Fiscal Fitness: How State Cope

States taking on health insurance expansion; sustainability is the universal challenge

Frustrated with federal inaction to reduce the ever-growing numbers of those without health insurance, many states are involved in reforms with a variety of approaches to cover the uninsured, including new mechanisms to subsidize coverage for low-income families, new variations on employer and personal responsibility for health insurance coverage, and new strategies to facilitate purchase of insurance for small businesses and for individuals without access to employer-sponsored coverage. A Commonwealth Fund report on "State Strategies to Expand Health Insurance Coverage: Trends and Lessons for Policymakers" says the boldest state-level efforts are focused on comprehensive, near-universal coverage, while others concentrate on incremental approaches such as providing coverage for children or public-private partnerships to insure low-income workers.

But even as states are moving forward with their reforms, a word of caution is sounded in a Health Affairs study of what happened in Oregon when its comprehensive reforms could not be sustained.

The Commonwealth Fund strategies report notes the number of uninsured climbed to 47 million in 2005, the result of a steady increase since 2000. However, even more disturbing to analysts is a trend line indicating the number of uninsured could reach 56 million by 2013. The increase in the number of uninsured can be explained in large part by a decline in employer-sponsored insurance, the report says. In 2000, 68% of working-age adults were insured through their employer or through a family member's employer. By 2004 only 63% had employer-based insurance, and there were 3.4 million more uninsured.

The study says almost 75% of the decline in employer-sponsored insurance resulted from fewer employers offering coverage and more employers tightening eligibility requirements for workers and dependents. Thus, lack of access to affordable health care has become a major concern for many people.

The boldest reform proposals coming out of states, say authors Alice Burton, Isabel Friedenzohn, and Enrique Martinez-Vidal, have come from states in the Northeast. Comprehensive reforms in Massachusetts, Vermont, and Maine go further toward helping low-income families purchase health insurance than in any other states. One of the key elements in all three states, they say, is that they subsidize coverage for families with annual incomes up to approximately $53,000 for a family of four (300% of the federal poverty level). Each of the states uses Medicaid to partly fund its subsidized product, showing how important Medicaid still is as a financing source. But they also have included other reforms that reflect local priorities.

New approach in Massachusetts

Massachusetts broke new ground with its requirement that individuals purchase health insurance. Those who can afford insurance are required to obtain it by July 1 or risk loss of their personal exemption for 2007 income taxes. In future tax years, the penalty will include a fine equaling half the monthly cost of health insurance for each month without coverage.

Vermont's Catamount Health has a goal of assuring insurance coverage for 96% of Vermonters by 2010. The plan provides a new subsidized insurance product for uninsured families with incomes up to 300% of the federal poverty level and a requirement that employers contribute to health care costs. Employers will pay an annual assessment of $365 per full-time employee for their uninsured workers. And Catamount will offer a premium assistance program to low-income individuals with access to employer-sponsored insurance who have previously been unable to afford insurance.

Funding for Catamount comes from several sources, including an increased tobacco product tax. The plan also relies heavily on chronic care management.

Maine's Dirigo Health comprehensive reform program relies exclusively on voluntary measures to expand insurance coverage. There is no individual mandate and no assessment on employers who fail to provide coverage.

A DirigoChoice health insurance product is available to small businesses, the self-employed, and eligible individuals without access to employer-sponsored insurance. The program offers sliding-scale discounts on monthly premiums, reductions in deductibles, and out-of-pocket maximums to enrollees with incomes below 300% of the federal poverty level.

The report says several other states are pursuing less-than-comprehensive but still significant approaches. For example, some states are moving toward covering all children. Thus, Illinois passed the Covering All Kids Health Insurance Act, making insurance coverage available to all uninsured children. As of the beginning of the year, All Kids was made available to any child who has been uninsured for at least 12 months, with the cost to the family calculated on a sliding scale. Pennsylvania has announced development of a Cover All Kids program, Tennessee has passed a Cover Kids Act, and Oregon, Washington, Wisconsin, and New Mexico are considering similar initiatives.

Partnering with private employers

Also, several states have developed partnerships with private employers and insurers to cover low-income workers. Such collaborations have taken a number of different forms, reflecting the different regulatory and market environments in each state, as well as particular compromises that state policy leaders were able to achieve, the authors say.

The study notes this "is not the first time that state policy leaders have taken the lead in attempting to improve insurance coverage in their states. The recent reforms build on at least a decade of state experiments, most of them of limited impact, that ranged from comprehensive attempts to numerous incremental approaches."

Ms. Burton and her colleagues say these latest reforms are more promising than the earlier ones because they are based on some common, hard-won lessons, such as:

  • Comprehensive state reforms take time because they build off prior efforts and in-place financing mechanisms;
  • Reforms attempt to stem the erosion of employer-sponsored insurance;
  • Successful efforts to enact reforms often expect shared financial responsibility, and some state officials are beginning to recognize the need for mandatory participation;
  • Coverage expansions often rely on private insurers to deliver care;
  • Voluntary purchasing pools, as a stand-alone strategy, are not likely to be sufficient to expand coverage;
  • Medicaid benefits are being redesigned through new reforms, but so far those efforts don't include coverage expansions;
  • Many state reforms address cost and quality as well as health insurance coverage.

State efforts have fueled enthusiasm that states can lead the way in addressing the problem of the uninsured. Ms. Burton says that state efforts can test coverage strategies both politically and practically, informing and providing lessons to other state and national leaders; however, her sense is that the variations among states are far too great for state-by-state reform to lead to a national solution for the country's uninsured.

The most recent data on the uninsured show a threefold variation across states, the report says. The states leading the way with comprehensive solutions all have uninsured rates lower than the national average. But a few states have uninsured populations that are close to a quarter of their population, making it unlikely they will be able to consider the universal coverage goals of the comprehensive reform states. And there are significant differences in the resources and funding streams that states have available, typically because of variation in income distribution. States often build their current reforms on prior strategies to expand coverage and on public investments in coverage for low-income individuals. States with prior health coverage investments through Medicaid and safety net funding have already addressed a portion of their uninsured problem. But states that have not made significant prior investments in coverage have to find new funding sources, and without federal financial assistance to help low-income states, they will not be able to act, the report says.

Although there is a history of the federal government fostering state innovations, issues now arising include how new state strategies will be financed and whether states will be required to find savings to finance coverage expansions.

Report co-author Enriques Martinez-Vidal, deputy director of Academy Health's State Coverage Initiatives Program, tells State Health Watch he believes a national solution will ultimately be needed, despite the current state activities. "But in the meantime," he says, "states have to do what they have to do and can demonstrate things that work." He says there is a question of scale replication and whether there are things the federal government could do that individual states can't do for a number of reasons.

"One hopeful thing is the politics in Massachusetts and Vermont where leaders were able to develop bipartisan answers with all stakeholders participating," Mr. Martinez-Vidal says. "They reached a comprehensive solution that furthers their desire to help people."

Mr. Martinez-Vidal agrees that sustainability of any reform effort is a key issue. He tells SHW states are seen trying to address sustainability by looking at the health care system as a whole rather than trying to deal with only coverage issues. "They're trying to figure out how to make the system better and more efficient," he says, "by merging delivery system improvements with coverage expansion." He cites Vermont's chronic care management plan as a good example of taking a broader system approach.

The report says Vermont's reforms heavily emphasize chronic care management, both in the benefit design of the Catamount Health product and in other products offered by the state such as the State Employees' Health Plan and Medicaid. The coverage expansion is aligned with the Chronic Care Initiative of the state's Blueprint for Health. Managed by the Vermont Department of Health, the Blueprint is a public-private collaborative approach that seeks to improve the health of Vermonters living with chronic diseases and to prevent the complications of chronic disease. It uses the Chronic Care Model as the framework for system changes.

Mr. Martinez-Vidal says that while one hears a lot of talk in Washington about the importance of reducing the number of uninsured, it's hard to imagine the federal government coming up with significant funding to support state efforts because there are so many competing priorities.

No silver bullet

"There's no silver bullet to solve the problem of the uninsured," he says. "If there was one, we would have done it by now."

Meanwhile, Commonwealth Fund president Karen Davis said in a Feb. 17 British Medical Journal analysis that it is not likely the federal government will legislate a way to reduce the number of uninsured for several reasons. First, she says, uninsured people are not politically organized and do not represent a strong voting bloc. Also, funding options are scarce because the federal budget is in deficit and tax revenues are at their lowest point in 40 years. Adding to the political inertia, she says, Congress is deeply divided along party lines, with Democrats supporting comprehensive solutions to expand public programs and employer-based coverage and Republicans favoring market-based solutions that encourage consumers to shop around for cheaper health insurance and health care prices.

Ms. Davis suggests an alternative way to finance expanded coverage through reinvesting savings gained through increased efficiency. She says aligning incentives with results by reforming provider payments to reward high-quality, patient- centered, and efficient care is one strategy for financing expanded coverage.

She lists these actions the federal government could take to help achieve universal coverage:

  • legislate to match state funding for coverage of low-income adults up to 1½ times the federal poverty threshold;
  • allow small businesses and uninsured people to purchase coverage through the Federal Employee Health Benefits Program;
  • require all businesses to either provide health benefits to all employees or contribute $1 per hour of work toward coverage under public programs, coupled with a requirement that everyone purchase coverage;
  • extend Medicare to uninsured adults ages 55-64 and eliminate the two-year wait before disabled people are eligible;
  • revise Medicare's payment system to reward higher quality and greater efficiency, with savings used to expand coverage;
  • dedicate 1% of income to financing expanded coverage and use existing subsidies for low-income charity care to finance expansion.

According to Ms. Davis, states could:

  • revise the SCHIP program to include low-income adults up to 1½ times the federal poverty threshold and children up to three times the threshold;
  • revise Medicaid's payment system to reward higher quality and greater efficiency, with savings used to expand coverage.

Download the Commonwealth Fund/Academy Health report at Contact Mr. Martinez-Vidal at (202) 292-6700. Download Ms. Davis' article at Contact Ms. Davis at (212) 606-3800.