States Will Chart New Paths for Health Care Reform in 2011

By Robert A. Holden, Senior Vice President

As Republicans sweep into state legislatures and Governors’ mansions this month, existing plans for the implementation of federal health care reform will get a second look. Fiscal limitations, uncertainty about federal funding, and litigation that is likely to reach the United States Supreme Court all call into question how states should proceed with their plans to create state health insurance exchanges and address ever growing Medicaid responsibilities.

Of the two issues, increased Medicaid rolls and expenses are the more immediate and difficult of the problems for states to address. As state revenues plummeted and remained low due to the recession, temporary increases in matching funds from the federal government cushioned the blow to states even as more of their residents became eligible for medical assistance programs. Nevertheless, even prior to the Republican takeover of the House of Representatives, Congress voted to extend the matching funds for only half of 2011 and at a lower rate. As a result, incoming governors and legislators are confronted with even less funding and more enrollees than their predecessors. While responses to this are still developing, states are increasingly looking to cut optional services under their Medicaid programs or, in more radical cases, looking for ways to opt out of Medicaid entirely. While opting out may not be a viable option, its reemergence does indicate the depth of the problem, and the lengths to which states will go to cuts costs.

Implementation of health care reform and state exchanges directly impact the funding problem in three ways, although not immediately. The first is that, regardless of the current economic climate, states expect even more Medicaid enrollees with the imposition of an individual mandate, requiring adults to seek coverage wherever available. Second, in 2014, the state exchanges will have online resources to direct individuals to private plan insurance, but that will also direct eligible individuals to medical assistance programs for which they qualify. Third, states anticipate substantially increased overhead for their departments to manage the increased Medicaid population from both currently eligible groups and the new population, up to 133% of the Federal Poverty Level, as required under the federal health care reform law.

These realities, combined with the shift in political control, mean a new direction for many states. This can be illustrated by looking at challenges in only two states. In Pennsylvania, Governor–Elect Tom Corbett (R) will take over from Governor Rendell (D), now with Republican control of both legislative chambers. Pennsylvania had been one of only three states (including California and New Jersey) that had introduced and moved forward legislation to authorize a health exchange board to implement federal law. That legislation was not enacted prior to the legislature adjourning, and something new will be introduced this session. In Minnesota, Governor Pawlenty (R) had ordered a cessation to planning for exchange implementation. Governor Mark Dayton (D) will now have to contend with Republican majorities in the House and Senate as he restarts those efforts. In what could be a trend for other states, Minnesota Republicans have introduced legislation that would issue vouchers to Medicaid eligible residents to purchase private insurance, rather than accessing a state plan. Proposals to change the nature of state Medicaid plans from active management to an extension of federal subsidies will be something to look for as we near 2014.

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