States' Role in Coverage
States & Public Insurance
States play a significant role as providers of care and purchasers (e.g., through Medicaid and also by providing health insurance coverage to state employees as a large employer). They are the primary access points through which millions of individuals enroll and receive coverage through public programs each year. Both Medicaid and the State Children’s Health Insurance Program (SCHIP) are jointly funded federal-state programs that provide health insurance coverage to low-income children and certain adults. To be eligible for these programs, individuals must both meet financial requirements and fall into certain eligibility categories (e.g., children, pregnant women, individuals with disabilities, elderly) that often vary by state. Particularly during economic downturns, when people lose employment, incomes fall and health insurance is lost, these programs play a critical role as a safety net for low-income populations.
Medicaid enrollment has grown by nearly one-third since the beginning of 2001, covering many people who otherwise would have been uninsured. Medicaid and SCHIP have been responsible for the falling rate of uninsurance among children over the last few years. However, these programs have been unable to stem the decline in coverage among adults due to limited state budgets and low eligibility levels in most states for adults. State Medicaid programs are adversely affected by the confluence of rising unemployment which increases the caseload, decreasing tax revenues during economic downturns, and health care costs that continue to increase several times faster than inflation.
Medicaid spending in recent years has outpaced spending growth in other state programs and state tax revenue and no states have been spared from budget shortfalls. Medicaid spending grew from two percent in 2007 to 5.3 percent in 2008, and spending is projected to increase by 5.8 percent for fiscal year
2009.[1] This increasing growth rate is fueled by enrollment expansions driven by worsening economic times, enrollment simplification, and enrollment outreach campaigns. To counteract these increases, states have been engaged in aggressive Medicaid cost-containment activities. Some analysts have speculated that cost-containment activities, which often focus on reducing and freezing provider payments, have resulted in cost shifting to the private sector (i.e., providers increase charges to private insurers to compensate for lower payments from public programs).[2]
2009.[1] This increasing growth rate is fueled by enrollment expansions driven by worsening economic times, enrollment simplification, and enrollment outreach campaigns. To counteract these increases, states have been engaged in aggressive Medicaid cost-containment activities. Some analysts have speculated that cost-containment activities, which often focus on reducing and freezing provider payments, have resulted in cost shifting to the private sector (i.e., providers increase charges to private insurers to compensate for lower payments from public programs).[2]
In addition to state cost containment mechanisms, the Deficit Reduction Act of 2005 (DRA) imposed mandatory identity and citizenship documentation requirements for Medicaid enrollees. The provision took effect in 2006 and many states have reported it has caused difficulties in Medicaid enrollment: 30 percent of states reported that the new citizenship requirements moderately or significantly increased the time needed to determine eligibility and 22 states reported an increase in the number of applications denied.
States & The Private Insurance Market
States also play an important role in regulating their private insurance markets. In general, states regulate health insurance to protect consumers. They do so by monitoring the market conduct and financial solvency of insurers, and requiring specific benefits to be included in insurance policies.[3]
As states work toward expanded coverage, they are looking beyond the use of public programs such as Medicaid and SCHIP. Inevitably, they turn to the private insurance markets to examine how those markets are functioning and whether any changes could lower premiums, expand choice of plans and products, or increase efficiencies. Any changes made to insurance markets are complex, and can have substantial impacts, as a change implemented in one part of an insurance market may have unintended consequences in other areas of the health care system.
While states are pre-empted from regulating those employers that are self-insured, they still are able to monitor and regulate their non-group, small-group and fully-insured large group markets. States have varying insurance markets and regulatory structures which impacts how they improve access, prohibit or restrict the ability of insurers to charge higher premiums based on factors such as health status or the risk of having future medical claims (rating), and establish standards for conditions and treatments that health policies are required to cover (mandated benefits).[4]
States are constantly grappling with how revisions to insurance market rules can improve access and decrease costs. Some insurance market reform strategies currently under discussion include implementing a minimum insurance medical loss ratio (i.e., the percentage of the premium dollar that a health plan must spend on medical care versus administrative costs, taxes, and profit); various rating requirements (including guaranteed issue, modified community rating, and medical underwriting prohibitions); changing the definition for commercial insurance of dependents and extending coverage beyond the age of 18 for students and non-students; the merging of the non-group and small group markets; individual and/or employer mandates; efforts to find savings through administrative simplification and standardization; establishing Connector-like purchasing mechanisms (like Massachusetts); and requiring employers to offer Section 125 plans.
States recognize that more than 80 percent of the uninsured are workers or members of families with at least one worker that often work in small firms that are less likely to offer health insurance. Consequently, aassisting small employers with providing health insurance has been a focus for numerous reforms at the state level. Between 2005 and 2008 at least ten states enacted new programs to improve or increase coverage in the small group market.
[1]Smith, Gifford, et al, Kaiser Commission on Medicaid and the Uninsured, report 7815, Headed for a Crunch: An Update on Medicaid Spending, Coverage, and Policy Heading Into an Economic Downturn, Kaiser Family Foundation, 2008.
[2]Ibid
[3]United States General Accounting Office. “Health Insurance Regulation: Varying State Requirements Affect Cost of Insurance,” August 1996
[4]Kofman, M., and K. Pollitz. "Health Insurance Regulation by States and the Federal Government: A Review of Current Approaches and Proposals for Change. April 2006.
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