Health Care Reform and American Federalism: The Next Inter-Governmental Partnership - September 2009
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Health Care Reform and
American Federalism:
The Next Inter-Governmental
Partnership
by Michael Sparer, J.D., Ph.D.
with responses from state health policymakers
September 2009
1With 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
2State 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
3State 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.
4Good 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
strategies.
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
5in 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
6State 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
7State 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)
8State 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
9the 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.
10institutional 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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