Should states experiment with reform? - health care reform - Washington Report

Business & Health, Jan, 1993 by Steven Findlay

Our system of federalism, with power divided between the federal government and the states, has never worked perfectly nor always smoothly. U.S. history is replete with examples of federal-state battles, over tax revenues, the right to promulgate laws, regulatory policies, and the control of education and welfare programs. Now a new issue--health care reform-is challenging this system and it's anybody's guess how the balance of power will play out.

While the federal government has dickered over the last few years, dozens of states have enacted laws to try and fix some of the most egregious broken elements in health care. Twenty-six states have risk pools for the uninsured; 15 subsidize insurance for small business; 19 require renewal of group insurance or limit the use of preexisting condition exclusion periods; 10 have passed "guarantee issue" laws for small employers; 26 have enacted "bare bones" laws, which waive mandated benefits for plans sold to small groups; and virtually every state has tinkered with Medicaid.

Moreover, seven states have enacted comprehensive reform plans. These are Hawaii, Massachusetts, Minnesota, Florida, Vermont, Oregon, and New Jersey. Only Hawaii's is fully in place. At least 30 other states have begun debating far-reaching efforts. Both California and New York are considering single-payer systems.

The central federal-state question is this: will a federal overhaul of the health care system allow states to experiment with their own reforms? And more immediately, will those states that recently have enacted comprehensive reform laws get waivers from Congress and the new administration from Medicaid and some or all of the provisions of the Employee Retirement Income Security Act.

States remain active

Many states want to press forward, even at the risk of having their laws altered or preempted with the passage of federal health reform legislation. "A lot of time has been invested. They don't want to quit now," says Robert Mollica, an analyst at the National Academy of State Health Policy, a group that supports state health reform efforts, in Portland, Maine.

The nation's governors also want to press on. Last month, the National Governors' Association and a coalition of 10 state and county government and business groups, announced that they would urge the new Congress and the new administration to pass a law in the early months of 1993 to allow states to implement their health reform laws. Their request will fall on sympathetic ears. A growing number of congressmen think ERISA's flaws are so glaring that the law must be changed before comprehensive federal reform can be pulled together. What's unclear is whether a federal law passed quickly would allow aH states to move ahead or just those that have already passed reforms and requested ERISA waivers.

The answer may depend on where President-elect Bill Clinton stands on the issue. Despite his stated support of Oregon's efforts at reform, Clinton is now known to be cool to the idea of states going off totally on their own. He's worried that Congress might pass the reform ball to the states simply to avoid the tough choices that will need to be made in shaping a comprehensive national reform bill.

But Clinton's mind could still be turned. In recent weeks, the notion that states should retain a large measure of control in structuring a new health care system has taken on new life. In the book Mandate for Change, a blueprint for the Clinton Administration from the Progressive Policy Institute, a Democractic policy think-tank in Washington, health policy analyst Jeremy Rosner argues that states should be "the primary engine of reform." He proposes a managed competition approach under which the federal government would mandate universal coverage and create state and regional health insurance purchasing cooperatives, or HIPCs. ERISA would be repealed and the federal government would define a package of minimum benefits. But states would be essentially free to devise their own financing schemes. They could stick with an employer-based system, as Hawaii does, and mandate that all workers be covered. Or they could opt to remove insurance coverage from the workplace by requiring companies to pay a set payroll tax, and employees a flat percentage of wages, to a purchasing cooperative. States could also set their own agenda when it comes to balancing the mix of HMOs and fee-for-service plans, or testing price controls and global budgets.

In it's statement last month, the governor's association endorsed a similiar approach. "The states are the best entity to set up and man age the system," said Colorado Gov. Roy Romer, the NGA's chair man. "But it's appropriate for the federal government to chart the overall course." The principle rationale for a state-based approach is that states are too diverse in the health care needs and budget preferences to impose one financing system for the nation. Further, a state-based system would foster experimentation, innovation, and decentralization, Rosner says.