The 2010 State of the States, “The State We’re In,” describes a tumultuous year for states. They faced a historic recession that caused dramatic deficits in almost every state. Most enacted across-the-board cuts, hiring freezes, and furloughs. Every state program has been under scrutiny. At the same time, important federal legislation provided critical support to states. The reauthorization of the Children’s Health Insurance Program (CHIP) gave new incentives to states to expand outreach and coverage for kids and families. The American Recovery and Reinvestment Act (ARRA) increased the Federal Medical Assistance Percentages (FMAP), giving an $87 billion boost to state revenues. ARRA also included the Health Information Technology for Economic and Clinical Health (HITECH) Act, which bolstered states’ roles in the effort to spread the meaningful use of health information technology throughout the U.S. health care system.
Throughout the year, the debate over national health reform had many states in a wait-and-see mode, unsure how their reform plans might be impacted by any eventual federal legislation. Nonetheless, as has been a recurring theme in this annual report, states made many strides forward despite the challenges they faced in 2009. “The State We’re In” tells the story of several states that “stayed the course” on a policy improvement trajectory despite the uncertainty of 2009. For example, Oregon passed comprehensive reform in 2009, completing a policy-development process that was set in motion by the 2007 legislature. Vermont’s two Blueprint pilot sites matured while the State prepared to launch a third site in January 2010, continuing work that began in 2006 with the passage of comprehensive reform. In Massachusetts, commissions and councils made recommendations for a new direction in how care is delivered and paid for in response to 2008 legislative directives.
“The State We’re In” also addresses trends in state health policy. It tells the story of how states protected Medicaid during tough times and increased coverage rates for children through CHIP—a bright spot in the overall coverage picture over the last few years. It also details how states responded to a long trend of falling employer-sponsored coverage with insurance reforms aimed at the small group and individual markets, particularly experimenting with exchanges and other ways to better organize the market; how states responded to rising costs through efforts at delivery system reform; and how they focused on improving care coordination and on multi-payer initiatives to reform payment.
Following are the key sections of “The State We’re In.”
This section analyzes trends in health care cost and coverage. For the second year in a row, states faced a bleak financial landscape in 2009. The cost of health coverage continued its steady climb, while employer-sponsored coverage fell. While the full impact of the recession on employer-sponsored coverage (and overall rates of uninsurance) remains to be seen, state revenues declined just when demand for services rose.
Medicaid and CHIP States received significant help from the federal government during 2009 in the form of an increased FMAP. This came with the requirement that states maintain Medicaid eligibility levels, causing many states to repeal or cancel planned cuts.1 States also reacted to incentives in the Children’s Health Insurance Program Reauthorization Act (CHIPRA). Eighteen states expanded eligibility for CHIP in 2009 and numerous states improved their outreach and enrollment efforts. The coverage expansions of Iowa, Oregon, and Colorado are highlighted along with the outreach and enrollment efforts of several states including Wisconsin.
Insurance Reform Several states focused on improving the functioning of the small group and individual markets. Exchanges were a hot topic in the national debate, and a handful of states—including Maine, Oklahoma, Oregon, Utah, Washington and West Virginia—enacted or made progress on a version of an exchange at the state level. (These are in addition to Massachusetts, which incited interest in this concept by creating a Connector as a part of its 2006 comprehensive reform.) Implementing an exchange was one way these states could improve the functioning of their insurance market without spending significant resources. These states may be well-positioned if federal reforms include a state-based exchange.
Rhode Island is catching the attention of state insurance commissioners with an innovative new approach to health plan oversight. Rhode Island’s Health Insurance Commissioner, working with the carriers and an advisory board, developed standards to improve affordability in that state. This tactic is a significant departure from typical carrier regulation, which primarily oversees financial solvency, consumer protection, product design, and rating requirements. One such affordability priority requires health plans to increase their investment in primary care; carriers will steadily redirect some of their spending to this area without increasing overall premiums. The state is working with carriers to track their investments and study the impact of reform.
Delivery System and Payment Reform The rising cost of health care continues to be a major struggle for states. Health care costs have been absorbing an increasing portion of state budgets through the Medicaid and state employee insurance plans. After years of effort to control costs in state budgets, many state health policy officials have begun to recognize that they cannot reform the health system alone. Consequently, many states (including Vermont, Minnesota, Washington, and Pennsylvania, to name a few) have begun to lead multi-payer efforts to improve primary care and increase care coordination. States are also emphasizing price and quality transparency, consumer engagement, and public health. While a few leading states have already paved the way in the area of health information technology (HIT), new legislation from the federal level has brought increased focus on this issue in every state. The states to watch are those establishing an HIT infrastructure that promotes the exchange of health information, assists all types of providers in the adoption of high-quality electronic medical records, and creates opportunities for training and education.
“The State We’re In” is being published during a time of great uncertainty for states; federal reform is still under consideration and the state role in implementing proposed changes is not yet clear. If comprehensive or incremental federal reform passes, it will surely impact state public programs, insurance markets, and delivery and payment systems. Tremendous intellectual and financial resources would be needed to implement the types of sweeping reforms that are being contemplated. States also continue to face economic uncertainty; while the economy appears to be improving, is it unclear how quickly employment levels and state revenues will recover. More cuts are likely to be necessary and many states are already operating with very limited resources.
Even in a challenging environment, states continued to show leadership in 2009. Indeed, the financial strain has forced states to be resourceful. At a time when all eyes are on the federal government, policymakers would still do well to look at the examples of leading states. We believe “The State We’re In” is a valuable resource to that end.
Surveying the Landscape
While the prospect of federal health reform loomed for the better part of 2009, states worked to protect the safety net in the face of some of the worst state budget deficits in recent memory. The dire state of the economy put a damper on most state attempts to expand coverage, although there were a few success stories, both comprehensive and incremental in nature. Throughout the year, high unemployment, lagging wages, and troubled state budgets reminded all too many Americans of the often precarious nature of the nation’s health coverage system.
In light of the national recession, state officials worry that much of the progress made during recent years could be threatened by severely strained state budgets. Two key federal-level measures have helped to mitigate this concern: first, the Children’s Health Insurance Program Reauthorization Act (CHIPRA), which strengthened the Children’s Health Insurance Program (CHIP) in February and, second, the American Recovery and Reinvestment Act (ARRA), signed in February by President Obama.3,4 CHIPRA has aided states in increasing coverage to children and pregnant women through both Medicaid and CHIP.5 ARRA allocated $140 billion in overall fiscal relief for state governments to help balance their budgets and minimize cuts to public services—with $87 billion directed to a temporary increase in the federal share of Medicaid costs from October 2008 through December 2010.
This section uses a range of data sources to explore the current landscape and discuss some persistent trends. Given that data sources typically lag current conditions by a year, the numbers do not paint a true picture of today’s reality—particularly when it comes to the rates of uninsurance. In this section, various facets of the nation’s struggling economy are examined within the context of previous trends and with an eye toward their potential impact.
In a reversal from the decline of uninsured people seen in 2007, the number of people without health insurance rose from 45.7 million in 2007 to 46.3 million in 2008. The uninsured rate increased from 15.3 percent to 15.4 percent; however, that change is not statistically significant.8 While the decline in the number of uninsured in 2007 was an anomaly in the midst of a steady upward trend in uninsurance, the increase in the number of people without health insurance in 2008 partly reflects the initial effects of the recession, along with the long-term trend of a steady erosion of employer-sponsored coverage. Nearly 6.6 million more people were uninsured in 2008 than in 2001, when the previous recession was at its worst.
Undoubtedly, the 2008 uninsured data do not reflect the true toll of the recession,9 given that the unemployment rate has grown substantially over the last year, from 7.6 percent in January 2009 to 10.0 percent in December 2009.10,11 The worsening economy and rising unemployment numbers will likely mean a significant increase in the number of uninsured in 2009.12
The recession intensified the loss of health insurance nationwide in 2008, but the percentage of Americans without health insurance has been on a near constant rise since 2001 as employer-sponsored coverage has gradually eroded.Yet,the overall percentage of people without insurance remained constant in 2008 because the decrease in employer-sponsored insurance was offset by increased enrollment in public insurance programs.
The 2008 Census data also reveal a growing lack of health insurance, or adequate health insurance, across a number of sub-populations, as well as ongoing variation in the uninsured rate by race. Minorities remain much more likely to be uninsured, with almost one-fifth (19.1 percent) of African-Americans and nearly one-third (30.7 percent) of Hispanics uninsured last year. This is relative to an uninsured rate of 17.6 percent for Asians and 10.8 percent for non-Hispanic whites. However, the percentage of people without health insurance is increasing fastest among non-Hispanic whites.
Another growing problem is high out-of pocket costs relative to income that leave many people effectively underinsured. The Commonwealth Fund estimates that, in 2007, there were 25 million underinsured people— representing a substantial increase from 16 million in 2003. The ongoing increase in the number of uninsured and underinsured has serious financial and health consequences for families across the country and underscores the need for a national health care reform plan to assist people in meeting their medical needs during a time of slow income growth and rising health care costs.
The story of employer-sponsored health insurance, as of late, is one without surprises in that the slow erosion of employer-sponsored coverage continued in 2008, as did the steady increase in average premiums. Most non-elderly people (61.9 percent) were covered by an employment-based health insurance plan for some or all of 2008, down from 62.9 percent in 2007 and 67.0 percent in 2001.17 Family premiums rose about 5 percent in 2009, which is much more than general inflation and stands in contrast to the 3.1 percent rise in workers’ wages. Since 1999, family premiums have increased by 131 percent, workers’ wages are up 38 percent, and inflation has been 28 percent. Drew Altman, the Kaiser Family Foundation’s President and CEO, suggested that this sort of imbalance goes far in explaining why we are having a health reform debate because “when health care costs continue to rise so much faster than overall inflation in a bad recession, workers and employees really feel the pain.”
A positive aspect of the 2008 data is that the number of uninsured children declined from 8.1 million (11 percent) in 2007 to 7.3 million (9.9 percent) in 2008. The number of uninsured children fell by more than 800,000 from 2007 to 2008 due to an increase in Medicaid and CHIP coverage which more than offset declines in employer-provided health insurance among children. In 2008,
1.7 million children were newly enrolled through Medicaid or CHIP.
In spite of state budget deficits, the vast majority of states have managed to hold steady on children’s health coverage and almost half implemented changes or enacted legislation to increase the number of children and families receiving health coverage through Medicaid and CHIP. Today, all but three states provide or have adopted plans to provide coverage to children with family incomes up to 200 percent of the federal poverty level (FPL). While CHIPRA and the economic recovery package have assisted states in their coverage expansion efforts for children, there are still 7.3 million U.S. children who remain uninsured.
States Continue to Flounder Under Recessionary Pressures
States continue to experience substantial fiscal distress. At the start of the 2010 fiscal year, the combined estimate of the budget gap for fiscal years (FY) 2009 and 2010 was more than $350 billion. The roughly $140 billion in federal fiscal relief provided by ARRA managed to reach states quickly and proved critical in helping address budget shortfalls, preserve Medicaid eligibility, and temper spending cuts.23 The recovery package continues to assist states in this manner, but many state officials still expect that they will have to make budgets cuts in FY 2011.24
Presently, the state revenue situation is bleak. Many states depend heavily on sales taxes for state revenue but this is not a reliable source of funds during a recession, as both personal consumption and business purchases are decreasing. States are faced with a substantial decline in revenue, and continued job losses will depress revenues still further. At the same time, more people are finding themselves and their families without employer-provided coverage and therefore are turning to public programs like Medicaid and CHIP for health coverage.
Demand for Medicaid Grows
Financed by both the federal government and the states, Medicaid provides comprehensive health and long-term care coverage to 60 million low-income Americans. While some recent economic indicators show that the recession is coming to an end, any impact on unemployment rates with their related increases in Medicaid enrollment will lag behind other improvements in the economy.
Enhanced federal Medicaid funds provided through ARRA included an estimated $87 billion for a temporary increase in the federal share of Medicaid costs. In order to qualify for these funds, states were not permitted to restrict their eligibility levels or enrollment processes. Due to this requirement, 14 states reversed and 5 states abandoned plans to restrict eligibility. Medicaid spending and enrollment growth accelerated in FY 2009 and FY 2010 due to effects from the recession. Enrollment growth was also higher than in previous years; the average increase in FY 2009 was 5.4 percent, and an additional 6.6 percent is predicted for FY 2010. With the increased caseload, total Medicaid spending growth averaged 7.9 percent in FY 2009. This was the highest rate of growth in six years.
Medicaid ARRA funding began in October 2008 and ends December 2010. Given this timeframe, states are worried that they will have to cut back on Medicaid eligibility if the supplemental funding is not extended. States are already considering this deadline because they are legally required to balance their 2011 budgets by July 2010. While at least 48 states addressed or are facing budget shortfalls for fiscal year FY 2010, 39 states have already looked ahead and foresee deficits for the fiscal year.
In 2009, state fiscal assistance from ARRA was instrumental in somewhat alleviating both state budget cuts and state tax increases. It has allowed states to close 30 to 40 percent of their state budget gaps, which in turn has preserved hundreds of thousands of jobs and prevented further distress to the national economy.
Economic forecasters have worked to determine the extent to which budget cuts and tax increases at the state level will negatively affect the economy. Estimates show that state deficits for FY 2011 will total at least $180 billion, with about $40 billion of ARRA funding likely available to states in the same fiscal year. The remaining $140 billion deficit in FY 2011 is projected to equal about 0.9 percent GDP, which could cost the economy about 900,000 jobs.30 With this loss would come a rise in the uninsured and thereby a greater demand for public health insurance programs, such as Medicaid.
In the area of Medicaid, the President’s Council of Economic Advisors has found a strong relationship between the fiscal relief funding provided through state Medicaid programs and the retention of jobs over the last year. There is great concern that the majority of states will be unable to maintain current income eligibility levels when Medicaid fiscal relief from ARRA ends during the middle of the states’ fiscal year on December 31, 2010. If states cannot soon expect that they will receive more fiscal relief, then they will have to start making plans for budget cuts and tax increases to take effect in FY 2011.31 While federal plans for state fiscal relief in FY 2011 is one major uncertainty for states, the other major uncertainty is the many different aspects of what will be expected from states if federal health reform legislation passes.
While state Medicaid officials are generally supportive of an expanded role for Medicaid as one approach to expanding health coverage to more people, states have serious concerns about their ability to take on the fiscal and administrative burden that could potentially be placed on them.
For states, 2009 has been a year truly unlike any other in history. They entered the recession with the largest reserves on record and since then have experienced an unprecedented decline in revenue. In the midst of this, most states have put on hold any plans for state health reform as they look to what will come of federal health reform legislation.32 States will potentially need to transition from coping with budget shortfalls, to swiftly—in partnership with the federal government—taking on new challenges and responsibilities.
