Federal Health Law Driving State Debates

One way or another, President Obama's Affordable Care Act dominated health care politics in practically every state in the nation this year. Some states fought it, some moved to implement it, and others struggled to bring down Medicaid costs so they could afford it. Some tried to do all three.

Georgia is a good example. Its governor, Nathan Deal, is one of 26 Republican governors suing the Obama administration over the national law. Still, he's not opposed to one of its central provisions: creating a private health insurance exchange to help small businesses and individuals compare insurance rates.

With the support of the Georgia business community, Deal endorsed a bill earlier this year that would have launched a major exchange project. It made sense to get started, because the Affordable Care Act requires states to have their exchanges ready for federal inspection by January 2013, or the federal government will step in and create exchanges for them.

But once Tea Party activists began lobbying against the exchange bill — which they said would weaken their legal case against the entire law — Deal reconsidered. As the bill headed for a vote, he called his Republican colleagues and asked them to withdraw it. Then Deal created a panel of advisers to research the issue instead.

"I want Georgia to have time to thoroughly study this issue as we wait for the judicial process to play out," Deal said. "Georgians don't want more federal 'solutions,' and the best way to fight back right now is to manufacture a Georgia solution."

Cuts and challenges

Deal is not alone. In truth, nearly all Republican governors battled conflicting factions within their own party this year over health policy. Many were less preoccupied with the exchanges than with wrenching changes to their current Medicaid programs, whose costs they share with the federal government, and whose expenses will be higher once the Affordable Care Act takes full effect.

Here, too, Deal's Georgia is a typical case. To cut the cost of its Medicaid program, the state increased co-payments for patients and lowered reimbursement fees for medical providers. Even so, Georgia is slated to spend $593 million more on Medicaid in 2012 than it did in 2011, because it has to make up for the expiration of federal stimulus funds.

All this was going on at a time when the legal challenges to the law mounted by a majority of governors were working their way through the federal courts. Since Congress passed the national health overhaul last year, 31 separate legal challenges have been filed against it.  One of the cases, brought by Florida and joined by 25 Republican governors, is most likely to go to the U.S. Supreme Court and seal the fate of the controversial law.  So far, five federal court decisions have been rendered in the cases: three for the law and two against it.

Republican states also battled the health law outside the courtroom. Five Republican governors and one Democratic governor signed laws making it illegal to mandate that anyone within their borders purchase health insurance. The constitutionality of the individual mandate is the primary legal issue in the federal lawsuits against the health statute. 

The debates over the Affordable Care Act left most states little time to consider major health policy initiatives of their own. But there were a couple of important exceptions. Vermont's Democratic governor, Peter Shumlin, signed the country's first state-run "single-payer" health care law, and Wisconsin's Republican governor, Scott Walker, created an "Office of Free Market Health Care," with the ambitious goal of finding an alternative to the national law.

Exchange complications

Nearly every state wrestled, as Georgia did, with the problem of how or whether to create a health insurance exchange in accordance with the federal law's provisions. The law says every state must have a statute or executive order creating the legal authority to run such an exchange before the federal government can provide full funding for it. So far, every state except Louisiana has received a $1 million planning grant to begin work on the project, and some states have received supplemental grants.

Still, only 10 states enacted exchange laws. In all the rest, proposals were either defeated or never offered because of political opposition. But pressing budget issues also prevented lawmakers from attending to a panoply of complex decisions needed to build and operate an exchange. For example, states have broad leeway under the federal health law to decide how much they will regulate the prices insurance companies charge. Some will choose to let the carriers set their own prices in the exchange, while others may include only the lowest bidders.

In some cases, state officials said the federal government had not provided enough guidance on how to proceed. In particular, both Democrats and Republicans cited the need for details on the so-called "minimum benefits" insurance companies must cover to qualify for the exchange. Among the states that did enact exchange laws — California, Connecticut, Colorado, Hawaii, Maryland, Nevada, Oregon, Vermont, Washington State and West Virginia — all except Nevada have Democratic governors and most have Democratic leadership in both legislative chambers.

Some Republicans seized the initiative away from legislators. Indiana's Republican governor, Mitch Daniels, bypassed lawmakers with an executive order implementing an exchange. Alabama's Republican governor, Robert Bentley, set up an exchange study group, much like Georgia's. GOP governors in Virginia and North Dakota signed laws establishing their intention to run an exchange. Montana's Democratic governor, Brian Schweitzer, is seeking federal help to authorize an exchange in the face of GOP legislative opposition.

In all, legislative attempts to create exchanges were defeated in 11 states, including New Mexico, where Governor Susana Martinez vetoed a bill the Democratic legislature had passed. Exchange bills are still pending in 12 states.

Medicaid dilemmas

The Medicaid problem is not quite as complicated as the exchange issue, but it is politically far more explosive. General revenues are rising in most states, but not nearly as fast as Medicaid costs. Federal stimulus funding for the program — $60 billion in 2010 and $50 billion in 2011 — is set to expire July 1. As a result, nearly every state has reduced Medicaid services for the coming fiscal year, even as rolls continue growing. Because the federal health law generally prohibits Medicaid enrollment cuts, states are using a variety of other measures to tamp down costs.

Early in the year, Arizona grabbed national headlines when Republican Governor Jan Brewer asked the federal government for permission to drop Medicaid coverage for 250,000 childless adults. Despite the federal ban on enrollment cuts, Health and Human Services Secretary Kathleen Sebelius granted Brewer's request because she said Arizona's adult coverage was part of a soon-to-expire waiver that went beyond the requirements of federal Medicaid law. Since then, Brewer has lowered the number of adults likely to be affected to 120,000.

New York broke new ground when Democratic Governor Andrew Cuomo proposed a cap on future Medicaid spending increases of 4 percent each year, well below the national average of 6 percent annual growth. For the year ahead, Cuomo's Medicaid budget includes a wide variety of cost-cutting proposals. But total spending in New York still comes to nearly $53 billion.

California also took big bites out of its Medicaid budget. Using a variety of measures — including elimination of an elder day care service , 10 percent reductions in health care provider payments, and $100-per-day patient co-pays for hospital visits — the state whittled its total Medicaid budget to $43 billion for fiscal year 2012, compared with $52 billion in 2011.

Expansion of private managed care is another way states are seeking to reduce spending and at the same time prepare for the federal law's projected expansion of Medicaid to 16 million more adults in 2014. But the managed care move is not without its detractors.

Florida's proposal to convert the state's 3 million Medicaid recipients to managed care is among the most contentious. Under Republican Governor Rick Scott's plan, frail elders and adults with disabilities would be the first to make the transition. 

Health care advocates complain that Florida's expansion will reduce access to care for the state's most vulnerable people. Others question whether the plan, which is based on a five-county pilot program, will actually save money. The Georgetown University Health Policy Institute studied the 2006 pilot program in Florida and concluded that it "yielded little in the way of concrete evidence of either efficiencies or cost reductions." Nevertheless, Florida is counting on rolling out the same program statewide to save the state budget more than $1 billion per year.

In all, at least 19 states decided to expand Medicaid managed care this year. Illinois plans to place half of its Medicaid caseload in the hands of managed care organizations by 2015. South Carolina is requiring nearly all of its Medicaid beneficiaries to enroll in a managed care plan, and Washington State aims to increase its share of Medicaid patients in managed care from 60 percent to 85 percent by 2014.

At the same time, the level of benefits offered by states to Medicaid recipients is slated to shrink in at least 20 states. South Carolina plans to drop coverage of hospice care for the terminally ill. North Carolina has stopped covering surgery for the clinically obese. California intends to stop paying for over-the-counter cough syrup. And Massachusetts will no longer pay for dentures.


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