Some States Continue Health Care Reform Efforts Despite Budget Deficits

A year ago, when unemployment levels were skyrocketing and federal bailouts seemed non-stop, some health care reform observers speculated that state legislators faced with crippling budget deficits would halt efforts to reform the health care systems in their state. But with the uninsured population continuing to grow, and federal regulators still at work on nationwide reform, states are again moving forward with their own health care reform legislation, according to a report by the Kaiser Research Foundation.

Massachusetts, Maine, Vermont and Utah have already passed legislation and are implementing reform plans that seek to achieve near universal coverage of state residents. Similarly, by July 2009, governors or legislators in at least 14 other states are at varying stages of some comprehensive reform efforts, including establishing commissions charged with developing recommendations on how to expand coverage, according to a Kaiser report on Medicaid and the Uninsured.  

Ed Haislmaier, a senior fellow for the Center for Health Policy Studies at the Heritage Foundation said most state legislatures had expected some resolution on health care reform at the federal level, whether it passed or not.

“(States) are in a bind and they don’t know what to bet on,” Haislmaier said. “Clearly, they are looking for things they can do… If they do any kind of expansion in short term, between now and 2013, it all will be premised on maxing out the federal matching funds.”

Richard Cauchi, a spokesman for the National Conference of State Legislatures, added that because states have until 2013 before any federal health care mandates kicks in, most health care decision makers are looking at small, local, and specific changes that would be a part of health reform.

“They are not giving up and waiting.  But (their efforts) won’t be big picture reforms,” Cauchi said.

Utah, Oregon, Iowa and Colorado are among the states that have acted more recently. Over this past spring and summer, each state passed legislation expanding coverage to children. Iowa and Colorado also expanded coverage for pregnant women and laid out a plan for covering every uninsured child in the state by January 2011. Oregon and Colorado meanwhile, expanded health coverage for some low-income adults, while Iowa and Oregon established a health insurance exchange. In August, Utah launched a test pilot of its new health care reform exchange.

Some states that did not succeed in expanding coverage for the uninsured established laws to promote pricing transparency or make it easier for residents employed at businesses that don’t offer health insurance to pay for health care coverage. For example, in Minnesota employers with 11 or more full-time employees who do not offer insurance must establish a Section 125 plan allowing employees to pay for health insurance with pretax dollars. The legislation provides funding to help employers do so.

Meanwhile in New Jersey, lawmakers sought to promote broader coverage by making changes to the individual insurance market such as allowing insurers to charge older residents three and a half times more for a policy than younger residents as a way to lower premiums for younger residents. Lawmakers also required insurers to offer plans in the individual market as a condition of participation in the small employer market.

Haislmaier said that states can’t afford to ignore health care expenditures because Medicaid accounts for 15 to 25 percent of their general budgets. Therefore, many state lawmakers have and will continue to make changes that don’t cost the states more money.

The report by the Kaiser Foundation shows that most of the health care reforms passed so far are being financed by insurance market reforms, hospital provider fees and federal funds.  

Because most of the efforts include some form of Medicaid expansion, hospitals reimbursement rates will decrease. But Fitch Ratings Corporate Director Lauren Coste said hospitals still benefit.

“If states are expanding health coverage to people who would otherwise be uninsured, it’s a positive for hospitals and it helps mitigate bad debt,” Coste said. “People on Medicaid and state plans are not the single largest driver of bad debt. The fact that it exists, medicate the rise in bad debt, because people who would end up insured would have some coverage.”