State Reaction to Health Care Reform

By Robert A. Holden, Senior Vice President

As the federal Patient Protection and Affordable Care Act is implemented, the states are coming to grips with its realities and expressing their concerns. Last month I mentioned that 22 states had proposed constitutional amendments or other legislation that would prohibit an individual mandate to purchase insurance. Since that time, the number of states has grown to 36, with Virginia, Utah and Idaho enacting legislation. Additionally, 16 states have decided to file suit to challenge the constitutionality of the individual mandate under the new federal law. State objections and concerns are not limited to just ideological opposition to the individual mandate. The more imposing challenge for the states, also addressed in the legal challenges, is the massive new requirements on state Medicaid programs. The possibility of large unfunded mandates on top of already stretched budgets has motivated states to address these issues.

14 state Attorneys General (including Florida, Alabama , Colorado, Idaho, Michigan, Nebraska, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Indiana, and Louisiana) have joined in a suit filed with the U.S. District Court for the Northern District of Florida to challenge the constitutionality of the Patient Protection and Affordable Care Act, with a 15th, Virginia’s Attorney General Ken Cuccinelli, filing a separate lawsuit to do the same. Arizona enacted legislation yesterday to overcome their Attorney General’s refusal to engage in a lawsuit. While it has received more attention, the individual mandate portion of the federal law does not come into effect until 2014. Of more immediate concern to the states are the implementation costs of adding, on average, an additional 25% to the enrollees already receiving Medicaid, in advance of the 2014 deadline.

Under new federal requirements, states will be required to expand their Medicaid eligibility to 133% of the federal poverty limit for currently covered populations, children and their parents, while for the first time establishing eligibility for childless adults. For states that already offer Medicaid benefits at this level, including services to childless adults, there will be relatively few new enrollees. However, 39 states do not currently offer this level of eligibility for Medicaid, and are expecting a considerable increase in enrollees. Based on the potential of covering most of their non-elderly, uninsured population, states like Texas, Utah, and Virginia could see increases of over 50% in their Medicaid enrollees The direct costs to cover reimbursement for new enrollees will be supported by federal matching funds, with the federal share of costs at 100% in 2014, gradually falling to 90% by 2020. Many states are concerned that even a 10% increase in costs will be difficult to sustain under current state budget projections and that administrative costs to accommodate and administer the expanded number of enrollees have not been addressed. Changes in how pharmacy rebates are collected from manufacturers participating in Medicaid are causing concerns for state revenue streams as well. Increases in the rebate percentage will be retained at the federal level, requiring the states to revisit their rebate amounts.

While Medicaid is one aspect of expanding coverage to the uninsured, an additional aspect of this goal under the new law is the establishment of high-risk pool programs to provide insurance access to adults denied coverage due to preexisting conditions. While this program will be phased out in favor of Health Insurance Exchanges by 2014, a high-risk pool is required to be implemented within 90 days. As a result, The Department of Health and Human Services is looking at using existing state high-risk pool plans as foundations to build an expanded federal program. Groups like the National Association of State Comprehensive Health Insurance Plans are lobbying for this policy, pointing out that the federal legislation requires the pools to be set up through non-profit entities and the that the 90 day time frame is too short to create an entirely new entity. Should this occur, the states will have enormous influence on how these programs are managed, even prior to the development of the state exchanges.

States are focused on addressing how they can affect implementation. While the Department of Health and Human Services will fill in many of the blanks left in health care reform, the states will still have a major role in shaping health policy.

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