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Reform

Policy Position

HR-32. Health Care Reform Policy

This policy represents general consensus among the Governors, although additional discussions are necessary to refine the details. Governors and staff will continue to work with the President, the Secretary of the U.S. Department of Health and Human Services, the congressional leadership, and other key stakeholders in order to make these refinements.

32.1 Preamble

Governors traditionally have been the initiators of change and states have been the incubators of progressive ideas. Helping families move from welfare to work, expanding health care coverage to children outside the Medicaid population, and developing prescription drug programs for seniors are just a few examples of the innovations of states. Governors have been diligent in their efforts to maintain an appropriate balance between being strong partners with the federal government and being effective advocates and activists for the concerns of their states' citizens. Properly positioning themselves between these two points has given Governors the ability to succeed in uncharted territory. One example is health care.

Governors have heard their constituents' calls for affordable, accessible health care. They also have heard the need to be wise stewards of the public's money in reaching that goal. The nation's Governors have worked persistently to manage current programs and most have attempted to broaden coverage to those without affordable access. With that frame of reference to guide them, the Governors are currently assessing the entire health care system to find ways to improve its efficiency, quality, and accountability.

Americans obtain health insurance through Medicare, Medicaid and the State Children's Health Insurance Program (S-CHIP), as an employee benefit, and by purchasing individual coverage. The health care system is endangered by unsustainable increases in medical costs, burdensome program requirements, and counterproductive incentives.

32.2 Goals

Governors have identified a number of short-term and long-term reforms designed to realize these goals. Some of the longer-term reforms, such as improving Medicare, re-examining pharmaceutical coverage, and establishing the priorities for chronic care and long-term care may take months - or even years - to enact. However, we have identified a list of short-term achievable goals that could produce immediate improvements in the provision of health care. The long-term reforms are an equally high priority for Governors, but we recognize that more targeted reforms have a stronger likelihood of immediate passage.

The primary goals of the short-term reform effort are to:

• stabilize the current program; 
• obtain maximum flexibility for states to manage optional populations and benefits while maintaining a guaranteed commitment to vulnerable populations; 
• require the Health Care Financing Administration (HCFA) to collaborate with, rather than dictate to, states; and 
• give states the tools and incentives to allow them to expand coverage to the uninsured.

While other improvements are also necessary, these are the reforms that are essential so that insured individuals continue to receive necessary health care and uninsured individuals may be able to obtain the coverage they need.

32.3 Reforms

32.3.1 Rules. Since the new Administration has delayed implementation of the most recently released regulations, the nation's Governors want to ensure that all of these regulations are reviewed carefully to reflect the concerns that we have expressed as an organization. Many hours of research and discussion were spent in developing our positions and outlining the areas that states anticipated as potential problems. We are interested in working with this Administration - as we have with past Administrations - in developing solutions together so that we can reach our mutual goals for a healthier America.

32.3.2 HCFA. It is essential to have a collegial and cooperative mindset between the states and HCFA. HCFA must acknowledge the unique role of states as funders and administrators of the Medicaid program rather than treating states as merely one of many stakeholders. For example, states need to have more options in running their programs, and HCFA needs to be more timely and responsive in working with states. Many states will not be able to continue their current optional programs without some regulatory relief. States are trying to operate programs that benefit people but they need the flexibility to operate programs in a cost-effective way. Many states are experiencing budget problems with their Medicaid programs and with their waiver programs. With enough flexibility, not only will states be able to continue to serve mandated populations, but they may be able to expand the base programs to provide health care coverage to others who do not have affordable access to it.

In order for Medicaid and S-CHIP to truly operate as state-federal partnerships, several changes are necessary in terms of the state plan amendment process, the waiver process, and also in terms of general communication and cooperation.

HCFA needs to be much prompter in reviewing and approving waivers and amendments to waivers and to state plans. The review also needs to be more limited.

• State Medicaid Director letters and regulations that undermine state flexibility should be reviewed to see if they are necessary and serve a constructive purpose. The entire process should be improved with an eye towards greater communication and partnership between HCFA and the states. 
• HCFA should approach regulation of managed care with some sensitivity. The managed care approach in many cases has helped states maintain programs and expand coverage. If the bar is raised significantly higher for requirements for managed care programs than it is for fee-for-service programs, the states risk the loss of commercial managed care entities willing to participate in the program. HCFA should also recognize that managed care can be a tremendous benefit for individuals with special health care needs as it provides for better access to targeted services and coordination of care than the fee-for-service system. 
• There should be much better coordination and communication among program jurisdictions within the U.S. Department of Health and Human Services (HHS) but also across federal agencies as well. Just as better coordination between Medicare and Medicaid can improve health care for frail seniors, better coordination between HCFA and the U.S. Department of Education can improve health care and education for children with disabilities in our schools. 
• A more limited review and approval process should be adopted instead of the current Medicaid state plan and waiver review processes. This would help prevent lengthy delays and unnecessary bureaucratic entanglements. The state plan approval authority of the Secretary of HHS should be limited to certification that the plan includes all of the elements required by federal law. HCFA should continue to provide appropriate oversight for programs providing mandatory services to mandatory populations.

32.3.2.1 State Plan Amendment Process. States must be allowed wide latitude in submitting plan amendments. To the extent possible, the statute should be amended to allow innovative options without waivers. Beyond that, the following changes would improve the state plan amendment approval process.

• There should be a non-negotiable 45-calendar day period for HCFA to act; otherwise the plan amendment is approved automatically. There should not be an opportunity for HCFA to "stop the clock" on amendment applications. 
• Federal funds should be available for the quarter starting with the submittal date. 
• To prevent lengthy delays, the structure should limit the secretary's state plan approval authority to certification that the plan includes all of the elements required by federal law. 
• States should be allowed wide authority to determine reimbursement methodology for providers. 
• States should have wide latitude to self-certify their plans for optional services or optional beneficiaries.

32.3.2.2 Waiver Approval Process.

• Initial approval periods for all waivers should be five years. 
• All waivers should become a part of the regular state plan after the initial period if the state has met the terms and conditions or goals of the waiver. 
• There should be a non-negotiable 60-calendar day period for HCFA to act; otherwise the waiver or waiver amendment should be approved automatically. There should not be an opportunity for HCFA to "stop the clock" on waiver applications or not act in a timely manner on waiver amendments. 
• The waiver application should contain certifications of state plans for the following areas: quality control, access, and appeals. States should be ultimately accountable and responsible for these measures. 
• "Budget neutrality" must be redefined so that savings across federal programs can be recognized. At the very least, savings in programs throughout the Social Security Act should be considered together. For more innovative programs, such as those for the working disabled, savings or even federal revenue gains should be considered.

32.3.3 Medicaid Improvements. We believe it is essential that states be given the tools they need to stabilize their current Medicaid programs and to initiate and continue programs designed to broaden the span of health care coverage available in our communities. States should be able to determine, however, which approach best fits the needs of their citizens and their ability to pay. These reforms are intended to apply to the Medicaid program and not to S-CHIP.

This includes reforms in the Medicaid program as it applies to the U.S. Territories in order to increase federal funding for the legitimate and unique health care needs of the people of the U.S. Islands. For Americans in the Pacific and Caribbean territories, disparities in the health care system are due in large part to the cap on federal funding for the Medicaid program and the inequitable treatment of the territories in the determination of their federal match.

This also includes the principle that states who have "gotten ahead of the curve" with innovative reforms and expansions should not be penalized by maintenance-of-effort provisions.

32.3.3.1 Greater Financial Flexibility. States are having increasing difficulty in simply maintaining the fiscal integrity of current programs. This is particularly true in states that have expanded significantly beyond the traditional base program and are now having to react to higher rates of increase in inflation and utilization.

• States should be allowed to develop appropriate cost-sharing arrangements from non-mandatory eligibility groups and use these revenues to offset the state cost of program benefits.

32.3.3.2 Restructure "All-or-Nothing" Approach of Medicaid. The Governors believe that the current "all-or-nothing" structure of the Medicaid program should be restructured to provide greater flexibility with regard to Medicaid options. This would include giving states greater ability to design benefit packages for optional populations. The Governors are committed to honoring the commitment to maintaining the health care safety net for vulnerable populations. However, states should have more flexibility with optional benefits and optional populations.

The Medicaid program should be reformed to create three categories of coverage.

Category 1 - Core Vulnerable Populations (mandatory). Governors recognize that Medicaid provides a valuable role as a safety net for vulnerable populations and that the guaranteed entitlement to eligibility and benefits for this group should not be threatened. The federal government has essentially already defined this core group by establishing minimum standards below which no state is permitted to go. Therefore, for all of the populations covered under the federal minimum standards, states would guarantee both eligibility as well as the federal minimum requirements with respect to benefits.

No cost-sharing responsibilities on mandatory benefits for any individual in this category would be required. States would be permitted to impose reasonable cost-sharing on a sliding scale basis for optional benefits. States would receive the regular federal match for all services provided to individuals in this category.

For Categories 2 and 3 below, more discussion is needed on the issues of populations, benefits, and cost-sharing.

Category 2 - Additional Core Populations (state option). Beyond the minimum guarantees established in Category 1, many states may wish to also guarantee eligibility and benefits for additional populations. At state option, states should be able to expand these guarantees to all individuals (regardless of category) up to a certain percentage of the poverty level. For all individuals in this category, states must provide a benefits package that is actuarially equivalent to the S-CHIP statutory model.

There should be an enhanced federal match (equivalent to the S-CHIP match) for all services provided to any individual in this category. This would provide the incentive for states to expand a guaranteed entitlement to a full benefit package. Cost-sharing for services for this population would be permitted using the S-CHIP statutory model (no more than 5 percent of a family's income).

Category 3 - Full Flexibility Expansions (state option). Either in addition to whatever expansions a state opted for in Category 2, or instead of a Category 2 expansion, states would be allowed to expand health insurance coverage to any population. States would be allowed to expand coverage to all individuals up to a certain level of income, or target services to at-risk individuals, as defined by the state. States would have maximum flexibility in determining the level of benefits and amount of cost-sharing provided to beneficiaries in this category.

Given the amount of state flexibility allowed under this category, states would only receive their regular federal match for all services provided.

No Maintenance-of-Effort for States with 1115 Waivers or Other Expansions. In order not to penalize innovation, states that have already significantly expanded coverage through an 1115 waiver would be allowed to drop their waivers and instead implement expansions through Categories 2 and 3. In order for these states to receive the enhanced match under Category 2, however, the original eligibility standards must be preserved and mandatory benefits must be maintained. Optional benefits and cost-sharing can be adjusted, but must remain overall at a level that is the actuarial equivalent of the benefits provided under the demonstration waiver design as approved by HCFA. Similarly, states that have expanded coverage without a waiver should be given the opportunity to take advantage of Categories 2 and 3 without maintenance-of-effort.

32.3.3.3 Coordination with the Private Sector. The Governors believe that seamless interactions between government-funded programs and private sector health insurance coverage, including reasonable cost-sharing requirements for higher-income populations and for subsidies to employer-sponsored insurance should be created.

As states expand Medicaid or S-CHIP to higher-income populations, there are interactions with the private sector that were never imagined by the designers of a 1965 safety net program. Some common-sense changes can help remove the welfare stigma of the Medicaid program and decrease the likelihood that public health programs crowd-out the private market. The changes include giving states the freedom to:

• set reasonable cost-sharing requirements; and 
• use Medicaid funds to pay for part of the employee share of premiums.

32.3.4 Olmstead Compliance. States should receive more assistance from the federal government as they attempt to comply with the Americans with Disabilities Act and with the Supreme Court Olmstead decision. Our federal partners have participated for many years in the development of long-term care policy with their participation in the nursing home program. Now that states are looking forward to more home- and community-based care, a number of major challenges remain that will require significant fiscal and workforce investments. The federal government must increase its share of Medicaid expenditures devoted to achieving and maintaining compliance with the Supreme Court's Olmstead decision. This increased investment should include, at a minimum, the state option to provide Medicaid room and board support for individuals leaving institutional settings and an enhanced ability to cover community-based services for the mentally ill.

Time limited (effective Winter Meeting 2001-Winter Meeting 2003).
Adopted Winter Meeting 2001.

Printed from the NGA web site.