Rerun: Why the states can’t drive health reform

I’m taking a break from blogging this week so am rerunning some favorite posts from 2010. Please visit the original post to comment.

Sara Rosenbaum’s has an informative Perspective (Can States Pick up the Health Reform Torch?) in the current New England Journal of Medicine. She argues that reforming health care at the state level is not a realistic alternative to national health care reform.

I agree with her conclusion but don’t find all of her arguments  persuasive.

Rosenbaum highlights four hurdles:

  1. Fiscal reality
  2. Practical considerations
  3. The law
  4. The “reality of health care today”

In number 1, fiscal reality, Rosenbaum cites the high costs of subsidizing health insurance and says “an infusion of federal resources” is needed. I agree that the magnitude of spending is high and that states would have a hard time raising the money. However, the country is just a collection of the states, so on average if the feds can do it at least some states should theoretically be able to afford the same resources. In truth, the federal government has an easier time running large deficits than the states do. But this reason doesn’t seem very strong to me.

Number 2, practical considerations, refers to states tackling  “discriminatory tactics, such as price gouging and exclusion, that insurers use to deny enrollment or provide coverage that is grossly inadequate in relation to medical need. Even if individual states are willing to intervene, insurers are free to evade state regulation simply by pulling up stakes in any jurisdiction with an unappealing political and regulatory climate.” This argument is the least persuasive to me. Sure, national plans might avoid certain states, but in doing so they will alienate national employers and lose business as a result. And much of the commercial market is made up of local Blues plans. Those local plans aren’t going to close up and go elsewhere.

Number 3, the law, makes the most sense. Rosenbaum mentions that ERISA “exempts from state regulation self-funded employer plans that use large insurers only as plan administrators.” Because even smaller companies self-fund these days, it excludes more than half the commercial market from state regulation.

Number 4, “reality of health care today”, has some merit. As an example, Rosenbaum points to the Washington, DC area where she lives. People may live in Maryland, work in DC, and seek care in Virgina. Obviously no single state can control its neighbors.

In my view, Rosenbaum has missed the biggest hurdle of all: Medicare. Medicare spending is so large and influential that it overwhelms anything going on in the commercial market. No matter what happens at the state level (including with Medicaid, where states have at least some influence) providers are going to be profoundly influenced by what Medicare does. For example, the 21 percent rate cut due to go into effect on Monday is of far more interest than any state activity. And Medicare is a federal program, so there’s nothing at all the states can do about.

So Rosenbaum is right: states can’t lead reform. If reform is to occur, the federal government will have to act. And it will need to tackle Medicare.

December 29, 2010