Archive for February, 2010

Heath Care Debate Returns to States

February 3, 2010

By Robert A. Holden, Senior Vice President

The pendulum of health care reform has swung back towards state governments. In the February 2, 2010, issue of the Wall Street Journal, Anna Wilde Mathews notes in her article “States Restart Health Care Push” (may require subscription) that the uncertainty of federal health care legislation has pushed reform back to the states. Mathews correctly reports that, prior to the Obama administration, health care reform efforts were pursued primarily at the state level. Massachusetts stands as the prime example of state reform. California was expected to follow suit, but a poor economy and a wait and see approach due to the possibility of federal reform froze the progress of many state reform efforts under consideration.

While the absence of federal legislation may now inspire states to reconsider these proposals, budget necessities are forcing state legislatures to deal with health care issues in a more focused way than Congressional efforts. Federal legislation included efforts to expand coverage as well as provisions aimed at “bending the cost-curve.” Expanding coverage at the state level, either through state Medicaid and Children’s Health Insurance Program (CHIP) eligibility expansions or through comprehensive single-payer plans, is now off the table in most states due to budget concerns. As a result, states are now targeting the cost factors that federal proposals postponed into later years or did not address at all.

State Medicaid plans are the largest factor in the push to control costs. The stimulus bill provided states with increased federal matching funds for state Medicaid plans. These matching funds were stipulated on states maintaining 2008 eligibility levels in these programs. With this assistance ending December 31, 2010, it was possible that the states could escape, or at least delay, cost reduction efforts (including eligibility restrictions) until a recovering economy started providing additional state tax revenues. As the recovery continues to move slower than expected, states are now facing the daunting task of funding their Medicaid plans with even lower revenues and less of a prospect for immediate federal help.

Budget gaps are forcing states to look at every option. States are addressing pharmaceutical costs by creating new prior authorization requirements for certain drugs and encouraging the use of generics. They are increasingly utilizing mail order systems and negotiating for lower reimbursement and increased rebates from pharmaceutical and medical equipment providers. Health service providers are also receiving lower reimbursements, and some optional Medicaid services (dental, optometic, and others) are being eliminated altogether. In addition to these reductions in services and reimbursement, plan enrollees are being required to pay more in co-payments and more states are looking at higher taxes on hospitals and insurers. These efforts may forecast the policies the federal government adopts as Medicare costs continue to grow.

While coverage issues are largely on hold, states are acting under their authority as the primary regulators of the insurance market. States continue to impose coverage mandates on health insurers, either through mandated benefits or, increasingly, mandated coverage for dependents in their 20s. Nevertheless, reform proposals not addressed at the federal level are being considered. Twenty two states have proposed constitutional amendments or other legislation that would prohibit an individual mandate to purchase insurance, as in Massachusetts, or limit the ability of the state to limit access to providers or health plans. In addition, states have proposed measures that would allow residents to purchase plans available in other states, in effect eliminating their own mandated coverage requirements in an effort to make more affordable options available to consumers.