States likely to shape health reform
Result may 'depend . . . on where you live'

By Lori Montgomery and Peter Slevin
Washington Post Staff Writer
Sunday, November 1, 2009

The debate over whether to let states opt out of any government-run health insurance plan overlooks a key facet of the health-care measures being assembled in Congress: When Washington is done, the shape of any new health-care system is likely to be finalized in Lansing and Boise and Baton Rouge.

Besides the opt-out choice, proposed last week by Senate leaders, health-care legislation being drafted on Capitol Hill would delegate to state officials a multitude of momentous decisions, from what benefits are offered to low-income families to what hurdles to put in front of private insurance companies before they can raise premiums.

"The fact is that state programs are going to look different," said Judith Solomon, a senior fellow at the Center on Budget and Policy Priorities in Washington. "Where some people might be expecting national health reform, we're facing the real possibility that what you get is going to depend heavily on where you live."

The prospect of state control over the new system holds both promise and peril, said Jonathan Gruber, an economist at the Massachusetts Institute of Technology who has advised Democrats on health reform. "The plus side is that states are uniquely positioned to reflect the tastes of their residents and market conditions. Plus, we can really learn from the different approaches states take," he said. The downside "is that states can screw up and not meet . . . minimum standards."

The health-care package unveiled by House leaders Thursday comes closer to national reform, health policy experts said. It would create a national marketplace where those who lack insurance could shop for policies, including a plan designed and administered by federal health officials. States would play a supporting role, helping to design the largest expansion of Medicaid in 40 years and to develop high-risk insurance pools for people in immediate need of coverage.

Delegating decisions

The package under development in the Senate is a different story. A bill approved by the Finance Committee would leave virtually every major decision to state officials.

Rather than create a central marketplace for insurance, that measure would permit each state to establish its own "exchange" and decide which insurers have access to that market. States could let low-income families shop the exchanges or offer them some other kind of coverage, such as policies already offered to state employees. Under a provision authored by Sen. Ron Wyden (D-Ore.), states could even bypass the exchange mechanism and try to expand coverage in other ways.

The Finance Committee bill did not include a government insurance option; Senate Majority Leader Harry M. Reid (D-Nev.) said last week that he would add one before bringing a package to the Senate floor. But to appease Democratic moderates wary of a big new program, the availability of the public option, too, would be subject to state discretion.

Reid's opt-out plan is opposed by Sen. Olympia J. Snowe (Maine), the only Republican to support the Democratic-led reform effort. Snowe is pushing for a "trigger," which would create a public plan only in states where private insurers failed to offer policies that were broadly affordable.

Given that the Senate presents the larger political hurdle to passing legislation, political analysts expect its state-choice approach to prevail. That means that a White House signing ceremony for a health-reform bill could become a prelude to 50 state legislative battles over how to expand Medicaid, how to set up the exchanges and how to enforce new insurance regulations, as well as whether to give state residents access to a public plan.

"Everybody forgets that you pass the legislation and that's really just the first part. There are years of rulemaking and negotiations and lobbying over the regulations and the implementation," said Joan Henneberry, health policy adviser to Colorado Gov. Bill Ritter (D).

Henneberry and her colleagues across the nation are following congressional negotiations closely, scanning the shifting ground for clues about the role of the states, particularly regarding Medicaid, the state-run health program for the poor that could be expanded to cover as many 15 million additional people. Most, but not all, of the extra money would come from Washington, and states are likely to face myriad other post-reform costs, particularly if they have to hire administrators to run the exchanges.

Can they manage it?

Health policy experts are concerned not only about the ability of the states to shoulder their share of the cost of reform but also about their administrative and analytical capacity.

Some states are well-positioned to manage a new federal program that seeks to cover the uninsured while pressuring doctors and hospitals to deliver care more efficiently. Minnesota, for example, has long offered quality health care at relatively low prices, thanks to nonprofit insurance plans, group health insurance and managed-care programs.

Last week, Minnesota Gov. Tim Pawlenty (R), who is testing the waters for a 2012 presidential run, called a federal public option with an opt-out clause "a bad idea." He stopped short of predicting what his own decision would be, but health experts said it is unlikely to matter for Minnesota residents, given the state's other advantages.

At the other end of the spectrum are states with poor collaboration in the health sector, lax insurance regulations and small, disorganized Medicaid programs, said Alan Weil, executive direction of the National Academy for State Health Policy. Because such states also tend to have large populations of uninsured people, they could find the post-reform transition particularly harrowing.

Take Texas, where nearly one in three working adults lacks health insurance, the highest percentage in the nation. Many Texas employers do not offer coverage. And while Texas Medicaid covers about 2 million children, it picks up only 125,000 of their parents, because of an eligibility cap set in 1985 and never adjusted for inflation, according to Anne Dunkelberg of the Texas-based Center for Public Policy Priorities.

Expanding Medicaid eligibility to all adults who earn just a bit more than the federal poverty level, as Congress is proposing, could easily add 1 million people to Texas Medicaid, Dunkelberg said. But the program has huge administrative problems and takes more than three months to sign up some applicants, she said; without federal standards, "these Medicaid expansions could turn out to be an empty promise."

Slevin reported from Chicago. Staff writers Kari Lydersen in Chicago, Robin Shulman in New York and Ashley Surdin in Los Angeles contributed to this report.

© 2009 The Washington Post Company