While disenchantment with big government solutions has put their reform efforts on hold, most states seek greater flexibility to implement managed care solutions - special edition: The State of Health Care in America 1995

Business & Health, Annual, 1995 by Dan Wise

In state capitals across the United States, the issue of health care remains the top priority. States can't avoid it. Medicaid and state employee benefits make health care costs the first or second largest discretionary spending item in most state budgets. Health costs are usually the fastest growing item, and account for an average of 19 percent of state spending, according to the National Governors Association. While comprehensive health reform measures have been passed in only a handful of states, nearly all states have begun to tackle cost and access problems through incentives and support for private sector initiatives such as state tax credits to enable small businesses to offer health benefits to their employees. The following list details the depth and breadth of that activity over the past few years:

* Forty-four states have enacted small-group market reforms to guarantee access to health insurance for individuals with pre-existing medical conditions. * Twenty states have enacted some form of community rating, which replaces the current pricing system that bases insurance premiums on a group's or an individual's claims experience with a system that charges everyone a common rate, sometimes adjusted for sex or age. * At least 20 states are encouraging managed competition experiments, such as purchasing alliances that enable small group purchasers collectively to command more choice and better prices on health insurance. * Fifteen states have created exemptions to state antitrust laws to allow hospitals, doctors, and other providers to participate in joint ventures - such as physician-hospital organizations (PHOs), which are like HMOs in that they provide complete health coverage on a fixed-fee basis.

These incremental state health reforms are following in the footsteps of market reform that is reshaping the delivery of health care from Alaska to Florida. Meanwhile, the debate in Washington that consumed so much newsprint and airtime last year seems to have generated only skepticism. "There is a disenchantment with big solutions," says Vermont Gov. Howard Dean (D), a physician and advocate of health care reform, reflecting on the public's attitude on the politics of health care. "I believe people still support health care reform. But I think people know more what they don't want than what they do want."

Dean ought to know. His state's debate over health care, which for a time pitted advocates for a market-based managed competition model against a government-funded system, ended without any agreement on a major piece of legislation. Like many other states, Vermont has since abandoned its effort to devise a comprehensive health reform plan.

Even states that have enacted major reform plans over the past few years, such as Florida, are reconsidering them, or at least treading water before plunging ahead. Others, such as Minnesota and Washington, are witnessing outright battles between state legislatures and governors who are trying to undo recent reform efforts. "There is a profound danger of sliding back in the progress of health care reform," says Patricia Riley, executive director of the National Academy of State Health Policy, a Portland, Maine, research group.

Part of the retrenchment is due to political changes at the helm. Fourteen states elected governors from a different party in 1994 - including New Mexico, New York, Pennsylvania, Tennessee, and Texas - bringing to 30 the number of governors' mansions occupied by Republicans. Party control of at least one legislative chamber shifted to the Republicans in 19 states - including California, Florida, Maine, Oregon, and Washington.

"Incremental reform seems to be the order of the day," says Brice Oakley, director of state services for the Blue Cross Blue Shield Association in Chicago. "We expect the process of reform to continue but it will be tough going." Oakley adds that enthusiasm in the states for comprehensive solutions began to wane long before the Clinton plan's defeat and the Republican sweep last fall. "In 1993, half the states considered comprehensive reforms and seven moved ahead. In 1994, not one more state went that way. The states had put comprehensive reform on hold," he says.

ERISA

One reason state reform efforts slowed down last year was that states were waiting to see if the federal government would remove the major roadblock to effective state reform: the Employee Retirement Income Security Act (ERISA). Enacted in 1974, ERISA contains a pre-emption provision barring states from acting in any area of employee benefits policy over which the federal government has jurisdiction. Any employer that self-insures its health benefits falls under ERISA protection and is thus exempt from state rules or levies on insurance.

ERISA's reach is broad. Eighty percent of large employers (with 500 or more employees) and nearly 20 percent of small employers (those with less than 500 employees) self-fund their traditional indemnity health plans, according to the 1994 National Survey of Employer-sponsored Health Plans by A. Foster Higgins & Co. Inc., benefits consultants in New York.