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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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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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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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6 State of the StateS
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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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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8 State of the StateS
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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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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0 State of the StateS
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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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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$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
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4 State of the StateS
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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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.
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6 State of the StateS
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.
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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
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8 State of the StateS
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
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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.
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0 State of the StateS
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
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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.
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2 State of the StateS
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.
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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,
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4 State of the StateS
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
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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
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6 State of the StateS
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