How the States Could Sabotage Health Reform

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The 14 states suing the Obama administration to stop the enactment of health care reform aren’t likely to get very far. But though they probably won’t succeed in overturning the legislation, they could seriously undermine it. The Affordable Care Act, as the reform bill is known, will create health insurance exchanges, which each state will be responsible for setting up. And reform-resistant state governments will have much opportunity for foot-dragging and spotty regulatory enforcement. 

Under the law, the federal government will establish national regulations for the exchanges—which will enable individuals and small businesses to purchase more affordable coverage in a regulated market—but the states will have the job of creating and overseeing them. As the New Republic‘s Jonathan Cohn explains:

It requires appointing people to run the exchanges and figuring out how Americans will use them, but it also means preparing to regulate insurers more closely than anybody regulates them now. The law creates minimum standards for what insurance covers and requires insurers to spend most of their money on actual patient care, to name only two obvious changes.The states will have primary responsibility for enforcing these standards.

Once they’re established, the state exchanges will need enough people enrolled and enough competition to bring prices down. “In essence, the bill spurs 50 different health reforms,” says Anthony Wright, executive director of advocacy group Health Access California. That fact has become clear in the days following the passage of the bill. Some states are trying to roll back reform, while others “are already at work implementing—and improving” it, he explains. For instance, on the same day Obama signed the bill into law, the California state legislature passed legislation to implement one of its immediate provisions to ban “recessions”—that is, the insurance industry practice of retroactively denying coverage to people after they become ill. States will also be responsible for overseeing an unprecedented expansion of Medicaid coverage—a major reform that many state governments have already protested, because they’ll be shouldering part of the cost.

The sad reality is that some of the states where health coverage is already skimpy also could be the most likely to drop the ball on implementing the law effectively. Such has long been the case within the Medicaid system. There have been long-standing disparities between red and blue states in Medicaid coverage, partly because the governments of blue states tend to be more supportive of the program than those of red states. “More progressive states have set eligibility reasonably high, allowing many people to get coverage, while the more conservative states have set eligibility extremely low, allowing only the desperately poor to get coverage,” the American Prospect‘s Paul Waldman explains.

The new health law is intended to make up for some of these disparities, yet the successful implementation of massive changes to the Medicaid system and the creation of the insurance exchanges will require the states to cooperate. And the furious backlash coming from some state officials promises a rough road ahead. “I can’t conceive of any good in this bill and I don’t think any of these agencies can,” fumed Florida’s Republican attorney general (and gubernatorial candidate) Bill McCollum, who’s leading the states’ lawsuits against the health reform law. South Carolina’s Republican attorney general, Henry McMaster, who’s also running for governor, hailed these lawsuits as “the only hope of protecting the American people from this unprecedented attack on our system of government.” To be sure, some blue state officials are also upset about the new demands placed upon them, given the fiscal crunch that state governments are facing. But they’re not at political loggerheads with the legislation as a whole—and the national party that made it happen.

Some reform advocates had pushed hard for a national exchange, given the uncertainty about how exchanges would be implemented on a state-by-state basis. A national model not only would have allowed for uniform enforcement of regulations, but also would have created a gigantic national pool of participants that would presumably drive down costs. But insurance companies fought to keep the exchanges state-based, which would better position them to game the new system by looking for business in states with the weakest regulatory enforcement. A national exchange never caught fire with progressives in the same way that the public option did, as Princeton sociologist Paul Starr lamented last year—and the Obama administration never saw this as a provision worth fighting for. Under the law, the federal government will be required to step in if any state fails to set up an exchange, yet taking that additional step is likely to delay and disrupt coverage. The fight to pass the health care bill was an epic battle. Now implementing it could be just as tough.


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