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Health-Care Reform: Similar States, Different Views

Twenty-nine-year-old Samantha Brooks has a health problem: She just got a job. In October 2008, Brooks went into the hospital for an emergency gall bladder operation....

Twenty-nine-year-old Samantha Brooks has a health problem: She just got a job.

In October 2008, Brooks went into the hospital for an emergency gall bladder operation. At the time, she was working at an animal hospital that didn't offer health insurance, which resulted in a $36,000 bill when she left the hospital. By the time she was back on her feet six months later, her old job was gone.

In Brooks' hometown of East Brewton, Ala., a town of 2,400 that sits atop the westernmost portion of the Florida Panhandle, jobs are in short supply. Nevertheless, she recently found a part-time position delivering auto parts. That's when the trouble started. Alabama is generous about providing health care to low-income children. Brook's two children - a 12-year-old with Down syndrome and a 9-year-old with serious asthma - are covered in two ways: by the state Medicaid program up to 100 percent of the federal poverty level and by the state's ALL Kids Children's Health Insurance Program up to 300 percent of the federal poverty level. But the state is less generous with low-income parents: A parent with two children ceases to qualify for Medicaid when her income exceeds $164 per month (although income offsets can raise the threshold to $300 per month).

"When you work one day a week, you don't qualify for Medicaid," says Brooks bitterly. While she hopes to go full-time soon, her new employer doesn't offer health insurance, and she doubts she'll be able to afford a private health insurance policy.

Brooks isn't alone. Between 2007 and 2008, the most recent years for which data are available, some 1.2 million Alabamans - 30 percent of the under-65 population - went without health insurance for at least part of the year. Two-thirds of that population lacked coverage for six months or longer. The recession has made matters even worse: Dr. Marsha Raulerson, the Brooks' family pediatrician, says she sees the health problems of her patients' parents virtually every day.

"If you lose a job, if you get a chronic illness, you're in trouble," says Raulerson. But that may be about to change.

After more than a half-century of failed attempts, health-care reform is finally at hand. With it comes the certainty of sweeping changes to state health insurance markets, state Medicaid programs and state-federal relations. For people like Brooks, health-care reform holds out the prospect of affordable, subsidized health insurance. But many state officials, Alabama Medicaid Commissioner Carol Steckel among them, see something else - a fiscal calamity.

"They're doing health-care reform on the backs of the states," says Steckel, "and at a time like now, it's just impossible. We cannot do it."

Indeed, the outlook is so dire that officials in Alabama say they're considering "the nuclear option" - withdrawing from the Medicaid program altogether.

That's not how New Mexico Medicaid Director Carolyn Ingram sees things. Like Alabama, New Mexico is a relatively poor state. Its unemployment rate is lower than Alabama's, but its uninsured population is even higher - 23 percent versus Alabama's 12 percent. Only Texas has more uninsured. Yet what Steckel sees as a fiscal disaster, Ingram sees as an economic boon.

"We shouldn't worry about five years from now," says Ingram, instead focusing on the new federal dollars that will pour into New Mexico as a result of health reform. "In New Mexico, we're going to get a tremendous match," Ingram says. The result, she believes, will be a second fiscal stimulus that will help jump-start stalled state economies.

It's easy to attribute these very different reactions to differing political affiliations. Steckel serves under a Republican, Gov. Bob Riley; Ingram works for a Democrat, Gov. Bill Richardson. Yet it would be a mistake to attribute the strikingly divergent reactions of Alabama and New Mexico merely to partisan politics. Rather, talking to state officials brings to mind the old story of the group of blind men feeling an elephant. Each describes what they feel and characterizes the whole accordingly. But to capture health-care reform in its entirety, it helps to put different accounts together. Doing so provides a more thorough account of health-care reform's promise - and its perils. It also uncovers a surprisingly broad agreement on where health-care reform's greatest possibilities lie and on what steps are necessary to achieve them.

In the corner of Steckel's spacious office suite stands a blow-up version of Edvard Munch's famous painting The Scream. That pretty much captures Steckel's feelings about health reform.

Steckel's primary concern centers on the bill's cost - and on states' loss of discretion. States currently enjoy considerable leeway in determining who qualifies for Medicaid. While certain populations, such as the disabled and institutionalized, and low-income pregnant women with children, must be covered, states are free to set eligibility levels for low-income families at an extremely low threshold - and states in the south and west generally have. Maine, Minnesota and New Jersey have been more generous: They cover working parents who earn up to (or even slightly more than) 200 percent of the federal poverty level. A few have even gone further. Arizona, Massachusetts, New York and Vermont have received permission from the federal government to offer coverage to the poorest childless adults.

Health reform ends that discretion. Instead, all states will be required to expand eligibility to at least 100 percent of the federal poverty level for childless adults. The scope of this expansion is huge. According to the Kaiser Family Foundation, Medicaid funded services for 59 million people in 2008. Expanding access to adults earning up to 100 percent of the federal poverty level would add another 10 million to 14 million people to the program. That worries Steckel.

"We are already seeing about 5,000 new [Medicaid] recipients every month," Steckel says, and while most of the new enrollees are low-cost children, "it's still an added cost to the budget." Worse, given the fact that it typically takes a year after job growth resumes for people to leave Medicaid, it's a cost that shows no sign of diminishing anytime soon. Steckel estimates that the cost of Medicaid expansion could approach $400 million. In a state Medicaid budget of $1.2 billion, that's a big figure.

It's also a bit misleading, since the federal government will pay the full cost of Medicaid expansion for at least the first three years. After that, the federal match rate for the additional costs of covering the uninsured will rise to at least 90 percent. (Normally the federal government covers 68 cents of every dollar on Medicaid spent in the Alabama, with the state government covering the remaining 32 cents out of its general funds.) But Steckel worries that Alabama won't be able to handle even 10 percent of the new additional costs.

She also believes that health-care reform proponents are underestimating health reform's administrative costs. Not only will state Medicaid programs have to develop new systems for tracking and determining eligibility for expanded benefits, they must also develop linkages with another important new aspect of health reform: the health exchanges where small businesses and individuals will be able (if all goes according to plan) to purchase private insurance policies.

"All of that interaction is going to be very expensive," says Steckel. Most states, including Alabama, have decades-old eligibility systems built on legacy computer code. At the traditional administrative match rate of 50/50 (where states split administrative costs with the federal government), Steckel notes that the IT upgrade costs alone could add up to "hundreds of millions of dollars a year, plus staff time" - and that's assuming there are staff. Agencies in many states currently are dealing with large-scale layoffs and furloughs. Even consultants may not be much help. In state health IT circles, there's a lively debate about whether enough consultants exist to help 50 states, more or less, simultaneously upgrade eligibility systems and launch exchanges.

While Steckel sees a costly slog to upgrade eligibility systems, there's one aspect of IT associated with health-care reform she's bullish about - namely the move toward electronic health records.

"What's exciting is that, for the first time in a long time, there is a lot of money to do this," says Steckel.

Alabama is already moving to expand quality improvement software it developed with a Medicaid transformation grant into a more robust electronic health record. Steckel also is enthusiastic about a provision in the 2009 American Recovery and Reinvestment Act package that will provide funding for regional health extension centers. These centers will serve as on-the-ground consultants who do the essential work of helping providers adopt electronic health records and improve their practice flow. The fact that Medicaid, ALL Kids (Alabama's children's health insurance project), and Blue Cross Blue Shield (the dominant private health insurance company) already cover 97 percent of the state's insured population should make coordination if not easy, then easier than it is in many states.

On the whole, though, "easy" is not a word that figures in Steckel's assessment of the coming changes.

"Do I want people to have health insurance? Absolutely," she says. However, she wishes that a more modest approach of incentives for small businesses and pooling had been tried instead. "The way we are going about it [now], this is going to be a full employment act for lawyers. We'll be fixing what's wrong for the next 10 years."

From her vantage point in Santa Fe, New Mexico Medicaid Director Ingram looks out onto a surprisingly different world. Like Alabama, New Mexico is a low-income, high-uninsured state. Like Alabama, New Mexico is caught in a painful fiscal crunch. But whereas Steckel sees health-care reform as a destructive new mandate, Ingram sees it as a tremendous boost to the state economy. Those providers, in turn, will have more money to spend in ways that benefit New Mexico's economy. Ingram points to a study conducted by the advocacy group New Mexico Voices for Children that found that each dollar spent by New Mexico on Medicaid generated $2.90 in federal Medicaid funds, which in turn generated an additional $2 in extra economic activity as the spending rippled through the economy, ultimately creating a combined "multiplier" effect of $4.90.

"In some ways, federal health dollars are a good stimulus," agrees University of Southern California economist Dana Goldman. Although it's not the most efficient way to generate consumer spending, "it does have a ripple effect, and most of the money stays in-state," he says. "It isn't like a tax cut that can just be spent by consumers on products from China."

Ingram also hopes health-care reform will help with other, more localized problems. One factor behind New Mexico's high-uninsured rate is the state's large American Indian population, which accounts for almost 10 percent of the state's population. Many American Indians, particularly those living on reservations, aren't familiar with the need for health insurance, relying instead on care provided by the U.S. Department of Health and Human Services' Indian Health Service (IHS). Yet IHS's offerings are limited. American Indians who could benefit from more specialized care outside IHS can't afford it.

State officials hope that the individual mandate imposed by health reform, which will require everyone to have health insurance or pay a fine, will finally do what previous efforts have not: bring health insurance to the reservation.

Despite fundamental disagreements on some issues, there's one issue on which Alabama and New Mexico agree - namely, that the Centers for Medicare and Medicaid Services (CMS), the federal agency that controls the purse strings for both Medicare and Medicaid, is listening as never before. Since late last summer, Cindy Mann, the director of CMS's Center for Medicaid and State Operations, has been meeting regularly with a diverse working group of state officials, from states Red and Blue, large and small, to work through the implications.

State Medicaid officials are unanimous in praising Mann's attitude, which they describe as a notable and welcome shift from the George W. Bush administration's approach.

Mann has done "an extremely good job of opening lines of communications," Steckel says, and of taking state concerns to Congress during the drafting process. And if people like Samantha Brooks are to benefit from health-care reform, that collaboration will become even more important in the years ahead.

"I hope so, I really do," says Brooks, when asked if she wants to see health-care reform realized. But she still worries that even a more generous, post-health reform insurance market will be a reach for single parents in her situation.

"I just hope [that when it happens], I can afford to get it."

John is a Governing correspondent covering health care, public safety and urban affairs.
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