Fresh thinking for a spending squeeze - Health Care Reform in the States: Florida - includes related article

Business & Health, April, 1995 by Steven Findlay

Social and economic factors forced the Sunshine State to become a leader in innovative reforms. Some of these ideas are already being shipped around the country.

Florida was an unlikely trailblazer in health reform. Noted mostly as a sun-drenched mecca for tourists and retirees and dominated politically for most of the last 50 years by conservative Republicans, the state was never a leader in social reform.

But Florida has other sides to it that forced state leaders over the last few years to craft innovative health-care reforms. The state's large farm, cattle, tourist, and service industries employ mostly low-wage workers who have few benefits. Florida is also heavy on small businesses, with 95 percent of firms employing fewer than 25 people. As a result, it has one of the nation's highest rates of uninsured nonelderly residents--24 percent. Add to all that the third highest number of undocumented aliens, after California and New York, and the second highest number of AIDS cases.

These demographic factors, as well as large elderly and indigent populations, led the health research firm Lewin-VHI, of Fairfax, Va., to rank Florida third among all states for its "vulnerability" to health-care woes in a study last year. The financial pressure is already apparent. Only three other states spend a greater percentage of their gross state product on health care. Nearly 17 percent of Florida's GSP--one of every six dollars--goes for health care.

Spending took off in the 1980s when the swelling ranks of senior citizens and transplanted northerners of all ages flooded the state's Medicaid program. Florida's Medicaid costs rose 20 percent to 25 percent a year from 1985 to 1990. Thus, in the early 1990s Florida lawmakers faced up to a tough task: Do something about rising health-care costs or watch the state's finances crumble within just a few years.

A series of smaller health reforms had laid the foundation for action. Task forces and commissions in the early 1980s led, for example, to a 1 percent tax on hospital revenues to expand Medicaid coverage. And in 1990, a pilot program called Healthy Kids began offering subsidized coverage to uninsured children age 3-19 via the public schools. About 16,000 kids are now enrolled in the program.

Most importantly, however, Florida business leaders became increasingly alarmed about rising health insurance premiums and began pushing for controls, particularly on hospital costs and quality. A group of large employers in Orlando were the first to band together. The Walt Disney Co., defense giant Martin Marietta, Tupperware, General Mills, and others formed the Central Florida Health Care Coalition, a pioneer in wielding the collective clout of large corporations to alter the local health-care landscape. A similar group, the Florida Gulf Coast Coalition, formed in Tampa.

With businesses' backing, a clear political consensus, and the leadership of Democratic Gov. Lawton Chiles, the state legislature in 1992 passed one of the nation's earliest major health reform laws. It created a central health authority--the Agency for Health Care Administration (AHCA); mandated availability of health coverage, renewability, and portability in the small-group market; and created a program to entice providers to serve in rural areas.

The small-group reforms went into effect in mid-1993 and have nearly doubled the number of lives covered in that market, from 163,000 at the end of 1993 to 304,000 by July 1, 1994, according to an AHCA study.

Lawmakers also gave AHCA the task of designing further reforms to cover the uninsured and control costs. In an uncommonly rapid course of events, the agency's report, "A Blueprint for Health Security," issued on Jan. 4, 1993, led to a bill that was passed by the state legislature and signed by Gov. Chiles in April of that year. The law set an ambitious--but unrealistic--target of December 1994 for universal access to a standard package of health benefits. It also outlined Medicaid reforms.

Its main thrust, however, was the then-emerging notion of managed competition. The law created 11 voluntary Community Health Purchasing Alliances (CHPAs), open to all employers with 50 or fewer workers and the solo self-employed.

Set up as non-profit private agencies, the CHPAs began operating in June, 1994. (See "How the CHPAs operate," page TK) Ten months later, they've been pronounced a qualified success. Premiums for participating employers declined an average 25 percent, with some employers paying only half what they used to. Premiums generally ranged from $95 to $120 per enrollee per month. In the bidding for the open enrollment period that begins on May 1, about a third of the plans have lowered their premiums from last year. "The competition that was theorized is actually happening," says Douglas Cook, AHCA's director.

Florida's small employers are pleased. "Most small employers want to offer health coverage, and the CHPAs are helping us do that," says Karen Bzdyk, a partner in a 17-person law firm that now buys its health insurance through CHPA District 11 in Dade County. "Our premiums dropped 40 percent from what we paid in 1993," she says, "even though we added some dependents to the policy and all our employees were able to enroll in a plan where they kept their own doctor."