area o expanding

coverage, boasting the lowest uninsurance

rate in the nation ater Massachusetts.

While many coverage advocates are

concerned that taking on cost containment,

systems improvement, and coverage

expansion at the same time will make

comprehensive reorm politically impossible,

the recent trend in states is to address these

issues together. This may be particularly

important in the near uture given the

economic downturn and the growing

concern o Americans related to rising health

care costs. Cost concerns are an impetus orreorm, but cost-cutting initiatives (especially

those with short-term savings) are likely to

raise opposition rom some provider groups.

Opposition rom aected stakeholders

increases when the amount o money i

the system is decreasing under certain c

containment strategies rather than whe

is increasing as it might under a covera

expansion program.71 (Note: For additi

inormation on cost containment and

quality improvement, see page 54.)

ConClUSIonWhile there are clear dierences in both

the policy and political environments a

the state and ederal levels, there is muc

that ederal leaders can learn rom state

as they turn their attention to national

health reorm. This section only begins

touch on all the state-level health reor

initiativesboth large and smallthat

be instructive or ederal policymakers.

upcoming sections on small group mar

reorms and quality and cost containmin particular include many additional

lessons learned rom state capitals ac

the nation.

address the question o benet design in

state-based programs that oer subsidies or

private or public/private plans oered in the

individual and small group markets. There is

signicant variation on the approach states

are taking. Some states are actively pursuing

policies that promote a high level o choice

between plans while other states have

ocused on ensuring that their residents arepurchasing meaningul coverage. A majority

o states have begun to look at ways to ensure

that insurance policies promote wellness by

removing barriers to preventive care and

chronic care management services.

tHe relatIonSHIP BetWeen

redUCInG CoStS, IMProvInG

QUalIty and exPandInG

CoveraGe

While Massachusetts has charted a path on

health coverage reorm, Minnesota has set

the standard on cost containment through

collaborative eorts by public and private

health care purchasers and by passing major


26/64


StAtE CovERAgE StRAtEgIES: Evolving w

Fr mre infrmain n sae sraeies, isi www.saecerae.ne/marix.

CliforiGovernor Schwarzenegger announced a comprehensive healthcare reform proposal, prompting signicant state and national debate. Special

session of the state legislature convened to address health care reform;revised proposal introduced. Assembly passes reform bill.

ColoroThe Blue Ribbon Commission for Health Care Reform approveda set of recommendations, which would require state residents to purchasehealth insurance or face a ta penalty, and would epand eligibility for thestates public programs.

CoecticutPassed reform bill increasing Medicaid reimbursements forphysicians and hospitals, epanding eligibility levels for pregnant womenand children, and requiring automatic enrollment of uninsured newborns inHUSKY, the states Medicaid and SCHIP program. New Authorities chargedwith developing recommendations for overall health care reform and forstrengthening the safety net.

HwiiPassed several bills that epand health coverage to infants andchildren, raise the reimbursement rate for Medicaid providers, and reestablishinsurance rate regulation provisions.

IllioisFollowing the collapse of agreement with the legislature, GovernorBlagojevich began implementing, through eecutive authority, an epansion ofthe states FamilyCare plan and other reforms.

IiReforms enacted that increase tobacco taes, providing fundinimmunization programs, Medicaid epansions, increased Medicaid reimbment rates, ta credits for employers that establish Section 125 plans, andtobacco prevention and cessation programs. The state received federal wapproval for the Healthy Indiana Plan.

KssPassed a bill that creates a phased-in premium assistance progthat provides subsidies to Kansans who make below 100 percent FPL forchasing private insurance actuarially equivalent to the state employee hea

plan. The Kansas Health Policy Authority presented health reform recommdations to the legislature.

mieGovernor Baldacci signed a bill allowing the DirigoChoice prograbe self-administered.

mrylGovernor OMalley signed into law a bill that will epand Medeligibility and offer subsidies to small businesses to offset the cost of provicoverage to employers.

msschusettsMassachusetts individual mandate to obtain healthinsurance took effect July 1. Minimum creditable coverage and affordabilitstandards were determined by the Connector board.

missouriPassed a recongured state Medicaid system called MO Hea

Net. The Legislature restored coverage and benets to some populations

whose services were eliminated two years ago.

2008

2007

2006

Massachuses and vermn demnsraed ha bi-parisan cmprmise and cmprehensie refrms are pssible a he sa

Seeral her saes appred r bean implemenin cerae iniiaies fcused n children and wrkin uninsured aduls

ArkansasCMS approved a waiver to allow Arkansas to receive federalMedicaid funds for a program that will provide low-cost health coverage tosmall businesses.

Idah Taking advantage of the state plan amendment process providedin the DRA, the state split the Medicaid and SCHIP population into threemajor benet plans.

Illinis All Kids program implemented. Many other states propose similarplans to cover all children.

Kansas Received federal approval for their reform proposal under the D

Kenucky Moved forward on their Medicaid redesign plans after receapproval for their state plan amendment under the DRA.

Maryland Legislature over-rode Governor Ehrlichs veto of the Fair ShaAct. Later in the year, the U.S. District court struck down the bill, declaringmeasure was pre-empted by ERISA. The state has appealed the decisio

Maine Blue Ribbon Commission on Dirigo Health established to evalucomponents of the state-subsidized coverage program forthe uninsured, particularly Dirigos funding mechanism.

Bh Massachuses and vermn bean implemenin heir new refrms. Califrnia wrked ward cmprehensie re

while a number of states continued developing proposals or rening models hoping to enact new reforms in 2008 and

alskGovernor Sarah Palin established the Alaska Health Care Commis-sion to provide recommendations for and enable the development of a state-wide plan to address the quality, accessibility, and availability of health care.

ColoroEnacted an SCHIP epansion to 225 percent FPL from 205percent FPL for Colorados Child Health Plan Plus (CHP+).

CoecticutReleased a draft report, authored by the HealthFirst Con-necticut Authority, that makes recommendations for epanding coverage andtransforming the delivery system.

FloriGovernor Charlie Crist signed into law Cover Florida and FloridaHealth Choices. Cover Florida calls for the state to negotiate with insurersto provide a low-cost insurance product for the uninsured. Florida HealthChoices epands the number and types of plans available to the uninsured.

IowEnacted

Documents

State of the States-2009