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Wanted: A Few Good States (and the Feds) to Overhaul Health

By John Reichard, CQ HealthBeat Editor

July 15, 2008 -- House Ways and Means Health Subcommittee Chairman Pete Stark sent a mixed message at a hearing Tuesday on the role of states in overhauling health care—on the one hand, states face too many roadblocks to bring about universal coverage and no single state offers the nation a model of how to get it done. On the other hand, the California Democrat noted, states making a serious effort to reach the goal have lessons to offer federal policy makers on the role they can play in bringing about universal coverage.

The panel's top Republican, Dave Camp of Michigan, sounded more upbeat about the state role, saying their efforts in overhauling welfare set a good example for health care. "Instead of enacting overly broad national mandates, we gave states greater resources and flexibility to craft programs that fit their own populations," he said. "It is my opinion that states are the most appropriately situated to design health care plans that meet the needs of its citizens. Congress should be looking at what works, and what does not work, in the states."

But state officials at the hearing, while speaking proudly about their accomplishments, were consistent in saying that the federal government must lead the way in any overhaul. And to no one's surprise, they emphasized that stable funding is a key missing piece of the puzzle—but certainly not the only missing piece.

"Only three states—Maine, Vermont, and Massachusetts—have adopted comprehensive approaches to health care reform within the last decade," testified Alan R. Weil, executive director of the National Academy for State Health Policy. "Meanwhile reform efforts remain stalled in larger states such as California, Illinois, and Pennsylvania. While state efforts make a real contribution, federal leadership is needed to make substantial, sustained progress in health reform efforts."

"States cannot pursue comprehensive health reform without substantial and reliable financial participation by the federal government," Weil said. "This year, as many as 28 states are reporting budget shortfalls, creating pressure for states to cut services and government spending even as they are seeking opportunities to expand coverage."

Weil noted another problem—"states lack the authority to affect many of the health care activities within their borders. About half of a typical state's residents are completely outside the reach of state authority because they are enrolled in Medicare, have coverage through an employer that self-insures, or obtain services through the Department of Veteran Affairs, Indian Health Service or other programs." The Employee Retirement Income Security Act of 1974 (ERISA) preempts state laws that relate to private employer-based health plans."

But Weil said federal leadership could create a national framework in which states could operate. "Indeed, approaches that combine the resources, stability, and uniformity of federal involvement with the dynamism, local involvement, and creativity of states can foster excellent results. The federal government can bring its clout as the largest purchaser, stable funding than can weather economic ups and downs and standards than can assure all Americans they will have meaningful access to needed health care services."

State leadership goes beyond high-profile efforts in states such as Massachusetts and California to widen coverage, Weil noted. "States long ago learned that they cannot afford major coverage expansions if they do not also improve the quality of health care and contain the growth in health care costs," he said. "Minnesota recently passed landmark legislation to establish a unified, statewide system of quality-based incentive payments and to help consumers and other purchasers compare providers on overall cost and quality of care."

"Pennsylvania has taken a comprehensive and innovative approach to reducing medical errors," he said. And "North Carolina is a recognized leader in improving care for Medicaid enrollees with chronic illnesses."

Trish Riley, director of the governor's office of health policy in Maine, noted that the state's health overhaul has emphasized the importance of efficiency gains and not strictly wider coverage. The United States pays for "redundancy, inefficiency, variation, and oversupply" of health care services, she said. Without efforts to make care affordable, coverage gains are hollow, leading to underinsurance as health plans shift more costs to consumers, she suggested.

Steps have included efforts to reduce variable treatment practices within the state that contribute to inefficiency, pooling of small businesses to promote economies of scale, and adopting "medical loss ratio" standards addressing how much of a plan's premium revenue should go for medical care.

Stark prodded witnesses on whether universal coverage could be obtained without some form of coverage mandate. None disputed that premise, including Edmund F. Haislmaier, a senior research fellow at the right-leaning Heritage Foundation. But Haislmaier observed that the large coverage gains obtained by the overhaul law in Massachusetts were developed not with a mandate in mind but rather with an eye toward making the purchase of coverage as attractive as possible through reforms emphasizing choice and affordability.

If one starts with the premise that all must buy coverage one skips the "hard thinking" that goes into crafting policies that makes people want to buy coverage without a mandate, he said. JudyAnn Bigby, Massachusetts Secretary of Health and Human Services, said that a majority of state residents support its mandate that they buy coverage. Some 340,000 residents have gained coverage under the law, she said.

Jack Lewin, who administered Hawaii's law requiring employers to provide full-time workers with health coverage, cautioned against moving too quickly away in any overhaul effort from the nation's system of employer-provided coverage. Sending too strong a signal that the system would be dropped could lead to large declines in employer-sponsored coverage, he warned. The employer-based system could be improved, however, by giving employees a greater choice of plans through purchasing alliances, suggested Lewin, now the CEO of the American College of Cardiology.

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