The battle for the passage of health reform may have been won, but the battle over putting it into practice is just beginning. That conflict will unfold not only in Congress, on K Street, and in the courts but also in the states, which are charged with identifying and enrolling the millions of Americans without insurance coverage. The performance of state governments -- how effectively they build on the scaffolding of federal reform, how wisely they spend the available federal dollars, how much backbone they show in resisting pressures from opponents of reform, and how much agility they display in correcting the inevitable technical errors -- ultimately will determine whether the Affordable Care Act fulfills its promise.
Establishing insurance exchanges to cover a projected 24 million people, expanding Medicaid to absorb another 16 million, and regulating how insurers treat everyone else is a staggering task. "Implementation is the short suit of American government," says Richard Nathan, a political scientist who is directing a research project on state health policy. "And this is the biggest implementation challenge I've ever seen."
So far most states are just toe-deep in reform. In both Washington, D.C., and the states, key decisions won't be forthcoming for months. Many states will put off decisions until after the November elections, particularly where the governorship is in play. But their initial responses as well as their record in implementing previous federal programs afford some basis for looking ahead.
Creating the exchanges requires states to make myriad decisions, both technical and ideological, that will help determine whether they can meet coverage goals and restrain insurance-rate increases. The states must decide whether to have separate exchanges for individuals and small businesses or to set up a single merged exchange. They must choose whether to split their state into different exchanges geographically or possibly to merge their markets with nearby states. They must determine how many and what type of health plans can participate in the exchanges and whether to regulate them above and beyond the as-yet unfinished federal rules. They must choose whether the exchange will be a public or private entity and how it will be governed.
The Affordable Care Act expands Medicaid to cover everyone in households earning up to 133 percent of the federal poverty level, including childless adults who are now covered in only a few states. According to an Urban Institute analysis, from 2014 to 2019 the federal funds will cover 95.4 percent of the costs -- $444 billion compared to $21 billion from the states. Ironically, the states that have had the narrowest Medicaid eligibility rules in the past stand to gain the most money in the future, and those are disproportionately the very states that are protesting reform most vigorously. States will also have to step up outreach efforts to low-income people who are currently eligible but not consistently covered by Medicaid and the Children's Health Insurance Program. This population is not as heavily subsidized by federal tax dollars.
Medicaid and the exchanges will be entwined in complex ways. People will apply through a "single front door" and the system will sort out whether they belong in Medicaid or CHIP or the exchange and whether they qualify for a subsidy and how much. They will get a menu of choices, akin to the computer-generated menu of Travelocity.
States will follow different paths, and those paths may diverge even more widely in the out years. "There is a national framework and expectation about what this will look like, but there can be a lot of state variation in what it ends up [looking] like on the ground," says Rachel Klein, deputy director of health policy at the advocacy group Families USA. All these paths could be narrowed or blocked if Republicans win the elections between now and January 2014.
While states vary in countless ways, it's useful to think of three distinct groups. Some states -- Wisconsin will be our example -- are stepping up to the challenges of health reform. In a second group, reform has support, but the state's budgetary and political problems are so severe that the very programs to be expanded in 2014 are threatened now. California stands out in this category. In yet a third group, conservative political leaders are vowing to resist, repeal, or defund reform. Many of these conservative states have a record of restricting access to Medicaid and CHIP. Though these states may undertake reform, they may do the minimum to avoid having the federal government step in -- and by doing the minimum, they may well undermine it. DeAnn Friedholm, the Consumers Union health-care campaign director, has dubbed this option "malicious compliance."
The Ready and Able
Wisconsin has a long record of expanding health-care coverage. Outgoing Democratic Gov. Jim Doyle has made health care his signature issue since taking office in 2003, and his agenda had some Republican support along the way. In 2008 the state's uninsured rate was 9.6 percent, well below the national average of 15.4 percent.
Doyle established a health-reform office just days after President Barack Obama signed the law, and his administration is racing to create some health-reform facts on the ground before he leaves office next winter. State health officials are analyzing the current insurance market to help make decisions about the exchange and are developing computer systems to handle new tasks. Political scientists and health-care advocates in Wisconsin are divided on how well the state's progressive tradition and the Doyle administration's momentum would withstand major Republican gains, should they occur in November.
Even if a Republican does capture the statehouse, Medicaid director Jason Helgerson says, there are forces operating in favor of reform. "Behind the scenes, providers and hospitals want [reform] to work," Helgerson says, pointing, for example, to the hospitals that see the uninsured turning up in emergency rooms. Reform "is a huge opportunity, and there are billions and billions of dollars to do it." The state projects that once federal dollars start flowing, it will achieve a net savings of $745 million to $980 million from 2014 through June 2019.
In the meantime, other states have taken note of Wisconsin's achievements. Wisconsin liberalized eligibility for covered groups such as poor pregnant women, while opening Medicaid to previously ineligible groups, including some childless adults. The state brought all these populations into one revamped program now called BadgerCare Plus. It did so while linking health care, child care, nutritional assistance, and related social services in a streamlined one-stop shopping system called "ACCESS."
"We were way ahead," says Carolyn Heinrich, director of the La Follette School of Public Affairs at the University of Wisconsin-Madison. "The state has put a lot of effort into the technical part of the system, trying to make things work more smoothly in terms of electronic activities." That means fewer delays and lapses in coverage and lower administrative costs. The state has excelled in outreach, using tools that bode well for implementing national reform. "There are multiple avenues for people to obtain coverage, and there are community -- based organizations to conduct outreach and facilitate enrollment," says Jennifer Tolbert, principal policy analyst at the Kaiser Commission on Medicaid and the Uninsured.
Wisconsin has been less of a pioneer in changing the insurance marketplace, and it has no statewide exchange, although one county has a successful model. Helgerson predicts that in most states, pragmatism will win out over politics. A few states may "saber rattle" about boycotting reform, he says, but a dozen are begging for his trade secrets. "Not just blue states," he says. "Red ones. You'd be surprised."
The Willing but Broke
From 2007 to 2008, Gov. Arnold Schwarzenegger of California pursued ambitious statewide reforms of health insurance, similar to the 2010 national law. Battered by the right and the left, his effort collapsed. Yet that long teachable moment left state officials and health-care stakeholders well prepared to carry out their tasks under national reform and positioned Schwarzenegger as the first (at this writing, the only) Republican governor to embrace it. Both chambers of the state Legislature have passed bills to create the framework for an exchange. "It's the first of many steps," says state Rep. Bill Monning, chair of the Assembly Health Committee and co-sponsor of the exchange bill.
There's just one problem: California is broke.
From 2007 to 2009, the state's unemployment rate more than doubled, from 5.4 percent to more than 12 percent. In 2008, about 18.6 percent of Californians, or 6.8 million people, were uninsured, and according to UCLA researchers, about 2 million more lost coverage in the economic meltdown. In addition, about 1 million illegal immigrants, roughly half the undocumented population, will remain uninsured after federal reform. Various parts of the social safety net, including health services for the poor, have been in the crosshairs of Schwarzenegger's budget proposals.
Expanding Medi-Cal, as California's Medicaid program is known, is a challenge, even though the federal government will pay about 93.7 percent of the $47 billion Medicaid expansion bill from 2014 to 2019, according to the Urban Institute. Medi-Cal's fees to doctors and hospitals are notoriously low, which in turn means there aren't enough providers for the poor. On top of that, "Medi-Cal is grossly inefficient, ineffective, and chaotic," says Democratic Rep. John Garamendi, the state's former insurance commissioner, now serving in the U.S. House.
Garamendi also worries about whether the rate-review tools in the federal-exchange legislation are up to the task of restraining premium increases. "It's expensive today, and in the near term it's not getting cheaper," he says, predicting that Congress may revisit rate regulation in a few years. He also expects some California insurers will go under.
Coloring California's decisions on exchange design is the fresh memory of the state's failed PacAdvantage, a limited small-business exchange in operation from 1993 to 2006. It was not a "sole source" exchange. Businesses with older or sicker workers went into the exchange, while good risks stayed out. Insurance brokers directed some of that traffic.
"It was the most classic adverse selection problem that has ever occurred," says Leif Wellington Haase, a New America Foundation health-policy analyst based in California. (Full disclosure: I also work at the New America Foundation.) The new exchanges will be different. The federal subsidies will be available only within the exchanges, and the new national rules, such as no discrimination against people with pre-existing conditions, will apply in and out of the exchange. That will help avoid another insurance "death spiral," Haase adds.
Despite California's formidable challenges, Monning sees a chance for the state to be a leader. "We're motivated," he says. "The opportunity is there."
Significantly, and reassuringly, it's not only liberal states taking part in the national whirlwind of implementation-oriented webinars and conferences. "I see at a pretty high staff level people working on implementation in states where we know that the political leadership is opposed to the new law," says Alan Weil, executive director of the National Academy for State Health Policy. "There is an understanding that opposition does not equal no one getting to work on this."
Yet when and how a state like Georgia closes the gap between its heated anti-reform rhetoric and the hard work of reform is not yet clear. Georgia doesn't have the worst health record in the South -- about 17.8 percent of its population was uninsured as of 2008 -- nor does the state have the least regulated insurance market. But with races wide-open for many top state offices, politicians have been spewing a lot of anti-reform language.
Outgoing Gov. Sonny Perdue, a Republican, joined the multistate lawsuit against health care after the Democratic attorney general -- who would like to be governor himself -- refused. Outgoing State Insurance Commissioner John Oxendine's tirades against the "unconstitutional" federal law faithfully echo GOP talking points.
William Custer, who teaches health policy at Georgia State University, expects the decibel level to drop after November (the tone would change dramatically if former Gov. Roy Barnes, a Democrat, scores an upset). An exchange is likely by 2014, although an exchange peach-tree style is likely to be less regulatory and friendlier to insurers and brokers than in more liberal states -- more like what some experts call a "digital yellow pages" than actively managed competition.
More worrisome to advocates such as Cindy Zeldin, executive director of Georgians for a Healthy Future, is how the state will handle Medicaid. To bring the eligible population into an expanded Medicaid come 2014, Zeldin says, "we'll need a big public-education push. And I don't think it's going to come from the state." Georgia will get around $14.5 billion in new federal Medicaid funds, the Urban Institute estimates, but legislators still worry about coming up with their $714 million share.
Despite the right-wing opposition, Kathy Floyd, who follows state health politics closely as advocacy director for AARP Georgia, thinks that the Medicaid money will prove awfully tempting to strapped lawmakers. "There will be the rhetoric until the election is over. Then it will most likely be: 'How are we going to get as much money as we can but keep as much control as we can?"
Ultimately, most analysts and advocates interviewed expect the liberal and conservative states to comply with the national law, either with enthusiasm or reluctance -- though the reluctance could entail weak regulation, lax enforcement, sluggish Medicaid outreach, subtle barriers to enrollment, maybe a missed deadline here or there. Still, implementation does become more attractive once political leaders figure out just how much money is on the table, a discovery that local business elites and organizations can encourage.
"Show them the green," says Jon Kingsdale, who set up and administered Massachusetts' health-insurance exchange, when asked what would help bring conservative states on board.
Outgoing Gov. Ed Rendell of Pennsylvania says he can't imagine that governors will resist indefinitely: Politicians won't find it in their self-interest to come between their constituents and access to health care. Rendell served as chair of the National Governors Association in 2008-2009, when Republicans were lambasting President Obama's stimulus program. "How many Republican governors didn't take the money?" Rendell asks rhetorically. "Zero."
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