Hurdles of health care reform: the obstacles are enormous, and so are the stakes. But there are some new ideas for reining in health care costs and keeping Americans healthy.

Today's health care headlines distress even the most seasoned lawmakers.

"Health Costs Soaring"

"State's Health Care in Near Crisis"

"Uninsured Patients Pack Clinics"

"Grim Choices Face States in Making Cuts in Medicaid"

"States Not Prepared for Bioterrorism Attack"

No state seems immune from the powerful forces of rising health costs, more uninsured people, disastrous budget shortfalls, a strained public health system and workforce shortages. The bad news can overwhelm would-be reformers because the issues are so tough.

So what's a concerned legislator to do? One or two bills can't fix the enormous health problems facing states. Ideally, legislators would have the luxury of time to examine the entire health system, work with broad-based coalitions to determine the goals and priorities, and move forward from there. But the immediate demands and the legislative process don't readily lend themselves to a systematic examination of health issues and long-term vision.

"Legislators tend to be pretty myopic," says Kansas Representative Bob Bethell. "We take care of the dog biting us today, but we don't look down the road at the other dogs lined up until they get closer."

Legislators often consider bills that address specific issues in a piecemeal fashion. Many bills propose narrow programs to meet specific needs--such as establishing an AIDS clinic or enacting insurance requirements or modifying licensing for various professions.

QUICK FIX CONSEQUENCES

A "quick fix" can have potential consequences--particularly unintended ones-that can create more costly problems.

One group complains they can't get treatment for a certain condition? Enact an insurance mandate.

Others complain about soaring premiums? Repeal insurance mandates.

Drug costs seem too high? Impose restrictions on types or numbers of drugs.

Without the right medicines patients end up in a hospital? Loosen drug restrictions.

Medicaid costs out of control? Cut provider payments.

Providers refuse to treat Medicaid patients? Raise provider payments.

"We can't keep this up," says Bethell, referring to the piecemeal way of doing business. "We need to set state health goals and then determine how to use the limited funding we have to do a better job of accomplishing them." He says legislators need to tame the attacking dogs, but also do something about preventing future dog bites. And that requires long-term planning.

To this end, Bethell sponsored legislation in 2002 to create the Kansas Commission on Health to " make recommendations on all aspects of health, with an emphasis on prevention, health promotion and reducing disparities" among such groups as low-income families and racial minorities. The commission would first establish measurable health goals for Kansas. Although the bill passed the House with strong bipartisan support, he says election year politics derailed it in the Senate. He promises to bring it back. "The stakes are too high not to do things in a more strategic way," he says.

PRESSING PROBLEMS

Even while setting long-term goals, legislators face difficult and immediate problems. Spending on health services has ballooned to consume 27 percent of the average state's budget, nearly double the share they spent on health services about a decade ago. The bulk goes to Medicaid, which grew by 12.8 percent in 2002, while state general fund spending grew a mere 1.2 percent. Twenty-seven states reported Medicaid cost overruns, which means cutting back or seriously squeezing other budget priorities.

Health costs rose less than 3 percent annually between 1994 and 1997. In contrast, 2001 saw an 11.2 percent overall rise in costs, 2002 will hit nearly 14 percent, and national projections indicate a 15.4 percent increase in 2003.

Small employers face exorbitant increases in health insurance premiums. A recent survey by the National Federation for Independent Business indicates that 69 percent of respondents reported at least a 20 percent increase in premiums in 2002, 39 percent experienced at least a 30 percent rise, and one in 10 reported increases of 50 percent or higher.

Some businesses have dropped employee health insurance or significantly raised the employee share of the costs, making coverage unaffordable for many low-wage workers. As a result, the number of uninsured people climbed above 41 million in 2002, after dipping below 40 million the year before. With more uninsured people, the demands on Medicaid and other publicly funded health programs grow.

Some new ideas may help lawmakers weather the current storm in the short term while moving toward longer term goals. For example, state lawmakers can seek new options to make insurance more affordable, Medicaid more efficient and effective, better manage the high costs of people with serious chronic health problems, emphasize personal responsibility and healthy behavior, and serve the uninsured.

SHORING UP THE PRIVATE MARKET

Efforts to make insurance more affordable and available surely conform to any state's goals. Some of the newer ideas are to:

* Allow insurers to sell stripped-down health insurance plans that cover only certain basic services to make them more affordable.

* Establish medical savings accounts that allow people to make tax deductible contributions that can be used for health care services, but that also allow people to retain unspent funds.

* Allow employees to use more "consumer directed" or "defined contribution" methods where they use a designated allocation to choose a plan to Suit their own needs.

"These ideas may well make insurance more affordable for a number of small businesses and individuals," says Scott Leitz, Minnesota health economist. He notes that they're still largely in the experimental phase and may expand and improve over time. However, he also raises a few concerns.

"The biggest concern is that such plans would appeal mostly to the younger and healthier population, enticing them to leave the larger pool," says Leitz. The larger the pool of insured people, the more the risk is spread and the lower the overall premiums per person. If mostly the sicker people remain in the pool, premiums would rise, making coverage unaffordable for many. "We need to guard against shifting overall costs onto government or onto providers in the form of bad debts if we squeeze the high-needs people out while we fix it for the relatively healthy," he says.

Leitz encourages lawmakers to consider options to help stabilize both the individual and small group markets, such as establishing a re-insurance mechanism to help spread the risk among insurers. In addition, high-risk insurance pools for people with serious medical problems help protect the insurance market, especially if the pool is affordable and covers people's needs.

RELATED ARTICLE: MISSISSIPPI'S "20-20 VISION"

Mississippi Representative Robert Moody sponsored successful legislation in 2002 to create a state Healthcare Coordinating Council charged with crafting a long-range, comprehensive preventive health care plan.

Dubbed the "20-20 Vision" plan, it calls on the state to undertake a number of actions between 2002 and 2020 to improve the health of Mississippians, including:

* Establishing public education campaigns to increase wellness by reducing unhealthy behavior.

* Investing in public programs to expand coverage for preventive and primary care for low-income residents.

* Creating a business buy-in plan to help employers cover more uninsured employees.

* Expanding coverage for children and pregnant women to improve their access to preventive and primary care.

* Developing programs to treat people with chronic conditions, such as heart disease or diabetes.

"MANAGING" DISEASES

Addressing the needs of the highest cost people without breaking the bank remains one of the biggest challenges of all. Leitz notes that the really high spending is concentrated among relatively few people:

* Only 1 percent of people who use medical services account for 27 percent of health care spending.

* And 10 percent of medical users spend nearly 70 percent of health care resources.

* Conversely, the bottom 50 percent of people spend just 3 percent of the nation's medical tab.

"Disease management" programs have emerged as a relatively new tool to help rein in spiraling costs for people with high health care needs, such as heart disease, diabetes, asthma or AIDS. Case managers monitor patients to meet their ongoing needs before they become more serious, requiring hospitalization or other costly treatment.

In Colorado, S percent of the state's Medicaid clients account for 45 percent of costs, according to Karen Reinertson, director of the Department of Health Care Policy and Financing. She says focusing on the people with high needs and costs to help them manage their disease or condition should help the patients as well as reduce state costs. Her department recently joined several drug companies in a pilot program for 400 Medicaid patients with diabetes, asthma or schizophrenia and also for high-risk newborns.

Reinertson says she was impressed by a report in Diabetes Care, which showed that a similar disease management program saved $107.86 per month for each participating client and reduced hospitalizations by 25 percent.

PREVENTING PROBLEMS

Although appropriate and timely medical treatments play a critical role for people who need them, more and more legislators realize the value of preventing or reducing the needs in the first place.

"We tend to do things backwards," says Bethell. "We invest maybe 95 percent of our health resources for medical treatment and underfund public health and wellness activities.

"We spend our money on treating illness, but don't emphasize wellness enough. We're going to break the bank if we don't change our focus," he says.

Changing focus means changing behavior, such as encouraging exercising, eating right, drinking in moderation and not smoking. State lawmakers can encourage these behaviors for everyone, including those in the programs that states sponsor-in Medicaid, for state employees, for school children and for the uninsured served in state-funded clinics.

Demands drive health care costs. "We can't possibly meet all the demands," says Bethell. "People want the latest technology and interventions, think they can take a pill or other high-tech fix and live forever," he says. Bethell likes to quote his friend, former Kansas Senator Sandy Praeger, who often preaches, "Only in America do we think dying is an option."

Representative Bather says state strategies should include the front, middle and back end of life. "We need to invest in early childhood and early detection services to avoid costly problems down the road," he says. He cites a major problem with obesity-related diabetes and heart problems. "People need to eat right and exercise, and we need to reduce our smoking rates," he says.

As for the back end of life, long-term care consumes a third of the nation's Medicaid budget. Bather says that an ounce of prevention in that arena may also help with the needed pound of cure. Lots of people think Medicare will take care of them in their old age, but they don't realize Medicare pays very little for long-term care. He believes policymakers should help educate people and encourage them to save for their long-term care needs or purchase long-term care insurance. "We also need to invest in relatively cheap support services in our communities that can prevent or delay nursing home care," says Bather, who supports a continuum of care options.

HELPING THE UNINSURED

* The ripple effect from the rise in the number of uninsured people strains state and local budgets, hospitals and other health providers. It also increases costs for purchasers of health insurance plans who pay more to subsidize charity care and bad debt incurred by the hospitals and other providers.

* As for public programs, the Bush administration has loosened Medicaid requirements to enable states to cover more people. Through the "President's Initiative to Expand Community Health Centers," the administration also pumped new money into expanding and improving such centers, which serve a large number of the nation's uninsured, as well as Medicaid patients. Community health centers have emphasized preventive and primary care for decades and pride themselves on their disease management techniques.

* Under Medicaid, states may experiment with innovations never before allowed, such as expanding coverage to new populations without having to cover the full range of services required by law. Never before have states met with as much flexibility out of Washington. When the Bush administration came to town, states found an empathetic friend in former Wisconsin Governor Tommy Thompson, the new secretary of Health and Human Services. Under Bush and Thompson, states' ability to secure waivers improved dramatically.

The Bush administration also promotes healthy lifestyles through its HealthierUS Initiative. Thompson has launched an education campaign for Americans about balancing diets with physical activity to promote healthier lifestyles.

LIGHT AT THE END OF THE TUNNEL

Yes, states face enormous challenges in health care, but hope remains.

* American medical care is second to none (at least for those who can afford it).

* New technologies and medicines save lives and help people live longer.

* The health sector contributes substantially to the overall economy.

* A new emphasis on healthy lifestyles is helping people stay healthier.

* States have more flexibility than ever to modify their Medicaid programs.

* Greater awareness about the importance of public health helps government agencies work together to improve people's health and also be prepared for disease outbreaks and other biological threats.

And a number of legislators aren't giving up. Representative Bather says Kentucky isn't out of the woods yet, but is on the right track. "We've got legislators, state agencies, providers, consumers and others working together and moving forward in a positive way. We know what the problems and issues are and we're moving in the right direction. You can't get there if you don't know where you're going."

WHAT DETERMINES HOW HEALTHY WE ARE

Medical care            11%
Environment             16%
Genetic makeup          25%
Behavior and lifestyle  48%

Source: American Public Health Association

Note: Table made from pie chart

Leitz notes that the so-called "bare bones" plans with limited benefits that have been offered as more affordable options haven't appealed to enough people to make them a viable option in the market, at least not yet.

MORE AFFORDABLE INSURANCE

Along those lines, an intriguing new idea to create more affordable insurance comes from the Dr. A.J. Kauvar Foundation. The foundation has funded work on a private sector insurance product that would promote preventive and cost-effective health care by offering certain services with little or no copayments. Other services deemed less effective would require copayments that would increase as the "effectiveness" of the service decreases. The idea stems from the Oregon health plan's list of more than 700 prioritized services, based on medical effectiveness and public values.

Under Oregon's program (which serves the state's Medicaid population) prenatal care, medical therapy for diabetes or asthma, an appendectomy, childhood immunizations and smoking cessation services all rank relatively high as "effective and essential medical treatments." On the other end, treating the common cold, corrective eyesight surgery and treatment for sexual dysfunction rank much lower. People could still receive many of the lower ranked services under the Kauvar concept, but would have to pay more for them. Although the plan would build on Oregon's design and experience, it would have its own list of benefits.

"The Kauvar concept is intended to provide a basic 'Chevy' level of affordable health insurance coverage," says project director Chris Adams, president of the Adams Group and consultant to the foundation. "The major challenge would be overcoming people's skepticism about whether such a plan would meet their needs. The plan would have to be crafted and explained in a way that reassures consumers.

REINVENTING MEDICAID

The cost spiral and budget woes have caused some states to drop thousands of people from their Medicaid programs. Although state policymakers may feel they have no other choice in the short term, they may find they've simply shifted costs to other public programs that don't benefit from the federal matching funds for Medicaid. The federal government pays between 50 percent and 80 percent of medical costs under Medicaid, depending on a state's designated "matching rate." When people lose their Medicaid coverage and join the ranks of the uninsured, many may seek care in hospital emergency rooms and public clinics, further straining state and local budgets.

Kentucky Representative Paul Bather says work his state did in 2001 to make Medicaid more efficient helps during this economic downturn. "So far we haven't had to cut people off," he says, "and we're hoping to prevent that." Bather reports that Kentucky has decentralized its program to focus on specific areas of the state and identify definite needs.

"Our goal is to provide quality services efficiently and effectively," he says. He notes that one size doesn't fit all. "We've created seven different service regions where nurse practitioners work with the medical community to identify problems and solve them."

Where costs seem out of line, nurse practitioners work with providers to educate them about things like drug costs and alternatives, case management, and disease management techniques. They work with patients to help them understand the appropriate use of medical services and how to manage any chronic illness.

Kentucky has a track record for demonstrating that cost-cutting doesn't have to compromise quality. Its Passport Health Plan, the state's only Medicaid managed care plan, has documented $92.4 million in savings during its four years of operations.

"We have met the two goals established by the Legislature--to stabilize the growth of Medicaid expenses and improve health care access and quality," says Joyce Hagen-Schifano, Passport president. She says savings stem from outreach, case management programs and an information system that tracks care and costs, especially for medication and prenatal care. Passport scores above the national average in 94 percent of the performance measures designed by the National Committee for Quality Assurance.

FEDERAL HEALTH OBJECTIVES

There's already a list of health goals for states to use in a report I from the Department of Health and Human Services (DHHS). "Healthy People 2010" is a list of health objectives that the department is pushing in a national campaign. It builds on the 1979 surgeon general's report, "Healthy People" and "Healthy People 2000: National Health Promotion and Disease Prevention Objectives."

DHHS intends for "Healthy People 2010" to serve as a road map to better health to be used by many different people, states, communities, professional organizations and groups to improve health.

Healthy People 2010 focuses on two overarching goals:

1) Help individuals of all ages increase life expectancy and improve their quality of life.

2) Eliminate health disparities among different segments of the population.

The 28 focus areas of Healthy People 2010 contain goals that frame the overall purpose, such as:

* Cancer: reduce the number of new cancer cases, as well as the illness, disability and death caused by cancer.

* Disability and secondary conditions: promote the health of people with disabilities, prevent secondary conditions and eliminate disparities between people with and those without disabilities.

* Food safety: reduce foodborne illnesses.

* Learn more about Healthy People 2010 at www.healthypeople.gov

STATE ROLES IN HEALTH

Purchaser--States spend about 27 percent of their total budgets on health care services.

Guardian of public health--Most advances in our health status come from public health initiatives, not from direct medical care.

Access broker--States help make insurance more available and affordable for individuals and employers and address workforce problems.

Safety net provider--States provide health services for many of the more than 40 million uninsured Americans.

Regulator--States help ensure health care quality and consumer protections by regulating professionals, facilities and insurers.

Educator--States support professional education, conduct consumer campaigns and educate school children.

IDENTIFYING HEALTH GOALS

A year ago, small teams of policymakers from six states met in Naples, Fla., to identify health goals. Supported by a grant from the Health Resources and Services Administration, the National Conference of State Legislatures worked with the National Governors Association and the Association of State and Territorial Health Officials to sponsor the meeting. Its theme was Using Limited Health Dollars Wisely: What States Can Do to Create the Health System They Want. Legislative and executive branch policymakers from Arkansas, Colorado, Kansas, Kentucky, Maine and Tennessee considered how they might take a different approach to addressing health issues in their states.

Some of the best ideas to come out of the conference include:

* The Kansas team's plan to create a Kansas Commission on Health to make recommendations on "all aspects of health in Kansas with an emphasis on prevention, health promotion and reducing health disparities."

* The Kentucky team's strategy "to promote a healthy Kentucky by ensuring access to an efficient health system that has prevention as a priority, promotes wellness, strengthens families and enhances each individual's quality of life. The system should also help people be as well as they desire; ensure normal health and development; repair things when they're broken; and contain things that won't get better."

* The goals adopted by the Tennessee team to build healthy communities through accountability and responsibility (individuals, providers and the state-as-purchaser). And to educate people about the importance of healthy behavior early in life, educate policymakers about key health issues, and provide a public forum for discussing statewide goals and priorities.

Martha King heads NCSL's Health Care Program.