What States Face Now in Implementing Health Reform
An Interview with Courtney Burke
Director, New York State Health Policy Research Center
Q: What major new responsibilities fall to the states under the health reform legislation that passed earlier this year?
A: States are responsible for many aspects of health reform implementation. One of the most pressing is reforming their insurance markets. They will have to do such things as ensure that insurance companies operating in their states allow people up to age 26 to remain on their parents’ insurance. They will have to make sure there are no more rescissions of people’s insurance coverage. They will have to change their rating bands if they use rating bands in their insurance regulations — these are boundaries that states set on insurance premiums, which determine the range that an insurance company can charge a particular group.
The second major responsibility for states is adjusting eligibility levels in their Medicaid programs according to new federal rules. A third is establishing administrative structures such as the insurance exchanges and high-risk pools. And a fourth is adapting to other parts of the legislation designed to change health-care delivery and financing. For instance, the legislation has incentives to encourage greater use of primary and community-based care as well as state innovation in the delivery and financing of health care.
Q: You mentioned high-risk pools as one of the first things states might be responsible for implementing. What would a high-risk pool do, and who would it actually cover?
A: In general, high-risk pools consist of people with pre-existing conditions who would not otherwise be able to get coverage. Or it can be people who, because of their conditions, would be charged high premiums that they could not afford. How the states define who’s going to fall into their high-risk pool may vary. There also is a federal high-risk pool for people in a state without a pool, so there’ll be an option for everybody nationally.
Another significant implementation challenge that states will have to start preparing for is getting insurance exchanges up and running. The exchanges have to be functioning by January 1, 2014. They will be for people who work in small businesses, and people who are buying insurance as individuals.
Q: So it’s called an exchange. But it’s really a place where those groups — small businesses or individuals — can purchase insurance.
A: Right. And the exchange is set up by the state, so that they’re helping people see what products are available, and then the state monitors what insurance products are available through the exchange.
Q: Does the exchange ensure affordability?
A: It would depend in part on how the state implements it. There are minimum federal requirements for what products must be offered through the exchange, so there’s a floor in terms of the benefits that you purchase through an exchange. But the exchanges may vary in terms of the geographic service area, and that could potentially impact the cost of products available in the exchange. Subsidies will also be available to some small businesses and individuals to help them afford insurance. States will probably vary in the extent to which they offer assistance for smaller employers who need to deal with the new rules and regulations and make business decisions about using the newly available subsidies for coverage.
Q: You said the states have different deadlines for when each of these items must be up and running, is that right?
A: Different parts of the reform have to be done at different points. Some of the initial, most immediate things, as I mentioned, are setting up the insurance market reforms and setting up the temporary high-risk pools. The exchanges won’t come online until 2014, and some of the cuts to payments that states currently receive, through what’s known as disproportionate share hospital payments, won’t come online until later and will be phased in over time. The fact that the various provisions in health care reform are phased in, in many ways, is good for states, because it gives them some time to prepare for implementation.
Q: What progress have states made to date on implementation?
A: States have already established high-risk pools or determined they will let residents participate in a nationally run pool, and some are taking steps to change their Medicaid programs. This month, another set of changes will occur, for instance, requiring insurance companies to allow dependent children up to age 26 to stay on their parents’ health insurance in the coming year, and the elimination of co-pays for preventive care by new private plans. States are also applying for funding opportunities to expand health care services for low-income individuals, and examining different ways of paying for health care services. In June, a program took effect to help employers fund the cost of health insurance for early retirees. Tax credits are also available to help small businesses purchase insurance for employees. So it may be a little too soon to evaluate the progress of states with implementation, other than to say they are working on it.
Q: Is implementation going to be costly to states?
A: I think one of the biggest challenges for states is the administrative cost of implementation. A lot of the expansions of coverage will be funded by the federal government. The federal government is providing enhanced Medicaid funding for populations that are newly covered. And right now, through June of next year, they’re also providing enhanced Medicaid payments to states because of the fiscal situation — it’s a very tough time for states. But it’s pretty hard to predict all of the costs that will be associated with health reform implementation, such as getting the insurance exchanges up and running, helping people navigate the changes and dealing with some of the regulatory changes. And states are already squeezed now with their finances.
Q: So the federal government will provide some aid to states. What are some other ways that states might pay for implementation?
A: The Rockefeller Institute did a paper last year on state financing for coverage initiatives that looked at the current financing strategies that states use, which ranged tremendously. They included trying to redirect money that you might get through some type of savings program — whether it’s managed care or more preventive care. Others may use taxes on things like cigarettes, or a sugary-beverages tax. It’s hard to document administrative costs, and to know what the costs of implementation will be — when you look at staff time devoted towards doing what they have to do, to implement the legislation.
Q: So many pieces of health reform are going to be challenging for states to implement. One controversial part of the legislation is a requirement for individuals to carry health insurance coverage or else face penalties. How has that requirement worked in Massachusetts, where it’s been in place since 2006?
A: In Massachusetts, the individual mandate, as it is called, has worked fairly well when you look at the intent. The mandate is supposed to prevent adverse selection. Adverse selection occurs when people themselves choose not to participate in buying insurance, and then, as a result, people who have chosen or are in a remaining pool, tend to be those who are more costly or expensive — those people with pre-existing conditions. For example, when young, healthy people do not buy coverage and are not in the rated pool of people, it becomes more expensive for those who remain in the pool.
Massachusetts has had a significant decrease in the rate of uninsured people — it’s somewhere around 2 percent, give or take a percent, depending on whom you ask. So they have been successful at decreasing the rate of uninsured people.
Whether it will work that well in other states remains to be seen. The idea — trying to prevent adverse selection — is a good concept. But people have to be able to afford insurance. Within the federal legislation, subsidies will be available to people to help them with purchasing insurance. But in different states, they have different demographics — they may not have such young, healthy populations like Massachusetts has — and the cost of insurance may be different. It’s a lot more expensive in some states than in others. So there are a number of factors that can affect how the mandate plays out nationally.
Q: How can states best prepare for the federal health reform mandates that they have to put into effect?
A: I think states should see that as an opportunity, because there’s going to be an influx of new enrollees in every state. And a good half of those are going to be people on public insurance. It’s estimated that there will be about 32 million people that will be covered by the new legislation. About 16 million will be added via public insurance — Medicaid or the Children’s Health Insurance Program. The biggest opportunity for states is taking advantage of federal grants that will support them in figuring out how they can redesign their health care delivery system so that it is less expensive. And it’s really going to put pressure on them, to do so.
The legislation does have money for demonstrations that states can undertake with their delivery and their financing. The best thing states can do is try to take advantage of those innovation opportunities. And they should also see how they can work across agency lines, because you have not only departments of health that are administering public insurance programs, but you have departments of insurance — or whatever they are called in their respective states — and they haven’t traditionally been agencies that have worked together. So there’s an opportunity for different agencies to work together and focus on insurance coverage — whether it’s public or private.