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Observation: Playing Ball With a Full Team: States and Federal Health Reform August 2009

Playing Ball With a Full Team: States and Federal Health Reform

By Courtney Burke
Director, New York State Health Policy Research Center

Courtney Burke

“Frenetic” was one word used to describe the pace with which congressional committees were making deals to move health reform forward before the August recess. Now that August is here, members of Congress will have time to reflect on what is really needed to reform health care. An important consideration for federal legislators is the role of states as members of the health reform team.



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Courtney Burke serves as director of the Rockefeller Institute's New York State Health Policy Research Center (HPRC). Her research focuses primarily on topics related to Medicaid and the Children’s Health Insurance Program, including long-term care issues.

States are already major players in health care. Not only do they serve as “laboratories” for experimenting with health reforms, they also oversee rate-setting policy and regulations in the private insurance market, fund nearly half of all costs for the public health insurance program Medicaid and play a major role in program administration. In addition, they provide public health programs, oversee the regulation of hospitals and licensing of health providers, and fund and administer other assistance programs that bolster private insurance coverage.

There is little doubt that federal health reforms will have significant fiscal, administrative and policy impacts on states — and that states will be responsible for implementing major components of federal reforms.

Some of the roles for states under federal health reform will probably include:

Financing. States are likely to help finance new obligations resulting from national health reforms. State officials expressed concerns at the National Governors Association meeting on July 18-19 about the potential for “costly new Medicaid obligations without the money to pay for them,” especially after federal stimulus funds in support of Medicaid expire in 2012. Because of differing versions of health reform legislation from congressional committees, it is unclear what the exact fiscal obligation of states will be. Yet some of the most recent congressional committee actions have increased states’ fiscal roles, not reduced them, despite states’ current struggles with revenues.

Perhaps the federal government will eventually pick up the tab for new mandates for minimum coverage levels in Medicaid. But the federal government may not provide additional financial assistance to states like Illinois and New York, which already cover persons at or above these potential federally mandated minimum income levels. Nonetheless, Medicaid enrollment would likely increase in these states as a result of health reforms.

Supplementing and Administering Subsidies. If national reforms include a requirement that all Americans have health insurance, the federal government may provide subsidies to individuals to purchase insurance. However, where insurance is more expensive, states may have to supplement federal subsidies so people can afford to purchase insurance.

States’ methods for subsidizing health insurance already vary widely. Some provide tax credits for purchase of insurance. Others provide premium subsidies. Still others, like New York, have reinsurance programs, which subsidize insurers’ losses from high-cost cases in order to lower and stabilize premium costs in the private insurance market. Determining which of these subsidy strategies to use may be another task for states.

States also will have to coordinate the administration of subsidies with eligibility for other existing public health insurance and subsidy programs — a complicated issue in states where there are myriad assistance programs with varying eligibility levels including separate programs to cover children, families, prescription drugs for elderly patients and low-income beneficiaries of Medicare, the government health program primarily for the elderly.

Implementing Insurance Exchanges. States also may be responsible for setting up insurance exchanges on a state or regional level. Insurance exchanges allow people “one-stop shopping” for health insurance, pool individual risks and connect people with the right type of insurance product or premium assistance. As the potential administrators of the exchanges, states may have to determine how insurance rates are to be set and whether minimum benefits must be included in all plans offered through it.

Wrapping Around a Federal Public Plan Option or Health Co-Op. Just as there are issues with coordinating new federal subsidies with other programs, the emergence of a new public option may require states to develop further “wrap-around” services not covered by the public plan option. If co-operatives, which are consumer-operated purchasing groups, are to be used, states also may have to help pay for their start-up costs.

Enforcing Personal Responsibility. If there is a requirement for health insurance, states are likely to be responsible for enforcement. This will require them to use the tax-filing system or other means to determine who is compliant and who is not, and then address noncompliance.

If enactment of a recent federal reform, such as the Medicare Part D drug benefit of 2003, is any indicator, implementation of new federal initiatives in health care will require assistance from states. In the case of Part D, states anticipated some of the potential problems with implementation and developed emergency backup plans to provide, among other things, essential drugs for individuals receiving them through the new Medicare program.

As the federal government continues to debate health reforms, it could use a strategy that best integrates the federal-state team. It should employ the expertise of these players, and use their skills and experience to understand and execute the right combination of reform options.


ABOUT THE ROCKEFELLER INSTITUTE OF GOVERNMENT

The Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York, conducts fiscal and programmatic research on American state and local governments. It works closely with federal, state, and local government agencies nationally and in New York, and draws on the State University’s rich intellectual resources and on networks of public policy academic experts throughout the country.