Related Resources On NationalJournal.com Poll Track: National Polling On Health Care (3/2/07) · Ad Spotlight: Hoping Congress Will Care (2/13/07) · National Journal Cover Story: "The Mass.-ter Plan" (6/9/06) · National Journal: "An Opening on Health Care" (12/9/06) · Wealth Of Nations: "A Glimmer Of Purpose In The Pantomime" (1/26/07) · Wealth Of Nations: "The Massachusetts Experiment" (6/23/06) · Wealth Of Nations: "The Slippery Economics Of Health Care" (10/21/05) · Insider Interview: Cures For The Nation's Ailing Health Care System? (8/3/05) [an error occurred while processing this directive] Additional Resources On The Web The Kaiser Commission on Medicaid and the Uninsured's Key Facts About Americans Without Health Insurance [PDF] · American Medical Students Association's Overview Of Major State-Based UHC Initiatives

By Marilyn Werber Serafini, National Journal
© National Journal Group Inc.
Friday, March 16, 2007

The ink was barely dry on then-Gov. Mitt Romney's bold new plan to achieve nearly universal health coverage for Massachusetts residents when Vermont Gov. James H. Douglas signed similar legislation into law last year. "We have a goal of 96 percent coverage within the next three years, and I think we can do that," Douglas recently boasted to National Journal. "We're going to be quite aggressive with enrollment."

Other state officials had been closely watching this pair of Republican governors as they steered away from the safe political path to push plans requiring employers to either offer their employees health insurance or pay a compensating fee to the state. The Massachusetts Legislature went a controversial step further when it decided to require all residents to certify on their state income tax forms that they had health insurance -- or face a penalty. Before Massachusetts and Vermont took the plunge, most politicians had spoken only in muffled tones about health care mandates, fearful of a backlash from constituents -- voting constituents.

Yet when Romney, Douglas, and their states' lawmakers -- Democrats and Republicans alike -- drew more accolades from voters than criticism, officials in dozens of states rushed to craft health reform plans. Less than a year later, 26 states either have passed health coverage legislation or have a significant proposal under serious consideration.

Republican Gov. Arnold Schwarzenegger of California made headlines recently when he unveiled perhaps the boldest plan to date -- seeking to cover all 6.5 million uninsured state residents. Under his proposal, employers would have to provide health insurance or pay a 4 percent payroll tax that would fund a state program for the uninsured. The state would impose new taxes on doctors and hospitals. Participating insurers would be required to cover all comers, regardless of pre-existing medical conditions, and they would have to spend at least 85 percent of premium revenues on patient care. Uninsured individuals, for their part, would be required to get insurance.

Sweeping plans have come from governors in 10 other states: Connecticut, Illinois, Kansas, Maryland, Minnesota, New Jersey, Oregon, Pennsylvania, Washington, and Wisconsin, according to the Kaiser Family Foundation. "A lot of people were emboldened by the critical acclaim Massachusetts got for being bold and trying something comprehensive. Governors like to follow successes," said Matt Salo, director of the health and human services committee of the National Governors Association.

Many states are expanding the health care coverage they provide through existing programs. Others are pursuing individual and employer mandates, or are making it easier for individuals and small businesses to qualify for private policies' group rates. Most states are combining these coverage initiatives with prevention, wellness, and disease-management programs. And a few are even helping doctors and hospitals to finance the changeover to electronic record-keeping.

"What you're seeing is states not willing to wait," says Washington Gov. Christine Gregoire. "In my little state," the Democratic governor continued, "I've got 600,000 uninsured and many more underinsured.... Even those who have insurance are afraid they are one diagnosis away from bankruptcy."

Nationwide, the ranks of the uninsured are approaching 47 million, health care costs are skyrocketing, and more employers are dropping coverage. If these trends aren't checked, and if employer-provided health care coverage continues to decline, as many as 56 million Americans will lack insurance by 2013, according to the Robert Wood Johnson Foundation's latest State of the States report [PDF], which was released in January. For the first time in seven years, the percentage of children without health insurance increased -- from 10.8 percent in 2004 to 11.2 percent in 2005, the foundation reported.

In the face of such realities, the federal government has done little to address the nation's health insurance problems. Congress has shied away from the issue ever since President Clinton failed to push through universal health insurance in the early 1990s. Democratic lawmakers widely blamed Clinton's effort, derided as socialized medicine, for the party's loss of control in both chambers in 1994.

Now that states are taking the lead, federal policy makers are contemplating the extent to which Uncle Sam should join in. As always, money is an issue. In taking back the leadership of the House and Senate this year, Democrats have promised fiscal restraint. President Bush, meanwhile, hasn't shown a willingness to do much directly for states, other than to shift existing pots of health care money around. Already, state officials are angry about Washington's recent cuts to Medicaid and about Bush's opposition to any increase in federal contributions to the State Children's Health Insurance Program, which is up for reauthorization this year.

"We're going to need to have a partnership in terms of resources. It can't be less and less [federal assistance] and [states] be asked to do more and more," Maine Gov. John Baldacci, a Democrat, said in an interview. Many state leaders share Baldacci's frustration, according to Alan Weil, executive director of the National Academy for State Health Policy. "There's a whole cascade of tightening, tightening. On the back end, we want states to solve this problem," Weil said, "and that's a hard [combination]."

The Bush administration has offered waivers that allow states to reallocate their federal health care dollars, but the waivers come with a conservative ideology attached, complains Drew Altman, president of the Kaiser Family Foundation. "Rather than give states the flexibility to do what they want, [the Bush waivers] will give flexibility -- but only to promote ideas that [administration officials] support, which is private insurance. States want flexibility, but they don't want the strings. Some states are happy to promote private insurance, but many want to build on existing programs. A pro-state policy would say to states, 'As you spend more money, we will spend along with you, whether public or private.' "

Graphic: Ranks Of The Uninsured The U.S. Census Bureau estimates that 46.6 million Americans were uninsured for all 2005. More than half of all states have enacted serious health care reforms or are doing so now.

Shared Pain, Shared Gain
Health policy experts have long argued that states' coverage needs are so diverse that a one-size-fits-all approach is impossible. Surprisingly, however, many states are opting for strikingly similar plans.

To be sure, states vary widely in terms of the size of their uninsured populations, the amount of money they already spend on health care, the soundness of their overall finances, and the effectiveness of the local insurance market. Covering all of the uninsured in Texas, for example, where one-quarter of the population lacks coverage, would cost significantly more than doing so in Minnesota, where just 8 percent of people are uninsured, according to the latest census figures. The relative mildness of Massachusetts' problem -- only 10 percent of state residents lacked coverage in 2005 -- bolsters skeptics' argument that other states cannot replicate the Bay State's program. (The Kaiser Family Foundation says that 16 percent of the nation is uninsured.) Massachusetts is also unusual in having the ability to shift some federal money from an expiring Medicaid waiver to help cover its uninsured.

Yet significant themes are emerging among the state initiatives. Governors haven't abandoned longtime efforts to expand insurance coverage through Medicaid and SCHIP, which provide federal matching funds for coverage of the poor and near-poor. But alongside these programs, states are expanding less costly efforts to make private insurance more available and affordable for individuals and small businesses. Even healthy people find that purchasing an individual policy can be prohibitively expensive -- much more costly than participating in a group plan. And for people with health problems, individual policies, if they are available and affordable, usually come with huge gaps in coverage.

Some states are allowing insurance carriers to offer less-comprehensive or higher-deductible coverage as a way to make their policies more affordable. Other states are requiring insurance carriers to accept all comers and to hold down prices at the same time.

Maine, which in 2003 became the first state to enact health insurance reforms, persuaded its largest private insurer, Anthem Blue Cross Blue Shield, to expand its coverage of small businesses, the self-employed, and eligible individuals who had no access to employer coverage. The program, called DirigoChoice, gives Maine residents with incomes of up to 300 percent of the federal poverty level (about $62,000 for a family of four) discounts on monthly premiums, as well as other price breaks on a sliding scale.

Three years later, Vermont created Catamount Health, under which participating private insurance carriers will bid to offer a certain benefit package to individuals. Catamount Health will dictate maximums for deductibles and other cost sharing; Douglas estimates that premiums will run less than $360 a month for an individual. Insurance carriers' incentive is the opportunity to gain a large volume of new business.

One of the most popular and widely imitated elements of Massachusetts' program is the "Connector," which is geared toward getting health coverage for more people at little cost to the state. The Connector is a quasi-governmental entity that bunches together -- or connects -- individuals and small businesses so that they qualify for lower rates on private health insurance. Many states are also following Massachusetts' lead in requiring employers to take steps that enable uninsured employees to buy private insurance with pretax dollars. Once created, these plans cost an employer nothing.

But in distributing the health care burden, states are looking beyond employers and insurers. Indeed, the buzz phrase in state capitols now is "shared responsibility." Most health coverage proposals are "trying to pull all the stakeholders into the conversation -- employers, individuals, hospitals, doctors, insurance -- to say everybody needs to share a little bit of the pain in order to get a greater gain for the system as a whole," said Enrique Martinez-Vidal, an author of the State of the States report.

In Vermont, all but the smallest employers must pay a dollar a day for any worker they don't cover. And if Vermont doesn't achieve 96 percent insurance coverage by 2010, the Legislature must consider measures requiring individuals to buy insurance. California, meanwhile, is taxing hospitals, doctors, and other medical providers. As states look to Washington for additional money, the Health and Human Services Department wants to take much of the federal money now going to hospitals for uncompensated care and channel it into state subsidies to help individuals buy insurance.

Most state coverage plans also focus on health care quality -- that is, improving care and lowering costs. Vermont will reimburse doctors at a higher rate if they manage patients' health -- by providing continuous and preventive care for diabetics, for example -- instead of merely treating acute conditions. Douglas is also exploring the possibility of offering state grants to help doctors and hospitals upgrade to electronic record-keeping, which reduces medical errors and administrative costs.

Massachusetts, West Virginia, and several other states have created task forces dedicated to improving the quality of health care. These groups are attempting to measure the performance of private health plans, doctors, and hospitals, with the long-term goals of financially rewarding first-rate doctors and hospitals in public programs and of providing information to help people make smart health care decisions.

Most states are thinking big when it comes to health care coverage, even if they have to proceed step by step while gathering up their pennies. Illinois, for example, already has a program in place to cover all children, and Democratic Gov. Rod Blagojevich this month unveiled a proposal to cover every adult. Maine's Baldacci told National Journal that he is preparing to propose both individual and employer mandates, plus a Massachusetts-style insurance Connector. The reality is, however, that states' limited resources will hold back the pace of change.

The Money Factor
Governors in both parties agree that for states to proceed with comprehensive health coverage programs, they will need more federal money. Only in the past two years have state governments begun to pull out of the fiscal slump that led many to slash Medicaid rolls. Although the financial hemorrhaging has stopped and the growth of Medicaid costs has stabilized, the NGA's Salo warns, "Medicaid will go back up, and state economies are going to dip again. We need to make sure the [Bush] administration is not ... cutting Medicaid, as it has proposed to do."

The Deficit Reduction Act of 2005 [PDF] is projected to slow federal Medicaid spending by $11.5 billion over five years and by $43.2 billion over 10 years, according to the State of the States report. Moreover, Congress must reauthorize SCHIP this year. Unless lawmakers come up with enough money to cover state shortfalls, the program won't even keep pace with inflation. Bush, in his fiscal 2008 budget proposal, called for states to restrict SCHIP to children in families earning no more than 200 percent of the federal poverty level. That change would likely result in many children and some adults falling back into the ranks of the uninsured.

One problem with squeezing Medicaid and SCHIP, which together cover 59 million people, is that most states are using these programs as the base on which to expand insurance coverage. For states that want to broaden their coverage beyond Medicaid and SCHIP, the federal government is increasing flexibility -- allowing them to use Medicaid waivers to redirect federal dollars -- but little else. In frustration, Vermont agreed to take less Medicaid money for five years in exchange for being able to cut through "all the red tape" of the program, Douglas said. Massachusetts negotiated a waiver allowing it to shift federal Medicaid money away from helping hospitals to make up the cost of unpaid care and toward subsidies to help uninsured people buy insurance coverage. The idea is that as more patients gain health insurance, hospitals will need less help with subsidized care.

But that solution won't work everywhere. In some states, 20 percent of Medicaid money now goes to pay for uncompensated care, Salo said, but in other states none of it does. "How do you convert it if there's no money to begin with?" he asked.

"We're not going to solve this problem that way," said Washington state's Gregoire. "They are saying that we should cut back on [uncompensated care payments], while in my state that's my public health hospital.... If we use that money to help low-income families, the state will have to pay it back to make sure that the public health hospital is up and viable."

On their own, Indiana, Texas, Vermont, and Wisconsin are finding money to expand coverage by raising taxes on cigarettes. Texas Gov. Rick Perry, a Republican, proposes to go a step further by selling the rights to his state's lottery.

Who's Driving?
Struggles over money are already raising questions about whether the boldest states can reach their coverage goals or whether the federal government will eventually have to take the baton. As far as Vermont's Gov. Douglas is concerned, having 50 separate state coverage systems instead of one federal one "isn't such a bad idea. States can provide leadership with a little help from the federal government.... Medicaid is a state-run program, and it's generally successful."

State officials have long prided themselves on their ability to move forward even when Washington gets stuck. And Washington does seem to be stuck over health care. Within the federal government, the ideological gap on the issue has only widened in recent years. Democrats continue to advocate expanding existing programs, such as Medicaid, Medicare, and SCHIP, while Republicans want to find new ways to encourage individuals to buy private insurance.

"The federal government can't seem to get over the partisan divide," said Martin Sellers, CEO of the Philadelphia-based Sellers Feinberg health care consulting firm, which Romney hired to help craft Massachusetts' coverage partnership with the federal government. "We seem to be in a place in Washington where it's all about the next election, proving we're right and they're wrong. That's not the environment for compromise."

At the state level, politically diverse officials are compromising, and bringing a variety of stakeholders with them. In both Massachusetts and Vermont, Republican governors worked with Democratic-controlled legislatures to enact reforms.

Much of the motivation is practical, said Sellers, who since Massachusetts adopted its first-in-the-nation plan has worked with Indiana, Michigan, Washington, and Wisconsin. "Governors are closer to the ground. [The number of uninsured people] is more real for them," he said. "They think if they don't address this, it becomes a huge problem going forward. If the rate of uninsured is too high, and if the subsidization of uninsured with high premiums [on employees who are insured] is too great, it affects large businesses' ability to compete in a global economy. If small businesses are constrained, if the population is unhealthy, and lower-income people are unhealthy, [governors] ultimately bear the burden of it."

Health and Human Services Secretary Mike Leavitt likens the nation's future health care system to a "network of PCs," with each state acting as a personal computer. He held 15 meetings with governors who were in Washington for the winter meeting of the National Governors Association, and Leavitt now says that governors are "all beginning to use a common [health care] framework. National coordination but local control isn't a political philosophy; it is the way the network world works. And we are seeing a very large change." Leavitt said that Bush has asked him to determine governors' needs and then come up with a proposal addressing those needs.

Some state officials, including many Democrats, argue that providing health coverage to all uninsured Americans is too big and costly a challenge to dump on the states indefinitely. "We think that it's nice to have states be the laboratories. But on health care, it's a national crisis," Gregoire said. "So we really think overall reform in the health care system needs to come from the federal government."

Rep. Pete Stark, D-Calif., one of the most ardent congressional advocates of providing Medicare-style coverage to all Americans and the chairman of the Ways and Means Subcommittee on Health, says that the time for a federal push hasn't quite arrived. "Once you get six more states with universal health care programs, it will make our work here a whole hell of a lot easier. If I thought we had enough federal money, I'd do a universal plan on the federal level. [But] there's not some health care fairy that's going to put that money under our pillow."

In the absence of the health care fairy, Sens. George Voinovich, R-Ohio, and Jeff Bingaman, D-N.M., and Rep. Tammy Baldwin, D-Wis., have introduced legislation to fund some state efforts to draft health care plans. NGA's Salo says that governors are generally pleased with the House and Senate bills, which could result in 10 or 15 five-year demonstration projects.

With the states showing that the nation's health care problems aren't intractable, 2008 presidential candidates will almost certainly need to make health care a campaign priority. As Democratic pollster Anna Greenberg notes, "The fact that states are doing things puts more pressure on these candidates to have grand plans."

And Kaiser's Altman said, "I think they'll all talk about how states have shown the way. But I don't expect to see at the heart of [presidential candidates'] plans that states are the future and that the federal government has a supporting role."

Romney's campaign is, of course expected to stress his Massachusetts breakthrough -- unless the state's difficulties with implementation worsen.

Some observers say that the 2008 campaign could, in fact, determine which level of government ends up bearing most of the burden of the nation's health coverage problems. "We have not had this debate about whether the federal government should provide more money for these efforts, because it's not clear whose responsibility the uninsured [are], and we're ending up getting things by default," said Joy Wilson, director of health policy at the National Conference of State Legislatures.

"We're not saying whether it's better to have a national solution or let each state do its own thing," Wilson continued. "But absent the federal government coming in with financing -- and we haven't decided as a country whether we want to support on an ongoing basis the employer system [that is primarily responsible for health insurance] -- we need to figure those things out. All we're doing now is on an interim basis, while we figure out what we really want to do."

Health Insurance Some states are veering away from safe political paths by embracing coverage mandates for both employers and individuals. Gov. Arnold Schwarzenegger says he hopes to cover all 6.5 million uninsured Californians. A majority of states have passed, or are actively considering, major health coverage legislation. Sixteen percent of U.S. residents lack health insurance.

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