'Gubernatorial Doubts about Health Care Reform: Paranoia or Rational Thinking?' by Anya Rader Wallack

We are starting to see fractures in the national health reform coalition. Among the defectors are the nation’s governors, who weighed in on the plan last week during their annual summer meeting. It seems support for reform among this group is at best tepid. This is a shame. Health care reform, if done right, should appeal to most states’ top politicians. Meanwhile, backing from the nation’s governors is critical for the successful implementation of any reform plan that comes from Washington.

Under the right kind of national health care reform, states would have much to gain:

• Fiscal relief. Medicaid made up 21 percent of the average state budget in fiscal year 2008. This includes both state and federal funds, and the federal share has increased temporarily under the federal stimulus bill. Nonetheless, increasing medical care costs, particularly when combined with caseload increases due to an economic downturn, crowd out other priorities and force very difficult choices in state capitols in terms of coverage, eligibility, and provider payments. Health care reform could provide badly-needed relief for states by supplying federal funding for low-income subsidies, stemming the erosion of employer-sponsored insurance and any associated increase in Medicaid caseloads, and buffering states against economic downturns by increasing federal matching rates during recessions. Of importance for Massachusetts, it also could level the playing field between our employers and those in other states by imposing national requirements for employer coverage.

• Long-term care reform.

It isn’t the “medical” side of Medicaid that is really killing states, it’s the long-term care side, through which states pay for the continuing and often very expensive service needs of low-income elderly and disabled individuals. Spending for elderly and non-elderly disabled individuals accounted for 63 percent of Massachusetts Medicaid spending in 2007. Senator Kennedy pushed for inclusion of an important long-term care provision in his committee’s bill. It would provide a new vehicle for middle-income Americans to save toward future long-term care costs, potentially reducing demand on Medicaid. The feds also could make it easier for states to rationalize Medicaid eligibility for long-term care and could accelerate the shift of funds from institutional to community-based care, which could help lower costs.

• Incentives to better manage care for the most costly individuals. Some of the highest costs in Medicaid are incurred by “dual eligibles,” low-income elderly and disabled individuals who qualify for both Medicare and Medicaid. Medicare provides relatively limited core coverage, and Medicaid pays for everything else. States are frustrated by the limits on their ability to manage care for these individuals across both programs to improve coordination and reduce costs, and by the fact that cost savings from innovations accrue to the federal government. Some of the reform proposals under consideration would broaden state latitude in this regard, and allow states to share in any savings realized.

That said, governors have every right to be nervous. They have not yet been given a clear picture of what to expect under reform. They do not know what price they will pay for reform, or what responsibilities their states will bear, and they have no assurance that the potential benefits outlined above will be realized. In fact, as federal negotiators work to pare down the cost of the reform bill, they are undermining many of the potential positive effects of reform on states. Specific worries include:

• Ambiguous financing provisions. It is not clear what burden states will bear for expanding Medicaid. And in at least one of the major proposals, short-term federal support for expansions expires after several years, leaving states holding the bag. Equally unclear is the expectation regarding state maintenance-of-effort for financing currently covered populations. Add to that a lack of clarity about the federal matching formula – a proposed rewrite of the formula could hit states like Massachusetts particularly hard – and state budget writers have no hope of calculating their liability under the reform proposals.

• “Savings” extracted from the safety net. The White House has proposed using safety net payments to finance coverage expansions, similar to what was enacted under the Massachusetts reform plan. But Massachusetts is a living example of the complexity and potential effects of this policy shift. If a blanket extraction of safety net funds was included in reform, many states would have no choice but to make up the difference in state funds for their vulnerable safety net providers.

• Enormous new responsibilities without any funding. States have huge responsibilities under all of the major reform proposals – from implementing insurance market reforms, to administering new subsidy programs and integrating those with Medicaid, to establishing and operating new Connector-like structures. In many ways, it is the states that will be expected to guarantee results from federal reform. Yet it is not clear that states will be given the supports – financial and otherwise – to ensure success.

It would be a tragedy if health care reform never gets off the ground for lack of support from states. Or if it were enacted and then collapsed, leaving states with the status quo for Medicaid: uncertainty about federal financing for the poor; increasing Medicaid caseloads as employer-sponsored health insurance erodes under the pressure of rising premiums; and responsibility for crushing long-term care costs for the elderly and disabled.

Federal leaders have to bring on board and keep happy numerous constituencies if they want to see health care reform pass. States, however, should have a special status in that effort, as they are necessary partners in the implementation of whatever passes. And governors should compare any reform proposal with the prospect of an indefinite Medicaid compact under the current rules. Governors should take an active role in shaping reform, and should not simply chant the mantra of “no unfunded mandates.” If reform fails, we all lose.

The history of state-federal relations around Medicaid is filled with animosity and distrust. Health care reform should provide an opportunity to repair that relationship and move forward with transformations of Medicaid that any governor could love.

Anya Rader Wallack is the Executive Director of the Massachusetts Medicaid Policy Institute and a member of the Massachusetts Health Care Quality and Cost Council.