Altered States: Paths to Reform Increasingly Diverge

Most states ask their governors to be at least 30 years old, meet a residency requirement and have a criminal record free of felonies.

Would-be governors may soon face another prerequisite: Can you do advanced math?

Nearly every state faces budget shortfalls, and governors everywhere must perform the tricky calculus of balancing mounting obligations against dwindling tax revenues. A recent series of budget proposals has led to a tangled mess of striking cuts, charges that politics are trumping policy and union-led marches on statehouses — and the federal health reform law is bound up in the mix.

Thirty-three Republican governors in January warned the White House that the health overhaul’s Medicaid requirements will force them to trim “critical state programs” like education. Some GOP leaders also argue that the law represents a long-term “unfunded mandate” that will further cripple state deficits.

Seizing on Judge Roger Vinson’s ruling last month that the law is unconstitutional, three Republican-led states — Alaska, Florida and Wisconsin — are refusing to implement the overhaul’s provisions. Many others are carrying out some of the law’s aspects, such as beginning work on state-level insurance exchanges, even as their legal challenges against the law move ahead and Vinson prepares to clarify whether his ruling acts as an injunction against implementation.

Here’s a quick canvas of three states — Wisconsin, Alaska, and Massachusetts — that are especially newsworthy as budget pressures and fiscal realities collide with reform rollout.

Wisconsin: The Law is ‘Dead,’ but Other Changes May Be Afoot

GOP Gov. Scott Walker’s plan to cut the state’s budget and change collective bargaining rules for state workers has garnered national attention and spurred massive protests — and overshadowed the state attorney general’s decision to consider the reform law “dead” in the wake of Vinson’s ruling.

Walker’s controversial budget proposal also has implications for health care: it could reshape Wisconsin’s health care system and offer a template for other Republican governors seeking to deal with soaring Medicaid costs.

The proposal would give the Walker administration “sweeping powers” to refashion the state’s health insurance programs with minimal review by the Republican-dominated budget committee. The secretary of the Department of Health Services would be empowered to modify benefit levels and authorize providers to deny care or services if a beneficiary cannot partly shoulder the cost.

In addition, DHS would be able to circumvent current requirements for the promulgation of emergency rules, which require proof that a rule is immediately necessary to preserve public health and safety. Emergency rules do not require notice, hearing or publication. DHS also would be authorized to extend modifications indefinitely — current law limits the rules’ effect to 150 days.

According to the governor, the proposal is partly shaped by looming health care liabilities; like many states, the Badger State is staring down a massive Medicaid budget shortfall. Wisconsin projects a $153 million deficit in the state’s Medicaid program for the current fiscal year, a deficit that is expected to balloon to as much as $1.8 billion in the budget cycle that begins July 1.

Walker says the proposal is an emergency measure to help close the billion-dollar gap. However, the research director for the Wisconsin Council on Children and Families called the proposal a “shockingly broad delegation of legislative authority” that grants DHS authority to “do almost anything.”

Alaska: Alternative Approach

Alaska Gov. Sean Parnell (R) also announced his state will abandon the federal health law in light of Vinson’s ruling and instead will attempt to implement state-level, market-based solutions.

According to Parnell, the state will consider a health insurance exchange that does not hinge upon the “shiny but poisonous apple” of federal funding and that avoids mandates “that create federal dependency and control.”

Parnell said the state had taken steps to implement parts of the reform law before Vinson’s ruling, including a high-risk insurance pool. He said he believes the state will continue funding that initiative.

Parnell’s decision is “not very [significant” — at least in the short term, according to Time‘s Kate Pickert. The state won’t apply for a $1 million federal grant to study the feasibility of a health insurance exchange, and the governor may be asked to return nearly $15 million in federal funds that Alaska received as part of the overhaul. But if Parnell’s market solutions prove successful, and replicable, GOP governors may look north for alternatives if their challenge against the reform law is upheld.

Massachusetts: Reinventing Reimbursement

Meanwhile, Massachusetts will move forward with “Health Care Reform II” — a long-awaited overhaul of its health reimbursement system, after expanding access to care beginning in 2006.

Gov. Deval Patrick (D) last week unveiled new legislation to increase the state’s scrutiny of insurance payments and fees for hospitals and physicians, and establish new standards for accountable care organizations. Patrick’s proposal follows Massachusetts’ five-year-old health law, which served as a forerunner for last year’s national reforms.

Given its status as an early adopter, many experts say that the Bay State represents a learning lab for states seeking to control costs after boosting access. Massachusetts is now grappling with spiraling spending on health care, which totaled $68 billion in 2010.

Under the new legislation, the state’s insurance commissioner would be authorized to review, approve and reject insurers’ payment contracts with health care providers when they consider premium rate increase applications. The legislation also seeks to improve the compensation system for providers as part of broader efforts to improve quality of care and reduce costs through the formation of ACOs.

The state’s health care leaders are cautious about the proposed overhaul and are waiting for more details before deciding whether to support Patrick’s changes, the Boston Globe notes. However, Andrew Dreyfus, CEO of Blue Cross Blue Shield of Massachusetts, says that the proposal “sends an unmistakable signal that we must work even harder” to cut health costs while improving care quality.

One driver for curbing health costs: the state faces a $1.9 billion shortfall for the coming fiscal year and Patrick already has proposed Massachusetts’ biggest budget cuts in 20 years.

Next week’s “Road to Reform” will focus on reform implementation efforts in California.  Until then, here’s what’s making news around the nation this week.

In the Courts

  • The U.S. Department of Justice recently filed a motion asking U.S. District Court Judge Roger Vinson to clarify whether his recent ruling against the federal health reform law and its individual mandate meant that further implementation of the law should be halted pending the outcome of an appeal (Sack, New York Times, 2/17). Some state officials have concluded that they no longer are obligated to adhere to the law’s requirements or implement its provisions, but the Obama administration said it would continue with its implementation plans (Kendall, Wall Street Journal, 2/18). Vinson subsequently asked the 26 states involved in the multistate lawsuit against the reform law to respond to DOJ’s request within three business days, rather than the typical 14 days (Norman, CQ HealthBeat, 2/18).

Implementing the Overhaul

  • Last week, the Obama administration granted waivers to health insurers in four states exempting them from having to comply with a requirement under the federal health reform law that they offer at least $750,000 in “essential benefits.” More than 900 health plans covering 2.4 million people in Florida, New Jersey, Ohio and Tennessee received waivers exempting them from having to cover a minimum amount of essential benefits, such as hospital care, physician services and prescription drugs.  A number of other states could qualify for similar exemptions if they seek waivers (Pear, New York Times, 2/16).
  • Also last week, CMS released its 2012 Advance Notice, which included proposed payment policies stipulating that Medicare Advantage plans that seek to raise premium rates by more than 10% in 2012 risk being barred from enrolling any beneficiaries in the future. Under the reform law, CMS beginning in 2012 can review insurers’ proposed rates and prohibit them from marketing their MA plans. Jonathan Blum, director of the Center for Medicare Management, noted that CMS currently has the authority to conduct rate reviews, but the overhaul allows the agency to specifically set percentage limits that would require the reviews (Walker, MedPage Today, 2/18).
  • In addition, HHS recently announced awards totaling $241 million for six states and a group of states to design and adopt the infrastructure needed to run health insurance exchanges (Zigmond, Modern Healthcare, 2/16). The six states and the group of states that will receive the awards are Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin and s consortium of New England states led by the University of Massachusetts Medical School (Anderson, Healthcare IT News, 2/16).
  • Meanwhile, the Internal Revenue Service in its budget outline for fiscal year 2012 has requested $119 million in additional funds to enforce the tax portions of the federal health reform law and about $23 million to educate taxpayers about the overhaul’s tax provisions. Portions of the $119 million would be used to establish an account to provide funding for new technology and infrastructure, according to the request (Nocera, Politico, 2/15).

On the Hill

  • Last week, the Senate easily passed a bill that includes an amendment to repeal the 1099 tax-reporting provision in the federal health reform law, marking the first time the chamber has rolled back an element of the overhaul. The repeal amendment was attached to a Federal Aviation Administration bill that cleared the chamber on an 87-8 vote. (Daly, Modern Healthcare, 2/19).
  • Also last week, the House Ways and Means Committee approved two bills (HR 4, HR 705) that each would repeal the 1099 tax-reporting provision. However, only HR 705 includes a plan to offset the revenue the tax provision was expected to generate. Prior to the final vote, the committee’s GOP members opposed an amendment by Rep. Joseph Crowley (D-N.Y.) that would have stopped the offset from being implemented (Weyl, CQ Today, 2/17). Democrats on the Ways and Means panel criticized HR 705’s offset as a tax increase on middle-class U.S. residents (Haberkorn, Politico, 2/18).
  • Republicans in Congress should push ahead with their efforts to repeal and replace the federal health reform law and abandon any plans to improve the law that could make it more appealing, according to a memo from three prominent Republican political strategists. The memo — written by Dick Armey, Matt Kibbe and Dean Clancy of FreedomWorks, a tea party-affiliated group — was sent last week to House Speaker John Boehner (R-Ohio), House Majority Leader Eric Cantor (R-Va.) and other House Republican leaders (Pecquet, “Healthwatch,” The Hill, 2/16).
  • During a House Energy and Commerce subcommittee hearing last week, lawmakers questioned the value of the health reform law after the Obama administration granted waivers to health insurers in four states exempting them from complying with a requirement that they offer at least $750,000 in “essential benefits.” House Energy and Commerce Chair Fred Upton (R-Mich.) said the waivers prove the law is “fundamentally flawed” because it would have dropped or reduced coverage for thousands of residents. However, Rep. Henry Waxman (D-Calif.) said the waivers allow for a “smooth transition” between the current limited benefit plans and what will be expected by 2014 (Pear, New York Times, 2/16).

In the States

  • Although Virginia Gov. Robert McDonnell (R) and other Republican governors oppose the federal health reform law, many have taken steps to ensure its implementation. Alan Weil, executive director of the National Academy of State Health Policy, said such governors “are just expressing the two parts of their job” by opposing the law but maintaining implementation efforts (Aizenman/Goldstein, Washington Post, 2/22).
  • Meanwhile, the Montana Senate recently passed a bill (SB 228) that would prohibit the state from establishing a health insurance exchange mandated under the federal health reform law. State Sen. Jason Priest (R) said Montana instead intends to assert “local control” over reforming its health system (Dennison, Billings Gazette, 2/19).
  • The federal government recently approved Minnesota Gov. Mark Dayton’s (D) Jan. 5 executive order to expand the state’s Medicaid program more than two years before the state would have been required to do so under the federal health reform law. Beginning on March 1, 12,000 uninsured state residents and 83,000 others who currently are enrolled in two state-funded programs — General Assistance Medical Care and MinnesotaCare — will be able to switch to the Medicaid program, which provides more comprehensive benefits and lower copayments (Pecquet, “Healthwatch,” The Hill, 2/17).
  • The Utah Health Insurance Exchange frequently has been used as an example for the new insurance marketplaces that are scheduled to be implemented under the federal health reform law, but the exchange now is under pressure to comply with the overhaul’s requirements. Utah Gov. Gary Herbert (R) said the reform law “will put some serious restraints” on UHIE because Utah is “a private-sector state, and we don’t know that [the federal government is] going to allow a private-sector approach to solving health care costs” (Kliff, Politico, 2/16).

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