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Feature: States React to Fiscal Crisis, Oregon Reaches for Comprehensive Health Reform

States are responding to the current fiscal crisis and uncertainty about federal health reform in very different ways. Several are holding back on planned coverage expansions, capping or even cutting eligibility for existing programs, or waiting for federal reform to unfold or the economy to turn around before implementing health reforms. Yet some states are forging ahead with health system reforms intended to strengthen the safety net, transform the delivery of health care, and contain long-term cost growth. This issue of States in Action discusses the pressures facing states and describes the health reforms in Oregon, Wisconsin, and Maryland.

States in Fiscal Crisis
States are experiencing severe budget crises, with revenues continuing to fall and demand for health care and other assistance programs rising. At least 48 states faced budget shortfalls going into fiscal year 2010, totaling at least $166 billion, equivalent to 24 percent of state budgets. Estimates of aggregate state deficits over the next three years range from $200 billion (from the National Governor's Association) to more than $350 billion (from the Center on Budget and Policy Priorities).

While many state policymakers support federal health care reform proposals that would expand insurance coverage, governors have been expressing their concerns that such expansions would create new Medicaid obligations that states cannot afford. And as the income levels for Medicaid eligibility would rise under proposed federal reforms, states would likely need to increase payments to primary care practitioners and certain other medical providers to encourage them to participate—putting even greater pressure on state budgets.

Even without passage of major federal health reform, states must prepare for the enhanced federal Medicaid matching funds to expire at the end of 2010. The increased percentage of Medicaid spending contributed by the federal government was a provision of the American Recovery and Reinvestment Act of 2009, known as the stimulus plan.

Varying State Reactions: From Cuts to Expansions
Most state policymakers are working hard to maintain current public program eligibility levels, so as not to "lose ground" while demand for safety net services rises along with unemployment and to remain eligible for the enhanced federal Medicaid funds, as they wait to see how federal reform transpires in the coming months.

However, because they don't have the funds to invest, some states are leaving federal matching funds on the table. The Children's Health Insurance Program (CHIP) was reauthorized in February 2009, including a provision allowing states to raise income eligibility levels to three times the poverty level. Yet, the majority of states have not taken advantage of this option. In fact, a handful of states have chosen not to enact CHIP expansions that were previously authorized, or failed to pass proposed bills that would have expanded eligibility or reduced premiums in their CHIP programs. Budget pressures have led Wyoming to put an enrollment cap on its CHIP program (though the program has not yet reached that cap) and led California to freeze enrollment in July.

Still, some states have taken a different approach, moving ahead with coverage expansions and other health reforms ranging from incremental to comprehensive. States are expanding health coverage by raising income eligibility levels for Medicaid or CHIP, enabling people to buy in to these programs, and/or using creative outreach and enrollment strategies. And they are finding ways to finance these expansions.

Several of the most comprehensive state coverage expansions continue to move forward because they were established as Medicaid Section 1115 demonstration waivers, with significant federal financial participation. So far, these states have been able to generate the non-federal revenue that is required to match federal funds and sustain these demonstration projects. Table 1 includes examples of Section 1115 waivers approved or extended within the past four years. Most of these expand Medicaid eligibility, usually through managed care, and some create new programs to cover low-income people who are uninsured and not covered by Medicaid. It is the more comprehensive coverage initiatives, which usually include expansions of Medicaid and CHIP, that receive most of the attention—particularly the efforts in Vermont and Massachusetts. These reforms are designed to achieve near-universal coverage.



Table 1. Recent Examples of Medicaid Eligibility Expansions and Coverage Initiatives Achieved Through Medicaid Section 1115 Demonstration Waivers


Waiver Name

Most Recent Approval or Extension

Fundamental Program Initiatives


Medi-Cal Hospital Uninsured Care


Create a Safety Net Care Pool to subsidize coverage for low-income uninsured



Florida Medicaid Reform


Create customized benefit packages for Medicaid enrollees, and allow Medicaid enrollees to earn enhanced benefits through healthy behavior


Healthy Indiana Plan


Expand Medicaid eligibility to provide a health savings account for uninsured adults and caretaker relatives previously ineligible for Medicaid




Expand Medicaid eligibility to provide a limited Medicaid benefit through select hospitals for uninsured adults previously ineligible for Medicaid




Create a Safety Net Care Pool to subsidize insurance premiums for low-income uninsured with a goal of near-universal coverage




Expand Medicaid eligibility to provide a limited primary care health benefit for uninsured adults previously ineligible for Medicaid

New York

Partnership Plan


Expand Medicaid eligibility to provide comprehensive health coverage (Family Health Plus) for uninsured adults previously ineligible for Medicaid

New York

Federal-State Partnership Plan


Redirect spending on hospitals and nursing homes to primary care and home and community-based service settings; no Medicaid eligibility or coverage expansion

Rhode Island

Rite Care


Create a premium assistance program (RiteShare) for Medicaid-eligible individuals that wraps Medicaid benefits around employer-sponsored insurance

Rhode Island

Global Consumer Choice


Provide cost-effective services that will ensure beneficiaries receive appropriate services in the least restrictive and most appropriate setting.


Global Commitment to Health


Provide premium assistance to purchase employer-sponsored insurance or Catamount Health Plan coverage for the uninsured


BadgerCare Plus


Expand Medicaid eligibility to provide Medicaid benefits to previously ineligible adults

Source: CMS Medicaid Waivers and Demonstrations List (accessed July 28, 2009):

Note:. This table does not include the full list of current 1115 waivers. Selection for this table was based on  (1) significant Medicaid eligibility expansions and/or (2) coverage expansions for groups not eligible for Medicaid and/or (3) significant system restructuring and (4) was approved or extended by CMS since 2005 and (5) is active today.

 This Feature describes Oregon's comprehensive health reform package, which builds on a Medicaid Section 1115 waiver that was approved in 1993 as well as subsequent amendments and expansions to the original proposal. The Snapshots describe incremental coverage and financing strategies undertaken in other states.

Oregon Moving Ahead with Comprehensive Health Reform
Despite having a $4.5 million revenue shortfall and the third-highest unemployment rate in the country, Oregon is moving ahead with comprehensive health reform. On June 11, the state legislature approved companion House Bills 2009 and 2116 to reform the health care system and move toward universal coverage. These bills, along with others passed into law during this past legislative session, work together to expand eligibility for state coverage programs and begin processes to change the delivery and improve the quality of health care services, as well as contain the growth of health care costs.

"It took commitment by the governor and the state legislature, reasoning that when things are this bad, you have to do something," said Tina Edlund, deputy director for planning and policy implementation at the Oregon Health Authority.

The outline for the legislation grew from recommendations by a Health Fund Board established in late 2007 by the Healthy Oregon Act (SB 329) that was tasked with developing a plan for universal coverage. The Board recommended starting with incremental coverage expansions for children and low-income adults, and moving toward universal coverage by 2015. After prior experience in which coverage programs became unsustainable, Oregon stakeholders also "felt strongly that if we expand coverage again, we need to set in place real cost containment," said Edlund.

Short Term: Expanding Coverage to Children and Low-Income Adults
Oregon expects to add 80,000 children—about 95 percent of uninsured children in the state—to the Healthy Kids Plan over the next two years. Through a single, and short, Healthy Kids application, a child will be enrolled in the most appropriate program among the state's Medicaid/CHIP plan (Oregon Health Plan, or OHP), a new private insurance plan, or employer-sponsored insurance. In October 2009, OHP eligibility for children and families will expand from 185 percent to 200 percent of the federal poverty level (FPL). By January 2010, families with income between 200 and 300 percent of FPL will be able to buy a subsidized insurance product providing benefits comparable to those in the OHP; the subsidies will be on a sliding scale, based on family income. And families with higher incomes with uninsured children will be able to buy into the program by paying full cost. Further, Oregon's Family Health Insurance Assistance Program, which subsidizes employer-sponsored insurance for low-income families but had frozen enrollment since October 2007, will likely accept new enrollees in the fall.

The state is also reopening OHP Standard, which was created through an 1115 waiver in 2003 to provide limited benefits to adults with income up to 100 percent of the FPL who are not eligible for traditional Medicaid. OHP Standard froze enrollment in 2004 due to budget shortfalls, and then allowed about 30,000 adults into the program in 2008 through a lottery system. The new expansion will more than double enrollment over the next three years, from the current level of about 25,000 adults to 60,000 adults. "While this doesn't meet the full need, which is probably twice that number, it is an improvement," said Edlund.

Long Term: Universal Coverage, Quality Improvement, and Cost Control
A new Oregon Health Policy Board is charged with overseeing development and implementation of state health care policies, including a plan for universal access to affordable health care for all state residents by 2015, statewide quality standards and evidence-based clinical standards, cost-containment mechanisms, and a plan to ensure a sufficient and qualified health care workforce.

The legislation also established an Oregon Health Authority (OHA) charged with implementing cost containment, quality improvement, delivery system, and payment reforms. Most state health purchasing, including Medicaid, CHIP, and state employee health benefit programs, will be brought under the OHA's authority. The goal is to align all state purchasing around common contracting and quality standards, thereby reducing reporting burdens on providers and improving health outcomes, and also to have greater leverage for containing costs.

Another OHA priority is payment reform. In the short term, this will involve raising payments for primary care, while setting standards for patient-centered primary care homes and exploring mechanisms such as bundled payments and accountable care organizations. OHA will also establish a health information technology oversight council to promote statewide adoption of electronic health records and create an all-payer, all-claims database that will enable examination of variations in the cost and quality of care in the state across payers.

In addition, OHA will develop a statewide Physician Orders for Life-Sustaining Treatment (POLST) registry. Oregon has a strong culture of respecting end-of-life wishes, and many residents who are older or very sick have expressed their desire to forgo many medical treatments on such POLST forms. Yet, because emergency medical providers often are not aware of a patient's wishes, they deliver a full range of interventions. A POLST registry that provides easy access to emergency medical providers is expected to reduce unwanted interventions.

Oregon is also enhancing its investments in public health, focusing on preventing or reducing the incidence of tobacco use, obesity, and chronic conditions and improving local public health systems.

Financing Strategies
Three million dollars in 2009 General Funds were appropriated to pay for some of the transition and development costs, and to establish some of the necessary data systems for Oregon's comprehensive health care reform. The coverage expansions are financed through two provider assessments. A 1 percent health insurance premium tax on health insurers, Medicaid managed care plans, and the state employee insurance program is paid into a new Health System Fund to finance the children's coverage expansion. This is expected to raise $105 million in tax revenues, which will draw an additional $240 million in federal matching funds over 2009–11 to cover 80,000 additional children.

An assessment on hospitals of approximately 2.8 to 3 percent of net patient revenues will fund the adult coverage expansion. The $307 million expected in tax revenues over the 2009–11 period, which will draw about $550 million in federal matching funds, is based on additional revenues the hospitals are expected to receive in aggregate for newly covered patients and increased reimbursement. "We are comfortable with this financing strategy, because hospital uncompensated care is largely driven by low-income adults. You can see a bright line between the tax and what it's being used for," said Edlund. Further, the assessments are not new strategies but rather a restructuring and broader application of a prior premium tax on Medicaid managed care plans scheduled to end in September.

A tobacco tax is funding investments in the public health efforts noted above.

Doing Business Differently
Moving ahead on so many fronts is both promising and challenging. According to Edlund, "it's hard to do business differently, but that's what we're calling on people to do." The reforms will require different state health purchasers (i.e., Medicaid and state employees benefits managers) to agree on quality standards. The reforms also will encourage primary care providers to change the way they practice and depend on consumers to adopt healthier lifestyles. Another challenge will be to keep the business community at the table by seeking solutions that bring some relief to them and do not feel like a loss of autonomy.

In terms of possible federal health reforms, Oregon appears to be well situated. The federal proposals are largely in sync with what Oregon is already pursuing, and state planners are monitoring federal progress and considering how it might affect the state. "Federal and state reform coming together might be better than either alone," said Edlund.

For more information

Contact: Tina Edlund, deputy director for planning and policy implementation, Oregon Health Authority, [email protected]
See:  House Bill 2116
House Bill 2009
Oregon Health Policy Commission


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