What Federal Health Reform Means for the States
An Interview with Courtney Burke
Director, New York State Health Policy Research Center
Q: As efforts to reform health care at the national level proceed, what are the biggest issues facing the states if and when a bill is passed?
A: There are two major issues for states. The first is affording reform. States will likely see increased costs due to expected increases in public insurance enrollment. They also may experience an increase in administrative costs for new programs and services. The second major concern is implementation: states will be the primary implementers of many of the reforms. For example, they may be responsible for setting up insurance exchanges; providing outreach and enrolling additional people in public insurance programs; coordinating insurance exchanges with other public programs; providing wraparound services for persons whose coverage is not adequate but who can’t afford more generous health plans; determining people’s eligibility for subsidies to purchase insurance; and determining how to adjust their small group and individual insurance market regulations to reflect new federal mandates. The states’ to-do list could be very long.
Q: Much of the discussion in Washington surrounds possible mandates for health care at the state level. Have these worked in Massachusetts, the first major state to reform health care by implementing individual and employer mandates?
A: The mandate requiring that individuals purchase insurance and that businesses offer insurance to their employees has helped reduce the number of uninsured in Massachusetts. The mandate has brought younger, healthier people into the pool of people purchasing insurance. In doing so, it makes the overall pool of people slightly less costly than if those young, healthy individuals were not enrolled. In a recent paper, Katherine Swartz of Harvard University and I discussed the individual mandate as one strategy that can help to lessen the overall average amount of risk in the marketplace. We concluded that the individual mandate in Massachusetts was important in drawing many lower-risk individuals into the market. Businesses are allowed a variety of options for offering insurance, including setting up Section 125/cafeteria plans. These are plans that allow employees to set aside pre-tax dollars to help with the purchase of insurance. It’s important to note, though, that Massachusetts, like other states, has not been able to significantly slow the rate of health care cost increases, which will continue to be a challenge for all states.
Q: Can states afford to implement the changes that might be directed from the federal level?
A: Affordability is going to be one of the biggest issues confronting states after health reform. Today, states use a variety of sources to finance coverage initiatives. These strategies, which were reviewed in a paper recently published by the Institute, range from using provider taxes and tobacco taxes to redirecting existing funds in the medical system toward coverage initiatives. What we determined from this research was: 1) most states already have to employ a wide range of financing strategies for coverage; and 2) federal support through the Medicaid program has been essential for allowing states to cover more people.
The amount that each state potentially may have to pay to fund new coverage mandated through federal legislation will vary by state because each state has different eligibility levels for public insurance programs and different rates of uninsured. The current versions of legislation from the U.S. House and Senate have disparate effects on states but in general, the House version is more generous to states, while the Senate version requires states to fund more of the potential coverage expansions. These bills will have to be reconciled in conference committee.
Q: What do the efforts of states to increase affordability and access thus far teach us about what might happen when national reform finally happens?
A: Health insurance affordability has been a major issue for many years and is only becoming more of a challenge as costs rise faster than wages or inflation. To address the lack of affordability of health insurance, states have tried several approaches. Some have tried to allow insurance companies more flexibility to offer less expensive products that have higher deductibles, but lower premiums (these typically are known as high-deductible plans). Other states have attempted to alleviate cost concerns by providing subsidies to individuals for the purchase of insurance through tax credits or premium subsidies. A few states have tried to lower the cost of insurance by covering the cost of high-cost medical cases through what is known as reinsurance. Reinsurance, which technically is a subsidy, is sometimes described as insurance for insurers. One state, Massachusetts, has merged its small group and individual insurance markets, creating a larger pool to spread costs and risk more evenly. This action significantly lowered premium costs for individuals. What we also found is that most state efforts have not been comprehensive or large enough in scale to truly make insurance affordable for a large portion of the population. However, it is possible that if some of these strategies were combined or done on a larger scale such as was done in Massachusetts, then more people could afford insurance.