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States beat President to the punch.

By the time a nationwide health reform plan is adopted, states will have led the way.

For the past two decades, states have been quietly exploring and adopting measures to alleviate sky-rocketing health care costs and to encourage expansion of insurance coverage to those in need.

This year, legislatures in 40 states considered some type of health care proposal.

"From Vermont to Texas, every state government in America is being financially crushed by the rising cost of providing health care," Governor Ned Ray McWherter told the Tennessee General Assembly. Health costs have tripled in that state over the past five years.

The governor's contention was reinforced by the Congressional Budget Office, which cited health care costs of more than $800 billion in 1992 and predicted that figure would rise to $1.7 trillion by the year 2000 if the current system is not changed.

Looking to the much publicized national health care proposals, few saw immediate relief. The president's proposal may be unveiled this fall. Congress might pass a plan by late 1993 or by the start of the 1994 campaign season. Implementation, however, will probably be phased in with some parts of the program delayed three to five years before going into effect.

Consequently, many states have gone ahead with efforts to defuse the explosive health care situation.

"I think the states got going because they were forced to go it alone," says Representative Charlene Rydell of Maine. "States have been working in health care reform for several years while the federal government has become involved only in the last several months."

As administrators of such federal health care programs as Medicaid, states were impelled to become reformers. And as major employers, they were faced with the escalating costs of providing health care benefits for thousands of employees and dependents.

"There was a move to provide affordable, universal access because health care costs were eating up more and more state budgets," Rydell explains. "Health benefit costs for state employees and Medicaid were devouring us."

With insurance premiums climbing 10 percent to 30 percent or more per year in the early 1980s, Maine was quick to recognize the burden health care costs were placing on the average family--especially when insurance companies cut services to keep premiums affordable. The results were families facing financial disasters from serious medical crises.

By the late 1980s, Maine had created a catastrophic health care program. Lawmakers then set about adopting a series of reforms they hoped would ultimately lead to universal health care coverage for state residents.

"Now we're moving slowly, but surely, to piece those increments together for a universal system," Rydell says.

Florida adopted major reforms in April after spending $35 billion on health care in 1992--triple the amount of 10 years ago. It was a choice of reform or "going belly up" in bankruptcy, according to Douglas Cook, director of the Florida Agency for Health Care Administration.

More than a dozen other states unveiled plans this spring for controlling costs and providing for uninsured residents.

Major components of state plans have been provisions aimed at curbing costs, regulating insurance providers, providing care for children and helping small businesses provide health insurance for employees.

Thirty-four states have forced insurers to guarantee policy renewals; 40 have put tighter restrictions on insurance rates. Twenty-six states require insurers to issue policies to all who apply, including individuals, large corporations and small businesses, regardless of individual health.

At least 20 states have required insurers to guarantee policies for small businesses, which traditionally have had a difficult time financing insurance for employees.

Maryland acted in April, changing state insurance laws to make coverage cheaper for small businesses. More than half the state's uninsured population--about 650,000 people--worked in or were dependents of workers in small firms that could not obtain insurance.

The legislation also established a Maryland Health Care Access and Cost Commission to draft a standard health benefit plan, write performance standards for health maintenance organizations (HMOs) and develop plans to help curb costs. The commission will have the authority to establish regulated rates for the services of all licensed health care providers and to restrict fees that are deemed excessive or that are growing too rapidly. Maryland has regulated hospital rates since 1974.

New Jersey, New York and Vermont are requiring insurers to establish community rates that lower insurance prices by spreading costs across the largest possible number of people.

One of the leaders in attempting to control costs was Oregon, which devised a unique system ranking 688 medical procedures and services according to price and patient benefit. The state will pay for services ranked 1 through 568. By setting priorities on medical procedures and not paying for those below 568, lawmakers hope to extend Medicaid benefits to 120,000 Oregonians living below the poverty line, who did not originally qualify for the program.

It has been a long battle for the state because the health care reform tailored to its specific needs in 1989 required a federal waiver from Medicaid regulations. The initial petition was denied by the Bush administration, but the waiver was granted this spring.

Washington, which has approved a state plan with all the components the Clinton administration is considering, expects to curtail costs by requiring managed competition among doctors and hospitals and imposing ceilings on health insurance premiums. The state intends to provide basic coverage for 500,000 uninsured residents with a health care program phased in over five years and financed in part by stiff "sin" taxes on cigarettes, beer, wine and other liquor. The goal is to require all residents to have universal access to a uniform benefit package by 1998. Employers will be required to participate and pay at least half of the health insurance premiums for workers and dependents. Four health insurance purchasing cooperatives will be created through which any individual or group may buy insurance.

A five-member commission will design a uniform package that includes routine and emergency care, preventive services, therapeutic drugs, maternity and child care, some mental health treatment and chemical dependency treatment. The commission will also regulate health services and set a ceiling on health insurance premiums based on individual income.

Full implementation of the Washington plan will require an exemption from the Employee Retirement Income Security Act (ERISA)--which gives the federal government exclusive authority to regulate employee benefits including self-insured health plans--as well as waivers from Medicare and Medicaid regulations.

Like Washington, Florida based its ambitious health care reform law on managed competition to control costs. And in Florida, cost containment means magnified buying power. The package approved this spring allows government, individuals and businesses to pool resources for the purchase of care through health partnerships.

The legislation follows Maine and Oregon in setting up guidelines for doctors on the most cost-effective treatments; encourages rural hospitals to cooperate in care networks; and encourages hospitals to expand primary care clinics.

The welfare of children also has been a driving force in some reform efforts. Vermont opened its Medicaid program in 1992 to all children from poor families. The legislation also instituted community rates for individual insurance policies and established global budgeting, setting limits on total public health expenditures. The Vermont Health Care Authority was created and charged with controlling costs, expanding health care for the uninsured and capping hospital spending. The board must submit two universal access plans to the General Assembly by November 1993 with a goal of universal access for all state residents by July 1995.

Health care reform is not necessarily a new and '90s concept. As states struggle with rehabilitation of old systems, they are following such health care pioneers as Minnesota and Hawaii, which began revamping their programs two decades ago.

Twenty-one years ago, Minnesota required all employers of 50 or more insured workers to offer HMOs as an option--the first step toward managed care in the nation. The state created the Children's Health Plan in 1987 for low-income, pregnant women who were not eligible for Medicaid and children from low-income families. It was funded by a 1-cent cigarette tax.

The MinnesotaCare program was developed in 1992 to contain costs, reform health insurance, help solve rural health problems, collect health care data and find ways to expand access to health services. To pay for the program, the state increased the cigarette tax and levied a 2 percent hospital tax on gross patient revenues. Beginning in January 1994, money for the program also will be raised from a 2 percent tax on medical provider revenues and a 1 percent tax in 1996 on premiums for nonprofit health service plans and HMOs.

MinnesotaCare has drawn the attention of the White House because the state has addressed one problem faced by the administration--coverage for the uninsured. The state plan to insure people earning less than 275 percent of the federally defined poverty level--$39,360 for a family of four--is expected to cover up to 180,000 people by 1997 at an annual cost of $337 million.

Minnesota also created a health care cost containment commission directed to devise ways to slow health care inflation by 10 percent per year, foster regional planning, review effects of treatment methods and prohibit insurance companies from denying coverage to small businesses or refusing group policy renewals.

Another old-timer in the reform field, Hawaii passed its prepaid health care act for all full-time employees in 1974 and is the only state with an exemption to ERISA provisions.

The state also created its own health insurance program in 1989 for groups not covered by Medicaid or prepaid health care. Hawaii has subsidized the program with sliding fees for the insured; the poor are covered free of charge.

Continuing on the track of reform, Hawaii is now seeking federal Medicaid waivers in order to combine Aid to Families with Dependent Children, state general assistance and state health insurance programs into one managed care delivery system. Hawaii has also taken steps to encourage general practitioners by offering incentives to medical schools to graduate more primary care doctors.

To piece together the health care puzzle, states also must rely on specific information, lacking in the past. Florida, Minnesota, Ohio and Vermont have met the information deficit by creating databases on health care services that pull together statistics on quality, costs and other factors that can be used as a basis for reform legislation. With each step along the reform trail, states are becoming more and more aware that health care will not be changed from the top down. And most lawmakers know that they must create a framework specific to their state's needs upon which future national legislation can be tacked.

"I think there will be expectations [on the federal level] that the states will design models organized in a fashion that is best suited to each," Rydell of Maine explains. "What is appropriate for a highly urbanized area would be different from the type of health care needed in a more rural area, like Maine."

"Whatever is adopted, the federal government is going to say, |Here, this is a health care plan. Now you put it together and implement it,'" says Bill Hagens, senior research analyst for Washington's House Health Care Committee.

And states engineering individual reform plans, like Hawaii, Minnesota, Maine, Washington, Florida and others, will be in the best positions to adapt and use a complex federal package.

"I think states should be the ones to take the bull by the horns, so to speak. I don't believe in inaction and waiting for the feds," comments Senator Mike Bird of Colorado.

Bird proposed what even he admitted was a radical solution to the health care dilemma in Colorado last year when he sponsored a bill to develop an alternative state program to Medicaid.

"If we failed to get a federal waiver in four years, we would have implemented the program on our own," he explains. With health care costs consuming 20 percent of the Colorado budget and rising, "it was time for a drastic proposal," Bird says. The bill, which received bipartisan support in House and Senate, was vetoed, but underscored the urgent need for reform.

"The necessity for health care reform is still with us," Bird adds. "We shouldn't wait for Washington, but go ahead and develop our own approaches. And we should be willing to go it alone if the federal government doesn't do something. The problem is just too severe."

ERISA Stymies Reform Efforts

What is the greatest barrier to state health care reform? Costs? Partisan bickering?

Most legislators agree the single greatest hurdle to successful state health care reform is the Employee Retirement Income Security Act of 1974--better known as ERISA.

ERISA establishes minimum participation, vesting and funding standards for private pension benefit plants. It also prescribes procedures for reporting, disclosure and claims, and sets bonding and other requirements for private pension and benefit plans. Section 514 of the act gives the federal government broad authority to pre-empt state laws relating to employee benefit programs.

ERISA limits the regulation of employers offering self-insured health insurance plans. As a result, self-insured companies can avoid state insurance regulation, premium taxes, benefit mandates and other requirements such as participation in insurance pools designed to extend health care coverage to the poor, the uninsured and the uninsurable.

Self-insured plans have successfully challenged a number of state programs using ERISA as the basis for the legal action. Recently, a New York court ruled that the state's uninsured pool violates the provisions of the law. The state has appealed the ruling.

In what may be a landmark case, New Jersey successfully defended its hospital rate-setting program from a challenge by a number of self-insured plans on appeal. To win the appeal, the Legislature was forced to change the program after the state initially lost the case in lower court.

Hawaii, which required prepaid health care for all full-time employees before passage of ERISA, fought off a series of court challenges and finally received a limited exemption from the provisions of Section 514 through an act of Congress in 1983. It is the only state that is not subject to these ERISA limitations.

As states step up efforts to expand access to health care, support among lawmakers for seeking federal relief from the restrictions of ERISA has intensified. Congress is finally, if reluctantly, responding.

Last year, Senators Patrick Leahy of Vermont and David Pryor of Arkansas introduced legislation that would have provided a limited exemption from ERISA for some states. Congress also considered, but removed in conference on the budget reconciliation bill, language that would have provided limited exemptions for Maryland and additional exemptions for Hawaii.

This year's budget reconciliation package includes limited ERISA exemptions for Hawaii, Maryland, Minnesota and New York through May 12, 1995. The proposal would permit: * Hawaii to amend its prepaid health care act of 1974 to broaden the basic benefit package. * Maryland to continue its all-payer hospital rate-setting system. * Minnesota to finance part of its MinnesotaCare program by extending a provided tax to self-insured plans. * New York to continue its statewide pool for funding the uninsured.

It is important to note that the sponsor of the provisions emphasized that large scale state ERISA exemptions should not be anticipated.

States hope the President Clinton's health care reform proposal gives them sufficient flexibility to finance and provide affordable, quality health care for all.
COPYRIGHT 1993 National Conference of State Legislatures
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Pres Bill Clinton
Author:Gordon, Dianna
Publication:State Legislatures
Date:Aug 1, 1993
Previous Article:The South's growing pains.
Next Article:Insuring state employees is hard on the budget.

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