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News December 2012

Washington Watch

Individual States Critical to Implementing or Blocking Health Care Reform

By Alan M. Schlein

But if you think the election of President Obama ends the controversy over health care reform, you’d be mistaken. Republican governors may still have the administration over a barrel. Several governors are expected to try and use their leverage to pressure the Obama administration to grant greater flexibility over how they spend their Medicaid dollars.

c_stingerdec_sPresident Barack Obama’s re-election eliminated the most serious threat to his signature health care reform law, but it didn’t remove all of the major hurdles in its path. While much of his first term was spent getting a bitterly divided Congress to approve the legislation and then defending it against unexpectedly vigorous legal challenges, his second term will be, at least in part, about bringing the law to life.

But the rollout of the law and its ultimate success will depend on decisions made in the different states.

The 2010 Patient Protection and Affordable Care Act, the biggest overhaul of the $2.8 trillion U.S. healthcare system since the 1960s, aims to extend health coverage to more than 30 million uninsured Americans beginning in January 2014. The big pieces of the health care reform law — including coverage of pre-existing conditions and the hated individual mandate don’t kick in until January 1, 2014, when millions of Americans should be able to get health insurance for the first time and millions more, who don’t get coverage through work, should be able to buy a health plan that meets new basic standards.

Until now, all Americans have seen are the warm-up acts – like letting young adults stay on their parents’ plan – that aren’t really central to the law. But right now, the Obama administration must juggle two difficult and competing tasks to turn the law into an effective policy.

Before the end of December, Obama’s team must resolve the upcoming “fiscal cliff” budget fight and work with the states to get them on board as they face deadlines to set up the “exchanges” — the online marketplaces where individuals can shop for coverage and seek federal subsidies to lower their costs.

While moving forward to put out the rules to enforce health care reform, the Obama administration will also have to carefully protect the law from budget cuts Republicans are sure to demand during the budget fight.

At the same time, the administration must persuade wary governors into going along with the law’s expansion of Medicaid and ensuring that the private insurance markets, or exchanges are ready to be rolled out by the law’s 2014 deadline.

The Obama administration held off on pushing through the rules that will govern health care reform until after the election to avoid controversy. But now, all of the rules that will govern health care must be issued.


Minimum Coverage Benefits

One of the most eagerly awaited rules is the potentially controversial decision what health insurance policies must cover. The so-called essential benefits package is the list of minimum requirements for plans that will affect every consumer by determining what is covered and what is not by their health care policies.

In order to get most of the states to cooperate with putting health care reform into place, Obama officials may give states added flexibility to define benefits in an effort to get their consent. But that may prove difficult as some states have already established their own minimal requirements.

For example, California and Washington state will require coverage of acupuncture as an essential benefit, while Arkansas wants prevention counseling for women at risk of breast cancer but not coverage of expensive fertility treatment, according to a recent report of the different states by Kaiser Health News. Oregon has opted against covering bariatric surgery for obesity but insurers will have to cover cochlear implants for hearing. These decisions -- which affect people who will buy individual and small group policies – are being closely monitored because they’ll determine how comprehensive the plans are and affect how much they cost.


Health Insurance Exchanges

Final rules have also not been issued on other significant pieces of the law, such as those governing the health insurance exchanges, the individual mandate and how to define “full-time” and “part-time” employees in regard to employer penalties. Another area where the administration must issue finalized rules is on how certain religious employers – such as a Catholic charity that insures itself – could avoid requirements that they provide insurance coverage of contraceptives.

States were required to give federal regulators a plan by mid-November, showing how
they plan to move forward with their own exchanges. The issue of whether to participate confronts Republican governors with a difficult decision: either they create their own state insurance exchange, a central element of the Affordable Care Act they oppose, or stand by and watch the federal government come in and dictate changes in their state’s health insurance market. As of late September, however, only 19 states had begun setting up exchanges or agreed to partner with the federal government, according to a Kaiser Family Foundation study.


Medicaid Expansion

In its ruling last summer upholding the health care law, the U.S. Supreme Court allowed states considerable maneuvering room in how the law is carried out. The Justices gave states the power to reject the expansion of Medicaid, which had been expected to cover more than half of the 30 million gaining health insurance coverage under the law.

But if you think the election of President Obama ends the controversy over health care reform, you’d be mistaken. Republican governors may still have the administration over a barrel.

Several governors are expected to try and use their leverage to pressure the Obama administration to grant greater flexibility over how they spend their Medicaid dollars. Some state Medicaid directors have suggested they expect many states to attempt to negotiate smaller Medicaid expansions than called for in the law.

If, for example, states were able to expand coverage to people who make up 100 percent of federal poverty level ($23,050 for family of four) instead of the 133 percent ($31,000) required by the law, it would be cheaper for states that will have to start paying some of the bill in 2017. But that would result in pushing people out of Medicaid into the exchanges, where they would presumably use federal subsidies to buy private plans. Since Medicaid is less expensive than private insurance, this could cost the federal government substantially more money. And the plans would probably be less favorable than Medicaid, charging higher deductibles, for example.

Since the court’s decision, six Republican governors – in Texas, Florida, Mississippi, South Carolina, Louisiana and Georgia -- have said they will not participate, even though the federal government will cover all of the costs of new enrollees through 2016 and at least 90 percent thereafter. Texas, has the highest uninsured rate in the country at 27 percent, most of which would be covered under the new law, while Florida has roughly 4 million residents without health care coverage at the moment. Each of these states could get billions of dollars in federal subsidies.

Some states have already spoken with a hard edge. Missouri voters recently passed a ballot measure that would prohibit establishment of a health insurance exchange unless the state legislature approves. Voters in Alabama, Montana and Wyoming voted recently to reject the law’s requirements for individual coverage.

State-level challenges to the federal law will continue for certain. If these governors follow through and refuse to offer the health care program, it could significantly undermine the law’s goal of extending coverage to uninsured Americans. Some states may opt out initially and ultimately offer exchanges. Something similar happened when Medicaid started in 1965. Most states added it within five years but it took Arizona 17 years before it joined in.

State legislatures will also play a key role in deciding whether to expand Medicaid when they convene this winter and next spring. State lawmakers will put significant pressure on their governors, arguing that the states can’t afford to miss out on new revenue without having its own plan to help millions of residents who lack health insurance.

Other Republican governors are eying the Medicaid expansion as an opportunity to press the federal government to approve GOP-favored reforms, like health savings accounts and greater leeway on installing co-pays. But it remains to be seen how much the Obama administration is willing to bend to ensure broader participation in the Affordable Care Act.


Also contributing to this report were: Kaiser Health News; Los Angeles LA times, Washington Post; Politico; The Hill; CNN and Bloomberg News.

Alan Schlein runs, an internet training and consulting firm. He is the author of the bestselling “Find It Online” books.

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