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LaFrance, Arthur --- "Healthcare reform in the United States: the role of the states" [2007] CanterLawRw 9; (2007) 13 Canterbury Law Review 227


Arthur LaFrance[1]

I. Introduction

Although national efforts at health care reform in the United States have largely stalled, reform efforts at the state level have enjoyed surprising success,[2] either independently of federal programmes or within the latitude allowed by federal funding for the states.[3] These state efforts hold great promise of extending access and healthcare coverage to uninsured Americans, improving quality of care, containing costs, and raising new revenues. These efforts are of great importance not only to other states, but also to other nations who already have universal healthcare but are now struggling with issues of coverage, cost and quality.[4]

It is a common understanding that reform of the United States healthcare system is badly needed. Total national health care expenditures exceed $1 trillion annually, and at the present rate of increase, will surpass $2 trillion within the present decade. This burden is unacceptable, whether viewed as a percentage of domestic national product, exceeding 18%, or as a per capita expenditure, exceeding by nearly a factor of two to three times expenditures by other industrialised nations.[5] The burden on individuals is onerous, unequal, and increasing.

At the same time, there are major deficiencies in quality and coverage. As to coverage, the U.S. Census Bureau reports that over 47 million Americans are uninsured.[6] As to quality, the Institute of Medicine estimates nearly 100,000 Americans die from negligence in hospitals annually.[7] By most quality measures, American outcomes fall far short of international standards, whether the criteria are simple mortality or more complex quality-of-life measures.[8]

There is consensus that the United States cannot continue on the present path. A recent analysis by the Centre on Budget and Policy Priorities concluded that if present budget policies are continued, the national debt will increase from 37% of the national economy to 231%.[9] In 2050, the debt would be twice the size of the national economy.[10] The Centre determined that stabilising national finances would require an immediate tax revenue increase of 18% or a 15% cut across the board of all federal programmes, and not just those relating to health care.[11] The task, the Centre concluded, was to deal with challenges created by expansion of health care services, of demographic trends, and of costs in health care.

National-level reform has been proposed regularly since the presidential incumbencies of Presidents Roosevelt, Truman, and Clinton.[12] These proposals have failed, and the present administration, with even more modest goals, is not likely to have greater success. Yet the various presidential aspirants in 2007-2008 emphasise healthcare, in unduly divergent ways, as central issues in their campaigns.

This article focuses on the promising state level activity to reform the health care system. State health care reform has, in the main, escaped attention, despite our federal union's framework and invitation for state solutions to national problems. Indeed, the very first national health programme, for pregnant women, as reflected in Massachusetts v Mellon, was specifically founded on a structure of cooperative federalism.[13] Similarly, programmes to alleviate poverty and to provide health care for the aged and the poor have been constructed to assure state administration since their inception. Over the past two decades, state innovation has expressly been a part of creativity and exploration through the system of so-called section 1155 waivers, relieving states of Medicaid requirements.[14]

As we shall see, states have been creative and, often times, successful in addressing the most pressing needs of our health care system.[15] The states, of course, have a powerful incentive for innovation — health care comprises 32% of all state spending and state Medicaid spending is projected to grow 5.8% in 2008.[16] States have successfully addressed the inadequacy of covered services, healthcare coverage for the poor and uninsured, joint buying of drugs, preventative healthcare, children's health, and public health needs.[17] Many of these initiatives rely on federal funding, but many do not.

The present-day efforts of the various states provide useful models as to the variety of approaches, especially those moving towards universal healthcare in Massachusetts, California, New York and Vermont, or towards improving quality and benefits and holding down costs. A brief summary of state approaches includes requiring employers to provide insurance, ('play' or 'pay'); requiring employees to purchase insurance; developing a pool for them to do so; developing a 'high risk' pool to compel insurers to provide coverage; expanding ages and income eligibility standards for Medicaid and children's health (SCHIP) programmes; purchasing of insurance or drug benefits for citizens at reduced rates; preventative health programmes; and multi-state consortia for all of these purposes. The objective is universal healthcare, but not necessarily through a single payer system. Inevitably, state reforms rely on a continued, indeed, an increased, context of federal funding.

We will turn first to the national level of healthcare in the United States to briefly review efforts at reform, and to set the context within which states work. The remainder of the article will explore state efforts, attempt to assess their value and probable success, and develop an agenda for state action.

II. Healthcare Reform at the National Level

The American healthcare system depends heavily on locally delivered services through privately-retained physicians, hospitals and nursing homes. Over half of hospitals are religiously or governmentally operated. The patient must pay for all these services, either through insurance or entitlement programmes, such as Medicare (if retired from employments) or Medicaid (if poor) or SCHIP (children). Those without such coverage either go without health care or appear at hospitals for emergency care, for which they are personally liable for payment, a practice leading to poor care and overburdened resources. The confusing mix of state/federal, public/private, employee/employer players satisfies no one, especially the forty-seven million Americans who do not have insurance, private or governmental, to provide them with access to physicians, hospitals and pharmaceuticals.[18]

Federal Proposals for 2007-2008

The Bush administration proposed a sweeping array of initiatives concerning healthcare for 2007 and 2008 in the budget announced early in 2007.[19] At a time when costs for medical services are rising and the aging population is increasing, Medicare and Medicaid funding would have been cut by more than $100 billion over a period of five years. For Americans covered by Medicare, the budget proposed increasing the share of premiums paid for drugs, as well as other services. The budget also proposed a hard trigger, in which Medicare spending would be capped if general revenue funding 'exceeded' 45% of Medicare financing.[20]

Two proposals warrant particular attention: 1) a tax deduction would have been allowed for families paying insurance premiums up to $15,000, while making employer-provided insurance taxable, and 2) increased funding would have been directed towards community health centres and counties in which there was a high presence of poverty.[21] Somewhat offsetting these measures was a proposal that reimbursement be reduced for physicians and for so-called disproportionate share hospitals. With particular reference to Medicaid, there would be reductions in hospital and nursing home payments, and the biggest Medicaid cuts would come from a drop in the administrative match rate paid to states.

Not surprisingly, the proposals met with substantial criticism. On 9 February 2007, a panel discussion at the Brookings Institution took the tax proposal to task as favouring the wealthy because poor families have little tax liability.[22] Critics also charged that the proposals would cause employers to drop coverage. Members of Congress, including Representative Stark and Senator Rockefeller, particularly focused on inadequate funding for the SCHIP, which would have been extended with only $5 billion over five years, an amount estimated to cover only one third of SCHIP's needs.[23] A Congressional Joint Committee on Taxation report concluded that the Bush plan would raise taxes $333.6 billion from 2009 to 2017, with an average increase of $2,200 in taxes for 58 million Americans, and that it would replace the present system of incentives for employer-based insurance with an ineffectual system of tax deductions.[24]

The budgetary proposals were particularly disappointing in light of the December report by the Medicaid Commission, which called for substantial reform of Medicaid.[25] Among the Commission recommendations were improving long-term care, addressing institutional bias, improving health care records, dealing with the dual eligible Medicare/Medicaid population, and expanding state innovation. The Bush proposals did little as to these.

The Bush proposals are summarised only briefly here to demonstrate their sweeping ineffectiveness. The crucial need is to extend financing, and, hence access, to 47 million Americans who cannot afford healthcare. Not only are the Bush Proposals inadequate to accomplish this goal, but most recently they are self-contradictory. In August 2007, the Centres for Medicaid and Medicare Services (CMS), the central federal financing and regulatory health agency, sent a letter to all of the states to bar expansion of SCHIP, for fear that private insurance companies would lose customers.[26]

The Bush proposal's shortcomings were highlighted by their contrast to the proposals considered by Congress.[27] Senate finance committee chairman, Max Baucus, provided an overview of proposals and put forward five principles for health care reform: universal coverage, a shared burden among employers and individuals, controlling costs, expanding preventive services and encouraging innovation.[28] Baucus noted in particular the failure of Medicare managed care, in which it is estimated Medicare Advantage plans are paid on average 12% more than the fee-for service care. Another Senator, Ronald Wyden, proposed what is perhaps the most comprehensive effort at reform, the Healthy Americans Act. The Healthy Americans Act is essentially a programme of universal health care which keeps in place the role of employers, but extends to the poor and uninsured the same coverage provided to members of Congress.[29]

The Commonwealth Fund, a private foundation that aims to improve healthcare in the United States and other industrialised countries, reviewed 10 bills in the last two Congresses and concluded that most would reduce or eliminate the role of employer-based insurance and tax treatment, would mandate coverage be available, would provide subsidies to low income people, and would create coverage pools for high risk individuals.[30] As we shall see, many of the state efforts at reform and expanding access are built around the continued (and expanded) role of employers in providing health insurance to employees presently lacking coverage.[31] Thus national and state reform efforts seem to be on a collision course, at least in respect to this one central feature of the American health care system.

By the autumn of 2007, the various candidates for the office of president, Republican and Democrat, had all addressed the issue of healthcare reform. Only the latter propose sweeping reform, and of them the most extensive proposal is that of Senator Clinton. She would create a mixed public/private system, funded by rejecting Bush-era tax policies. Others would eliminate employer-based insurance. It is unclear as to who holds the advantage. What seems clear is that national efforts are largely directed at funding for healthcare, and possibly thereby extending the number of people covered.[32] Yet rarely does anyone seriously propose the simple solution of universal healthcare on a national scale; only the states of Massachusetts, California and Vermont (and possibly New York) addressed the possibility. Nor is anyone tackling the difficult problems of the quality, the cost control, and the effectiveness of the healthcare system.[33] Again, these have been addressed chiefly at the state level. Thus, the real lessons in healthcare reform, whether for domestic reformers or those in other nations, are to be learned at the state level.

It may be worth pausing to ask why reform has been stuck at the national level and why the states have seemed to be able to move on a subject of national urgency when the federal government, despite providing the major source of funding has been paralysed. For this, it is worthwhile to examine the structure and context of American healthcare.

Setting the Context for the States

The failure of reform at the national level has been partly due to the very politics of the moment. A weakened Republican presidency faces a strengthened Democratic majority in Congress. The varying candidates for the presidency are manoeuvring for position.[34] And the usual lobbying interests, the insurance industry, the pharmaceutical industry, and the medical/hospital industrial complex, have no role and hence stake-in universal healthcare. Furthermore, all of this is true at a time when a trillion dollar war is being fought in Iraq, Afghanistan, and Guantanamo, all off budget.

However, the last major healthcare reforms took place during similar times in 1965, during the Vietnam War and the Civil Rights era, with the creation of Medicare for retired workers and Medicaid for the poor and generally young families. Those programmes are now funded by nearly $800 billion annually by Congress, which thus has demonstrated that Congress can improve healthcare. Additionally, Congress gives billions of dollars in funding to veterans programmes, with nearly 130 hospitals around the nation, and SCHIP, which was adopted in 1996, which further demonstrate Congressional support for healthcare.[35]

What cripples Congress, however, is reflected in the very nature of these programmes. First, they respond to specific populations or needs, as with children, women, and elderly workers. These are the 'worthy poor'.[36] Implicitly, such an approach denies the legitimacy of universal healthcare as a strategy, and certainly as a 'right'. It also pits disadvantaged groups against each other, as illustrated by the present Congressional debate over whether to increase funding children by reducing Medicare. It is doubtful, given American tradition, that Congress will ever change its fundamental assumptions. [37]

Separately, most social welfare content, if not funding, is delivered at the state level. This is constitutionally grounded and is of the essence of the American federal system. Thus, Medicaid and SCHIP are federally funded, but state administered. The early efforts in Medicaid to mandate nationally the scope of services had floundered by the 1980s on a vast system of 'waivers', letting states go their separate ways. In 1995, the creation of SCHIP extended the trend by leaving the states free to spend 'block grants' as they chose. While Medicare is nationally funded and administered, most of the funds go to hospitals and doctors who are state regulated.

Finally, employers and insurers are in the central place in American healthcare, which is radically different from the health care systems in countries such as Canada, Australia, New Zealand, Britain, Germany and Japan. It is through employment that health insurance is obtained, with the employer buying the insurance and receiving a tax deduction, and the employee obtaining coverage as a benefit, untaxed as 'income'. This means that no one is in a position to insist on cost effectiveness or quality, because the consumer (the patient) does not pay the bill. This is also the model for government programmes such as Medicaid and Medicare. As a result, some 47 million Americans simply fall between the stools of Medicaid, Medicare, and employment-based insurance coverage, and have no healthcare benefits, although half are employed.[38]

All of this is in contrast to healthcare systems in other countries.[39] There, national systems of healthcare long ago affirmed the universality of healthcare as a benefit, if not a right. Some countries such as Germany and Japan use employers as vectors for delivery or finance of healthcare. However, these nations assure coverage for all. While these countries have solved the basic problem of access to healthcare, they are increasingly finding quality difficult to assure and the cost difficult to bear. And so these countries are seeking means of controlling cost, assuring quality, and maintaining universality of healthcare. These are among the issues being dealt with now at the state level in the United States, and it is to these efforts we now turn.

III. An Agenda for Action

In looking at what states are doing, it may be best to pause briefly and ask, what is it that they should be doing? That is, what are the areas of greatest urgency? There are three: services provided, access to healthcare funding and services, and quality. In the background for each, of course, is the problem of cost. It would seem inevitable that cost would increase as services, access, and quality increase. But this is not necessarily the case: improvements in each of these areas may lead to better health and better health, in turn, may lead to less use of healthcare services and less expense.

States must necessarily emphasise those approaches used to increase access to health care. Programmes that have surplus funding such as Medicaid and SCHIP are broadening the eligibility requirements to cover more uninsured individuals. Another way that states have increased access to healthcare is to tap funding sources uniquely available to the States, as with requiring employers to provide healthcare insurance or pay taxes (so-called 'play or pay'), or that employees purchase minimum healthcare insurance, whose content is state-determined.[40] Yet another approach to expand access to healthcare is for states to address the specific needs of its residents, as with pharmaceutical programmes and multi-state consortia, which have produced dramatic results. Finally, efforts are best directed at problems or populations with the greatest potential for maximum impact, clearly the case with expanding healthcare to children and preventive services to adults.

We will thus turn, in order, to how states might set an agenda to improve availability of pharmaceuticals; assure enrolment of ('access' by) the uninsured, the mentally ill, and children; and improve quality of care. Significantly, this agenda is not limited simply to expanding funding. Equally significant, states have not so limited themselves.[41]

Services: Pharmaceuticals

In a system of universal healthcare, as in Britain, Canada, and New Zealand, there is no problem with scope and availability of services. All are provided; all are covered. However, the United States system of Medicare, Medicaid, VA and SCHIP is limited to defined services and targeted populations: the retired elderly, Veterans, the poor, and children. A principal area of concern has been pharmaceuticals whose costs have escalated at twice the annual healthcare inflation rate for the past two decades. Until recently, Medicare only provided drugs incident to hospitalisation; Medicaid drug coverage for the poor varied from state to state. And, of course, private insurance had limits as well, in co-pays, formularies and exclusion of coverage where not 'necessary' or 'experimental'. Only the Veterans Administration system provided pharmaceuticals bought inexpensively through direct negotiations.

The recent enactment of Part D Coverage with Medicare has gone a long way toward addressing the deficiency in drug coverage for the elderly. The literature on Part D is extensive, and its shortcomings are obvious, particularly as to the so-called 'doughnut hole' (lack of coverage between

$2,000 and $5,000 in expenditure).[42] There remain some 3 to 4 million eligible individuals still not receiving help under Part D.[43] Also, it appears that the Part D Programme is paying higher prices for prescription drugs than all other government programmes.[44]

Still, the cost of pharmaceuticals under Part D will cost significantly less than projected, because of the expanded use of generic drugs and because of lower than projected cost of bids by private drug plans. Indeed, the Congressional Budget Office projects that the prescription drug benefits will cost 26% less from 2007 to 2013 for that latter factor alone.[45] Coupled with this lower cost is a dramatic decline in the growth of prescription drug spending overall in US health care.[46]

Problems remain however. For example, Medicare Part D drug prices for the top drugs prescribed to seniors are nearly 60% higher than prices paid for the same drugs by the Department of Veterans Affairs.[47] For some drugs, prices in the top five Part D Plans were more than 1000% higher than VA prices.[48] The Centres for Medicare and Medicaid services claim that the comparison to the VA is not valid, because the VA offers a narrower formulary and has a differing benefit structure and engages in negotiating prices.[49] But these arguments simply highlight the reforms needed for Medicare. A proposal has been submitted by House Democrats to permit DHHS to negotiate lower drug prices.[50] While some critics say this would not succeed, it is clear that the experience of the Veterans Administration is to the contrary.

This detailed review of recent developments in the national programme of Medicare is necessary because Part D impacts states. Many Medicare recipients are poor and receive drugs through state Medicaid programmes. Pharmaceuticals have been available through Medicaid in virtually every state since Medicaid's inception. People 'dually eligible' for Medicare and Medicaid can now get their drugs through the federal Medicare Part D programme, relieving the states of a pre-existing burden, but subject to new attempts by the federal government to reclaim the savings.[51]

This leaves a number of problems to the states for resolution in pharmacy benefits.

For example, states must provide funding (part of it federal) for the poor through their Medicaid and SCHIP programmes. However, the rate of prescription drug usage varies greatly from state to state, with the lowest prescription drug usage in Alaska and the highest prescription drug usage in West Virginia, Kentucky, and Alabama.[52] The national average is 11.3 prescriptions per person.[53] Further, the amount spent on prescriptions varies enormously from state to state. There is no relationship between the health, or wealth, of a state and the amount spent on pharmaceuticals. Cost of pharmaceuticals is thus an urgent issue facing states, whether their citizens have public or private insurance.

The cost of pharmaceuticals remains if not uniquely a state problem, then certainly particularly important under Medicaid. States must move from simply paying the prices set by pharmaceutical companies to negotiating with them for lower prices, much as the VA does.[54] As we shall see, a number of states have focused on solving this problem, particularly by interstate consortia or in-state purchasing options.

The states must also determine which pharmaceuticals are effective, and which are cost effective. They must also develop alternative approaches to medication to relieve conditions which may be resolved by public health measures and rehabilitation or prophylactic measures, in such conditions as obesity, tobacco-related,[55] or alcohol-related diseases. In the main, they have chosen formularies, pharmacy benefit managers, and managed care as stratagems for approaching these concerns.

Access: The Uninsured, The Mentally Ill and Children

The term 'access' has come to have a special meaning in healthcare. It could, quite literally, refer to physical access, as in getting to a hospital. Instead, it usually refers to the ability of a person to obtain health care insurance, whether private or public, in order to purchase healthcare. Insurance thus finances access to care, and in this sense, the problem of access is perhaps the most urgent one facing United States health care. It is particularly a state problem because services, such as hospitals and doctors, are either state funded or regulated.

The Uninsured

Over 47 million Americans lack health care insurance, whether private or public.[56] Nearly half of the uninsured work and, one would expect, would qualify for insurance through their employment and employer. But the percentage of employers providing insurance has dropped from the previous high of 70% to below 60% in the last decade because the smallest and biggest employers are opting out.[57] Indeed, Wal-Mart, the nation's largest employer with over one million employees, provides little or no health care insurance to less than half its employees.[58]

This deficiency is of such enormous proportions that it has generated responses from a number of sources. President Bush's State of the Union address, on 23 January 2007, proposed a new federal grant programme using existing health care funds to help states provide health insurance coverage to their citizens.[59] But some of the money would certainly have come from reducing payments to disproportionate share hospitals, which are an important part of the safety net that helps the poor and uninsured, and it is unclear where the rest of the funding would come from. Needless to say, the Democrats were unsupportive, as reflected in comments by Senator Ted Kennedy, the chair of the Senate Health, Education, Labor and Pensions committee.[60]

A large number of private groups have made proposals to address the lack of coverage for 47 million Americans. The Health Coverage Coalition for the Uninsured developed a six-point proposal, emphasising coverage first for children and then longer-term public and private sector proposals.[61] The largest medical benefits provider in the country, Wellpoint, has undertaken to expand enrolment in existing programmes and to expand those programmes to provide coverage for parents and families earning up to 200% of the federal poverty level (FPL).[62]

The principal response has come from states, rather than the federal government or private sources. Medicare, Medicaid and SCHIP are, by definition, limited programmes; those who fall outside their limits fall into the safety net of the states, if one exists. Moreover, administration of Medicaid is left to the states, and much of the administration of Medicare is undertaken by 'fiscal intermediaries', such as insurance companies like Blue Cross, who are themselves regulated by the states. And with both Medicare and Medicaid, services are delivered through hospitals and other providers licensed by the states.

Because most hospitals are chartered under state law and enjoy charitable status under state law, expanding their services to the poor is uniquely a state opportunity. Expanded funding under Medicaid and SCHIP is the clearest response. In addition, state attorneys general can assure that hospitals provide significant care to the poor or uninsured as a condition for keeping their tax exempt status. Helping in this effort are the new federal Internal Revenue good governance practices for 501(C)(3) organisations, released in 2007.[63] While the IRS lacks authority to impose governance standards for exempt organisations, it does have authority to impose guidelines. Among the proposed guidelines are ethics codes, board due diligence, transparency, controls on compensation decisions, and modern information systems.[64] IRS oversight of not-for-profit organisations has the potential to lend impetus to vigorous state prohibition on discriminatory activities.[65]

Similarly, insurance companies are chartered and regulated by the states. Some insurance companies, such as Blue Cross and Blue Shield, enjoy not for profit status. It is possible for the states to mandate rates, mandate coverage provisions, mandate high risk pools, and mandate non-discriminatory policies, all of which can go a long way toward expanding financing and healthcare access for the uninsured. Such mandates are especially crucial, and contentious, for the mentally ill, the subject of the next section.

The Mentally Ill

As with the uninsured, the mentally ill are uniquely a concern for the states. Traditionally, states have provided care through institutions, but the move toward community based mental health treatment has left support chiefly to Medicare disability programmes or Medicaid. For the past two decades, reform efforts have been directed at extending employer-based private insurance coverage and benefits to the mentally ill. In February of 2007, the proposed Mental Health Parity Act of 2007 was offered in Congress to remedy this deficiency, and it required businesses with more than 50 workers to provide mental health coverage.[66] Even if successful, the Act would not reach those who are unemployed, and it contains a cost exemption for businesses if they are projected to have increased health care costs exceeding 2% of total plan costs.[67]

The extension of benefits to the mentally ill is, constitutionally a state matter. A number of states have mandated parity for mental health benefits, when compared to physical health benefits. Such a bill was signed by Governor Robert Taft in Ohio on 29 December 2006.[68] The bill requires insurance companies to offer mental health benefits comparable to those of the benefits offered for physical disease.[69] But as with bills elsewhere, there are opt out and hardship exceptions.[70] Once again, as with the unemployed and uninsured, private insurance reaches only a limited number of those in need.

A point of special importance to the mentally ill is the availability of medication. Elsewhere, this article discusses the availability and inadequacy of pharmaceutical benefits through public and private healthcare coverage. Drug benefits are of crucial importance to the mentally ill because over the past two decades, treatment of mental illness has shifted from institutions to pharmaceutically-based care. The cost, as a result, has been shifted from the state to the individual, and the cost of psychotropic or antidepressant drugs is prohibitively expensive.


Finally, expanding health care for children is an important agenda item for states. Children have been covered by Medicaid since its inception. In 1996, as a part of the Clinton welfare reform, a new programme was added, SCHIP. States have been enthusiastic participants in SCHIP, reaching children who would otherwise have gone without coverage because their parents did not meet income eligibility for Medicaid. States continue to add funding and children to SCHIP, as most recently with, the budget adopted in New York, which would bring an additional 400,000 children into healthcare coverage.[71]

Funding remains a problem at a national level, however. A coalition of national advocacy groups sent a letter to Congress on 12 February 2007, calling for $60 billion in new funding for the SCHIP.[72] Among the members were the Centre for Children at Georgetown University, the American Academy of Pediatrics, and the March of Dimes. In September, the House and Senate approved $35 billion.[73] The debate between Congress and the White House continued with Congress approving a SCHIP expansion based on increased taxes on tobacco, and reduced funding of Medicare Advantage (managed care). President Bush vetoed the bill on 4 October 2007. No one expected an override to be possible, and both sides anticipated simple continuation of SCHIP into the Presidential campaign.[74]

A further problem for individual states with SCHIP is unpredictability, due to the national cap on federal funding. States cannot tell whether they will be fully funded, while funds for other states may lie unused at the end of the year. The problem is highlighted by the experience in Georgia in 2007. In that case, the $330 million programme was expected to be bankrupt by March due to a funding shortfall in the federal share, which could have led to the closing of many children's programmes.[75] Georgia's experience is typical of another funding difficulty with SCHIP, which tends to award more money to states that insure fewer children. Under this approach, in 2004, more than $1 billion of unused funds was returned to the federal treasury, at a time when 17 states are now projected to have shortfalls in fiscal year 2007.[76] On 15 January 2007, President Bush signed a law temporarily solving some of the expected funding shortfalls by redirecting $271 million from states with unspent funds in 2004 and 2005.[77]

The challenge for the states lies in the simple membership of SCHIP. SCHIP reaches only about 70% of its target population.[78] Nearly 20% of children are excluded because of their immigration status.[79] Some 4 million uninsured children appear to be eligible for Medicaid but remain uninsured.[80] The majority of current enrollees are not eligible for coverage through a parent because their parents lack employer-sponsored coverage.[81] In addition, the number of children eligible for employer-sponsored coverage through their parents and the number of enrollees with uninsured parents also impacts the number of children eligible for coverage under Medicaid.[82]

Despite these shortfalls, or perhaps because of them, SCHIP offers an important opportunity for the states. The states have the option of expanding coverage in important ways not only for children but also adults who would be uninsured otherwise—a major underserved population. Fourteen states now cover adults under their SCHIP programmes and nine of those expect a funding shortfall in fiscal year 2008.[83] Coverage of adults under the SCHIP programme exceeded the number of children covered in Arizona, Michigan, Minnesota and Wisconsin in fiscal year 2005.[84] An important debate is thus posed as to whether covering adults is necessary in order to reach children or whether covering adults under SCHIP deprives children of valuable health insurance coverage. One aspect of that debate has been whether, with limited funds, states should limit coverage, posing a risk that parents would not take children for medical care if they were responsible for deductibles or co-pays of substantial size.[85]

Paradoxically, perhaps predictably, SCHIP has become a major ideological battleground between state reformers and national-level conservatives. The latter view expansion of coverage through SCHIP as a creeping process toward universal coverage. State efforts to raise the eligibility of individuals covered under SCHIP by raising the age levels of children who can be covered by SCHIP, raising the income of homes to two, three, and four times the FPL, and by adding parents have been met by furious opposition. The ideology is apparent in the concern of national conservatives that such efforts will 'crowd out' private insurance companies because customers will cancel their policies and use public insurance instead.[86]

The Quality Chasm[87]

The national debate over health care reform has focused largely on funding and access. But in the end, as in the beginning, what people are looking for is quality. Certainly that is true of patients and parents. It is also true, upon reflection, of administrators and providers. The measure of whether costs are justified remains today quality; that is, necessity and effectiveness of care. Medicare has tried through managed care approaches to control quality by prior authorisations, concurrent review, chronic case management, and drug formularies. While managed care has largely receded in the private sector, it continues to receive emphasis on the national level through the Medicare Advantage programmes and, on the state level, through managed Medicaid, which now is the dominant pattern for State health care. This adds to cost but does have an impact on quality. While studies indicate that Medicare Advantage is more expensive than Medicare fee-for-service programmes, both in administration and expenditure, it remains a potential force for quality in healthcare delivery.[88]

Still, it seems clear that Medicare and Medicaid have failed to assure even basic safety in healthcare, and the need and opportunities for improvement through state initiatives are substantial. Avoidable medical errors in American hospitals annually run about 3% of Medicare admissions; an incidence rate that is rising, leading to 250,000 Medicare patient deaths over the last three years.[89] The excess cost was $8.6 billion from 2003 to 2005.[90] The causes of error include failures in traditional patient care such as accidental puncture, foreign bodies left in patients post-surgery, bedsores, sepsis, and respiratory failure after surgery.[91] These errors occurred in state-regulated hospitals, and it may be assumed experience for Medicaid patients is similarly defective.[92] Safety then, is high on the state agenda for healthcare reform. We will look below at three areas of state initiative: pay for performance, evidence-based medicine, and transparency. Several important points need to be noted. One is that these approaches have been principally developed by private players, insurers or nonprofits. Secondly, there are related initiatives, for example, in-store limited service clinics or mail order pharmaceuticals services, which increase ease or access to healthcare and thereby improve quality. But most importantly, quality for all is compromised where coverage, as is now the case, is denied many and so the discussion above directly bears on the quality chasm.[93]

Pay for Performance

Both public and private insurers emphasise three areas in respect to quality and safety, the first being the 'pay for performance' movement. Third-party payers may set quality standards and then provide incentive payments to hospitals or physicians or other providers to induce them to meet performance standards.[94] Several bills in Congress in 2007 held promise of raising quality and safety and lowering costs by paying hospitals for improved performance.[95] Physicians reporting quality information will receive about $300 million in Medicare bonus payments under a new law signed in December of 2006 by President Bush.[96] The doctors reporting quality data, known as quality measures, will receive a 1.5% bonus payment.[97]

The American College of Physicians advocates a variant of this programme to expand and enhance the role of primary care physicians in a coordinate care medical home. This programme was the subject of an eight state medical home demonstration in 2006 and 2007. As with Medicare, a number of states are attempting pay for performance with their Medicaid programmes, with over half of the states now doing so.[98] The Congressional Research Service has concluded there is little evidence that pay-for-performance programmes save money in the long run. To the contrary are the views of Peter Orszag, head of the Congressional Budget Office, who concludes that encouraging 'best practices' could save one-third of America's $2.1 trillion annual health care expenditures.[99]

Common sense suggests good care leads to good health and less cost — a double priority for the states. The Institute for Health Improvement estimates there are 15 million healthcare harms annually. Some 85,000 patients die annually from hospital based infections. These cost hospitals $13,000 each, and third party payers nearly $10 billion annually.[100]

Evidence-Based Medicine

To assure good quality prospectively, practitioners seek to practice sound medicine, as proven by 'evidence'. The term evidence-based medicine has re-packaged an old concept: use only proven methods. The new emphasis, however, employs new demographic and epidemiologic and computer-driven capabilities. And so, cost can be driven down, quality can be improved, and health enhanced.

Perhaps the most active proponent of evidence-based medicine has been in the private sector, by the Institute for Healthcare Improvement (IHI). Their approach is to identify and encourage basic best practices, and they believe that 100,000 lives may be saved annually by this approach.[101] As mentioned earlier, preventable deaths in hospitals are a major concern for the quality of medicine. The Institute of Medicine studies have established that approximately 100,000 lives are lost in hospitals through negligence each year[102] and Centre for Disease Control studies have estimated that 2 million patients are needlessly infected annually in hospitals.[103]

IHI launched its 100,000 Lives Campaign in 2003 and its 5 Million Lives Campaign in 2006.[104] Both are designed to encourage hospitals to adopt best practices, based on evidence-based medicine. For the 100,000 Lives Campaign, hospitals are encouraged and rewarded to take steps that include the formation of rapid response teams, reducing heart attacks, reducing adverse drug events, preventing central line infections and surgical site infections, and preventing ventilator associated pneumonia.[105] The 5 Million Lives Campaign addresses new concerns: high alert medications, surgical complications, pressure ulcers, staph infections, congestive heart failure and hospital Board of Trustee involvements.[106]

The IHI efforts have produced demonstrably favourable results. Having done so, the opportunity is presented for states to capitalise on the experience generated. To repeat the point made several times earlier, hospitals and physicians are licensed and regulated by the states, who also pay some 40 to 60% of their bills — powerful tools for effecting quality.


Transparency, like pay for performance and evidence-based medicine, is a market-driven approach to quality. Thus, Oregon has just initiated a web site, listing the actual charges of a dozen hospitals for approximately twenty or procedures, giving consumers data essential to effective decision making.[107] This enables consumers to shop for the price factor in healthcare. They can also weigh the quality factor by learning of the experience and error rates of providers. By providing such information, the states can capitalise on an aspect of the pay-for-performance movement, that involves value driven health care coupled with transparency.[108] By 'transparency' is meant maximum disclosure of performance and price data, facilitating choice by consumers.

The National Committee for Quality Assurance ('NCQUA') has taken steps to require providers to report quality of care data under requirements issued on 15 February 2007.[109] NCQA uses the same standards, clinical measures, and patient experiences in evaluating health maintenance organisations, Preferred Provider Organisations (PPOs) and point of service plans. The result is a consistent spectrum of public disclosures, designed to help provide what people really need to know to make informed choices. In doing this, NCQA uses the HEDIS criteria, the health plan employer data and information set, which States can incorporate in their reform efforts.[110]

Transparency is also a value which has gained currency in legislation. Georgia's Governor signed an executive order encouraging businesses to share healthcare quality and cost information with beneficiaries.[111] This will also encourage health insurance providers and third-party administrators to share pricing information. Similar steps have been taken in Tennessee, pursuant to federal initiatives calling for reporting quality of care data and public reporting of price of care.[112]

Transparency has become a tool for the Centres for Medicare and Medicaid Services in attempting to improve quality and safety in care for Medicare beneficiaries.[113] Once result is the Better Quality Information (BQI) project, which is an effort to aggregate Medicare claims data and make the resulting information available to Medicare beneficiaries so they may make informed choices among providers.[114] Another result is the Performance Measurement and Reporting System (PMRS), announced by CMS to become effective in 2007, to collective performance data on hospitals and physicians from insurers for a public database. Obviously, privacy and accuracy issues abound in such a process.[115] Yet, transparency, in affording comparative insurance coverage data or practitioner performance data, can be uniquely subject of state legislation and administrative purview. Because much of the 'shopping' for healthcare is actually done by third party payers, they, along with the states, are in the best position to report on and rate providers such as hospitals and physicians.[116]

In closing this second section of this article, an agenda for action by the States includes, predictably, three areas for concern: services, access and quality. The preceding analysis makes clear that much remains to be done in these areas. It is clear that they are not areas of exclusively federal concern, and are equally of importance to the states, private providers, and consumers. Many of the state initiatives respond to opportunities presented by federal funding, but many are directly based on state constitutional powers over taxation and health and welfare. In the discussion which follows on state initiatives, therefore, it is important to consider in what ways states may act more broadly and powerfully than the national government in dealing with common, shared problems.

IV. State Initiatives

As the preceding discussion makes clear, in any agenda for action, states are already extensively engaged in incremental reforms. In this part we consider more fundamental, systematic reform. Without exception, states are concerned about the range of healthcare services, the access of citizens to them, and the quality of the services.

The preceding discussion sets the context within which states can act, with federal funding and federally granted latitude, or independently, by generating state funding by taxes or by mandating private funding. The latter is perhaps the most significant. Several states, such as Massachusetts and California, have taken major steps towards universal healthcare by mandating that citizens must purchase insurance, that employers must either provide insurance for employees or be taxed if they do not, and that insurers must make available economic policies for people of limited means. Mandates have also been directed at insurance companies to create high risk pools for those who cannot purchase health insurance. Thus, the most dramatic reforms have been made by tapping local and state funds held by citizens or by tapping the treasuries of employers, many of whom have previously opted out of the system of privately-provided health insurance coverage for employees.

Universal Coverage

The Central Place of Employers

Each of the states in approaching health reform must deal with a central problem, that of determining the place of employers in providing healthcare insurance, not only to their employees but to the uninsured within a state. One crucial aspect of the American healthcare system is the central place of employers.[117] In the 1930s, with the advent of healthcare insurance, it became possible to provide stable income to doctors and hospitals and to provide assurance of healthcare to the insured. The mechanism for doing so was the employer. An employer would purchase health insurance as a benefit to the employee, which provided the employer with a tax deduction and the employee with tax-free benefits.

In this decade, the wisdom of this arrangement has come under serious question. For one thing, the cost of health care has driven up the cost of health care insurance, causing many employers to question whether they can provide health care coverage to their employees. The average annual premium for a family increased from $6,722 in 2000 to $10,728 in 2005, and premiums increased 60% for employers.[118] The percentage of employers providing insurance to their employees has dropped from nearly 70% to below 60%.[119] More troubling, the percentage of employees without employer-based insurance increase as income decreases.[120] Ninety percent of those earning more than three times the minimum wage had job-based coverage; only 42% of employees earning minimum wage had employer-based coverage.[121]

A pattern is emerging where employers provide large wage increases and large benefit decreases.[122] Employers may also increase contributions required of an employee toward health care benefits. A consequence, a recent Kaiser Family Foundation study established, is that many employees opt out of healthcare coverage.[123] There is a differential that disfavours employees in smaller companies and lower income categories.

As noted above, many proposals in Congress would abolish or severely restrict the role of employers in providing healthcare coverage on the ground that the mechanism is failing. But a contrary approach would be to make the system work. In fact, all States keep employers in the mix. The employer may be viewed as an important administrative unit, an advocate for good health care, and a source of valuable funding.[124] Otherwise, a state would need to expand its bureaucracy and public funding to undertake the role played by employers. And if all employees are afforded healthcare, and the state expands its Medicaid and SCHIP coverage, the state is a long way towards providing universal healthcare, at least within its borders.

The central place of employers in state reform efforts is validated by a Robert Wood Johnson Foundation report, State of the States 2007: Building Hope, Raising Expectations.[125] The report extensively summarises the innovative policies of a dozen states. Among these are comprehensive health-care reform in Massachusetts, Vermont and Maine; public — private partnerships in Arkansas, Montana, New Mexico, Oklahoma, Rhode Island, Tennessee, and Utah; and children's initiatives in Illinois and Pennsylvania.

A number of states have undertaken public-private partnerships.[126] These are significant in keeping employers in a central position of purchasing and providing insurance for employees and expanding the numbers covered.[127] Essentially, each state attempts to make existing health insurance cost less and be available to more low income citizens. State attempts include subsidising private insurers, creating a pool of coverage available to low income workers, and creating high-risk pools or new premium assistance programmes. As noted earlier, this evidence demonstrates the state commitment to keep employers and insurers as mainstays of expanded coverage, even universal coverage.

In addition to partnerships, states have attempted to mandate that employers provide coverage for employees, particularly larger employers, or be taxed, the so called, 'play or pay' approach. The largest nationally is Wal-Mart, and the most dramatic instance of a mandate has been that of the so-called Wal-Mart bill in Maryland. There, Maryland's requirement that employers with more than 10,000 employees spend at least 8% of their payroll on health care was invalidated by a federal court of appeals, as violating federal strictures under ERISA.[128] The Wal-Mart decision raises doubts about mandates and the effort to compel employers to purchase insurance for employees. But, as discussed below, giving an employer the option to purchase or to pay a tax as part of a comprehensive scheme is a sound strategy to expand the numbers and scope of healthcare coverage.

At the opposite end of the spectrum from the mandates, is the effort to create purchasing pools to enable states to buy healthcare products, chiefly pharmaceuticals, at a low price, and then make the products available to their citizens. Voluntary purchasing pools as a stand-alone strategy are not likely to be sufficient to expand coverage, but it is likely to make pharmaceuticals more affordable,[129] although the Robert Wood Johnson Foundation Report summarising the health care programme in Massachusetts and the purchasing pools in California and Florida is evidence to the contrary.[130]

While some states concluded that pool buying might not improve the quality of health care, other states have undertaken themselves to purchase pharmaceuticals along the lines of the approach taken by the Veterans Administration. While the experience has been mixed, Maine, New Hampshire and other states provide some hope for the public through state purchasing. State purchasing pools may succeed where employer mandates fail because funding for the pools, although limited, is secure, whereas funding of mandates imposed on insurance companies or employers must be generated by insurance premiums.

Comprehensive Reform: California

Although Massachusetts has received the most national attention, the state effort that warrants most scrutiny is that of California. Size matters. Both are attempts to provide private health insurance coverage for all citizens, which, coupled with Medicaid, Medicare and SCHIP, would go a long way towards the national health coverage of countries (of comparable size) such as Britain, Canada, New Zealand and Australia. Governor Schwarzenegger's plan would require every one of California's 6.5 million uninsured residents to have health insurance, using a combination of funds from individuals, employers, providers, hospitals and state and federal sources.[131] The estimated cost: $12 billion.[132] The complex plan would require employers to provide insurance to workers or pay into a state purchasing pool. In addition, California plans to insure illegal immigrants.

The California proposal would require all individuals to secure insurance at least at the level protecting against catastrophic costs.[133] The poorest citizens would receive coverage through Medicaid and SCHIP. One million residents with incomes above the FPL, but below 250% of the poverty level, would be eligible for coverage through a state purchasing pool and make premium contributions toward Medi-Cal coverage of between 3% and 6% of gross income.[134] Employers with 10 or more workers would either provide coverage or pay 4% of their payroll into the state's purchasing pool.[135]

Schwarzenegger's proposal has a number of other features, including cafeteria-style plans, health savings accounts, and increased reimbursement for healthcare providers. From the latter, physicians and hospitals would pay a so-called dividend to help fund the state-run purchasing pool.[136] Future reimbursement rates would be tied to specific performance measures, much like those initiated at the federal level.

The $12 billion cost of the California plan is to be covered by $5 billion in new federal funds, $3.5 billion from providers in hospital dividends, $2 billion in shifting funds now used to pay disproportionate share hospitals, $1 billion in employer fees and $203 million in other funding.[137] The expanded federal funding would come from Medi-Cal and SCHIP.

Not surprisingly, criticisms have been directed at the imposition of so-called dividends on providers, the shifting of funds from disproportionate share hospitals (which are part of the safety net for the poor) and dependence upon increased federal funding at a time when that funding is being cut dramatically. A Republican proposal seeks to redirect money from tobacco taxes to help fund an expansion of clinics and would proceed without requiring employers to provide coverage or mandate that all state residents obtain insurance.[138] Insurers have particularly opposed Schwarzenegger's plan, because it bars them from spending less than 85% of premium revenues on direct patient care.[139] Others have raised questions about whether an existing waiver for hospital care under Medicaid can be expanded or continued, without which much of Schwarzenegger's plan would collapse.

A particularly problematic aspect of Schwarzenegger's proposal is that it requires one million uninsured adults without legal residency to have insurance. They would not be eligible to purchase insurance in the state purchasing pool. Forty thousand undocumented individuals would obtain employer-sponsored coverage; 160,000 would buy individual coverage; the remaining 750,000 who earn less than 250% of the FPL would be the responsibility of the counties.[140] They would retain $1 billion in disproportionate share hospitals funds and the University of California hospitals retain another $1 billion.

Another problematic aspect of the California proposal is selecting 10 counties to receive $540 million over the period from 2008-2011 as part of the 'coverage initiative', tied to a Medicaid waiver which is also tied to hospitals' 'financing waiver'. The aim is to extend hospital coverage to 180,000 uninsured individuals, but the hospital 'waiver' impacts hospital revenues, already depressed, and the financial capability thus created is dubious.

One difficulty with even such ambitious efforts as those of Governor Schwarzenegger is that building on private insurance leaves the insurers free to set premiums and rates, and to drive up costs. The California Assembly on 7 June 2007, passed legislation (A.B. 1554) that would impose a prior approved rate regulation scheme like that with property/casualty insurance.[141] As of mid-October 2007, as this article was being finalised, Governor Schwarzenegger had called a special session of the legislature to consider a revised bill, leading to a constitutional amendment. The new bill removes some of the earlier funding burdens, such as the 2% fee on doctors and fees on individuals. It would provide lottery funding and expand individual health care insurance.[142]

While California's effort is ambitious in scope and monumental in its numbers, only Massachusetts has moved well into the implementation phase. We will now turn to that state's reforms.

Comprehensive Reform: New York and Massachusetts

Three other states have undertaken approaches that may lead to universal health care: New York, Vermont and Massachusetts.[143] In New York, Governor Spitzer has proposed a budget guaranteeing access to health insurance for an additional 400,000 uninsured children and streamlining an enrolment process for Medicaid that would add an additional 90,000 adults over the next four years.[144] Spitzer also proposes bargaining to reduce prescription drug prices and shifting care from nursing homes towards community alternatives. Funding, in part, will come from reducing Medicaid spending on medical education and freezing Medicaid reimbursement rates for hospitals and nursing homes.[145]

All of the steps are part of a pathway towards universal health coverage, developed in a report released on 19 December 2006 by the United Hospital fund and the Commonwealth fund, called a Blueprint for Universal Health Care Coverage in New York.[146] The report estimated that universal coverage would cost an additional $4 billion a year.[147] The authors concluded the task in New York was more difficult than that in Massachusetts, because New York starts with less employer coverage and more people who are currently uninsured.[148] The proposal, as in Massachusetts, would require all individuals to have or obtain health insurance. Assessments on employers would provide incentives to offer coverage directly and raise some of the revenue needed to finance other expansions.

It is not a surprise that there has been resistance to the Spitzer proposal. In February of 2007, the Healthcare Association of New York State declared that the proposed federal budget would lower Medicare payments to New York hospitals by $2.8 billion over five years and Medicaid funding similarly. These are major sources of hospital funding, and such reductions would cripple any effort to add to hospital burdens. Such reductions seem highly unlikely, however.

The New York and California proposals for health care reform must be compared with the successful efforts in Massachusetts, which have received extensive national attention. Put simply, Massachusetts will require every citizen to have health insurance. Much of that coverage will come through Medicare or Medicaid or employer-based insurance. For those who are left uninsured, a state pool will be created.[149] Implementation has not been easy. But reviewing those difficulties is instructive, and the lesson to be drawn is that the Massachusetts approach will succeed and can be emulated elsewhere.

The chief difficulty has not been structure, but content. The state was to set minimum standards for insurance, determined by a panel which, on 22 January 2007, decided to delay issuing final recommendations after learning that prices for premiums could average $380 per month. That fee would be assessed on those earning 300% of the FPL; those earning less than 100% of the FPL would receive free health insurance, while those between 100% and 300% would receive subsidised coverage.[150]

The Massachusetts Board decided to postpone a vote on 'minimum creditable coverage'. That coverage would provide protection only against catastrophic costs, with some provision for preventive care. Out-of-pocket maximum payments would be $5,000 for individuals and $10,000 for families with maximum deductibles of $2,000 for individuals and $4,000 for families. There would be deductible coverage for three routine doctor visits for individuals and six for families. The president of the Massachusetts Association of health plans expressed concern that the recommended minimum standards might impede the ability of the Commonwealth to make affordable coverage available.[151]

On 8 February 2007, the Massachusetts panel decided to consider allowing carriers to offer plans that do not carry coverage for prescription drugs. It requested bids for plans with and without prescription drug coverage. The decision provoked controversy, as did issues concerning part-time and seasonal employees and whether companies may terminate plans if and when the payroll drops below 10 workers. In March, the Commonwealth Health

Insurance Connector Authority (CHICA) recommended that nearly all plans be required to offer drug coverage, with minimum standards phased in during 2007, and all residents are required to purchase a plan by September 2008.[152] Two plans would be offered: one with a $250 dollar deductible for individuals or $500 per family, or one with first dollar coverage for chronic conditions. Eighty six thousand residents had insurance with no drug benefit, and this would cost about an additional 10% in premiums.[153]

This brief, and yet complicated, account of the Massachusetts process illustrates the difficulties in moving towards universal healthcare by using employer or privately purchased health insurance. The responsible agency must determine minimum coverage, estimate cost from private insurance carriers, determine what people can afford, and then re-do the process. Yet keeping employers in the mix seems clearly essential to states such as California and Massachusetts because employers provide a source of funding and of administration. They can also shop for good insurance products for their employees, thus becoming surrogates in the market place for both the patients and the government.

Perhaps the most unpredictable, yet crucial, aspect of the Massachusetts Plan is assuring that residents will, indeed, obtain insurance, either through employment or direct purchase. This means keeping cost down, yet expanding coverage. Most recently, the CHICA decided to postpone the minimum standards for acceptable coverage until 2009, and allow residents to be in compliance if they obtained coverage under any existing insurance plan during 2007.[154]

Massachusetts is farthest along and is therefore confronting issues inherent in an effort to create universal health care with limited funds and limited funding.[155] Although it seems like a series of false starts, the Commonwealth is making progress: by February of 2007, 100,000 of the 370,000 Massachusetts residents who lack health insurance had obtained coverage since the law took effect in July of 2006. About 55,000 were covered by expanded Medicaid and another 45,000 enrolled in the state subsidised Commonwealth care plan, most transferring from the state free pool. The uncompensated care pool or Medicaid provided coverage for 166,000 workers employed by employers with 50 or more employees during 2006.[156] That was a 4% rise.

Under the new law, employers with 11 or more workers are now required to pay a fee of $295 per employee if they fail to insure 25% of their workforce. At the top of the list for two years in a row of employers not providing coverage were Stop and Shop and Wal-Mart, both with more than 3,000 workers. As noted above, a recent decision, Retail Industry Leaders Association v Fielder,[157] raises questions that may have relevance to Massachusetts. Essentially, Maryland had provided that any employer with more than 10,000 employees must spend at least 8% of its total payrolls on employee health insurance costs.[158] The Act was crafted to cover Wal-Mart, which had over 16,000 Maryland and employees.[159] The Court of Appeals concluded that the Maryland Act was preempted by ERISA and was therefore not enforceable.[160] Not surprisingly, Wal-Mart has joined a health care reform initiative committed to the proposition that the employer-based healthcare system is dead.

The Massachusetts approach seems headed for success, and is being closely watched elsewhere.[161] It provides a model for universal healthcare that keeps private players in place, using state initiatives, complemented by federal programmes. Its continued success could be jeopardised, paradoxically, by those who propose national reforms abolishing the role of employers and insurance companies. They are, unlikely, however, to succeed.


The state efforts detailed above seek broadly to emulate the universal healthcare coverage of many nations, such as Britain, Canada, Australia and New Zealand. Those nations achieve coverage through direct government provision of services, with a parallel private system available if citizens so choose. California, New York and Massachusetts would, instead, match government programmes with private insurance, requiring provision by employers and purchase by citizens, with mandates on insurance.

A number of states have undertaken more focused reforms, targeting disease agents, such as tobacco, or vulnerable populations, such as children. Most notably a widespread approach has been to expand enrolment and funding and eligibility under federally funded programmes, such as Medicaid and SCHIP. Among these states are Minnesota, Washington and Tennessee. The Minnesota governor proposed expanding eligibility to cover children and families earning 300% or less of the FPL, and reducing premiums by about 50% for children. The governor also proposed rolling in a private sector option for families earning at least 200% of the FPL. A family of four earning 225% of the FPL would save nearly $2,000 in premiums annually.[162] [163] The Governor ofWashington requested an additional $31 million to expand health care for children, to reach 32,000 children currently without coverage.[164] In addition, Washington's Blue Ribbon Health Care Commission proposed that the state pay for care that provides the most appropriate, highest-quality treatment in the most cost effective way.[165] Similarly, Tennessee expanded its State Children's Health Insurance Programme to reach families with incomes up to 250% of the FPL, currently about $50,000 per year for a family of four. The benefits would be modeled after the state employee health plan.[166] There would be no premium costs to the insured individuals.

Importantly, some states have also imposed mandates on private insurance carriers, as in the universal health care states discussed above. In May 2007, Maryland mandated that health insurance carriers provide family insurance coverage to child dependents until age 25, including dependents of a domestic partner. Other states have expanded incentives to private carriers for coverage of children, to expand benefits.

It seems clear that a focus on children is a compassionate, efficient use of limited funds. Healthy children make healthy students, who make successful citizens. Expanding care for the young is the most cost-effective investment available in healthcare. The average Medicaid expenditure for a child is $1500; for an elderly person, it is over $10,000. This is one of the many instances where expanding healthcare has the potential for reducing costs.

Nevertheless, state efforts to expand SCHIP enrolment have been met with increasing national opposition. And this is true even though many states are simply trying to enrol already eligible children — about 5.5 million of whom are not receiving SCHIP benefits.[167] About one third of these children live below the poverty line and the majority of these children are minorities. Congress is contemplating reauthorisation of SCHIP at $35 billion, keeping coverage for 6.6 million children, plus adding coverage for 3.2 million children,[168] which would effectively be a reduction in the present fully eligible pool. Thus, Congress is failing to capitalise on the potential in children's health.

More troubling is the political opposition to states that exercise their autonomy by choosing to enlarge access to health care by expanding eligibility criteria for children or by adding parental coverage. There are 13 million people aged 19 to 29 without insurance living below 200% of the Federal Poverty Level and a recent Commonwealth Fund report recommended that age 19 no longer be the pivotal age which healthcare benefits, public or private, are lost.[169] Nearly 20 states now mandate higher ages. A number of states have also added SCHIP coverage of parents to eliminate the anomaly of a home where children have healthcare but parents do not.

All of this has provoked substantial backlash, although it is clearly contemplated by the federal, block grant nature of SCHIP. The ranking minority member of the Senate Finance Committee, Grassley of Iowa, asked the Bush Administration to reject New York's request to increase SCHIP eligibility to four times the FPL, extending benefits to a family earning $80,000 per year.[170] Similarly, the Centres for Medicare and Medicaid Services on 17 August 2007, sent a letter to state administrators, reacting to state SCHIP expansions, insisting they take steps to limit enrolments, and not 'crowd out' private insurers.[171] Among these suggestions would be yearlong waiting periods, limiting financial eligibility effectively to 250% of the FPL, imposing cost sharing, preventing employers from changing dependent coverage, assuring that the percentage of employer-covered children does not decline by more than 2%.

The critics of SCHIP expansion see it clearly as an incremental move towards universal healthcare. If the age of participants goes up, and financial eligibility expands, the increases in enrolment may link up with other innovations to lower the age of eligibility for the elderly under Medicare.[172] This, they complain would eliminate, or 'crowd out', private insurers. But even if true, it is far from clear that this is a bad thing, or would even happen. Private insurers are so enmeshed in the America healthcare system it seems likely they would continue to participate — and profit.

The wisest strategy for the states would be to continue to prod Congress to re-authorise SCHIP (due for final review in September of 2007) at as high a level as possible, and then augment that funding with ample state funds. Everyone agrees that the 1996 creation of SCHIP was one of the best developments in American healthcare since Medicaid. And if it grows as the children grow, then indeed universal healthcare, or something close, will result.


The earlier discussion analysed in some detail the recent expansion of Medicare through Part D drug coverage. Medicare is a federal programme, and covers chiefly retired workers. That leaves 250 million other Americans to obtain health care coverage through other federal programmes, such as the Veterans Administration, or private insurance, state-based programmes, or private payment. And even Medicare recipients pay, on average, over $2,000 per year for medications. Clearly, the provision and cost of pharmaceuticals are important aspects of access to healthcare.

States have authority to expand coverage through programmes such as Medicaid and to drive down costs through bulk buying, consortia with other states, and negotiating prices for formularies on behalf of their citizens. Washington and Oregon have formed a consortium for joint purchasing of pharmaceuticals in order to reduce price and cost.[173] The new Northwest Prescription Drug consortium signed a contract with ODS Corp, pursuant to which the states can negotiate with drug companies for the lowest possible drug prices. Employers and uninsured individuals are eligible.[174]

Colorado Governor Ritter in February of 2007 signed a bill enabling uninsured Coloradoans who do not qualify for Medicaid or for the basic children's plan and who earned less than 300% of the FPL to buy drugs at state negotiated lower prices.[175] The state will negotiate lower drug prices with manufacturers of generic medications. Pharmacies can then voluntarily sign up to participate in the programme and sell the medications to Coloradoans who enrol. Up to 10,000 types of prescription drugs could become available.[176] A similar effort has been in play in New England for nearly 3 years, with significant success.[177]

These are quite diverse approaches. Obviously, any effort directed at reducing the cost of pharmaceuticals is worthwhile. That sector of the healthcare budget is the one which, over the past decade, has experienced the greatest inflation. As the population ages, demand for multiple pharmaceuticals will only increase. In addition, increased demand is driven by the development of new pharmaceuticals making surgical interventions unnecessary. As with the innovations concerning children, discussed above, health care dollars invested in driving down the cost of pharmaceuticals generates often the prospect of genuine impact on the health and well being of an important segment of the public.

The model for the states is the Veterans Administration, which for years has negotiated reduced rates, and bulk purchases for its facilities and clientele. The result has been a substantial cost savings. The same is possible at the state level, as a number of states have demonstrated.

This summary of state activity, beginning with universal health care and ending with pharmaceutical benefits, is necessarily selective, because there is varied and intense activity in virtually every state. Moreover, the discussion above is focused principally upon the ferment and movement over the past few years, and includes many executive and legislative proposals which may not be adopted. Nevertheless, this picture presents a useful portrayal of what concerned policymakers and stakeholders have viewed as both important and possible. And, of course, much of what has been sketched here has, in fact, been adopted and implemented by at least a few states. And they in turn provide a road map and hope for the others.

V. Conclusion

This picture is one of promising activity, of attention to expanding financing, and provision of services[178] to vulnerable populations. At the beginning of this article the crisis in quality was highlighted as an urgent problem facing healthcare in the United States. States can do much to solve that problem, employing techniques of managed care, used by Medicare and private insurance,[179] and techniques of improving best practices, through private initiatives which may, it is hoped, influence public agencies and programmes. The most important initiatives by the States have been to expand access and coverage in ways which add little to the national expenditures and will go a long way toward reaching the single most chronic problem in American healthcare: reaching the uninsured, providing them with access by expanding mandates on employers and insurance companies. States have also shown initiative in finding programmes for and reaching children, through expanding funding under SCHIP and manoeuvring through that programme's pitfalls.

What can be said of what has been accomplished at the state level? Obviously, the discussion above compels the conclusion that there are a number of positive developments, many of major significance.

It is a given that state resources are financially limited. States have therefore undertaken to require more efficient and equitable uses of existing resources. Mandates for insurance companies and for employers are an example. Those who criticise employer-based insurance, ignore the important role employers play as sources of funding, of administration, and as advocates for better health care. Those states which seek to enhance the role of employers are clearly on the right course.

With limited financial resources, paradoxically, the states developing universal health care are on the right course. This seems counterintuitive. Expanded health care, it would seem, would cost more, colliding with the limited nature of financial resources. But in fact, expanding access and coverage is a relatively inexpensive process and can be de-coupled from the separate question of the content of such coverage. States like Massachusetts are thus on the right course in attempting to cover every citizen, subsequently working out the content of that coverage within the constraints of limited resources.

A number of states seem to have undertaken a more measured approach, by identifying specific populations for enhanced treatment. Chief among these are children. As discussed above, several states have expanded Medicaid coverage of children, while a number of others have raised the FPL levels of eligibility to extend SCHIP to more children. Because the latter programme is in addition to Medicaid, and can include entire families, reaching not only the poor, but working families, increasing access and eligibility seems a wise course.

The same may be said of those states which have identified approaches to pharmaceuticals as a primary concern. Several states are engaging in bulk buying, while others are negotiating prices, which then become available to citizens. Either approach is valuable. The emphasis may seem less necessary, with the advent of Part D of Medicare, but the limits of that coverage in scope and population remain problematic. Pharmaceuticals are necessary for many outside the Medicare population and are increasingly alternatives to surgery or institutionalisation for the mentally ill. In a sense, then, a focus on pharmaceuticals is not only addressing a major cost factor in health care, but also significant segments of the health-care constituency.

Yet the full role and potential of the states remain undeveloped. Chief among the undeveloped areas is use of the taxing power to advance public health: by raising revenues and discouraging bad health practices. State taxes can certainly be expanded to expand healthcare. But more importantly, they can be used to drive down factors of ill health, chief among which are alcohol consumption, obesity and tobacco-related disease. Success in these areas would save lives, resources and would expand healthcare in other directions.

Some states have in fact attempted to use the taxing power to drive down tobacco use and to raise money for healthcare. In 2007, Oregon sought (and failed) to increase its taxes on cigarettes by nearly 50%.[180] In January of 2007, a special panel in Maine recommended raising taxes, from $2 to $2.50 a pack, which would have generated an additional $37.9 million.[181] The panel also recommended increasing taxes on snacks, beer, and wine. In terms of efficiency, a better approach could hardly be conceived: such taxing policy not only raises the needed revenues, but deters conduct which itself generates health problems and consumes health care services.[182] Yet little, to repeat, is being done with taxes to advance the public health.

The same comments may be made of state police power. Under this heading, in our federal union, roads and highways are largely entrusted to the states. Injuries and fatalities on the highways are a major contributor to healthcare costs and could be substantially reduced by reducing permissible speeds. Similarly, automobile emissions are a major contributor to health care problems, as well as global warming. Yet, only California seems to be developing a policy in this area with a direct view towards improving health care.

It is a commonly held view that obesity has become a national epidemic, with major implications for health care. A principal arena for addressing the problem would be in the schools, where fully 25% of our population obtains a major portion of its dietary needs. There is little evidence that states are using the schools, by expanding exercise programmes or controlling dietary plans, as a tool to addressing obesity.

The segment of the health-care constituency, identified at the beginning of this article, which remains most at risk involves the mentally ill. Medicare and Medicaid coverage are limited, and the need for pharmaceuticals is great for this population. Indeed, in the uninsured population, the mentally ill remain at great risk because of the absence of parity between physical ailments and mental illness in employer-based, privately purchased insurance. While a number of states have mandated parity legislation,[183] much remains to be done, most of it critically important to the mentally ill.

Perhaps the most promising area of state activity is safety.[184] It can reduce costs by reducing medical error, healthcare complications and resulting costs. Of all of the various areas of state activity, quality improvement is the most promising, partly because of the directions and models developed by private players, such as the Institute for Healthcare Improvement, the Kaiser family Foundation and NCQA. These entities develop studies for evidence-based medicine and best practices, they involve providers in adopting such practices and improving health care, and they use the results as criteria for accreditation purposes. Not surprisingly, then, Medicare and Medicaid and NIH and CMS all favour quality improvement. States can and should do the same. The experience of the Veterans Administration hospitals, in driving up quality while driving down costs, confirms the value of emphasising quality improvement and safety in delivering healthcare at the state level.

Finally, what can be said of the essential role of the states? The answer must be what it has been since the inception of the federal union: they are closest to the population and, since the beginning, have been entrusted with caring for the health and welfare and safety of the citizenry. By the 1930s, with Social Security, and certainly by the 1960s, with Medicare and Medicaid, it was clear that the power of the federal purse was necessary to assure adequacy and uniformity of welfare and health care across the nation. But federal legislation has supported and assured a cooperative federalism with the states. Lest this seem naïve, it should be added that the national government role remains not only to assure financial adequacy, but also to guarantee uniform equity. It remains essential to assure that a person's health and well-being, as the Supreme Court held in Edwards v California,[185] should not turn upon the accidents of birth, race or residence. That national mission and obligation remain no less compelling today than they were then.

This leaves to the states the opportunity to expand scope of coverage and quality in ways they deem best and most feasible, within the federal context or independently of it. Universal healthcare, state-by-state is now a reality. Beyond that, basic policy development in health improvement and quality of services represent the next frontiers for state innovation and responsibility. These have been proper state provinces since the writing of the Constitution.

Arthur LaFrance is Professor of Law at Lewis & Clark Law School, Portland, Oregon.[*]

[1] My thanks go to Bernadette Nunley and Amy Heverly, my fine research assistants; to Barbara Homzuik, my wonderfully competent and patient administrative assistant; and to Dean James Huffman, for his continuing support in arranging the research funding for this article. My thanks go as well to the faculty and bioethics students at the University of Houston Law School and the Faculty of Law at the University of Canterbury, who provided many of the insights for comparative healthcare systems reflected in this article.

[2] See generally United States Senate budget hearings at < hearingstate.htmlx The American Medical Association and the AARP in late summer 2007 launched a $1,000,000 television campaign to force even a limited reform bill out of Congress, expanding children's health and altering Medicare policy. 2007AMA Medicare Physician Payment Action Kit, AMA (17 August 2007) < category/14332.html> at 20 August 2007. It is expected that healthcare reform will be a major issue in the 2007/8 presidential elections. See Special Report, 13 BNA Health Plan & Provider Report 847 (8 August 2007).

[3] See National Governors Associations, Leading The Way — State Health Reform Initiative (11 July 2007) <> .

[4] This article is being published jointly in the United States and New Zealand (where the author has just concluded teaching at the University of Canterbury), a nation of 4,000,000 citizens, with a population and with healthcare needs quite similar to a number of the American states whose reform efforts are discussed in this article. That discussion may be of interest as well to reformers in other nations, such as Australia, Britain and Canada, where healthcare systems are facing problems of cost, quality and coverage.

[5] See Banthen & Barnard, Changes in Financial Burdens for Heath Care, 296 HABA 2712 (December 2006). Nearly 48 million Americans spend 10% of income on healthcare, 19 million over 20%; they were disproportionately poor, old and minorities.

[6] See United States Census Bureau Report, Income, Poverty, and Health Insurance Coverage in the United States: 2006 <> . The percentage covered by employer insurance dropped below 60% and by government programmes to 27%. Some 27.6 million working American had no health insurance. Significantly, over a two year period, the total of uninsured rises from 47 million to 89.6 million, under age 65. Eighty percent are in working families; 64% lacked insurance for six months; 50% for nine months. See Families USA, 'Wrong Direction' (20 September 2007) <> .

[7] Committee on Quality of Health Care in America, Institute of Medicine, Crossing the quality chasm: A new health system for the 21st century (2001).

[8] In this Introduction as well as subsequently, I will make a number of general observations about the structure and scope of American healthcare, without the usual detailed footnote references, simply because the focus of the paper is on reform efforts at the state levels. This assumes the reader has familiarity with the overall healthcare system in the United States. As to that, there are many good books, chief among which is Kenneth Wing, The Nation's Health (2004). Excellent explanatory material on Medicare and Medicaid and the State Children's Health Programme (SCHIP) may be found on the website of the United States Department of Health and Human Services, at the relevant programmatic tabs, and on the website of the Bureau of Census, where one may consult exhaustive tables of statistics. Finally, and at the risk of committing scholarly suicide, the online encyclopaedia, Wikipedia, has excellent articles on the United States healthcare system, its programmes, and its constituent parts. These internet sources are particularly significant for this article, which is aimed both at domestic United States audiences and at audiences abroad interested in models of reform for their healthcare systems.

[9] Kogan, Richard et al, The Long-Term Fiscal Outlook is Bleak: Restoring Fiscal Sustainability Will Require Major Changes to Programmes, Revenues, and the Nation's Health Care System (29 January 2007) Center on Budget and Policy Priorities <> at 11 March 2007.

[10] Ibid.

[11] Ibid.

[12] See, 'Special Report', 13 BNA Health Plan & Provider Report 847 (8 August 2007) as to the positions of the various presidential candidates.

[13] Massachusetts v Mellon, [1923] USSC 153; 262 US 447, 43 SC 597 (1923).

[14] See Lucy A Williams, 'The Abuse of §1115 Waivers: Welfare Reform in Search of a Standard' (1994) 12 Yale Law and Policy Review 8.

[15] There has been little written on this subject, other than episodic accounts relating to specific efforts. But one continuing set of reports is helpful: The State of the States, by SCI, an affiliate of the Robert Wood Johnson Foundation, see n 89. The content of this article is more recent than the last report, for 2006, and more analytical. Other references, now nearly ten years old, are Kinney, 'Clearing The Way For An Effective Federal-State Partnership In Health Reform' (1999) 32 University of Michigan Journal of Law Reform 899; Sparer & Bachman, Medicaid and the Limits of State Health Reform (1996); Dilulio & Nathan, Making Health Reform Work: The View From the States (1994). Most recently, see National Governors Associations, Leading The Way — State Health Reform Initiative, above n 3.

[16] See National Governors Association, The Fiscal Survey of The States (June 2007) <> . As state revenues increase, they project increased Medicaid spending over the next few years: The 50-State Survey on State Budgets (October 2007) <http:/www.kfforg/Medicaid/upload/7699.pdf>.

[17] See Alliance for Health Reform <>.

[18] To get a sense of the variety of state models, a useful reference is the recent report of the Colorado Blue Ribbon Commission on the five proposals it has developed, from 31 submitted, for that state alone to consider <> .

[19] Department of Health and Human Services, Focusingon the Nation's Priorities <> at 11 March 2007.

[20] Ibid.

[21] Ibid.

[22] The Brookings Institution, New Directions in Health Policy: A Discussion of the President's Tax-Based Health Insurance Proposals (9 February 2007) <> at 11 March 2007.

[23] Linda Micco Richmond, 'U.S. Budget: Bush Proposal Cuts Medicaid $25.7 Million; Fund One Third of Projected SCHIP Shortfall' 15 BNA Health Care Policy Report 194 (12 February 2007).

[24] See 15 BNA Health Care Policy Report #12, 400 (26 March 2007). To the same effect is a Congressional Budget Office statement on 21 March 2007, which concluded that the Bush proposal would add coverage for 7 million people, but lose it for 1.5 million, and another 6 million would switch from employer-based coverage, with a bias favouring the more affluent, and there would be a net increase in tax revenues of $333 billion over ten years.

[25] Medicaid Commission, Final Report and Recommendations (29 December 2006) <> at 11 March 2007.

[26] CMS required States impose waiting periods, impose cost sharing, verify insurance status, prevent employers from changing dependent policies to shift dependents toward public coverage, and assure there is no more than 2% decline in employer-insurance coverage. See Center for Medicaid and State Operations, SMDL # 07-012 (17 August 2007) <> . This was to prevent the so-called 'crowd out' of private insurers by public programmes. See Gruber & Simon, Crow-Out Ten Years Later (NBER Working Paper No. 12858) <> . The Governors of New York and California called for withdrawal of the regulations, see 'SCHIP', 12 BNA Health Care Daily (31 August 2007). Opposing legislation has been filed in the Senate, ibid (31 September 2007), and federal suits have been filed by ten states challenging the HHS action, ibid (2 October 2007, 9 October 2007), as violating the Administrative Procedure Act.

[27] See 13 BNA Health Plan & Provider Report 847 (8 August 2007).

[28] Press Release, 'Senate Committee Hearing Opening Statement, Charting a Course for Health Care Reform: Moving Toward Universal Coverage' (14 March 2007) <> at 11 March 2007.

[29] S. 334, 110th Cong (2007): 'To provide affordable, guaranteed private health coverage that will make Americans healthier and can never be taken away.' The bill was read twice and referred to the Committee on Finance. The bill can be read at <> at 12 March 2007.

[30] An Analysis of Leading Congressional Healthcare Bills, 2005-2007: Part I, Insurance Coverage, Commonwealth Fund (2007).

[31] See 'Three Candidates on Health Care', New York Times A24 (18 September 2007).

[32] See 'Wary of Past, Clinton Unveils a Health Care Plan', New York Times Al (18 September 2007, 19 September 2007).

[33] See 'Hillary Care's New Clothes & Why Clinton Embraced Employer-Based Insurance', Wall Street Journal, A20, A12; Krugman, 'Democrats Hold the Key with Workable Proposals', New York Times (September 2007); Rove, 'Republicans Can Win on Healthcare', Wall Street Journal, A 15 (18 September 2007).

[34] See 13 BNA Health Plan & Provider Report 847 (8 August 2007).

[35] See above n 8.

[36] See A LaFrance et al, The Law of the Poor (1971); A LaFrance, Welfare in a Nutshell (1978).

[37] See generally Symposium, (2004) 32 Journal of Law, Medicine and Ethics 386, especially, Jost, 'Why Can't We Do What They Do? National Heath Reform Abroad' (2004) 32 Journal of Law, Medicine and Ethics 433.

[38] See United States Census Bureau Report, Income, Poverty, and Health Insurance Coverage in the United States: 2006, above n 6, 18.

[39] A powerful, if uncritical portrayal of the contrasts between American healthcare and that of foreign nations is provided by Michael Moore's 2007 film, Sicko.

[40] This is the approach in Massachusetts, which has gotten the most attention with its reform efforts. See below.

[41] An obvious constraint on state efforts are the limitations by Medicaid. See above n 14, as to recent expansion due to expanding state revenues. For the past two decades, 1155 waivers have commonly relieved states of these constraints, as with the Oregon Plan of prioritizing healthcare. Less obvious, and more troublesome, are the constraints imposed by the Employee Retirement Act (ERISA), which prevents states from changing or challenging health insurance companies providing employer/employee benefits. Mercifully, this subject is beyond the scope of this article. But see, HR Bill 506, introduced by Rep. Tammy Baldwin (D-Wis), providing exemptions from ERISA. 12 BNA Health Care Daily #99 (23 May 2007).

[42] See, most recently, a Kaiser Foundation study in Health Affairs (21 August 2007) <> Press Release, United States Senate Special Committee on Aging, Kohl: Medicare Part D's Low-Income Subsidy May Not Be Reaching Our Neediest Seniors (31 January 2007) <> at 12 March 2007.

[43] Ibid.

[44] Families USA, No Bargain: Medicare Drug Plans Deliver High Prices (9 January 2007) <> at 17 March 2007.

[45] Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008 to 2017 (January 2007) < & sequence=0 & From=7#tl> at 17 March 2007.

[46] See the 2008 Segal Health Plan Cost Trend Survey < survey.pdf> . As to generics, a concern that brand name drug companies will pay generic companies not to market generics, defeating cost reduction and national policy, caused the Senate Judiciary Committee to approve the Preserve Access to Affordable Generics Act in February 2007. S. 3582, 109th Congress (2005) Preserve Access to Affordable Generics Act.

[47] Families USA, above n 37

[48] Ibid.

[49] Senior Journal, Medicare Says Drug Plans are Negotiating 'Large Discounts'for Seniors: CMS disagrees with Democrats who want government to be negotiators (3 July 2006) <> at 17 March 2007.

[50] H.R. 4, 110th Congress, (2007).

[51] The so-called 'clawback' provisions. Any foreign reader of this article, or student generally of the American healthcare system, can only be appalled at the complexity and stupidity of these provisions.

[52] BlueCross, BlueShield, Inside Tennessee's Medicine Cabinet: How Much Is Enough?, A Blue Report on High Prescription Drug Use in Tennessee and its Consequences (2005) 2 <> .

[53] Ibid.

[54] The citation should be to Part D Drug Benefits: Report Says HHS Negotiation of Rx Prices for Medicare Benefit Could Save $30 Billion, BNA Health Care Daily Report (5 April 2007). Congress has consistently failed to authorise HHS to buy in bulk, at lower costs, as does the Department of Veteran Affairs.

[55] As we shall see, it is possible to combine solutions: for example, prohibitive taxes on tobacco drives down usage while raising revenue for healthcare. See below. Also, the current debate in Congress, to expand SCHIP in part by taxing tobacco illustrates the interrelationship of public health and health benefit programmes. See 'SCHIP', 12 BNA Health Care Daily (30 July 2007).

[56] US Census Bureau, 2005 Highlights <> at 17 March 2007.

[57] See Steve Greenhouse & Michael Barbaro 'Wal-Mart Memo Suggests Ways to Cut Employee Benefit Costs' New York Times (26 October 2005); 'States Are Battling Against Wal-Mart' New York Times (1 November 2004).

[58] Greenhouse & Barbaro, above n 57

[59] Press Release, President Bush Delivers State of the Union Address (23 January 2007) <> at 17 March 2007.

[60] Press Release, Statement by Senator Edward M. Kennedy on President Bush's Health Care Remarks Today (25 January 2007) <> at 17 March 2007.

[61] Health Coverage Coalition for the Uninsured, Expanding Health Care Coverage in the United States: A Historic Agreement <> .

[62] BlueCross BlueShield Association, WellPoint Unveils Plan for CoveringAmerica's Uninsured: Nation's Largest Health Benefits Provider Calls for Universal Coverage of Children, Pledges to Reach out to the Uninsured with new Products and Charitable Donations (8 January 2007) <> at 17 March 2007.

[63] Internal Revenue Service, Good Governance Practices for 501(c)(3) Organizations <> at 17 March 2007.

[64] See 16 BNA Health Law Reporter 1171, 1188, 1217 (August 2007). A similar bill, H.R. 1424, passed out of committee in the House: 12 BNA Health Care Daily (20 September 2007). It would require use of the DSM-IV manual for coverage. The cost of parity is estimated by the Congressional Budget Office as one billion in lost taxes (or 0.4%) and one billion in increased premiums. <http//>.

[65] See Report, The Impact of Guaranteed Issue and Community Rating Reforms on Individual Insurance Markets (AHIP) (9 July 2007) <> . Most recently, the California Health Facilities Financing Authority required Sutter Health to make an $8 million contribution as a condition of getting $910 million in bonding authorisation. This means that Sutter will pass along part of its savings from tax-exempt bond. The CHFFA is drafting rules for charitable service as a condition of receiving its funding. See BNA 15 Health Care Policy Reporter 480 (9 April 2007).

[66] S. 558, 110th Congress (2007).

[67] Ibid.

[68] Press Release, Governor Signs Senate Bill 116 (29 December 2006) <> at 17 March 2007.

[69] Ohio Psychiatric Association, Governor Taft Signs Ohio Parity Bill! (29 December 2006) <> at 17 March 2007.

[70] Most recently, legislation extending coverage to the mentally ill as an insurance mandate is under consideration in Texas and adopted in Washington State for Medicaid. See BNA 15 Health Care Policy Report 682, 684 (21 May 2007).

[71] 15 BNA Health Care Policy Reporter 477 (9 April 2007). However, the New York expansion of SCHIP has been rejected by HHS, because it would increase eligibility to 400% of the FPL and did not require a year long waiting period. The CMS administrator concluded private insurers might lose business. See 'SCHIP', 12 BNA Health Care Daily (10 September 2007). The State has sixty days to appeal. Other states will be watching this closely.

[72] Letter from the American Academy of Pediatrics SCHIP Reauthorization Feb 12 SCHIP Funding (Sign-On Letter) (12 February 2007) <> at 17 March 2007.

[73] The difference is significant, of course, but it does seem the continuation of SCHIP is secure. Notably, left out was an increase in taxation of tobacco to help pay for SCHIP. See 16 BNA Health Law Reporter 651(24 May 2007).

[74] 'Bush Vetoes Health Bill', New York Times, A17 (4 October 2007); Teske, 'Medicare', 13 BNA Health Plan & Provider Report 831 (8 August 2007); 12 BNA Health Care Daily (4 October 2007).

[75] Georgia Department of Community Health Report, Peach Care for Kids Enrollment Closes to New Members (8 February 2007) <,2086,31446711_31450193_75255711,00.html> at 18 March 2007.

[76] MoALPHA Legislative Updates, SCHIP Will Face Future Budget Shortfalls Unless Legislators j4rt <> at 18 March 2007.

[77] National Institutes of Health Reform Act, Pub L No 109-482 (2006).

[78] Genevieve Kenney & Allison Cook, 'Coverage Patterns among SCHIP-Eligible Children and Their Parents', 15 Health Policy Online, The Urban Institute 3 (February 2007).

[79] Ibid.

[80] Ibid 4.

[81] Ibid 5.

[82] Ibid 3.

[83] S. 401, 110th Congress (2007). See 12 BNA Health Care Daily No 12 (25 March 2007).

[84] Christopher Lee, 'Children's Health Care on Agenda: Divisions Surface as Congress Works to Renew Programme', The Washington Post (4 March 2007).

[85] See 12 BNA Health Care Daily Report No 100 (24 May 2007).

[86] See below. Most recently, the Centers for Medicare and Medicaid Services sent a letter, 17 August 2007, to the states, to the National Governors Association, and to the National Conference of State Legislators requiring states to adopt five strategies to prevent 'crowd out' of private insurers by SCHIP expansion: Center for Medicaid and State Operations, SMDL # 07-012 (17 August 2007) <> . See above n 21, 61; Iglehart, 'The Battle Over SCHIP' (2007) 357 New England Journal of Medicine 9_7.

[87] The title of this section of the article is taken from the name of one of the leading works on the subject of quality in healthcare, published by the Institute of Medicine, in 2001: Committee on Quality of Health Care in America, Institute of Medicine, Crossing the quality chasm: A new health system for the 21st century (2001).

[88] Jim Hahn, Pay-for-Performance in Health Care, CRS Report for Congress (2 November 2006). Recent reports establish that Medicare Advantage services cost the government 10 to 15% more than fee-for-service Medicare. Medicaid, on the other hand, seems efficiently served by managed care approaches.

[89] Healthgrades Patient Safety in American Hospitals (Fourth Annual Study, 2007) <> .

[90] Ibid 2.

[91] Ibid. But see, finding trends in improvement, Hospital Performance Improvement: Trends in Quality and Efficiency (2007).

[92] As to state-based clinics, see Federal Trade Commission Staff Letter, <> BNA 16 Health Law Reporter 1201 (11 October 2007). As to the impact of large numbers of uninsured on health care for those with insurance see Health Affairs, Spillover and Vulnerability: The Case of Community Uninsurance (11 September 2007).

[93] Above n 91.

[94] Above n 89.

[95] See Karen Davis et al, An Analysis of Leading Congressional Healthcare Bills, 2005-2007, Part II: Quality and Efficiency (2007) <> .

[96] Above n 89.

[97] Hospitals received 3.3% rate increases for fiscal year 2008 for meeting reporting and quality standards under Medicare's IPPS and RHQDAPU programmes < asp> .

[98] See Pay for Performance in State Medicaid Programmes: A Survey of State Medicaid Directors and Programmes (2007).

[99] 12 BNA Healthcare Daily (22 June 2007).

[100] Collaborating To Improve Healthcare Quality and Patient Safety <> .

[101] Institute for Healthcare Improvement, 100,000 Lives Campaign <> .

[102] See above n 88, 91 & 92.

[103] Above n 89. See also Press Release, Hospital infections cost U.S. billions of dollars annually, Center for Disease Control (6 March 2000) <> at 24 March 2007.

[104] Above n 100; Institute for Healthcare Improvement, 5 Million Lives Campaign <> .

[105] Andrew Hackbarth et al, The Hard Count: Calculating Lives Saved in the 100,000 Lives Campaign, Institute for Healthcare Improvement ACP Guide for Hospitals (April 2006).

[106] Institute for Healthcare Improvement, 5 Million Lives Campaign, Overview, <> at 25 March 2007.

[107] See Oregon Health Policy and Research — Policy and Analysis Unit, Compare Hospital Costs <> at 22 August 2007. Regence Blue Cross provided similar data on physicians, but was recently forced to withdraw its rankings in Washington State. The common theme is to provide in healthcare the kind of data available, say, with automobiles. Other states and the federal government provide similar data on physicians and hospitals, generating a number of court challenges.

[108] US Department of Health and Human Services, Value-Driven Health Care <> at 26 March 2007.

[109] Press Release, NCQA to Require Quality Measurement, Improvement of All Health Plans, National Committee for Quality Assurance (15 February 2007) <> at 26 March 2007.

[110] Ibid.

[111] Press Release, Governor Perdue Issues Executive Order on Health Care Transparency, US Department of Health and Human Services (12 February 2007) <> at 26 March 2007.

[112] US Department of Health and Human Services, Value-Driven Health Care: State and Local Government <> at 26 March 2007.

[113] Leslie V Norwalk, Boomers and the Budget: What Does it Mean for America's Seniors, Centers for Medicare & Medicaid Services (15 February 2007) <> at 26 March 2007. Significantly, CMS has come in for heavy criticism from provider groups for failure to adopt regulations establishing Provider Safety Organisations under Public Law 109-41. See <>

[114] CMS Report, Better Quality Information to Improve Care for Medicare Beneficiaries (15 February 15) <> at 26 March 2007. Eight regional collaboratives now participate: California, Arizona, Delaware, Maryland, Virginia, Massachusetts, Minnesota, and Wisconsin. See 'CMS BQI Project Expands', Health Management Technology (May 2007).

[115] The PMRS proposal can be found at 72 Fed. Reg 52133. As to controversy, the New York Attorney General has threatened to sue United Healthcare to prevent a physician ranking system, 12 BNA Health Care Daily (11 October 2007), because of feared inaccuracies. Privacy issues also abound in public access to physician Medicare billing/payment records with CMS. See Thorn, 'Reaction Split', 12 Health Care Daily (14 September 2007).

[116] See, most recently, Texas Blue Cross' web based rating system: Pagano, 'Quality', 13 BNA Health Plan and Provider Report 19 (6 June 2007).

[117] Employers also play an important role in the national health systems of other nations, such as Germany and Japan.

[118] See Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey <> 'Health Care Premiums', Wall Street Journal D9 (12 September 2007); Claxton & Gabel, Employer Health Benefits 2007 Annual Survey (Kaiser Foundation).

[119] Claxton & Gabel, ibid 47.

[120] Ibid 49.

[121] Ibid. See also E Richard Brown et al, Job-Based Insurance Declines for Moderate- and Low-Income Workers, UCLA Health Policy Research Brief (July 2007) <> .

[122] Statement, Washington Department of Employment Security survey results (12 February 2007) <> at 26 March 2007.

[123] Kaiser Family Foundation, Insurance Premium Cost-Sharing and Coverage Take-up (February 2007) <> at 26 March 2007.

[124] That is very much the case in the major reform efforts in California, as we shall see below. See 12 BNA Healthcare Daily (8 August 2007). Among the presidential candidates the most experienced in health care reform, Senator Clinton, would retain a place for insurers and employers, as a political reality. See n 27 above.

[125] Academy Health/Robert Wood Johnson Foundation, State of the States: Building Hope, Raising Expectations <> at 26 March 2007.

[126] Ibid 13-21; see also above n 99 as to Provider Safety Organisations.

[127] This is emphatically true of California, as developed in the next section of this article. See Siciliano, 13 BNA Health Plan & Provider Report 870 (15 August 2005).

[128] Retail Industry Leaders Association v Fielder, [2007] USCA4 8; 475 F 3d 180 (4th Cir 2007). But see Butler, ERISA Implications for State Health Care Access Initiatives (National Academy For State Health Policy, 2006).

[129] Above n 124, 5 <> at 26 March 2007.

[130] Ibid 36-37.

[131] Office of the Governor, Health Care Reform Fact Sheet <> at 28 March 2007. A useful summary appears in Julie Appleby, 'California Muscles Way Through Health Reform' USA Today 1B (30 August 2007).

[132] Ibid.

[133] Ibid.

[134] Ibid.

[135] Ibid.

[136] Ibid.

[137] Ibid.

[138] Press Release, A Comprehensive and Cost Effective Solution Proposed by Senate Republicans, California State Senate Republican Caucus (30 January 2007) <> at 28 March 2007.

[139] Health Leaders, Proposal to Cover California Uninsured Spreads the Pain <http://home. php?p = press-releases-detailed & pr=pr011007CASpecialNewsUpdate> at 28 March 2007.

[140] Above n 83.

[141] AB 1554 (2007) <> at 21 August 2007. More recently the California legislature has been considering AB 8, requiring employers to play or pay by January 1, 2009, and requiring insurers to offer 5 basic plans < bill/asm/ab_0001-0050/ab_8_bill_20070820_amended_sen_v92.html> . It was proposed on 10 September 2007, and is pending a threatened veto in October of 2007.

[142] 13 BNA Health Plan and Provider Report 982 (19 September 2007). See the draft bill at <> .

[143] For a general review of state activity, see a recent report of the National Governors Association, Leading The Way — State Health Reform Initiative (11 July 2007) <> .

[144] Press Release, Governor Spitzer delivers first state of the state address, New York State Governor, (3 January 2007) <> at 28 March 2007.

[145] Eliot Spitzer, Governor, Patients First, Speech at The Nelson A Rockefeller Institute, Albany, New York (26 January 2007).

[146] Press Release, Report Outlines Long-term Blueprint to Approach Universal Health Insurance Coverage in New York State, United Hospital Fund and Commonwealth Fund Report (19 December 2006) <> at 28 March 2007. HHS, through a CMS letter, has refused approval for New York's expansion of SCHIP, above n 61.

[147] United Hospital Find Publications, A Blueprint for Universal Health Insurance Coverage in New York <> at 28 March 2007.

[148] This is a crucial point. Any incremental change is affected by the existing base. If it is already demographically high, the chances of success are enhanced.

[149] People who pose 'high risks' of healthcare needs are often unable to get insurance. Several states have created ‘high risk' pools, requiring insurers to provide coverage, albeit at higher rates. One such state is Colorado, see 13 BNA Health Plan & Provider Report 642 (13 June 2007). Another is North Carolina, see HB 265 (2007) < & BillID=H265> . The federal government has funding for such pools, see Public Law No: 109-172 (2007).

[150] Massachusetts (185th General Court) Chapter 58 of the 2006 Acts <> .

[151] Agenda, Commonwealth Connector Policy Committee Meeting (19 January 2007) <> at 28 March 2007.

[152] 13 BNA Health Plan & Provider Report 316 (21 March 2007).

[153] Ibid.

[154] 12 BNA Health Care Policy Report 412 (26 March 2007).

[155] Pam Belluck, 'Massachusetts sets benefits in universal health care plan', The New York Times (20 March 2007).

[156] DHCFP Report, The Use of Public Health Assistance in Massachusetts in FY06: Employers who have fifty or more employers using MassHealth or the Uncompensated Care Pool <> at 29 March 2007.

[157] Retail Industry Leaders Association v Fielder, [2007] USCA4 8; 475 F 3d 180 (4th Cir, 2007). The Fielder case poses a threat not only to Massachusetts, but also, California and its reform efforts, see 12 BNA Healthcare Daily 166 (28 August 2007). To the contrary, is a paper by Patricia Butler, ERISA Implications for State Health-Care Access Initiatives (National academy for State health policy) <http:://www. state coverage. net/SCINASHP.PDF>. Essentially, it is arguable that allowing companies to choose whether or not to offer health care, under a play or pay broad-based tax system, is not a mandate prohibited by ERISA. See New York conference of Blue Cross and Blue Shield plans v Travelers insurance Co[1995] USSC 41; , 514 US 645 (1995).

[158] Ibid 183.

[159] Ibid.

[160] Ibid 198.

[161] Most recently, Massachusetts has tackled a chronic problem, free use of emergency departments of hospital, by imposing fees on those with incomes above 200% FPL. 12 BNA Health Care Daily (1 October 2007).

[162] Press Release, Healthy Connections: Health care reform to lower costs, improve quality, and increase access to coverage, Governor Pawlenty (11 January 2007) at 30 March 2007.

[163] Press Release, Senate aims to insure more people, save taxpayers money, Minnesota Senate (10 January 2007) < & id=510> at 30 March 2007.

[164] Press Release, Governor Gregoire Unveils Plan to Expand Children's Health Coverage, Washington Governor’s Office (11 January 2007) < & newsType=l> at 30 March 2007.

[165] Washington Governor's Office, Blue Ribbon Commission on Health Care Costs and Access Final Report (January 2007) <> at 30 March 2007.

[166] Press Release, Governor Bredesen's CoverKids Program gets federal approval, Tennessee Governor's Office (19 January 2007) <> at 30 March 2007.

[167] See Julie L Hudson & Thomas M Selden, 'Children's Eligibility and Coverage: Recent Trends and a Look Ahead', Health Affairs (16 August 2007) < & HITS = 10 & hits=10 & RESULTFORMAT= & authorl=hudson & andorexactfulltext=and & searchid=l & FIRSTINDEX=0 & resourcetype=HWCIT> .

[168] Lead Report, 12 BNA Health Care Daily (16 August 2007).

[169] Sara R Collins et al, 'Rite of Passage? Why Young Adults Become Uninsured and How New Policies Can Help', 26 Commonwealth Fund (8 August 2007) <> .

[170] 12 BNA Health Care Daily Report (17 August 2007).

[171] See Center for Medicaid and State Operations, SMDL # 07-012 (17 August 2007) <> . And see a state's reaction at 12 BNA Health Care Daily Report 163 (23 August 2007).

[172] See editorial in the Wall Street Journal, 'Socialized Medicine Showdown' (29 June 2007).

[173], Oregon Prescription Drug Program Enrollment Begins Thursday (6 December 2006) < 120606.php> at 30 March 2007.

[174] Prescription discount cards are now available to underinsured or uninsured Washington residents to obtain deeply discounted drugs: 15 BNA Health Care Policy Report 414 (26 March 2007).

[175] Press Release, Gov. Ritter signs first bill, creates prescription drug plan, Office of Governor Ritter (5 February 2007) <> at 30 March 2007.

[176] Ibid.

[177] Press Release, Governor Receives Blue Ribbon Commission on Dirigo Health Reform, Office of Governor Baldacci (29 January 2007) < & id=29304 & v=Article-2006> at 30 March 2007.

[178] The knowledgeable reader will recognise that two trends towards restricting coverage are not discussed here: state reductions in Medicaid pursuant to the Deficit Reduction Act of 2004 and employer reductions through so-called consumer-driven health plans (CDHP). Neither is a state initiative and each simply shifts to patients costs the consumer cannot afford, with no improvement in quality or health.

[179] In addition, many states use the techniques of managed care within Medicaid. Among these techniques are formularies restricting authorised drugs, prior authorisations of procedures and tests, concurrent review of in-hospital patients, management of chronic patient care, and the use of physician gatekeepers. These techniques slowed the growth in the costs of health care in the 1990s, but are not treated here since they are initiatives of the managed care movement of the 1980s in Medicare, at the national level. They offer hope, however, for other nations looking today to slow growth in costs or to improve efficiencies in quality of care.

[180] Medical News Today, 'Oregon Gov. Proposes Cigarette Tax Increase to Fund Children's Health Care Coverage' (2 October 2006) < php?newsid=52946> at 30 March 2007.

[181] Muskie School of Public Services Research & Policy Brief, Financing Mechanisms for State Health Insurance Coverage Initiatives: A Review of Existing State Programs (August 2006) <> at 30 March 2007.

[182] Similar efforts failed at the national level and elsewhere on the state level. See 15 BNA Health Care Policy Report 412 (26 March 2007). The states seem largely hamstrung by their adoption of the 2000 Multi State Tobacco Settlement. See A LaFrance, 'Tobacco Litigation: Smoke, Mirrors and the Public Health' (2000) 26 American Journal of Law & Medicine 187.

[183] See Committee on Quality of Health Care in America, above n 77.

[184] See above n 130 for techniques of managed care, designed to assure cost control but equally well adapted to quality assurance.

[185] Edwards v California, [1941] USSC 146; 314 US 160, 166 (1941).

[*] This article will also appear in (2007) 6 Seattle Journal of Social Justice 1.

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