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Feature: Early State Reactions to Health Care Provisions in the Stimulus Plan and CHIP Reauthorization

Since President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) and reauthorization of the Health Insurance Program (CHIP) earlier this year, there has been a wide range of reactions from states to the provisions in general—and to the sudden abundance of federal money for health care programs. These two major pieces of national legislation offer federal guidance and resources, but leave a significant amount of flexibility to states. Key questions facing state leaders and policymakers are: What is the best use of federal stimulus dollars? If one-time funds are used to offset state General Fund obligations now, how will those programs be funded in the future?

States must meet the higher demand for health care services and protect spending priorities, while laying a foundation for sustainable growth and balanced budgets in the future. Different states will find different ways to strike the right balance among these issues. The decisions they make could inform policymakers as they consider the federal and state roles in broader health reform.

A Mix of Responses
It is too early to assess all of the states' health-related plans in response to ARRA. Many states are still exploring their options as details are released from the federal government. It is clear, however, that ARRA presents both opportunities and challenges, as new federal funds become available but the recession continues to drain state budgets. According to the National Governors Association, governors must seek the right balance between "quick obligation [of federal stimulus dollars] and program stability and efficiency in bridging the gap until economic recovery."1

Early signs indicate that some governors and state policymakers are planning to take full advantage of new federal funds and expansions of health coverage programs, while many others are concerned about the temporary nature of the federal assistance and the "cliff" the states will face when the stimulus funding ends—requiring states to substitute their own dollars or cut programs and benefits. The Snapshots of Washington, Ohio, and Louisiana in this issue of States in Action illustrate the range in responses, reflecting significant economic and political differences across states.

Federal Stimulus: Taking the Sting Off
Preliminary conversations indicate that state economies are devastated; the federal stimulus "will not save state budgets, but will take the sting off," according to Mark Rupp, director of the D.C. office of the Washington State governor.

State leaders are viewing the temporary increase in Medicaid federal medical assistance percentages (FMAPs) and disproportionate share hospital (DSH) caps as critical for filling holes in state budgets, particularly with expected increases in demand for Medicaid and uncompensated care as unemployment rises. FMAPs are used in determining the amount of federal matching funds for states; DSH payments are made to hospitals that treat significant populations of indigent patients. States are using funds made available as a result of increased FMAPs—a total of $87 billion for a 6.2 percent increase—to maintain current levels of Medicaid eligibility and benefits, cover increased Medicaid caseloads, and offset state general fund deficits.2

Many states are gearing up to apply for health information technology (HIT) planning or demonstration grants under the Health Information Technology for Economic and Clinical Health Act (HITECH) of ARRA, which provides $19 billion to help subsidize electronic health record adoption by hospitals and physician practices. Also, states that have been funding coverage for legal immigrants with state-only dollars, such as Washington (see Snapshot), welcome the new federal match for this group. It is not yet certain how many, if any states that are not covering this population will begin to do so as result of this new policy.

Meanwhile, the CHIP reauthorization that allows states to extend coverage to children with family income from 250 to 300 percent of the federal poverty level (FPL) is leading some states, including Washington and Ohio, to move ahead with this expansion. But because state funds are also required to match the federal dollars, many states are not in the financial position and/or do not have the political will to take advantage of the higher CHIP eligibility limits at this time.

Concerns over Accountability and "Prompt Pay" Requirements
Some governors and state officials are apprehensive about the accountability and transparency emphasized in ARRA. While they support these ideals, they worry about being held responsible for funds that are passed on to localities for implementation. ARRA does not provide funds for overseeing the implementation and management of Recovery dollars, and many states have had to cut the number of oversight staff due to budget constraints.3

In addition, state administrators have expressed concern about some of the requirements attached to FMAP enhancements, particularly "prompt pay" compliance requiring states to pay 90 percent of "clean" claims (i.e., those not requiring additional information) within 30 days and 99 percent of such claims within 90 days. State Medicaid management information systems may not be able to prove compliance on any given day, and upgrading the systems would be costly. Further, state budget crises have resulted in Illinois and perhaps other states falling behind in Medicaid payments, necessitating borrowing or other financing methods to catch up. Some states express concern about whether programmatic changes they are planning for Medicaid could hurt their eligibility for enhanced FMAP funds, and would like more guidance from the federal government.4

Federal Guidance and Tracking
The federal government is responding to state requests for information and making efforts to provide guidance to states on the stimulus package. For example, the Centers for Medicare and Medicaid Services (CMS) has issued general guidance on the increased FMAPs, and is developing further guidance on prompt-pay compliance. CMS is also working on a case-by-case basis to address state-specific issues.

A U.S. Department of Health and Human Services (HHS) Web site dedicated to health-related Recovery issues can help states (as well as localities, businesses, and other stakeholders) understand, navigate, and take advantage of the stimulus package]. It provides reports, updates, announcements, federal regulations and guidelines, instructions for applying for grants, and state-specific ARRA funding information. For example, it presents federal funding available for each state under each provision, such as enhanced DSH funding. Figure 1 displays ARRA funding for a sample state (Alabama), delineating amounts for each program.

The federal Web site also holds HHS "listening sessions" and other presentations by councils and committees tasked with studying and making recommendations regarding how ARRA funds should be used. For example, a Federal Coordinating Council for Comparative Effectiveness Research (CER) held its first public listening session on April 14, during which diverse stakeholders presented their views and took questions from Council members and the public. The Council, together with the Agency for Healthcare Research and Quality and the National Institutes of Health, will present to Congress by July 30, 2009, recommendations for an operating plan for using CER funds allocated to HHS under ARRA.


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The General Accounting Office (GAO) has begun and will continue to assess how states use Recovery Funds over the next few years. It is closely tracking a group of 16 states and the District of Columbia—which together represent 65 percent of the nation's population and will receive approximately two-thirds of the intergovernmental funds under ARRA—to analyze their use of Recovery Act funds. Findings can be found on a new GAO Web site, Following the Money: GAO's Oversight of the Recovery Act.

Organizing a Strategy
To better understand their options, and to manage the wide array of federal funds available under the new federal legislation, states have established special recovery plan authorities or task forces, named a stimulus plan "czar," and/or dedicated a policy person in the Governor's Office to recovery issues. Most of the task forces and committees include high-level individuals from all of the state agencies and departments touched by the recovery plan, and some include business leaders and legislators. These groups are generally tasked to analyze the requirements and responsibilities tied to the stimulus package, make recommendations for stimulus projects based on critical program and infrastructure needs, oversee implementation and maximization of recovery funds, and monitor job creation. In addition, states have launched Web sites that keep the public apprised of planning and implementation of the stimulus projects in their state, helping to ensure transparency and accountability.

For more information

On the Economic Recovery/Stimulus Plan and state responses:

Text of HR 1, American Recovery and Reinvestment Act of 2009
U.S. Department of Health and Human Services Recovery Web site
U.S. Government Accountability Office, Following the Money: GAO's Oversight of the Recovery Act
National Governors Association, State Implementation of the American Recovery and Reinvestment Act, March 10, 2009, page 2
Government Accounting Office, Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues is Essential, April 23, 2009
National Conference of State Legislatures, 2009 Economic Stimulus Web site
National Association of State Budget Officers, American Recovery and Reinvestment Act: Summary of Medicaid Provisions, February 13, 2009

On the CHIP Reauthorization Act:

Text of HR 2, Children's Health Insurance Program Reauthorization Act of 2009, as agreed to and passed by both House and Senate

1. National Governors Association, State Implementation of the American Recovery and Reinvestment Act, March 10, 2009, page 2.
2. Ibid.
3. Ibid.
4. U.S. Government Accountability Office, "Following the Money: GAO's Oversight of the Recovery Act,"

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