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PSN on October 6, 2009 - 10:19am
Federal Health Reform and the States
Tuesday, October 6, 2009
Federal Health Reform and the States
For decades, states have been on the front line of health care reform, adding 20 million people to state-run health care programs since 1991, even as federal reform stalled during those years. For families not covered by programs like Medicaid and SCHIP, states led the charge on innovation by creating new programs for coverage, preventing discrimination based on pre-existing conditions, and regulating other abuses by health insurers. As a recent Academy Health/State Coverage Initiatives report discusses, states play a fundamental role in the current, albeit disjointed, health care system, from regulating individual and small group insurance markets to administering and spending $130 billion of their own funds on Medicaid and SCHIP each year. As Congress debates fundamental reforms to these and other programs and to insurance markets, a large question for state leaders is how reform will impact both current state budgets and states' ability to provide greater coverage and consumer protections beyond any new floor established by federal reform.
This Dispatch will examine how federal reform will likely impact states, analyzing specific provisions and whether they are beneficial or detrimental to states' ability to partner with the federal government in pursuit of quality, affordable health care for all.
Progressive States Network is also announcing today that over 1000 state legislators across the country have signed letters to Congress and the Obama Administration asking for comprehensive health care reform; reform that both provides affordable, quality health care for all Americans, including a public health insurance option, and preserves a strong state-federal partnership that allows states to continue their role in extending coverage and consumer protections. And, on October 13th and 14th, a delegation of state elected leaders from across the country will converge in Washington, DC to impress upon their colleagues in the US Senate and House the urgent need for comprehensive health reform this year and for strengthening that partnership. (Click here for more on the visit and continue reading below for the message that the delegation will bring to DC.
Progressive States Network - State Legislators' Letter Supporting Health Care Reform
Why States Matter in the Federal Reform Debate
The stakes for states in the DC health care debate could not be higher as they anticipate new health care systems to administer, Medicaid programs to expand, and consumer protections to monitor.
Currently, the federal government sets parameters for Medicaid and SCHIP, but gives tremendous flexibility to states to set eligibility levels, benefit packages and provider reimbursement rates. And, the federal government has predominantly left the responsibility of regulating health insurance for small businesses and individuals to the states, resulting in great variation in consumer protections across the country. Looking forward, the major reform bills moving through Congress each prescribe a greater role for states in achieving the goal of quality, affordable health care for all by building on existing systems and the structure of the state-federal partnership. If progressives in Washington DC succeed, reform will require states to expand Medicaid, administer new insurance marketplaces called "Exchanges" or "Gateways", establish mechanisms to reimburse providers based on the quality of care they provide, and, in some cases, establish a public insurance option.
After months of committee hearings, presidential speeches, and town hall forums, Congressional leaders expect floor debates to commence in both houses as early as next week. Presently, House leaders are working to meld three versions of HR 3200, America's Affordable Health Choices Act, into a single bill for consideration by the entire chamber. In the Senate, two bills that bear many similarities, but notable differences, will be combined into a single version - a formidable task for leadership. While the Health, Education, Labor, and Pensions (HELP) Committee voted out its bill (Affordable Health Choices Act) in July, the Finance Committee is waiting for cost estimates before voting on its marked-up bill (America's Healthy Future Act), which was completed on Friday.
States need to be at the table to not only stump for reform, but to ensure that any enacted reform can achieve its goal of quality and affordable health care for all Americans. Four key factors bring this home:
1. State innovations inform the federal debate. A common refrain in health care discussions is that states are the "laboratories for reform." In fact, states have debated and implemented the very key elements of reform now being debated in Congress. Lessons from states strengthen federal proposals.
2. States will play a partnering role implementing federal reform. Working with appropriate federal standards, state lawmakers and officials are most able to implement new regulations and programs in ways that best meet the unique needs of diverse state populations and the needs of urban and rural communities. Just like Medicaid and SCHIP, the bills moving in the House and Senate call on states to create insurance Exchanges, or Gateways, that are culturally and linguistically appropriate, approve insurers for participation in the Exchanges, ensure that health plans are adhering to new insurance regulations and consumer protections like guaranteed issue, administer Medicaid expansions, and create new systems to promote quality of care.
3. State budget difficulties require an unwavering federal financial commitment. States are uniquely susceptible to economic downturns. And, unlike the federal government, they must balance their budgets each year. To ensure reform is sustainable, a strong federal commitment is absolutely necessary. The current economic slide has resulted in huge deficits across the country, forcing states to raise revenue or cut spending on social programs at a time when residents most need government assistance. A just-released survey of state Medicaid programs by the Kaiser Family Foundation shows that Medicaid enrollment in 2009 grew at its highest rate in six years as the economy shed jobs and, therefore, private insurance coverage. Even while the economy caused precipitous drops in state revenue, Medicaid spending increased at its highest rate in five years as more people turned to the program for assistance. The federal stimulus program put up $87 billion in enhanced federal Medicaid match to states. This money has momentarily helped prevent deep cuts in benefits and eligibility in the Medicaid program. But, the enhanced match expires at the end of 2010 and few state Medicaid directors expect to see a notable drop in their Medicaid rolls. Without additional federal support, state budget deficits will grow even larger and states will be faced with the gut-wrenching decision to cut benefits or eligibility to Medicaid, leaving millions of Americans without alternatives for coverage.
4. The Current and Future Costs of Failure are Untenable. A just-released report from the Urban Institute documenting the state-by-state costs of failing to enact bold reform this year confirms what studies have shown for decades, that costs will continue to rise for state governments, businesses, and families, and the number of Americans without insurance will continue to climb. By 2019, absent health care reform this year, employers' premiums would more than double in 27 states, more Americans would lose employer-based insurance in every state, the amount of uncompensated care born by hospitals and medical professionals would more than double in 45 states, and state spending on Medicaid and SCHIP would rise by more than 75 percent. Despite these continued rates of spending and high costs, the quality of care and Americans' health outcomes would undoubtedly decline further, a continued and stark contrast to our peer countries which have integrated systems that ensure quality coverage for all residents.
The Basic Elements of Federal Reform
Broadly, the reform bills moving through Congress seek to ensure all Americans have quality and affordable health care coverage through new insurance regulations, affordability subsidies, individual and employer mandates, quality improvement and cost containment initiatives, and a medley of private and public insurance offerings.
While the details between the bills vary greatly, the core provisions - as outlined by a comparison tool of the major proposals created by the Kaiser Family Foundation - include:
Financing Reform: The fairest revenue proposal is found in the House bill(s). Roughly half of the ten-year costs of the $1.042 trillion proposal would be met with a health care surcharge on the wealthiest 1.2% of Americans. The surcharge would be paid by families with incomes above $350,000 and equals, on a sliding scale, from 1% to 5.4% of modified adjusted gross income. Significantly, the surcharge will not impact 98.8% of households or 96% of small business owners. Elsewhere, the House includes cost containment and quality improvement efforts to pay for reform. These include saving $156 billion over ten years by eliminating over payments to private Medicare Advantage plans, saving $100 million in Medicare payments to hospitals through efficiency initiatives, saving $110 billion by expanding drug discount rebates for Medicaid and Medicare dual-eligibles, and by adopting the agreement between the White House and PhRMA to give seniors a 50% price reduction on drugs they need while in the confusing "donut hole" - a period during which Medicare enrollees lose their drug coverage after reaching a certain level of expenditures.
In the Senate, the HELP Committee does not have jurisdiction over Medicaid and Medicare or have revenue raising authority, so proposals for financing reform in the final senate bill are coming from Finance. As in the House, the Finance bill includes a medley of cost containment efforts in the Medicaid and Medicare programs which aim to improve efficiency, quality of care, and reduce spending on privately-run Medicare Advantage plans. The largest source of new revenue, roughly $215 billion over ten years, will come from an excise tax on high cost insurance plans, or so-called "Cadillac" plans, equal to 40% of the aggregate value of coverage that exceeds a threshold amount. The threshold is $8,000 for single and $21,000 for family coverage. The tax would be paid by the issuer of the policy, either the insurer or, in the case of large self-insured businesses, the employer. The tax is highly objectionable to workers and unions as the cost would likely get passed on to workers. While proponents of the tax have cited lavish insurance policies owned by Wall Street executives, the vast majority of people impacted by the excise tax would be workers who have foregone pay raisers in recent years in exchange for quality health benefits, as is the case with many state workers.
To put these costs in perspective, all of these health care proposals cost a fraction of the ten-year cost of the '01 Bush tax cuts, which will have cost the country a debt-swelling $2.5 trillion according to Citizens for Tax Justice. So, conservatives who supported those wasteful tax cuts for the wealthy, which fueled the financial bubble economy of the last decade, have little standing to protest far more modest spending on health reform to benefit working families.
States' Role in Running Public Programs, Exchanges and Public Options
While federal reform will change the framework of health care rules, states will still play a large role in shaping what health insurance options are available in each state, from Medicaid programs for low-income families to potentially a public insurance option, and to how consumers access coverage through the exchanges.
Medicaid Funding for the States: Both the House and Finance bills would expand Medicaid to 133% of poverty, while HELP would reportedly expand the program to 150%. Proposals would provide federal financing using the existing FMAP structure, where the federal government matches state investments in Medicaid/SCHIP. However, the House bill goes farthest to ensure states can afford the expansion by fully funding the expansion in all states. In contrast, states that have already expanded Medicaid to 133% or higher for certain populations would get short shrift under the Senate Finance Committee's proposal: the Senate Finance bill would only fully fund the expansion in states that have failed to raise Medicaid eligibility to higher levels, thereby underfunding states that have gone ahead of their peers and the feds to expand Medicaid to those who need it. Such states would receive a smaller federal match for the first 5 years of the expansion, with the variance in the federal match leveling off thereafter.
Elsewhere, required increases in reimbursement levels to primary care doctors and other providers in the Medicaid program will be fully funded by the federal government. Unfortunately for state Medicaid budgets, the Finance and House proposals would reduce state Medicaid DSH payments by up to 50% after uninsured levels have dropped by 50%. DSH payments, which in 2009 were more than $11.3 billion in federal funds distributed to states, assist hospitals that treat a disproportionately large population of Medicaid-eligible patients.
State Flexibility and the Exchange/Gateway - Under the three bills, states will have the option to create their own insurance Exchange, join a regional exchange, or participate in a national Exchange, as provided for in the House and HELP bills. There is not a national Exchange option in the Finance bill. The option to create a state exchange in the House bill is contingent on whether the state can perform all the duties of the federal exchange. Exchanges, or Gateways, will be run by governments or non-profit entities. In the case of states that refuse to establish a Gateway or implement the new insurance regulations, after four years the HELP bill requires the Secretary of Health and Human Services to establish a Gateway in the state and the new insurance regulations will become the law in the state, regardless of state laws to the contrary. As an incentive to states to pro-actively participate in reform, federal affordability subsidies will not be available in the state until the Gateway is operational. The Finance bill requires states to establish exchanges within 24 months.
Importantly, the Exchanges create a robust floor for states in terms of insurance regulations and minimum benefits offered in plans approved for the Exchanges. Each bill requires a minimum set of benefits, but allows varying levels of cost-sharing to create options for consumers. In general, while the minimum benefit levels are robust, including mental health parity, states that choose to require coverage for additional benefits will be required to reimburse the federal government for the share of affordability subsidies used to support plans with the additional benefits. There are certain eligibility restrictions for the Exchanges which some worry could prevent them from achieving a shift in cost and quality market-wide. All would limit eligibility to individuals without employer-sponsored coverage and to the smallest businesses. Over time, larger businesses would be able to participate, but questions have arisen over whether the exchanges will create large enough marketplaces to achieve the goals of reform. Other concerns are the potential for 50 different exchanges, further fragmenting the leveraging power that a single exchange could provide, and whether the exchanges will be able to negotiate with participating insurers, or if insurers will simply need to meet set standards for participation. The House bill emphasizes a national exchange, with the option for states to create their own, while the Finance bill gives deference to states to create the exchange, but requires all licensed insurers in a state to participate. How these and other differences are ironed out will very likely determine how effective the exchanges are at creating more affordable options for families and small businesses.
To help in the implementation of the exchanges, the bills generally provide for a number of grants to help states and non-profit entities comply with the provisions of the proposed laws - establishing the Exchanges/Gateways and public options or co-ops, providing consumers with assistance in addressing problems with insurers, and contracting with public and private entities to serve as "navigators," which will help consumers learn about new insurance offerings, the Gateways, affordability subsidies, and how to enroll in coverage.
Exchanges and Public Plans for Low-Income Families: In a last minute amendment to the Finance bill, lawmakers approved a proposal by WA Sen. Maria Cantwell to allow states to create a federally-funded Basic Health Plan that would offer approved private health plans to low-income residents. Residents with incomes below 200% of poverty but too high to receive Medicaid, would be eligible to participate in the Basic Health Plan. The Plan would act like an exchange, contracting with bidding insurers to offer a set level of benefits. The Basic Health Plans would be financed with federal money that would have otherwise gone to affordability subsidies for purchase of coverage through the Exchange. By negotiating with insurers, proponents believe the Basic Health Plan can offer greater services at a lower cost for low-income residents. The amendment builds on Washington State's Basic Health Plan, which has been in effect since the early 1990's. It's not certain how this provision would work in a state like Maine and others that have expanded Medicaid to 200% of poverty or higher. Would they simply elect not to create a Basic Health Plan or would they use it for select populations, like childless adults, who are often left behind in Medicaid expansions?
States and the Public Option: As noted, the House and HELP bills would create a public health insurance option to compete with private offerings in the insurance exchange. The public option would be subject to the same rules and regulations of private plans approved to participate in the exchange, but it would not be motivated by profits, as private plans are. And, the public option enhances consumer choice, a particularly important priority within the context of the individual mandate. As with the exchange, states would have the choice to create a public option or have the federal government create it. In contrast, the Finance bill would create new member-owned and operated health insurance companies, or co-ops. To receive federal start-up funds, the co-ops would have to be new entities, not based on any existing programs or entities, and they cannot be state-run. There is tremendous concern that co-ops will not be able to generate the leverage needed to offer consumers a truly competitive alternative to private insurance. While the Finance Committee rejected two amendments to create a public option, Majority Leader Reid declared last week that the final senate bill, which he will craft from the HELP and Finance bills, will include the public option. Still, with the gulf between the HELP and Finance bills concerning the public option, senators continue to offer amendments seeking compromise. These include:
Creating a Floor, Not a Ceiling for Reform: Stopping Preemption of State Consumer Protections
Given that any federal reform is going to be a compromise and will not achieve either full coverage for all Americans or complete consumer protection against industry abuses, a core question for states is whether new rules will protect states' authority to continue to innovate and extend reforms beyond the new floor of protections established by federal law. While most proposed versions of federal reform do provide for state flexibility in the future, there are some dangers of preempting aspects of state law and restraining state innovation in other ways that should concern health care advocates.
Preempting State Benefit Mandates: Across the bills, reform creates new standards for insurance companies, programs to incentivize quality of care, requirements for culturally and linguistically competent programs and outreach efforts, and establishing a robust floor for a standard benefits package that all Americans should have access to. With regard to the insurance regulations, these new rules amount to dramatic steps forward for residents and small businesses in many states that have not enacted fair and robust consumer protections. But, most, if not all, of the new regulations are adopted from state laws - guaranteed issue, community rating standards, the ban on rating discrimination based on gender, age, and health status, and requirements that insurers allow young-adult children to remain on their parents' insurance policy to age 26, as in the HELP bill. Additionally, parts of the bills strictly prohibit states from promulgating rules that undermine the intent of federal reform. For instance, the HELP bill has new transparency standards for insurers, requiring them to provide specific details on their policies and how premiums are accounted for. The bill strictly prohibits states from requiring lesser transparency standards.
Elsewhere, there are concerns that some provisions will pre-empt state standards. For instance, Finance allows private insurers to offer a national health plan that pre-empts state mandated benefits. While these national plans must meet the other regulatory and benefits requirements of the bill, and be licensed in participating states, they would not be subject to additional state benefit mandates. States can opt-out of allowing national plans, but they must do so by legislative action.
Imposing Costs of Consumer Protections on State Budgets: As noted previously, the bills require states to cover the cost of additional benefit mandates imposed on plans offered in the Exchange. The state must reimburse the federal government for the share of affordability subsidies used to purchase plans with the additional benefit mandates. This is problematic for states that may want to go beyond the federal floor. Fortunately, the required benefits and levels of cost-sharing are comprehensive, including mental health parity, maternity care, no-cost preventive care, hospital, doctor, and specialist care, no annual or lifetime limits, and restrictions on out of pocket cost-sharing. Importantly, these requirements will create a robust floor for mandated benefits across the country. While most employers provide coverage at similar levels, up to one half of individuals can't afford health plans with a similar benefit.
In contrast, the bills continue the federal government's discrimination against women's reproductive health care needs. Despite medical necessity, the reforms adopt existing federal rules, the so-called Hyde Amendment, which prevent use of federal Medicaid dollars for abortion services (except in instances of life endangerment, rape and incest). This will prevent the use of affordability subsidies to help pay for abortion services. States will be prompted to put forth state-only funds to fill this subsidy hole, as many have done by providing state-only funds for abortion services in Medicaid coverage. Importantly, however, the HELP bill requires at least one plan in each Gateway offer abortion coverage.
State PhRMA Policies: While the Administration has made an agreement with the pharmaceutical industry not to leverage the great purchasing power of Medicare to negotiate for more affordable medications for seniors in exchange for a commitment of $80 billion in cost savings over ten years, the Finance and House bills would increase Medicaid drug rebate percentages. The Finance bill includes a "sunshine" provision requiring pharmaceutical and medical device manufacturers to report gifts to medical professionals in excess of $10 per gift, or $100 annual aggregate. This provision is modeled after state sunshine laws. While it pre-empts state laws that require the same type of reporting, it does not pre-empt state laws that require broader reporting. And, importantly, this does not address bans on gifts, like that recently enacted in VT, so state gift bans can go forward. Elsewhere, the bills expand eligibility for participation in the 340B drug discount program which provides lower cost prescriptions for facilities that serve low-income populations.
State Legislators Mobilize to Promote Priorities for Reform
To promote robust health reform and address states' core priorities in the process, state legislators have waged a steady campaign to help maintain grassroots support for reform and advance key priorities. Now, the same group of state legislators working with Progressive States Network are taking their message directly to lawmakers in Washington DC.
Armed with letters signed by more than 1000 state legislators from all 50 states, a delegation of state legislators, mayors and other civic leaders will converge on Washington DC to bring their message of reform to their congressional colleagues. These state leaders will also highlight a statement for reform passed at this summer's convention of the National Conference of States Legislatures (NCSL), the body representing every state legislature in the country. The NCSL convention adopted an amendment to its official health policy statement with the support of 38 states (over 75% of states represented at the convention). The amendment included the key priorities promoted by the legislator letter, including the creation of a public health insurance option.
The State Leaders' Lobby Day will be held on the Hill on October 13th and 14th where they will meet with leadership and members of the Senate and House. State legislators will continue their march for reform and share with their congressional colleagues states' priorities for reform (link to current version of lobby priorities), including:
Whatever happens this fall on federal health care reform, it will be the start of comprehensive reform, not the end. As states like Maine, Massachusetts, and Vermont have shown, implementation of reform is the bigger test. States will need to build on a new federal framework state-by-state and, with that in mind, both legislators and advocates will need to work to assure that state capacity to continue expanding coverage and protecting consumers is strengthened by new federal rules. In a dynamic and constantly evolving health care system, a vibrant and innovative federal-state partnership will remain the key to expanding quality, affordable health care to all Americans.
Federal Health Reform and the States
Kaiser Family Foundation - Side-by-Side Comparison of Major Health Care Reform Proposals
The Stateside Dispatch is written and edited by:
Nathan Newman, Executive Director
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