State Health Reform Strategies

8/14/2019 State Health Reform Strategies

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Prepared for Members and Committees of Congress


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States have taken the initiative to propose and enact health care reforms to address perceived

problems related to health insurance coverage, health care costs, and other issues. These reform

efforts vary in scope, intent, and target demographic group. While not all members of Congressagree in the need to reform health care, many have expressed interest in learning about these state

efforts to inform ongoing debate at the national level.

Each state has implemented a unique set of reform strategies to address concerns about health

insurance and the health care delivery system. However, most health reform discussions, at both

the state and federal level, focus primarily on insurance. Under this broad policy area, coverage

and cost concerns are paramount.

The primary objective related to coverage is reducing the number of uninsured persons. Related

reforms may target a specific group, or address the uninsured population as a whole. Cost reforms

primarily address concerns about the affordability of health insurance for individuals, families,and employers. This typically results in policies that invest public resources to assist consumers

and firms with the cost of health insurance.

This report identifies general approaches proposed at the state level to reform health insurance,

and describes selected reform strategies. These descriptions are intended to be illustrative, not

exhaustive. They include examples of both common and innovative initiatives to reflect the

diversity of reform approaches, in terms of scope, policy levers used, and populations affected.

The reform strategies have been identified according to targeted stakeholder groups: consumers,employers, purchasers of health coverage, and health plans. In addition, the report explores key

design and implementation challenges related to coverage and cost, and provides a succinct state

example for each reform strategy.

This report will be updated as circumstances warrant.


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Introduction ..................................................................................................................................... 1

Selection of State Health Insurance Reforms.................................................................................. 2

Consumer Reforms.................................................................................................................... 2Individual Mandate............................................................................................................. 2Young Adult Coverage........................................................................................................ 3

Employment-based Reforms..................................................................................................... 4Cafeteria/Section 125 Plans ................................................................................................ 4Employer Mandate.............................................................................................................. 4

Purchaser Reforms .................................................................................................................... 5Connector/Exchange........................................................................................................... 5Premium Subsidies/Tax Credits.......................................................................................... 6

Market/Regulatory Reform ....................................................................................................... 7Limited-Benefit Plans ......................................................................................................... 7Reinsurance......................................................................................................................... 8

Implications for National Reform ................................................................................................... 8

Author Contact Information............................................................................................................ 9

Acknowledgments ........................................................................................................................... 9


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Although the most recent figures for 2007 indicate a drop,1

the number of uninsured persons

generally has grown during the past several years,2

as health care costs to consumers, employers,

and the government have also grown.

3

State legislators and policymakers have responded to thesetrends by proposing a spectrum of reforms to address concerns regarding coverage, cost, and

other issues.

State governments are in a unique position to impact the availability and affordability of health

insurance. They are the primary regulators of this industry, and provide funding toward the

coverage of millions of residents.4

States can be receptive to local economic, labor, and other

conditions, and adopt policies tailored to their own needs. Given this, health reforms vary greatly

from state to state. For instance, some states may pursue comprehensive reform,5

while othersmay design reform initiatives that are more narrow in scope. These more limited reform efforts

may focus on a particular component of the health care system, such as the availability of private

health insurance options, the delivery of health care, or public financing for health coverage.

Reform strategies also vary in terms of the target stakeholder group (e.g., children) and policylever used (e.g., tax code).

1 See CRS Report 96-891,Health Insurance Coverage: Characteristics of the Insured and Uninsured Populations in2007, by Chris L. Peterson and April Grady.2 The Uninsured: A Primer, Kaiser Commission on Medicaid and the Uninsured, Kaiser Family Foundation, October2008, at http://www.kff.org/uninsured/upload/7451-04.pdf.3 For consumer spending data, see Consumer Expenditure Survey Annual Reports, Bureau of Labor Statistics, at

http://www.bls.gov/cex/csxreport.htm#annual. For employer spending data, see Employer Health Benefits AnnualSurvey Reports, Kaiser Family Foundation and Health Research and Education Trust, at http://www.kff.org/insurance/ehbs-archives.cfm. For government spending data, see Table 16.1, Budget of the United States Government, Fiscal

Year 2009, Office of Management and Budget, 2008, at http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf.4 While health insurance regulation is primarily a state responsibility, there are federal requirements that have asignificant impact on how and to whom health insurance coverage is provided, and what that coverage looks like. Twokey federal laws are the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406), and the Health

Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191). ERISA outlines minimum federalstandards for private-sector employer-sponsored benefits. It requires that funds be handled prudently and in the bestinterest of beneficiaries, participants be informed of their rights, and there be adequate disclosure of a plans financialactivities. ERISA preempts state laws that relate to employee benefit plans. This preemption clause was designed

to ensure that plans would be subject to the same benefit laws across all states, partly in consideration of firms thatoperate in multiple states. For more information about ERISA, see CRS Report RS22643,Regulation of Health

Benefits Under ERISA: An Outline. HIPAAs health insurance provisions were designed to address the concern thathealth insurance coverage does not stay with an insured person if that person switches jobs or changes health plans

(lack of portability). The Act established federal requirements on private and public employer-sponsored health plansand carriers to ensure the availability and renewability of coverage for certain employees and other persons underspecified circumstances. HIPAA limits the amount of time that coverage for pre-existing medical conditions can beexcluded, and prohibits discrimination on the basis of health status-related factors. For more information about HIPAA,

see FAQs about Portability of Health Coverage and HIPAA, Employee Benefits Security Administration, U.S.Department of Labor, at http://www.dol.gov/ebsa/faqs/faq_consumer_hipaa.html.5 For additional information on state efforts toward comprehensive health reform, see States Moving TowardComprehensive Health Care Reform, Kaiser Family Foundation, at http://www.kff.org/uninsured/

kcmu_statehealthreform.cfm.


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This report identifies general approaches proposed at the state level to reform health insurance,

and describes specific strategies to illustrate the breadth of possible reform options.6

It discusses a

selection of current reform strategies; it is not meant to be inclusive of all health reforms.

While the states have implemented a wide range of reforms to address concerns about both

coverage and the health care delivery system, most health reform discussions focus primarily on

health insurance. Under this broad policy area, coverage and cost concerns are paramount.

The primary objective related to coverage is reducing the number of uninsured persons. Reforms

may target a specific group (e.g., small businesses), or address the uninsured population as a

whole. Cost reforms primarily address concerns about the affordability of health insurance for

individuals, families, and employers. This typically results in policies that invest public resources

to assist consumers and firms with the cost of health insurance.

Below are general descriptions of select reform strategies that have been proposed orimplemented at the state level. Since an all-inclusive analysis of state reforms is beyond the scope

of this report, these descriptions include examples of both common and innovative initiatives to

illustrate the breadth of reforms. The selected strategies reflect the current diversity of reform

approaches, in terms of scope of reforms, policy levers used, and populations affected. The

reform strategies have been identified according to targeted stakeholder groups: consumers,

employers, purchasers of health coverage, and health plans. In addition, the report explores key

design and implementation challenges related to coverage and cost, and provides a succinct state

example for each reform strategy.

State reforms that focus on consumers generally target vulnerable populations that make up a

disproportionate share of the uninsured, such as low-income individuals and young adults.

However, reform in this area may also be very broad and include all consumers, regardless of

health status, family income, or other characteristic.

An individual mandate is a requirement that all persons have health insurance coverage. Such a

mandate may specify the source of that coverage, such as a government program or through anemployer. Only Massachusetts currently has an individual mandate, but other states have included

such a requirement in their reform proposals.

6 State-centered resources include CRS in-house database of state health insurance reforms, state coverage profilesdeveloped by the State Coverage Initiatives, and studies published by state-based associations, health care foundations,

and policy think tanks.


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For states that intend to achieve universal coverage, an

individual mandate lends itself to such a goal. However,

implementation of a mandate requires policies to

address compliance and enforcement issues that are

integral to the success of this reform strategy. Also, the

effectiveness of this approach depends on theavailability of insurance options to all persons who

must meet this requirement. For example, unemployed

adults with poor health status currently may not have

any coverage options available to them, because they

cannot get employment-based insurance, are ineligible

for public programs, and private insurers deny them

coverage based on pre-existing health conditions.

Complying with an individual mandate may be difficult for low-income persons who find

insurance unaffordable. States that have proposed an individual mandate usually also includesubsides and/or exemptions for poor individuals. In the former situation, the cost to the

government would increase to finance those subsidies. In the latter situation, exemptions defeatthe intent of an individual mandate.

Young adults make up a disproportionate share of the uninsured, compared to their representation

in the overall population. Nearly half of all states have sought to address this issue by enacting

laws to increase young adults access to health coverage. Such laws typically require private

health insurers to allow adult dependents to continue to be eligible for coverage under their

familys health insurance policy, up to a specified age and under certain conditions, such as being

unmarried or attending college.7

This reform approach could apply to a moderateshare of the uninsured. However, its reach is limited

given that the family would also have to have

coverage in order for the dependent to benefit.

Moreover, this is a temporary solution since the

individuals would eventually age out of this benefit,

regardless of their educational, marital, or other

personal circumstances.

Since the premium for a family policy typically does not vary with the number of dependents

covered, this reform strategy would not affect the familys costs when purchasing insurance.

However, if the cumulative impact of this reform results in more individuals with health

coverage, that would likely lead to an increase in overall health care spending.

7 For additional information about state efforts to increase coverage among young adults, see The Changing Definitionof Dependent: Who is Insured and For How Long?, National Conference of State Legislatures, at

http://www.ncsl.org/programs/health/dependentstatus.htm.

M a s s a c h u s e t t s

I n 2 0 0 6 , M a s s a c h u s e t t s p a s s e d c o m p r e h e n s i v e

h e a l t h r e f o r m , w h i c h i n c l u d e s a r e q u i r e m e n t

t h a t a l l s t a t e r e s i d e n t s h a v e h e a l t h i n s u r a n c e

c o v e r a g e , o r b e s u b j e c t t o a f i n a n c i a l p e n a l t y .

R e s i d e n t s c o n f i r m t h a t t h e y h a v e c o v e r a g e o n

t h e i r s t a t e i n c o m e t a x f o r m s . I n d i v i d u a l s c a n

f i l e h a r d s h i p e x e m p t i o n s f r o m t h e m a n d a t e . I n

a d d i t i o n , p e r s o n s f o r w h o m t h e r e a r e n o

a f f o r d a b l e i n s u r a n c e o p t i o n s a v a i l a b l e w i l l n o t

b e s u b j e c t t o t h e m a n d a t e . A f f o r d a b i l i t y i s

d e t e r m i n e d b y a s t a t u t o r i l y e s t a b l i s h e d b o a r d .

S o u t h D a k o t a

I n 2 0 0 5 , S o u t h D a k o t a p a s s e d H . B . 1 0 4 5 , w h i c h

p r o h i b i t s i n s u r e r s w h o p r o v i d e d e p e n d e n t

c o v e r a g e f r o m t e r m i n a t i n g s u c h c o v e r a g e b e f o r e

a g e 1 9 . F o r d e p e n d e n t s w h o a r e f u l l - t i m e c o l l e g e

s t u d e n t s , i n s u r e r s a r e r e q u i r e d t o e x t e n d c o v e r a g e

u n t i l a g e 2 4 .


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Given that a majority of Americans obtain health insurance through the workplace,8 many states

target employers in their coverage expansion efforts. Some states focus their work-based reforms

on small firms, given the disadvantages that small firms face in obtaining private health coverage,

compared with large firms. These disadvantages include limited ability to spread insurance risk,limited ability to leverage size to negotiate better benefits and lower premiums, no economies of

scale, and a more transient, lower-wage workforce.

Cafeteria plans are employer-established benefit plans under which employees may choose

between receiving cash (typically additional take-home pay) and certain benefits (such as health

insurance) without being taxed on the value of the benefits if they select the latter. Essentially,

section 125 of the Internal Revenue Code provides a tax incentive to workers to obtain healthcoverage or other benefits.9 While this benefit is through the federal tax code, states have used

cafeteria plans as a vehicle for making health insurance more affordable for workers. A handful of

states require employers to establish section 125 plans to allow employees to buy insurance using

pre-tax dollars. However, these states do not necessarily require employers to fund these plans

once they have been established. Small firms typically are exempt from requirements to establishcafeteria plans.

This reform strategy benefits only individuals who are employedand whose employer establishes cafeteria plans. Therefore,

cafeteria plans have limited reach as a coverage strategy.

Cafeteria plans allow individuals to buy coverage using pre-tax

dollars. Because consumers are using money that is not taxed to

buy insurance, they are in effect receiving a discount on the price

of that insurance. On the flip side, the government loses taxrevenue that it would have collected if those funds were in the

form of take-home pay as opposed to benefits.

An employer mandate typically refers to a requirement that employers provide health benefits to

their employees and those employees dependents. Such a mandate may allow exemptions for

small firms, who find it more difficult to provide health benefits than large firms. Employer

mandates may also encompass pay or play policies (also referred to as fair share laws), which

require employers either to contribute to a fund to finance coverage provided through a public

program, or provide health benefits to their workers. Currently, only Hawaii and Massachusetts

have employer mandates in place, but several other states have proposed such a requirement inthe recent legislative sessions.

8 For additional information, see CRS Report RL32237,Health Insurance: A Primer, by Bernadette Fernandez.9 For additional information about cafeteria plans and other tax-advantaged health benefits, see CRS Report RL33505,Tax Benefits for Health Insurance and Expenses: Overview of Current Law and Legislation , by Bob Lyke and Julie M.

Whittaker.

R h o d e I s l a n d

B y J u l y 2 0 0 9 , f i r m s w i t h m o r e t h a n

2 5 e m p l o y e e s a r e r e q u i r e d t o

e s t a b l i s h a c a f e t e r i a p l a n .

E m p l o y e r s a r e n o t r e q u i r e d t o

c o n t r i b u t e t o w a r d t h e c o s t o f

h e a l t h i n s u r a n c e , n o r g i v e

e m p l o y e e s t h e o p p o r t u n i t y t o b u y

i n s u r a n c e a t t h e g r o u p r a t e .


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Requiring employers to insure their workforce

may be the beginning steps to a universal

coverage initiative, when paired with other related

policies. However, there is ongoing debate

whether a state may impose any kind of benefit

requirement on employers. While states are theprimary regulators of health insurance, the

Employee Retirement Income Security Act of

1974 (ERISA) places the regulation of private-

sector employee benefits (including health

insurance) under federal jurisdiction.10

This leaves

open the possibility of legal challenges to any

state planning to implement an employer

mandate.11

Costs related to complying with an employer mandate would be directly borne by employers.However, economic theory would argue that the additional costs would ultimately be borne by

workers in the form of lower wages.

12

Moreover, even with employer contributions toward ahealth care fund or health benefits to employees, individuals may still have to pay a premium to

get coverage. And to the extent that the state would enforce compliance of this mandate, there are

administrative costs and capacity issues related to enforcement.

Some state reforms target both consumers and businesses as purchasers of health insurance.

These reforms may attempt to address availability and cost concerns, as well as administrative

burden issues.

A health insurance connector or exchange is a clearinghouse that provides one-stop shopping

for purchasers of insurance, typically individual consumers and small businesses. This entity

generally offers a choice of insurance options, simplifies plan administration, and provides

portable coverage that allows a person to remain covered regardless of life and work changes. It

may also have other responsibilities, such as negotiating with plans regarding benefits and

premiums, but fundamentally it functions as a store or facilitator that brings together health

insurance carriers and purchasers. Massachusetts established a connector as part of its overall

10 For additional information about this issue, see ERISA and State Health Reform at http://www.allhealth.org/publications/State_health_issues/ERISA_and_State_Health_Reform_68.pdf.11 For additional information about fair share laws and ERISA, see CRS Report RL34637,Legal Issues Relating to

State Health Care Regulation: ERISA Preemption and Fair Share Laws , by Jon O. Shimabukuro and Jennifer Staman.12 For discussions regarding the relationship between employer-provided health benefits and employee wages, see L.Summers, Some Simple Economics of Mandated Benefits, The American Economic Review, Vol. 79, No. 2, May1989; and J. Gruber, The Incidence of Mandated Maternity Benefits, The American Economic Review, Vol. 84, No.

3, Jun. 1994.

H a w a i i

T h e P r e p a i d H e a l t h C a r e A c t o f 1 9 7 4 r e q u i r e s

n e a r l y a l l e m p l o y e r s t o p r o v i d e h e a l t h b e n e f i t s t o a t

l e a s t s o m e o f t h e i r w o r k e r s . E l i g i b l e e m p l o y e e s a r e

t h o s e w h o w o r k a m i n i m u m o f 2 0 h o u r s a w e e k a n d

m a k e a c e r t a i n a m o u n t a b o v e t h e s t a t e m i n i m u m

w a g e . T h e c o v e r a g e o f f e r e d m u s t m e e t s t a t e -

p r e s c r i b e d s t a n d a r d s . A w o r k e r m a y h a v e t o c o v e r

p a r t o f t h e p r e m i u m , a l t h o u g h t h e r e a r e l i m i t s t o

t h a t c o n t r i b u t i o n a n d c o s t s h a r i n g r e q u i r e m e n t s

v a r y b a s e d o n t h e t y p e o f p l a n c h o s e n . C o n g r e s s

g a v e H a w a i i a n e x e m p t i o n f r o m E R I S A t o a l l o w t h e

s t a t e s e m p l o y e r m a n d a t e t o r e m a i n i n p l a c e .


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health reform plan, but a few others states have proposed creating one within the context of their

reform initiatives.13

While a connector or exchange may provide

additional insurance options to any given state

resident, such options do not automatically lead toincreased coverage by themselves. Questions

regarding the value of benefits offered and

affordability of insurance still apply.

Through the clearinghouse function, a connector may

reduce administrative costs, and through negotiations,

it may be able to get favorable rates, but this is

dependent on what other reforms and market rules

have been enacted in any given state. In other words,

these entities, in and of themselves, do not necessarily

lead to significant reductions in premiums for those

buying insurance through them.

In order to make coverage more affordable, many states provide financial assistance to

individuals and families for the purpose of buying health insurance, and businesses to encourage

the provision of health benefits through the workplace. Assistance may be in the form of direct

subsidies for premiums, or reimbursement through the tax system. For assistance to consumers,

states may specify that subsidies be used to purchase only certain types of insurance, such as a

policy in the nongroup market. For assistance to firms, states often focus on small businesses.

Some states provide tax credits to small firms to encourage those firms to provide health benefits

to their employees.

Given that health insurance

premiums have grown faster than

wages and increasing numbers of

people and businesses find coverage

to be unaffordable,14 premium

assistance addresses a primary

reason why people are uninsured.

However, subsidies do have their

limits if they are tied to insurance

options that are not available to

everyone, or in every area.

13 For additional information about state health insurance connectors and exchanges, see http://www.statecoverage.net/pdf/healthinsurance0907.pdf.14 For related data, see Employer Health Benefits, 2007 Annual Survey, Kaiser Family Foundation and Health Research

and Educational Trust, September 2007, at http://www.kff.org/insurance/7672/upload/76723.pdf.

O r e g o n

i n J u n e 2 0 0 7 , O r e g o n p a s s e d t h e H e a l t h y

O r e g o n A c t , a n a c t t h a t o u t l i n e s t h e f i r s t s t e p s

t o r e f o r m i n g O r e g o n s h e a l t h c a r e s y s t e m w i t h

t h e i n t e n t o f p r o v i d i n g u n i v e r s a l a c c e s s t o

c o v e r a g e t o a l l s t a t e r e s i d e n t s . T h e A c t c r e a t e s

a p u b l i c b o a r d t h a t w i l l g a t h e r i n p u t o n r e f o r m

i d e a s , d e v e l o p a c o m p r e h e n s i v e r e f o r m p l a n ,

a n d p r e s e n t l e g i s l a t i v e p r o p o s a l s t o t h e s t a t e

l e g i s l a t u r e i n 2 0 0 9 . A m o n g t h e i s s u e s t h e b o a r d

m a y c o n s i d e r t o a c h i e v e u n i v e r s a l c o v e r a g e i s

t h e d e s i g n f o r a n d i m p l e m e n t a t i o n o f a h e a l t h

c o v e r a g e e x c h a n g e , t o s e r v e a s a c e n t r a l

f o r u m f o r i n d i v i d u a l s a n d b u s i n e s s e s t o b u y

h e a l t h i n s u r a n c e .

N o r t h C a r o l i n a

E f f e c t i v e f o r t h e 2 0 0 7 a n d 2 0 0 8 t a x y e a r s , f i r m s w i t h 2 5 w o r k e r s o r

l e s s c o u l d c l a i m a t a x c r e d i t a g a i n s t t h e i r c o r p o r a t e o r p e r s o n a l

i n c o m e t a x o r c o r p o r a t i o n f r a n c h i s e t a x i f t h e y p r o v i d e d h e a l t h

b e n e f i t s t o t h e i r e m p l o y e e s . T o b e e l i g i b l e f o r t h e c r e d i t , a n

e m p l o y e r w o u l d h a v e h a d t o c o n t r i b u t e a t l e a s t 5 0 % t o w a r d t h e c o s t

o f h e a l t h i n s u r a n c e c o v e r a g e . M o r e o v e r , t h e c o v e r a g e m u s t h a v e

m e t o r e x c e e d e d t h e m i n i m u m b e n e f i t s t a n d a r d s r e c o m m e n d e d b y

t h e S m a l l E m p l o y e r C a r r i e r C o m m i t t e e . T h e c r e d i t m a y b e c l a i m e d

o n l y f o r p r e m i u m s p a i d f o r e m p l o y e e s w h o s e t o t a l w a g e s f r o m t h e

f i r m d o n o t e x c e e d $ 4 0 , 0 0 0 p e r y e a r . T h e c r e d i t a m o u n t w a s e q u a l

t o t h e l e s s e r o f $ 2 5 0 o r c o s t s i n c u r r e d .


10/12

States may have to provide a generous subsidy to encourage either uninsured individuals to

purchase coverage or small firms to offer coverage who otherwise would not.15

Depending on the

scope of the coverage expansion, the cost to taxpayers for financing these subsidies may be large.

This set of reform strategies focuses on what private insurance carriers may offer, how plans

formulate premiums, how insurers conduct their business, and other requirements that states may

impose on the insurance industry. The spectrum of issues addressed may target the benefit

package (e.g., minimum benefit requirements), rating rules (e.g., community rating requirement),

other access provisions (e.g., guaranteed issue), and cost-sharing limits (e.g., maximum out-of-

pocket costs).

In an effort to entice both small employers to offer coverage to employees and individuals to

purchase insurance, many states have enacted legislation to allow insurance carriers to offerlimited-benefit health plans, or established coverage programs that provide a limited set of

benefits. Limited-benefit plan policies allow insurers to avoid all or some benefits mandated by

the state. By decreasing the number of covered services, such policies may lead to a reduction in

premiums.

States may increase insurance options through limited-benefit plan

policies, but value and affordability considerations still apply. For

uninsured but otherwise healthy people, these policies may be an

attractive option. However, persons with pre-existing health

conditions may find little to no value in limited-benefit plans.

Likewise, individuals with low incomes may still find such plans

unaffordable.

Existing studies have found that such plans do reduce premiums, but

the overall impact varies both within and across states.16 That impact

often depends on the specific mandates that no longer apply and any

accompanying policiessuch as premium subsidies or increased

cost-sharingwhich may be coupled with these plans. In the former

example, a subsidy reduces the premium that a consumer pays, but

there is a cost to the government. In the latter example, the consumer

15 For discussions regarding how the size of subsidies impact the take-up of health insurance, see M. Pauly and B.Herring, Expanding Coverage Via Tax Credits: Trade-offs and Outcomes, Health Affairs, Vol. 20, No. 1, Jan./Feb.

2001; and K. Thomas, Are Subsidies Enough to Encourage the Uninsured to Purchase Health Insurance? An Analysisof Underlying Behavior, Inquiry, Vol. 31, No. 4, Winter 1994-95.16 Studies on state limited-benefit health plans include Health Insurance Mandates in the States 2008, V. Bunce and

J.P. Wieske, Council for Affordable Health Insurance; State Options for Expanding Health Care Access, B. Yondorf,L. Tobler, and L. Oliver, National Conference of State Legislatures, March 2004; Increasing Small-Firm Health

Insurance Coverage Through Association Health Plans and Health Marts, Congressional Budget Office, January 2000;Access to Health Insurance: State Efforts to Assist Small Businesses, Report HRD-92-90, U.S. General AccountingOffice, 1992; and Flesh or Bones? Early Experience of State Limited Benefit Health Insurance Laws, P. Butler,

National Academy for State Health Policy, August 1992.

K e n t u c k y

I n 2 0 0 5 , K e n t u c k y p a s s e d H . B .

2 7 8 , w h i c h a l l o w s i n s u r e r s i n

b o t h t h e n o n - g r o u p a n d s m a l l

g r o u p ( 2 - 5 0 e m p l o y e e s )

m a r k e t s t o o f f e r b a s i c h e a l t h

p l a n s . S u c h p l a n s m a y e x c l u d e

a n y s t a t e - m a n d a t e d b e n e f i t s

f r o m c o v e r a g e , w i t h t h e

e x c e p t i o n o f d i a b e t e s s e r v i c e s ,

h o s p i c e c a r e , c h i r o p r a c t i c

b e n e f i t s , a n d a n y f e d e r a l

b e n e f i t m a n d a t e s . I n s u r e r s

m u s t d i s c l o s e t h a t t h e b a s i c

p l a n b e i n g o f f e r e d p r o v i d e s

l i m i t e d c o v e r a g e .


11/12

may pay a lower premium but at the expense of higher out-of-pocket costs once he/she uses

services.

Insurance carriers face the risk that the premiums they collect will not be sufficient to cover theirexpenses and generate profit, so they seek reinsurance to provide some protection from

significant financial losses. Given that reinsurance is insurance for insurers, state reinsurance

programs benefit carriers directly and consumers indirectly.

The impact on coverage depends greatly

on the premiums charged by carriers

participating in the reinsurance program.

Unless a reinsurance program requires

participating insurers to reduce premiums

in order to receive the reinsurance benefit,

the insurer has complete discretion over

what premiums will be, which directlyaffects the potential for coverage

expansion. And because reinsurance

benefits carriers directly, the subsequent

impact on premiums (and consumers)

varies.

States may finance reinsurance programs through assessments on all insurers in that market, as

well as general revenue and the collection of premiums from participating insurers. To

compensate insurers that may end up enrolling a sicker, more expensive population, the state may

withhold a portion of premiums collected and distribute those withholds at a later time according

to the actual risk enrolled by each participating insurer (this concept is referred to as risk

adjustment).

The above-mentioned state reforms (and other strategies) are policy levers that are available to

federal legislators and policymakers. But while state experiences provide some insight, they are

not directly generalizable to the nation as a whole. The differences between state-level reform and

national reform relate not only, or even primarily, to scope, but also involve fiscal and legal

constraints, the regulatory environment, economic conditions, labor market supply, and other

factors.

The complexity of national reform poses unique challenges and opportunities. For example, eachstate sets regulatory standards with which insurance carriers licensed in their state must abide,

such as benefit mandates, rating rules, and solvency standards. Some states establish very strict

standards, others impose less restrictive requirements, and some not at all, depending on the

regulatory area and segment of the health insurance market. Given that state laws and regulations

vary, any new standard imposed nationwide would place unequal burden on insurance carriers,

depending on which state they already operate in. On the other hand, only federal law applies to

health coverage that is self-insured. Given that self-insured plans provide coverage to

I d a h o

I d a h o o p e r a t e s r e i n s u r a n c e p o o l s f o r i t s s m a l l g r o u p a n d

i n d i v i d u a l m a r k e t s . I n t h e i n d i v i d u a l m a r k e t , t h e s t a t e o p e r a t e s

t h e I n d i v i d u a l H i g h - R i s k R e i n s u r a n c e P o o l t h a t r e i n s u r e s f i v e

g u a r a n t e e d - i s s u e p r o d u c t s a n d s e t s p r e m i u m s f o r t h e s e

p r o d u c t s . T h e p r i m a r y i n s u r e r i s r e s p o n s i b l e f o r c l a i m s u p t o

$ 2 5 , 0 0 0 . A l l c l a i m s e x c e e d i n g t h a t a m o u n t a r e c o v e r e d b y t h e

r e i n s u r a n c e p o o l , u p t o t h e l i f e t i m e m a x i m u m s o f t h e

g u a r a n t e e d - i s s u e p r o d u c t s . I n t h e s m a l l g r o u p m a r k e t , t h e

i n s u r e r i s r e s p o n s i b l e f o r c l a i m s u p t o $ 1 3 , 0 0 0 . A b o v e t h a t

a m o u n t , t h e p o o l p a y s i n c r e a s i n g a m o u n t s i n c l a i m s , d e p e n d i n g

o n t h e p l a n .


12/12

approximately half of all workers with health insurance, federal action is necessary if the

objective is to apply health reforms broadly.

In addition, while individual states have achieved some measureable successes in their efforts to

expand coverage or make health insurance more affordable, those successes have had their

limitations and trade-offs. For example, while Massachusetts has achieved near-universalcoverage two years after enactment of comprehensive health reform,17 the costs associated with

reform have exceeded initial estimates18 and long-term financing is an ongoing concern.

Moreover, the increase in newly insured residents has highlighted a common feature in health

care delivery in Massachusetts and other states: severe physician labor shortages, particularly in

primary care.19 Overall, the Massachusetts experience exemplifies the eventuality that any

national reform will involve consideration of trade-offs. And in the climate of limited resources,

such consideration will necessitate priority setting.

Bernadette Fernandez

Analyst in Health Care Financing

[email protected], 7-0322

This report was completed with assistance from Lynn Sha and William Rodriguez.

17 S. Long, Health Insurance Coverage in Massachusetts: Estimates from the 2008 Massachusetts Health InsuranceSurvey, Urban Institute, December 18, 2008, available at http://www.urban.org/publications/411815.html.18 See Health Connector Facts and Figures March 2009, at http://www.mahealthconnector.org.19 Physician Workforce Study, Massachusetts Medical Society, 2008, at http://www.massmed.org.

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State Health Reform Strategies

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