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Role of the States in National Health Reform

As Americans, we’ve long debated how power should be divided between the states and the federal government.

This is an issue that will come up again as we take a closer look at healthcare reform.

Why?

The states took up the reins on healthcare reform while the federal government sat back over the last few years.

States are experimenting with Universal Coverage Programs, Single-Payer Proposals and Health Savings Accounts (HSAs).

  • In this As We See It piece, we looked at the universal coverage law adopted by Massachusetts in 2006.
  • This initiative works by mandating that all residents obtain health insurance. The state provides subsidies (and some exemptions) for those who cannot afford the coverage offered on the private market.
  • Although this is the most expansive program put into place by any state so far, others are following the lead:
    • Instead of waiting for the federal government to reauthorize and expand the State Children’s Health Insurance Program (SCHIP), many states took steps to cover uninsured kids.
      • As of November 5, 2008, eight states including Pennsylvania, Washington and Maine had enacted universal coverage legislation for children.
    • And a few states, including Colorado, have introduced single-payer coverage proposals, although no state has passed such legislation yet.

Now that the political winds are changing, Congress and the Obama administration are paying attention to the need for a federal overhaul of the healthcare system.

And policymakers are wondering what role the states should play in the design, implementation and financing of the national initiative.

Three power-sharing models are considered in this Kaiser Family Foundation “Ask the Experts” discussion.

See our Sidebar for the key components of each model.

SIDEBAR: Three Power-Sharing Models

Model 1: Designed and Funded by the States
Model 2: State Design, Federal Dollars
Model 3: Federal Design, State and Federal Dollars
Federal Role Minimal, fed. govt. provides some funding Identify broad goals. Provide funding to states to tackle the goals, and renew funding if states are successful. Determine both design and funding levels for national initiatives.
State Role Come up with initiatives based on available funding and political environment. Design programs to fulfill national goals. Programs may vary widely between states. States implement the national initiatives and help to pay for them.

What We Think

We wanted to look at the pros and cons of the three models and ask: which model is most likely to improve the healthcare system overall?

Model 1: Healthcare Reform Designed and Funded by the States

Some states have shown an incredible ability to increase insurance coverage and implement other healthcare reforms. They should be applauded for tackling such important legislation while the federal government idled on the sidelines.

But leaving healthcare reform up to the states at this point seems shortsighted.

Why?

Well first, most states simply do not have sufficient financial resources to undertake major healthcare reform plans on their own.

Even before the recession, for example, critics argued that the Massachusetts universal coverage plan would be unsustainable in the long-run because the cost of private insurance offered through the state’s insurance “Connector” continues to rise at a rate of 10% per year.

This means that Massachusetts, and its small businesses, will have to pay larger and larger sums to provide subsidized coverage to low and moderate-income uninsured folks.

  • Governor Deval Patrick’s (D-MA) budget request of $869 million for the program in 2009 was $400 million more than requested in 2008. It is predicted that even this amount will not be enough.
  • Small businesses are buckling under the mandate that they either provide coverage for their employees or pay a penalty.
  • Business leaders are mounting an opposition to the state’s proposal that the $295 per employee contribution be raised to help pay for subsidized care.
  • And it’s important to remember that a big chunk of the funding that Massachusetts uses for this legislation comes from the federal government. This funding may or may not be renewed in the years ahead.

And now that we are in the midst of a full-blown economic recession, the states have even less financial wiggle room.

  • The recession has put many states in the red: 44 states and Washington, D.C. are facing a budget gap for fiscal year 2009.
  • Check out this chart to see the expected budget shortfalls.
  • Unlike the federal government, the states are required to balance their budgets.

Consider Colorado. Rep. John Kefalas (D-Fort Collins) recently introduced House Bill 1273- the Colorado Guaranteed Health Care Act- to get folks talking about the possibility of a single-payer system.

Not only does the state lack the money to pay for the legislation, Mr. Kefalas and his supporters are struggling to come up with the funds just to study the feasibility of the proposal. A blue-ribbon health care commission appointed by Governor Bill Ritter (D-CO) in 2007 rejected such an option, in part due to cost.

Critics say that the Colorado bill is unlikely to gain widespread support because of the extremely high startup costs (in the billions) that would be required. The state faces a total of $1 trillion in projected budget shortfalls this year and next.

So states might not have enough money for comprehensive reforms.

But state legislators certainly have ideas about how to improve our healthcare system, and are not afraid to share them.

Maybe Model 2 is a better solution: State Programs Paid for with Federal Dollars

In this scenario, the federal government would identify broad goals, and then the states would come up with their own strategies to achieve the national goals. The federal government would largely finance the state initiatives, and would renew funding if the national goals were met.

Supporters of this model point to the enormous differences between the states in terms of delivery systems and health statistics, and argue that an individual approach is really necessary.

Afterall, when it comes to the uninsured:

  • 3 states have a 20% uninsured rate; and
  • In 4-5 states, less than 10% of the population is uninsured.
  • The payment and delivery systems also vary state-to-state. One-third of the population in California is enrolled in a Health Maintenance Organization (HMO), while other states do not have a single HMO provider.

And by having the federal government mandate broad goals, all states would be required to do something about the healthcare crisis (not just those states that are motivated to do so).

But this model is not the best solution, nor is it most likely to improve our healthcare system overall.

State-led innovation was essential when the federal government was not part of the conversation, but that is now changing.

The American people elected a new presidential administration and Congress to direct the national conversation on healthcare and come to a consensus about the best way forward.

We are looking to the federal government not only to set coverage goals, but also to reduce the cost, and increase the effectiveness, of the overall system.

Continue to Page 2 for our solution…

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