Health Care Reform and American Federalism: The Next Inter-Governmental Partnership - September 2009

Health Care Reform and
American Federalism:
The Next Inter-Governmental
by Michael Sparer, J.D., Ph.D.
with responses from state health policymakers

September 2009

With the election of President Barack
    Obama, the issue of health reform
                                                  States and the Inter-                             The Variation Variable
    returned to the national agenda. President    Governmental Health                               States exercise their discretion within the
                                                                                                    nation’s inter-governmental health care
    Obama has made comprehensive reform           Care Partnership                                  partnership in extraordinarily different ways.
    a high priority, emphasizing the need to      States play a key role in every aspect of         For example, no two Medicaid programs
    get reform enacted during his first year      the current health care system. Both              have the same eligibility rules, benefit
    in office. Congress has been tasked with      Medicaid and the Children’s Health                packages, or reimbursement policies. State
    developing the details. The goals include     Insurance Program (CHIP), for example,            Medicaid officials are also experimenting
    providing coverage to the uninsured,          delegate to the states broad authority            with a vast range of care management
    financing that coverage with some             to set eligibility criteria, develop benefit      initiatives, pay-for-performance programs,
    combination of new tax revenues and           packages, and determine reimbursement             and efforts to encourage greater use of
    effective cost containment measures, and      rates. Equally important, states pay              home- and community-based services.
    more generally slowing the rising cost        anywhere from 23-50 percent of the cost           Similarly, while every state has enacted some
    of the nation’s health care bill. It is, of   of these programs, more than $150 billion         initiatives to aid their uninsured residents,
    course, too soon to predict the outcome.      annually. States also regulate much of the        these initiatives vary widely in scope and
    While there is a window of opportunity        nation’s private insurance industry and           impact. In Massachusetts, for example,
    for reform, there are also significant        they fund and administer public employee          state policymakers in 2006 enacted several
    obstacles, including uncertainty over how     health insurance programs. States operate         policies (including a Medicaid expansion for
    to pay for access expansions and partisan     medical education systems, license health         children, subsidies for adults, a new insurance
    disagreement over a proposal that the         care providers, supervise the quality of          exchange, and an individual mandate) as
    uninsured (and perhaps those with private     care delivered by those providers, and            part of an effort to reach universal insurance
    insurance as well) be offered the option of   establish medical malpractice systems.            coverage. Other states (including Maine and
    enrolling in a new publicly-administered      States own and operate hospitals for the          Vermont) have also enacted comprehensive
    health insurance plan.                        mentally ill and developmentally disabled,        programs aimed at dramatically reducing
                                                  operate worker-compensation systems,              the number of uninsured residents. Most
    Perhaps due to the speed of the current       and have broad powers to establish and            states, however, have settled for far more
    debate, however, federal policymakers have    implement public health programs.                 incremental (and varied) efforts to expand
    largely ignored two issues critical to the                                                      their Medicaid and CHIP programs and
    implementation of any new legislation:        Importantly, however, states perform              to make health insurance more accessible
    first, how will new federal rules fit with    nearly every one of these tasks as part of        and more affordable in the small group and
    the nation’s complicated and entrenched       an inter-governmental partnership with            individual markets.
    set of inter-governmental health care         both federal and local officials. The federal
    partnerships; and second, how will those      government, for example, sets broad rules         What explains this variation? There is a large
    rules accommodate the extraordinary           that constrain state discretion in both           body of literature that offers explanatory
    inter-state (and intra-state) variation       the Medicaid and CHIP programs. The               theories. First are theories that look at
    in every aspect of the nation’s health        federal Employee Retirement and Income            internal state characteristics. For example,
    care system? This issue brief addresses       Security Act (ERISA) limits state discretion      states have very different fiscal resources and
    these issues. It begins with a review         to regulate firms that self-insure. ERISA         it can be argued that wealthier states have
    of the evolution of the nation’s inter-       also precludes many consumers from using          more generous social welfare programs.
    governmental health care partnership,         the state courts as a forum to challenge          States also have different political cultures,
    followed by a discussion of how proposed      insurance decisions to deny medical               socio-economic demographics (including
    federal reforms to expand Medicaid, to        coverage. The Health Insurance Portability        rates of uninsured), interest group politics,
    create a health insurance exchange, and to    and Accountability Act (HIPAA) imposes            institutional capacities, constitutional
    restructure the health care delivery system   various regulations on the private health         requirements, and bureaucratic politics.
    might impact that partnership. The brief      insurance industry. Meanwhile, the                Complicating matters even further, local
    concludes by encouraging policymakers         nation’s 3,000 local health departments are       communities vary significantly in the
    to establish a task force, work-group, or     the linchpin of the public health system;         composition of their medical workforce,
    some similar institutional mechanism          locally-owned public hospitals are a key          the practice patterns of those health care
    that would focus on the federalism and        part of the medical safety net, local officials   providers, and the cost of health care services
    implementation implications of both           often determine Medicaid eligibility, and         and health insurance premiums. Medicare
    proposed and enacted reforms.                 some local governments even contribute to         spends far more money on beneficiaries
                                                  the cost of such programs.                        in Dallas, for example, than it does on

State Response by Scott Leitz, Assistant Commissioner, Department of Health, Minnesota
   Dr. Sparer’s paper accurately describes            One such example is our recently                ways to deliver higher-quality, lower-cost
   the complex interrelationships between the         launched Statewide Health Improvement           health care and to encourage consumers
   state and federal governments and the need         Program (SHIP), which aims to reduce the        to choose high-quality, low-cost provid-
   to consider these interdependencies during         percentage of Minnesotans who are obese         ers. As we look to the future application
   the debate on health reform. As a leader           or overweight and to reduce tobacco use.        of these payment reforms and market
   on health reform, Minnesota starts from an         We modeled SHIP on Centers for Disease          transparency tools, we see a prime oppor-
   enviable spot. We have one of the nation’s         Control (CDC) funded pilot programs that        tunity for federal and state partnership. For
   lowest uninsurance rates, a relatively healthy     demonstrated effectiveness in four Min-         example, requiring Medicare to participate
   population, and a largely non-profit and           nesota communities. Our statewide SHIP          in regional or state payment innovations
   collaborative care delivery structure that has     program awarded $47 million in grants           like ours would allow states to truly align
   resulted in high quality outcomes at relatively    to Minnesota communities for 2010 and           incentives across the market to drive
   low cost. Nonetheless, like many states,           2011 to help prevent the chronic disease        system change.
   we face rising costs, uneven quality, and an       that results from unhealthy behaviors.
   increasing burden of preventable chronic           Our partnership with CDC enabled us to          Finally, we have worked to improve the
   disease associated with unhealthy lifestyles.      test out a model and to learn from best         administrative efficiency of our delivery sys-
                                                      practices around the country so we could        tem. We’ve mandated that all health care
   Minnesota’s reform approach recognizes             put state funding into an initiative that had   providers have electronic health records by
   that coverage is important, but must be            been proven to work.                            2015, and that all payers and providers use
   addressed in combination with containing                                                           e-prescribing by 2011. We are also the first
   health costs, improving the quality and value      We also see potential for state and federal     state to require all health care providers and
   of care, and improving the health of our           partnership in our payment reforms. Min-        payers to exchange administrative transac-
   population. Our approach focuses on trans-         nesota’s 2008 reforms represent a first         tions electronically, which provides more
   forming our health care system to make it          step toward the fundamental payment             than $60 million in annual savings. These
   sustainable and to produce better value.           reform needed to create a system that           initiatives have positioned us well to help
                                                      rewards providers for keeping people            the federal government achieve its desired
   Our reforms are focused on three core              healthy, instead of only paying to treat the    outcomes from the HITECH Act and also
   principles: investing in public health to          sick. These reforms promote transparency        provide a model for federal reform.
   promote healthy behaviors and prevent              and payment reform through standardized
   avoidable chronic disease; restructuring           public reporting of quality, care coordi-       As Congress and the President look to
   the payment system to better align pro-            nation payments to health care homes,           finalize national health reform, it will be
   vider incentives and improve value; and            development of tools to compare provid-         important to recognize the intercon-
   creating efficiency through better use of          ers on overall cost and quality of care, and    nectedness between states and the
   information technology. All of these areas         bundled payments for “baskets” of care.         federal government. Minnesota’s reforms
   provide potential for state and federal            Taken together these reforms encourage          provide an example of successful federal/
   partnership.                                       health care providers to find innovative        state models to advance reform’s goals.

beneficiaries in Minneapolis, an outcome             the federal rule requiring state Medicaid         is a longstanding and important part of
that seemingly has little to do with Medicare        programs to cover children in families            the American fabric. The story begins
reimbursement rules and much to do with              with income below 100 percent of the              in the 18th century with the conflicting
variation in the organizational structure            federal poverty level had a different impact      views among the founding fathers on the
and practice patterns of local health care           in states that were required to expand            relationship between the different levels
providers.                                           eligibility (and spending) to meet the            of government. There were those, like
                                                     mandate than it did in those states that          Alexander Hamilton, who believed that
The external policy environment also                 already provided such coverage.                   we needed a powerful federal government,
influences states in fundamentally                                                                     fueled by a dominant executive branch.
different ways. ERISA, for example, has a
more significant impact on state efforts to
                                                     Some Historical                                   Thomas Jefferson, in contrast, argued
                                                                                                       that the Hamiltonian vision would lead
regulate the large group market in states            Perspective                                       to monarchy, and that we needed instead
with large numbers of self-insured firms             State policy variation within the context         a more decentralized and democratic
than it does in more rural states with lots          of a complicated inter-governmental               republic in which the federal government
of farms and small businesses. Similarly,            partnership is neither a new nor an               focused on foreign affairs while domestic
                                                     unexpected trend. To the contrary, this           policy was set by the state and local

State Response by Deborah Bachrach, Medicaid Director, New York
       New York is among the states that have            funding, but only to the extent that the        off of Medicaid coverage, in 2007, the
       moved out ahead of federal health reform,         state does not currently cover single           New York legislature authorized 12-month
       investing its own dollars in expanding            adults with incomes up to 133 percent           continuous eligibility for adults, augment-
       Medicaid eligibility in an effort to provide      FPL. The Senate approach penalizes              ing the existing authority for children so
       comprehensive affordable coverage for             states, like New York, that in years past       as to promote continuity of coverage for
       growing numbers of uninsured. Cog-                have invested scarce state resources to         families. Two years later, federal approval
       nizant of Medicaid’s central role in the          expand access to health coverage. It            is still pending for this important state ini-
       health care system, Governor David A.             perversely rewards states that have previ-      tiative, as it is for requested reforms to the
       Paterson has initiated critical reforms           ously chosen not to cover single adults at      state’s outdated reimbursement method-
       intended to ensure that eligible New York-        any income level. Under the Senate ap-          ology. And, these are just two examples
       ers are able to get and keep coverage             proach, only those states that have wholly      of the dozens of pending state plan
       and that Medicaid buys cost-effective,            failed to provide health coverage for           amendments that form the underpinning
       quality care. The federal government is           single adults will receive full federal fund-   of New York’s efforts to expand coverage,
       New York’s partner in Medicaid reform,            ing for this group. The issue of federal        improve quality and control costs.
       paying approximately half of all Medic-           funding is not simply one of equity among
       aid costs and setting the overarching             states. With New York projecting multi-         With state administrative budgets declin-
       program rules.                                    billion dollar budget deficits, the avail-      ing and the imperative to reform the
                                                         ability of federal funding will determine the   health care system growing, it is essential
       Of immediate concern for New York is              extent to which New York will be able to        that the federal-state partnership that
       whether federal health care reform will           maintain a quality health care system.          operates Medicaid focus less on line-by
       treat all state partners equitably, providing                                                     line reviews of state plan amendments
       comparable financial support to states            With federal funding comes federal rules        and more on state accountability and
       that chose to provide limited access to           that rightly seek to ensure that state          outcomes. We need to scrutinize state
       public health insurance and states, like          Medicaid programs are administered              coverage rates and quality metrics; and
       New York, that have expanded coverage.            consistent with federal law. This plays out     analyze state Medicaid payment poli-
       For example, the House bill provides              through line-by-line reviews of 50 state        cies to determine whether they align with
       states with ongoing and enhanced federal          Medicaid plans, state plan amendments           Medicare policies and help to reduce
       funding for Medicaid coverage of single           (SPAs) and waiver requests. Important           unnecessary readmissions and promote
       adults with incomes up to 133 percent             reforms can easily be delayed months            integrated delivery models. And, we must
       of the Federal Poverty Level (FPL). The           or even years as states defend changes          recognize and address the challenges
       same federal funding is available regard-         to eligibility rules, reimbursement meth-       Medicaid and Medicare face with respect
       less of a state’s current Medicaid eligibility    odologies or program requirements.              to dual eligible beneficiaries who are
       level. In contrast, the Senate bill provides      For example, in an effort to reduce the         among the most medically complicated
       states with time-limited enhanced federal         churning of eligible New Yorkers on and         and costly for both programs.

    governments. James Madison articulated              or social welfare policies. President Franklin    of President Lyndon Johnson’s effort to
    yet a third approach under which                    Roosevelt then engineered the creation of         create a “Great Society.” Even during the
    excessive and arbitrary government                  the New Deal welfare state, in which the          1970s, while President Richard Nixon spoke
    activity (at all levels) would be limited           federal government (sometimes alone and           forcefully of the need for a “new federalism”
    by checks and balances and divided                  sometimes in partnership with the states)         that would devolve power back to the states,
    political power.                                    became the key driver of both economic and        he also signed into law a host of new federal
                                                        social welfare policy. The inter-governmental     health care programs (such as the Health
    Rather than resolving these differences,            partnership has continued to grow ever            Maintenance Organization Act of 1973 and
    the United States Constitution provides             since. During the 1940s, for example, the         the National Health Service Corps) which
    support for each view, leaving to each              federal Hill-Burton Program provided              dramatically increased the federal role. Put
    generation the task of engaging in an               funds to state and local communities to           simply, over the last 75 years, the nation’s
    ongoing federalism debate. Prior to the             expand the nation’s hospital stock. During        economic and social welfare agenda has
    1930s, the Jeffersonian view dominated              the 1960s, the federal government not only        grown exponentially, almost always however
    and it was considered wrong (perhaps                enacted Medicare and Medicaid, but it also        with a mix of federal and state dollars, and
    even unconstitutional) for the federal              funded numerous local health care initiatives     a combination of federal, state, and local
    government to set or administer economic            (such as community health centers) as part        administration.

Good and Bad                                        resident with the same income is uninsured?
                                                    Why should a hospital in Pennsylvania
                                                                                                  First, any reforms enacted
Variation                                           receive far lower reimbursement than a
                                                                                                  by Congress and signed into
The merits (and demerits) of state discretion       similarly situated facility in New Jersey?    law by the President will be
and interstate variation are too often
                                                                                                  implemented in the nation’s
oversimplified and poorly understood.               The task (and the challenge) is to develop
Liberals generally tend to prefer federal           policies that minimize inappropriate          complicated and entrenched
health care leadership, arguing that some           interstate variation and maximize useful      set of inter-governmental health
basic level of access to care ought to be a         variation. Otherwise put, the policy
right of citizenship and not subject to the
                                                                                                  care partnerships. Second, any
                                                    challenge is to figure out who should do
vagaries of local political culture and politics.   what within the increasingly complicated      reforms enacted by the national
Liberals also suggest that the health care          inter-governmental partnership.               government should take into
crisis is a national problem that requires
                                                                                                  account the enormous inter-state
                                                    Health Reform in 2009
national solutions, and that even the best
state-based initiatives are generally financed                                                    (and intra-state) variation in the
largely with federal (Medicaid) dollars. The        The current health reform debate has
                                                    focused on two issues: cost and coverage.     nation’s health care system. Third,
longstanding counter-argument is that in
a large and heterogeneous society, state            To different degrees and with different       there is very little public discussion
discretion and variation might enable policy        priorities, reformers hope to provide
                                                    health insurance to the nearly 50 million
                                                                                                  of either of these two issues.
to more accurately reflect local needs. Local
control is also arguably more democratic,           Americans who are currently uninsured,
more accountable, and (according to some)           to finance that coverage with some
                                                    combination of new tax revenues and           The financing and cost-containment
more innovative. Finally, local control                                                           strategies also can be divided into three
presumably enables the states to serve as           effective cost containment measures, and
                                                    to more generally slow the rising cost of     general groupings. First are proposals
“policy laboratories,” trying and testing new                                                     to raise new revenue through new taxes.
ideas before enactment and implementation           the nation’s health care bill.
                                                                                                  There is increased attention, for example,
on a national scale. Of course, the lessons                                                       to the idea of treating at least some of
learned in the health policy laboratory             The coverage expansion proposals can
                                                                                                  the health insurance premiums paid
often depend on the analyst. The reforms            be divided into three broad categories.
                                                                                                  by employers as taxable income to the
enacted in Massachusetts in 2006 seem, for          First are proposals to expand publicly-
                                                                                                  employee. Second are initiatives that
example, to be a model that some national           funded insurance coverage, ranging from
                                                                                                  would cut the amount that government
policymakers hope to follow. Others argue           the incremental (expand Medicaid or
                                                                                                  pays Medicare Advantage health plans
that the Massachusetts model illustrates why        SCHIP or Medicare coverage) to the more
                                                                                                  or Medicare and Medicaid health care
comprehensive coverage expansions without           ambitious (create a new public health
                                                                                                  providers. Third are a host of more
equally comprehensive cost-containment              insurance program for the uninsured,
                                                                                                  general efforts to restructure the health
measures are problematic.                           which might also be available as an
                                                                                                  delivery system, often by imposing pay-
                                                    option to those with private coverage).
                                                                                                  for-performance methodologies that
Despite the rhetorical and philosophical            Second are efforts to use the federal
                                                                                                  would presumably encourage both lower
arguments, however, nearly all would agree          government’s regulatory authority to
                                                                                                  costs and more value-based purchasing.
there are times when centralization (and thus       mandate expanded coverage, either via
                                                                                                  These more general proposals are often
federal leadership) is needed and that there        an employer mandate (a requirement
                                                                                                  linked with efforts to encourage greater
are times when variation (and thus state and        that employers either provide full-time
                                                                                                  use of health information technology,
local leadership) is more appropriate. For          employees with affordable coverage or pay
                                                                                                  greater reliance on comparative
example, the home care delivery system in           into a public health insurance fund) or an
                                                                                                  effectiveness studies, and expanded
New York City should look very different            individual mandate. Third are initiatives
                                                                                                  adoption of various care management
from its counterpart in rural Idaho. Similarly      that seek to make private health insurance
local health departments need flexibility to        more available and more affordable to the
assess and then respond to community-based          uninsured. The most common ideas in
                                                    this category are to create a new “health     There is no way to predict which coverage
needs. Local needs do differ. At the same
                                                    insurance exchange” that would serve as       expansions will be enacted or how such
time, however, there is little justification for
                                                    a purchasing pool for the uninsured, to       expansions will be financed. It is too soon
certain forms of interstate variation. Why
                                                    provide tax credits, or to encourage the      to say whether this will be another sad tale
should a low-income resident of California
                                                    growth of high-deductible and thereby         of disappointment and failure, an inspiring
receive Medicaid coverage while an Alabama
                                                    low-cost private insurance policies.          story of comprehensive reform, or something

in the middle. But there are three facts that        programs that receive federal funding              commercial insurers, others on non-profit
    are exceedingly clear. First, any reforms            (between 50-77 percent of total costs) so long     health plans, and still others act as the plan
    enacted by Congress and signed into law by           as the programs follow some basic federal          themselves. There is also interstate variation
    the President will be implemented in the             rules. Between 1965 and the mid-1980s,             in cost-containment strategies, programs
    nation’s complicated and entrenched set of           federal Medicaid law contained relatively few      for the chronically ill, and value-based
    inter-governmental health care partnerships.         detailed requirements, delegating instead          purchasing.
    Second, any reforms enacted by the national          broad decision-making authority to the
    government should take into account the              states. States used this discretion to develop     Perhaps surprisingly, Medicaid has received
    enormous inter-state (and intra-state)               extraordinarily diverse programs, with very        relatively little attention in the current health
    variation in the nation’s health care system.        different eligibility standards, quite distinct    reform debate. To be sure, the Democrats in
    Third, there is very little public discussion of     benefit packages, and fundamentally different      Congress have generally proposed additional
    either of these two issues.                          approaches to provider reimbursement.              coverage mandates, prompting the nation’s
                                                                                                            governors to complain that states cannot
    This is not to suggest that members of               Beginning in the mid-1980s, however, the           afford their share of such an expansion.
    Congress will not look out for their own             federal government significantly increased its     Of course the states’ ability to afford their
    constituents. There is little doubt, for             control over state Medicaid programs. The          share of a mandatory expansion will vary
    example, that the legislators in high-cost           most obvious example was a host of federal         depending on the state’s current eligibility
    states are less likely to support proposals to       rules requiring states to dramatically expand      criteria, the condition of its budget, and the
    cap the tax exclusion now given to employee          eligibility standards, especially for pregnant     percentage of the expansion that is funded
    health insurance premiums than are their             women and children, but there also were            just with federal dollars. Moreover, federal
    counterparts in low-cost states. Similarly, the      new federal rules governing benefits and           Medicaid expansions could impact other
    National Governors Association and other             reimbursement as well. One consequence of          state initiatives (such as CHIP eligibility, or
    organizations representing state interests           the new rules was a dramatic expansion in          other state programs to aid the uninsured) as
    continue to press for local autonomy (fueled         enrollees and expenditures. More generally,        well as ongoing state managed care initiatives
    by federal funding). Nonetheless, there is           however, the programs’ inter-governmental          (whether the current provider networks have
    surprisingly little discussion about which level     partnership soon became far more                   the capacity to accommodate the expansion
    of government should do what in a reformed           controversial and contentious. Several states      population). Finally, federal officials ought to
    health care system. Nor is there enough              began efforts to use provider taxes and other      consider how Medicaid can provide a model
    discussion of how different proposals might          more complicated fiscal strategies to shift        for reform. Consider, for example, the debate
    have different impacts in different states. To       costs to the federal treasury, prompting federal   over the proposed public plan option. State
    illustrate these points, consider the federalism     officials to complain that states were trying to   Medicaid managed care programs illustrate
    implications of three aspects of proposed            game the system to leverage federal dollars.       how such an option might work in practice,
    health reforms: a Medicaid expansion; a new          This inter-governmental battle continues           whether the public plan contracts with private
    health insurance exchange; and an ambitious          today. Meanwhile, states also complained that      insurers (as do some state programs) or if it,
    care management initiative.                          federal officials were inhibiting innovative       instead, is the state itself that contracts with
                                                         delivery system reforms by denying, delaying       health care providers (as in state primary care
                                                         or micro-managing state requests for waivers       case management programs).
    Federalism and                                       from general federal rules. These battles also
    Finance: The                                         continue today.
                                                                                                            Federalism and
    Proposed Medicaid                                    The ongoing inter-governmental tension             Regulation: The
    Expansion                                            over Medicaid policy is, however, only one         Proposed Health
    Medicaid, enacted by Congress in 1965,
    provides government-funded health
                                                         feature of its current incarnation. Two
                                                         other features are also worth noting. First,       Insurance Exchange
    insurance to nearly sixty-five million low-          despite the federal mandates and the more          The health reform proposals now before
    wage Americans. It is the core of the nation’s       complicated inter-governmental partnership,        Congress generally contain a host of new
    health insurance safety net. It is likely to be an   state Medicaid eligibility standards still vary    rules to govern the nation’s private health
    important component of any comprehensive             quite significantly, especially with respect to    insurance industry. For example, new federal
    health reform initiative. It is also one of the      coverage of adults. Second, there is similar       legislation could well require private insurers
    nation’s most complicated and controversial          variation in state delivery system, quality, and   to offer coverage to all applicants regardless
    inter-governmental partnerships. For starters,       payment initiatives. For example, most states      of health status. Such legislation also could
    Medicaid is not a single national program but        encourage or require beneficiaries to be part      limit the ability of private insurers to charge
    it is instead a collection of state-administered     of a managed care initiative, but some rely on     higher premiums to the sick, and it might

State Response by Christopher F. Koller, Health Insurance Commissioner, Rhode Island
   Defining the respective roles of state and       and individual commercial health insur-         technology standards, and clinical practice
   federal governments in health reform begs        ance underwriting is overseen. States           standards. The federal government’s role in
   the resolution of a fundamental conflict in      permit rating based on myriad combina-          defining standards for clinical quality should
   the debate: are we constructing a personal       tions of age, gender, geography, pre- ex-       draw from its role in defining highway and
   insurance system—with the goal of minimiz-       isting conditions, benefit exclusions and       airline safety.
   ing personal bankruptcies—or a medical           smoking status, and allow rating varianc-
   care financing system—with the goal of           es for the same product anywhere from           Since medical care is delivered locally, by
   assuring the provision of some basic level       200 percent to many multiples.                  locally-based providers, market oversight
   of medical care to all? U.S. policy appears                                                      should reflect that. The states, as Sparer
   desperately to want it both ways—bestow-         How will the federal and state govern-          notes, would facilitate the reorganization
   ing entitlements for medical care to the         ments reframe their sometimes-awkward           of delivery systems—including the hard
   elderly, the disabled and low-income families    partnership with the passage of any             work of coordinating provider payments—
   while demanding private insurance to fund        health reform? Much rides on whether            to improve quality and lower costs. Our
   routine maintenance and minor repairs. In        and how such federal laws address the           experience in Rhode Island is that this is
   the absence of a federal resolution to this      “bankruptcy protection” vs. “medical care       possible but requires significant collabora-
   conflict, state policymakers and regulators      financing” conflict noted above.                tion and state leadership, and is markedly
   address it locally, incompletely and with—as                                                     more difficult if Medicare and ERISA plans
   Sparer notes—great variation.                    Federal reforms with an individual mandate      do not come to the table.
                                                    and a corresponding employer requirement,
   State regulators have historically enforced      a subsidy for low income people, and a          Besides Sparer’s other state role of admin-
   on health insurers a set of rules devel-         more structured health insurance market         istering insurance programs for low wage
   oped for all lines of insurance, focusing on     that standardizes underwriting rules point      workers (and non workers), states could
   consumer protection and financial solven-        toward a view of health insurance mark-         also elect to oversee the markets (at least
   cy. Recognizing the health insurance was         edly different from other lines of insurance    for small groups and individuals) for medical
   “different” from other lines, some states in     and closer to the medical care financing        care financing products—including product
   the 1990s enacted statutes responding            perspective. The resulting state/federal        standards, transparency and consumer
   to public concerns regarding managed             partnership should recognize that creating      protection—and be the enforcers of federal
   care (statutes now largely marginalized          greater distinctions between the oversight of   standards on players in the market. States
   by market shifts to PPOs). These were            the medical care financing markets and the      have consistently proven capable of this
   grafted on to existing insurance depart-         oversight of other insurance markets.           but it conflicts with the political and cul-
   ments (as in Massachusetts), placed in                                                           tural ascendancy—at least until the recent
   public health agencies, or given their           In such a world the federal government          recession—of increased nationalization of
   own home (California). In subsequent             would be the standard setter and the            financial markets and their oversight.
   evolutions some states have attempted to         financier. Federal policymakers would define
   give regulators broader authority over the       the “floor” above which states could add        The result—in theory—would be a set
   affordability of commercial health insur-        their own requirements in areas such as         of local markets with more consistent
   ance than other lines of insurance (Rhode        underwriting rules, minimum benefit levels,     clinical, consumer protection and market
   Island) or the market for health insurance       affordability standards, and subsidy levels.    conduct standards than exist currently,
   (Massachusetts’ Connector Authority).            The federal government would provide the        and more attention to equity and fairness
                                                    base subsidies themselves and spur quality      and less emphasis on product variation
   As has been much documented, even                improvement and cost control through            and capital formation than the markets for
   greater variation exists in how small group      Medicare payment reform, information            other types of insurance.

prohibit insurers from excluding pre-existing      the nation’s longstanding approach to             was consistent with state oversight of other
,conditions from new coverage. Federal             insurance regulation. Indeed, as the              insurance markets, including life, home,
policymakers also are considering legislation      private insurance industry evolved during         and automobile insurance.
that would create one or more “health              the 1950s and 1960s, it was the states
insurance exchanges,” administrative entities      that regulated their conduct, imposing            In 1974, however, in an effort to respond
that would facilitate a regulated health           capitalization and reserve requirements,          to a crisis in the nation’s pension industry,
insurance marketplace.                             limiting (in some states) predatory               the federal government unintentionally
                                                   marketing practices, and in a handful of          preempted state oversight of much of the
These proposed federal forays into health          states regulating the reimbursement rates         private insurance industry. The goal of the
insurance markets are a departure from             paid to hospitals. This regulatory regime         federal Employee Retirement and Income

State Response by Craig Jones, Director of the Vermont Blueprint for Health
       Since passing its 2006 landmark health          Guiding legislation calls for a highly         Cost effective care depends on health in-
       reform legislation, Vermont has maintained      coordinated statewide approach to health       formation being available when and where
       an intensive commitment to comprehen-           care wellness and disease prevention.          it is needed. Vermont has committed to
       sive health reform that includes universal      Vermont’s Blueprint for Health is leading      building a statewide health information
       coverage, a novel delivery system built on      this transformation with pilots in three       exchange, expanding the use of electronic
       a foundation of medical homes and com-          communities that include patient centered      medical records (EMRs), and funding these
       munity health teams, a focus on preven-         medical homes supported by community           initiatives with a Technology Fund (us-
       tion across the continuum of public health      health teams. At the core of this model        ing a surcharge on paid medical claims).
       and health care delivery, a statewide health    is financial reform with all major insurers    EMR use is steadily expanding through
       information exchange, and a robust evalu-       participating except Medicare. In addition     state-funded and independent initiatives.
       ation infrastructure to support ongoing         to usual payment, primary care practices       Increasingly, hospitals and practices are
       improvement with quality and cost effec-        receive an enhanced payment based on           feeding data through the exchange to a
       tiveness as guiding principles. The es-         the quality of care they provide. Insurers,    common web-based clinical registry that
       sential ingredient has been bipartisan and      including Medicaid, also share the cost        can support patient care in practices with-
       visionary leadership provided by Governor       for community health teams, which in-          out EMRs, along with the care coordina-
       James Douglas and the state General             clude members such as nurse coordina-          tion and population management activities
       Assembly. From policy to implementation,        tors, social workers, and behavioral health    of the community health teams.
       Vermont’s reforms are designed to provide       counselors who provide support and
       access to high quality health care for all      work closely with clinicians and patients      Ongoing evaluation and quality improve-
       of its residents, and to improve control of     at a local level. The teams also include a     ment are integral to Vermont’s reform
       health care costs.                              public health specialist dedicated to com-     efforts. Steadily, the information infra-
                                                       munity assessments and implementation          structure is being developed so that
       Vermont has approached universal cover-         of targeted prevention programs.               routine analyses, reporting dashboards,
       age through CHIP, expanded Medicaid                                                            and comparative benchmarks can pro-
       eligibility, and work with commercial insur-    The model is designed to be scalable           vide transparency and guide a continu-
       ers to establish health plans that offer af-    and adaptable, from small independent          ously evolving health care environment.
       fordable coverage to residents who cannot       practices to large hospital based prac-        Data sources such as the common
       afford private insurance. The most recent       tices, and from rural to urban settings.       clinical registry, public health registries,
       example is Catamount Health, a private-         Financial sustainability depends on reduc-     and supplemental evaluations using
       public partnership offering high quality        ing avoidable acute care, and insurers         chart reviews and surveys are part of a
       coverage with income-adjusted subsidies         shifting expenditures from contracted          multi-dimensional evaluation framework.
       through commercial insurers. At the same        disease management to local community          A key element is a new multi-payer claims
       time that these coverage reforms have           health teams. For both the community           database that will enable true financial
       reduced the uninsured population from 9.8       care teams and enhanced provider pay-          monitoring of reform efforts. Again, Medi-
       percent in 2005 to 7.6 percent in 2008,         ment, the state is subsidizing Medicare’s      care’s participation is the crucial missing
       the state has implemented a balanced set        proportional funding to make the pilots        component in this data repository.
       of delivery system and health information       whole. However, long-term clinical suc-
       technology reforms to ensure that those         cess and financial sustainability depend       In sum, health care reform cannot be truly
       coverage improvements can be sustained.         on Medicare’s full participation.              successful without a Medicare partnership
                                                                                                      with states.

    Security Act (ERISA) was to impose federal        large firms in the United States self-insure,    Many states required insurers to provide
    standards on the nation’s pension system, but     leaving the states to focus their regulatory     coverage to all applicants (guaranteed
    the law has also preempted state regulation of    efforts on the small-group and individual        issue), required insurance renewal even
    firms and unions that establish self-insured      insurance markets.                               if the policyholders medical condition
    health plans (even when they hire private                                                          worsened (guaranteed renewal), and
    insurers to administer their self-insured         During the mid-1990s, following the              limited insurers ability to deny coverage
    plans). ERISA also generally prohibits states     failure of the Clinton reform initiative,        for conditions that began prior to the
    from enacting employer mandates and it            state officials enacted a host of incremental    date of enrollment. Some states also
    limits the rights of millions of consumers to     efforts designed to make health insurance        encouraged or created purchasing
    sue their health plans for the wrongful denial    more available and more affordable in            alliances, permitted insurers to sell “bare
    of care. Largely as a result of ERISA, most       the small group and individual markets.          bones” (and presumably less expensive)

State Response by Jason Helgerson, Medicaid Director, Wisconsin
   Wisconsin launched an ambitious, long-          by Medicaid. They are individuals and             BadgerCare Plus for childless adults is
   term health care reform agenda in January       married couples between the ages of 19            a data driven program with a focus on
   2006 with Governor Jim Doyle’s announce-        and 64 who are not pregnant, disabled,            health outcomes. Childless adults are
   ment of his “Affordability Agenda” to ensure    or qualified for any other Medicaid, Medi-        required, as a condition of enrollment,
   that all Wisconsin residents have access        care, or CHIP program. Only a handful             to complete a health needs assessment
   to affordable health care coverage. The         of states pursued federal waivers to allow        (HNA) so the state can help match them
   policy solution to expanding coverage           expansions to cover childless adults.             with health plans and providers that best
   was creation of a single health care safety                                                       meet their needs. The HNA also allows
   net—BadgerCare Plus. BadgerCare Plus            The Centers for Medicare and Medicaid             the state to gather baseline data on the
   is a comprehensive statewide program            Services (CMS) approved Wisconsin’s Title         health status of childless adults that will
   to ensure that 98 percent of Wisconsin          XIX Demonstration Waiver to expand Bad-           assist CACHET in making recommenda-
   residents have access to health insurance. It   gerCare Plus to include childless adults by       tions on covered services.
   represents a classic example of the essential   allowing the state to finance the expansion
   and critical partnership between a state and    using reconfigured Disproportionate Share         In all of these reforms, the state of Wis-
   the federal government to provide coverage      Hospital (DSH) funds. Wisconsin is able to        consin has served as an effective partner
   to more people.                                 use the DSH money, typically used to cover        to the federal government, making these
                                                   emergency services for uninsured patients         state-federal programs more cost-
   The first phase was expansion of cover-         provided through hospitals, for primary and       effective and responsive to the needs of
   age to all children, implemented in 2008.       preventive care to previously uninsured           enrollees. Through administrative simplifi-
   BadgerCare Plus dramatically streamlined        childless adults through basic, cost-effective    cation and working with local community
   eligibility by merging family Medicaid, Bad-    services known as the Core plan.                  groups, the state has lowered the barriers
   gerCare (the Children’s Health Insurance                                                          that prevented people from obtaining
   Program), and Healthy Start—making the          Under the waiver, Wisconsin has the               needed health coverage.
   program easy to understand, enroll in, and      flexibility to adjust the benefit package to
   administer. The program was rebranded           control costs. A Clinical Advisory Commit-        Moving forward, the state of Wisconsin
   as “health insurance for all children,” thus    tee on Health and Emerging Technology             would like to see continued federal finan-
   significantly reducing the stigma often as-     (CACHET) was formed to advise the state           cial commitment to Medicaid unless an
   sociated with public programs.                  on how best to structure the health insur-        exchange plays a broader role in national
                                                   ance benefit to meet the needs of the             health care reform. Wisconsin is excited
   In 2009, BadgerCare Plus was expanded           population as well as control costs. The          that national health care reform is finally at
   to cover low-income childless adults, the       CACHET consists of health care profes-            the top of the federal policy agenda.
   most chronically uninsured people in Wis-       sionals from across Wisconsin and across
   consin and those traditionally not covered      health care disciplines.

limited-benefit policies, created high
risk pools, provided tax credits, and even
                                                   policies. It is equally unclear how these
                                                   policies would mesh with the existing (and
                                                                                                       Federalism and Health
prohibited insurers from relying on health         varied) set of state regulations. Consider,         Care Delivery: The
status when setting premiums.                      for example, the proposed health insurance          Proposed Focus on
A sharp debate over the effectiveness of the
                                                   exchange. Would there be a single national
                                                   exchange or multiple state-based exchanges?
                                                                                                       Care Management
                                                                                                       The American health insurance system
state-based insurance reform initiatives           If there were a national exchange, who would
                                                                                                       that emerged following World War II was
persists, but states continue to tinker with       administer it and how would it interact
                                                                                                       predicated on two key assumptions: there
these and similar insurance reforms. At the        with the existing (and varied) set of state
                                                                                                       should be a clear separation between the
same time, however, federal officials in the       insurance regulations? If there were multiple
                                                                                                       provider of care and the payer of care
late 1990s enacted their own modest version        state-based exchanges, would states need
                                                                                                       (to protect physician autonomy) and the
of insurance reform (in the Health Insurance       to create new administrative agencies (as
                                                                                                       physician should be paid a separate fee
Portability and Accountability Act of 1996         in Massachusetts) or rely on their existing
                                                                                                       for every service provided. By the early
[HIPAA]) and today are considering enacting        administrative infrastructure? Who would
                                                                                                       1970s, however, policy analysts were noting
additional insurance reforms (including            pay for and supervise either situation? More
                                                                                                       four fundamental problems with this
guaranteed issue, community rating, and a          generally, how will the proposed set of federal
                                                                                                       arrangement: 1) fee-for-service medicine
health insurance exchange) at the national         insurance reforms impact the current inter-
                                                                                                       was inflationary; 2) unbridled physician
level. It is entirely unclear, however, which      governmental regulatory regime?
                                                                                                       autonomy led to substantial variation in
level of government would administer such
the practice of medicine; 3) there was little      These efforts to restructure the health care       programs that cannot easily accommodate
     evidence that more expensive care was              delivery system are critical components            new national mandates. The proposed
     necessarily better care; and 4) there was little   of any health care reform agenda. Indeed           health insurance exchange will have a
     care coordination between most patients’           policymakers are seeking to develop                dramatic impact on state’s longstanding
     health care providers. These factors soon          financial incentives and organizational            responsibilities to regulate the private
     contributed to the so-called managed               strategies that will encourage the health care     insurance industry. Efforts to restructure
     care revolution, under which providers             system writ large to look more like some           the health care delivery system must both
     presumably would either be salaried                of the high-quality and relatively low-cost        accommodate and acknowledge the diversity
     or would receive capitation payments,              systems (such as the Mayo Clinic) that are         in local health care marketplaces.
     physician gatekeepers would coordinate             viewed as models to be emulated.
     care, and health services researchers would                                                           The hard and complicated task is to develop
     develop practice guidelines and protocols          Two caveats, however, should accompany             a new and better inter-governmental health
     that would standardize care and reduce             such initiatives. First, national efforts to       care partnership that at times provides
     inappropriate utilization.                         restructure health care delivery systems           centralized (and thus federal) leadership
                                                        cannot simply or easily be imposed on              and at other times allows for local diversity
     By the mid-1990s, however, the managed             local health care markets. Indeed, this is         and inter-state variation (and thus state
                                                                                                           and local leadership). But there is no magic
     care industry was in retreat, as physicians        an arena in which state and local officials
                                                                                                           formula. At best there are general principles
     complained about reductions in autonomy            may be better equipped to work with
                                                                                                           that might guide the effort. For example,
     and income and consumers complained                community-based providers and payers to
                                                                                                           the federal government likely needs to
     about restrictive provider networks and            organize and encourage such initiatives.
                                                                                                           determine how the system will be financed
     wrongfully denied care. In response, the           Second, state-based leadership in this arena
                                                                                                           and it ought to provide general rules
     industry minimized some of its more                might be particularly appropriate since            governing the behavior of health insurers.
     unpopular practices (such as requiring             some variation in local delivery is not only       Meanwhile, state and local governments
     written referrals for in-network care) and         inevitable, it is perfectly appropriate. The       are likely best able to work in local health
     focused instead on profiling the practice          structure of a “medical home” in rural             care markets to reorganize health delivery
     patterns of their providers. Insurers              Arizona will and should look very different        systems. States might also be best suited
     also tried to develop new payment                  from such an organizational approach in            to administer insurance programs for low-
     methodologies that would encourage                 urban New York.                                    wage workers. These, of course, are just
     higher quality care (so-called “pay-for-                                                              some of the possibilities. What should
     performance” or “value-based purchasing”
     initiatives) and to develop new care
                                                        Conclusion                                         be avoided, however, is the enactment of
                                                                                                           a host of new policies that dramatically
                                                        President Obama and Congress are working
     management protocols.                                                                                 but inadvertently change the health care
                                                        to enact legislation that will make dramatic
                                                                                                           inter-governmental partnership. Instead,
                                                        changes in the nation’s health care system.
     At the same time, federal and state officials                                                         any changes to the inter-governmental
                                                        The goals include providing coverage to            partnership should be carefully considered
     also began encouraging value-based                 the uninsured, financing that coverage with        and designed to produce better policy
     purchasing as well as care management              some combination of new tax revenues and           outcomes.
     initiatives. Medicare, for example, has            effective cost containment measures, and
     implemented pilot pay-for-performance              more generally slowing the rising cost of the      So how should policymakers proceed? One
     programs for both hospitals and physicians         nation’s health care bill. While the outcome       option would be to establish a task force,
     and is now planning to expand their scope.         of the legislative process is unclear, any new     work-group, or some similar institutional
     Similarly, nearly every state Medicaid             federal programs will need to fit with the         mechanism, comprised of federal, state and
     program has developed a range of care              nation’s complicated and entrenched set of         local officials, which would focus on the
     management initiatives, which include              inter-governmental partnerships, and will          federalism and implementation implications
     efforts to focus on particular chronic                                                                of both proposed and enacted reforms.
                                                        need to accommodate the inter-state (and
     illnesses (“disease management”), programs                                                            This new entity could collect data on inter-
                                                        intra-state) variation in every aspect of the
     that focus on the relatively few high-cost                                                            state variation, consider whether and when
                                                        nation’s health care system. This will not be
     patients that have several chronic conditions                                                         such variation is appropriate, and propose
                                                        an easy task, as illustrated by the case studies
     (“care management”), and more expansive                                                               policies that are responsive to such findings.
                                                        highlighted in this issue brief. Medicaid is a
     efforts to provide a so-called “medical                                                               Put simply, such an
                                                        collection of fifty diverse state-administered
     home” to all beneficiaries.

institutional mechanism could be
a first step to acknowledging and
                                            About the Author                                Acknowledgements
                                            Michael Sparer, J.D., Ph.D. is Professor and    Dr. Sparer would like to thank the state
accommodating the critically important
                                            Chair in the Department of Health Policy        leaders who generously contributed
federalism and implementation
                                            and Management at the Mailman School            their valuable time and insight in the
implications of any health care reform.
                                            of Public Health, Columbia University. Dr.      responses included in this paper. He
But even if policymakers do not create
                                            Sparer studies and writes about the politics    also acknowledges and thanks Enrique
a new inter-governmental institutional
                                            of health care. Much of his work focuses on     Martinez-Vidal, Isabel Friedenzohn, and
entity, they should more carefully and
                                            the politics of public insurance programs,      Shelly Ten Napel from the State Coverage
more explicitly consider the inter-
                                            including Medicaid and Medicare, and            Initiatives program for their helpful
governmental implications of any
                                            ways in which inter-governmental relations      comments and suggestions. Finally, he
proposed reform. As illustrated in
                                            influences health policy. He is the author of   gratefully acknowledges Richard Nathan,
this issue brief, health reform will be
                                            “Medicaid and the Limits of State Health        Director of the Rockefeller Institute; Alan
administered by a complicated inter-
                                            Reform,” as well as numerous articles and       Weil, Executive Director of the National
governmental partnership, and it will be
                                            book chapters, and he is the editor of          Academy for State Health Policy; and
implemented in a nation in which health
                                            the Journal of Health Politics, Policy and      Lawrence Brown and Sherry Glied,
care systems vary significantly between
                                            Law. Previously, Dr. Sparer spent seven         colleagues from Columbia University, for
and within states. Acknowledging and
                                            years as a litigator for the New York City      their helpful comments and insights.
responding to these variables is a
                                            Law Department, specializing in inter-
critical component of a successful health
                                            governmental social welfare litigation.
reform agenda.

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