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STATE APPROACHES TO FINANCING HEALTH CARE FOR THE POOR E. Richard Brown School of Public Health, University of California, Los Angeles, California

90024-1772

Geraldine Dallek Health Policy Consultant, Los Angeles, California 90024

STATES FACE PRESSING HEALTH-CARE PROBLEMS The states are caught in a vise-like grip between two problems related to the financing of health services. On the one side, large population groups have little or no health insurance coverage, and this condition has generated political demands for policies or programs to extend coverage . The uninsured have reduced access to necessary health services, and this situation creates a moral crisis with political consequences. Much of the care they do receive creates financial burdens for private hospitals and public health-care services, thus resulting in economic crises for many hospitals and local governments, who in tum bring these problems to state government. On the other side of the vise, ever escalating costs for health care make solving the problem increasingly difficult, both fiscally and politically. It is difficult for the states to sustain even existing programs and coverage, let alone expand them. The rising costs of health care also have sparked growing concern among employers who provide insurance as a fringe benefit and among the self-employed and other individuals who try to purchase health insurance on their own. In addition, small firms that do not provide insurance to their employees are frightened by these costs, and they fear that the Congress and/or state legislatures, viewing such employers as the main cause of the problem of the uninsured, will simply mandate employers to provide 377

0 163-7525/90/05 10-0377$02 .00

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insurance coverage. The conflicting pressures of large uninsured populations and rising health-care costs are gradually generating political support for what once seemed like radical refonns in health-care financing. In this article we examine how the states are dealing with this crisis of the uninsured population . We briefly describe the policies and programs the states have developed to provide or pay for health services to fulfill their obligations and role in providing for the uninsured. We also assess recent trends and policy directions taken by the states and analyze the conditions and prospects for successfully resolving the crisis . THE UNINSURED Nationally , the uninsured have increased from 27 million people, 1 3 % of the total population, in 1 977 to 37 million, 1 6% of the population, in 1987 (56, 80). Because virtually all persons age 65 and over have at least some health-care coverage through Medicare, most attention has been focused on the proportion of the nonelderly population that is uninsured. In 1 987 , 17 . 8% of the nonelderly civilian population was without any private insurance, Medicare, Medicaid, or other coverage for health expenses. Among the states, the uninsured rate varies from a low of 8.4% in Rhode Island to a high of 26.9% in Mississippi, with states in the South and West generally having higher rates than those in the East and North ( 19) . The uninsured poor and near-poor population, who constitute over 50% of persons without any public or private coverage, lack access to basic health care, compared both to the poor population with coverage and to the more affluent popUlation (36, 37, 95) . The states continue to direct efforts to expand medical care to this population through Medicaid , state-funded in­ digent care programs, support for indigent care providers, and efforts to extend insurance coverage to the uninsured. MEDICAID Medicaid is the nation's largest health-care financing program for the poor. In fiscal year 1988 , it covered 24.2 million poor at a cost of $55.2 billion dollars, $24.5 billion of which came from the states (21).

Broad Intent and Limited Implementation Medicaid was enacted in 1965 as a political compromise to cover the poor, mainly the elderly and families with dependent children (AFDC) , who quali­ fied for public assistance under federal programs that provide matching funds to the states ( 1 5). As part of the "War on Poverty," however, Medicaid was

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conceived as a broader solution to the problems of access to medical care. It was intended to provide health-care coverage for all the nation's poor: The passage of [Medicaid] marks the beginning of a new era in medical care for low­ income families. The potential can hardly be overestimated as its ultimate goal is the assurance of complete, continuous, family-centered medical care of high quality to persons who are unable to pay for it themselves. The law aims much higher than the mere paying of bills, and states, in order to achieve its high purposes, will need to assume responsibility for

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planning and establishing systems of high quality medical care, comprehensive in scope and wide in coverage (30).

Although all the poor were not initially covered by Medicaid, nor all services provided, Congress mandated that states move toward com­ preh ensive coverage. Section 1903(e) of the Medicaid statute required states continually to improve their programs so that by 1975, Medicaid would provide comprehensive coverage for all low-income persons. In 1969, however, Congress postponed the deadline to 1977, and in 1972, it repealed the comprehensive care requirement altogether. Without a universal mandate to cover all the poor, states have been left to shape their Medicaid programs within broad parameters . Thus, states ' Medi­ caid programs vary dramatically in terms of spending , scope of coverage, and benefits (2 1 , 23, 34, 42). How Well Has Medicaid Worked? Medicaid has failed, on several levels, to live up to its initial promise of providing health care to all the nation's poor. State-by-state differences make obtaining Medicaid services a function of residency, not poverty level or need. Low provider participation rates force greater numbers of Medicaid recipients to seek care in the underfunded public sector . Complex program rules and regulations keep otherwise eligible recipients from obtaining care, especially through the "medically needy" program. Program inflexibil ity makes it difficult for states to implement new innovative programs for the uninsured population. And the program's separateness, coupled with the public' s association of Medicaid with welfare makes it vulnerable to federal and state budget cuts during periods of recession ( 15, 25, 76) . In the late 1970s and early 1 980s, cutbacks and changes in Medicaid made it less accessible to the low-income population . As the Reagan administration ratcheted down income limits for AFDC eligibility and federal support for Medicaid, and as the poverty population grew during the recession in the early 1980s, the propor­ tion of all poor persons covered by Medicaid declined from 51% in 1981 to 45% in 1 982. The Medicaid monthly average enrollment in 1982 covered

MEDICAID COVERS ONLY SOME OF THE POOR

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only 38% of the poor, and 49% had no private or public coverage of any kind (54). In 1980, the states' eligibility standards ranged from 93% of the poverty level in California down to 20% of poverty in Texas. Average Medicaid eligibility among the states fell from 55% of the poverty level in 1980 to 47% in 1984 (76). In 1984, Congress reversed this downward spiral by raising income eligibility levels for Medicaid, encouraging and even requiring the states to make more low-income people eligible. A year later, 51% of poor children were covered by Medicaid, up from a low of 45% in 1982 (76; see also 46, p. 152; 47, p. 15). By 1986, however, 20 states still had Medicaid eligibility standards for the AFDC population below 50% of the official poverty level (48, p. 62). Clear evidence from a variety of sources demonstrates that, despite its failure to include all of the poor, Medicaid is responsible for a significant increase in the use of health services by the poor. Historical evidence comparing the use of services by the poor and the nonpoor shows significant improvements in access by the low-income population since Medicaid began . Between 1964, the year before Medicaid was enacted, and 1973, poor adults dramatically increased their average doctor visits per year, from fewer than nonpoor adults to more visits than the nonpoor. The gap between poor and nonpoor children was also reduced, but it was not eliminated (49, p. 61). Although the poor made more doctor visits each year than the nonpoor, access remained inequitable because poor people tend to have more illness. Controlling for health status, Aday & Andersen (I) found that the poor continued to use fewer health services than the nonpoor. Survey data comparing the use of services by the low-income population with Medicaid to utilization by those who are uninsured demonstrate that poor and near-poor persons with Medicaid coverage use more health services than those who have no coverage (7, 73, 76). This relationship between Medicaid coverage and use of health services is especially strong among those who are in fair or poor health (55, 61, 62, 95). Thcsc consistent findings strongly support arguments in favor of expanded eligibility and coverage for the low-income population. Although studies have shown that Medicaid has increased access to care for the poor, recent evidence suggests that, for at least some Medicaid pop­ ulations and some types of services, especially obstetrical care, Medicaid access is compromised by low provider participation (42, 65, 69, 94). A primary reason that many doctors do not accept Medicaid is the low fees paid by the program. These fees have fallen further and further behind usual charges , reducing Medicaid patients' access by putting them at a distinct MEDICAID HAS MADE A DIFFERENCE IN ACCESS

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disadvantage relative to privately insured patients in the market for physician services (28 , 40, 45 , 65 , 69).

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New Directions for Medicaid States have been responding to federal ImUaUves to increase Medicaid eligibility and have, on their own. taken steps to improve access to services. With the passage of the Omnibus Budget Reconciliation Acts (OBRA) of 1986 and 1987. Congress severed the historic link between welfare and Medicaid, thus permitting states to target Medicaid expansion to poor children and pregnant women , not eligible for AFDC . States responded to these new federal incentives. By July 1989, 44 states and the District of Columbia provided Medicaid coverage for pregnant women and infants in families with incomes at or above 100% of poverty and 1 5 states provided coverage up to 1 85% of poverty (50). I Historically, despite a high federal Medicaid match. poor Southern states operate the most penurious Medicaid programs. These states have. however, joined together to address the problem of high infant mortality (84); every Southern state has expanded coverage for pregnant women and children in their Medicaid program under OBRA 1986 or 1987 proviSions (50) . To encourage Medicaid participation, several states have recently increased Medicaid provider fees, especially for obstetrical care (52b) . In 1989 , West Virginia passed legislation with still stronger provider incentives. The state's "Omnibus Health Care Act" establishes a preferred provider organization (PPO) for all state employees and programs , including Medicaid, under the Public Employees Insurance Agency . These programs cover one sixth of the state's population . Participating PPO providers cannot deny care to Medicaid recipients unless at least 15% of their practice is Medicaid (26) . During 1989, Oregon passed what is perhaps the most dramatic state Medicaid legislation in recent years . The legislation totally restructures the Medicaid program by increasing eligibility for all low-income persons with family incomes under 100% of poverty , by rationing benefits based on a cost/effectiveness analysis, and by establishing a mechanism to, in times of funding shortfall , cut benefits based on their priority list rank instead of reducing eligibility or provider reimbursement. The controversial legislation will need a federal Medicaid waiver or a special Congressional authorization. Despite its severe restrictions on eligibility and limited provider participa­ tion, Medicaid has greatly improved the access of the poor to health services . Recent severing o f Medicaid eligibility from federal public assistance proI Wisconsin covers pregnant women and infants below

program.

120% of poverty through a state-funded

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grams opens the door to Medicaid's playing an even larger role in providing coverage to the poor. The costs of this expanded role, however, would be steep. It has been estimated that a recent proposal to require all states to set income eligibility for Medicaid at the federal poverty level would cost an additional $9 billion, of which the states and local governments would pay about $4 billion, just to include the presently uninsured population below that level. Moderately improving the minimum Medicaid benefit package and payments to providers , as well as adding the uninsured poor, would increase Medicaid costs by at least $20.1 billion, a 64% increase over the level of spending in 1988 (91). STATE AND LOCAL PROGRAMS FOR THE MEDICALL Y INDIGENT Because federally supported Medicaid programs cover less than half the poor persons in the majority of states, other programs are necessary to provide even the most essential urgent and emergency care to low-income uninsured per­ sons. By tradition and by constitutional provisions, the states and local governments are left to their own discretion and resources to care for indigent persons who are not eligible for Medicaid (79). In 1985, 34 states and the District of Columbia had some type of state indigent care program to provide medical services to indigents not eligible for Medicaid, but only 30 of the programs were operational . Six of these state programs were simply statutes delineating county responsibility, but most involved some degree of adminis­ tration and/or funding by the state or jointly by the state and counties . The remaining 16 states had no statutes defining indigent care responsibility , implicitly leaving that responsibility entirely to the counties (31). State and county medical indigency programs vary far more than the federal/state Medicaid programs in administration, eligibility standards, bene­ fits , and financing. States employ a variety of methods to provide care, including (a) entitling groups they designate as eligible to state-funded Medi­ caid or other indigent care programs , and (b) supporting hospitals and clinics that serve this population by directly financing public hospitals and clinics, providing special Medicaid funds for private and public hospitals that provide a "disproportionate" share of uncompensated care, and mandating hospitals or insurers to contribute to indigent care or hospital revenue "pools."

Entitling People vs Financing Services Some states entitle certain population groups to state-funded Medicaid programs. States are free to add to their Medicaid programs groups other than those for

STATE ENTITLEMENT PROGRAMS FOR THE MEDIC ALL Y INDIGENT

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which they receive federal matching contributions, but they must pay the full costs of people covered under these eligibility categories. Medicaid programs funded only by the states may include more restrictions on benefits than the Medicaid program for the population eligible for federal matching funds, thus exacerbating some of the access problems faced by regular Medicaid eligi­ bles. In 1 989, Vermont and Maine used their Medicaid programs as vehicles for expanding care to indigents with incomes above federal Medicaid eligibility levels . Vermont's state-funded-only Medicaid program covers children under six in families with incomes less than 225% of poverty and pregnant women with incomes below 200% of poverty, while Maine legislation expands Medicaid program coverage for all children living in families with incomes below 125% of poverty and all adults with incomes less than 1 00% of poverty (26). State programs often link indigent care eligibility to persons who receive state or county general assistance or general relief emergency cash assistance. These programs, called general assistance medical care (GAMC) programs, target uninsured single adults or married couples without children, and gener­ ally have much stricter eligibility requirements and provide fewer benefits than Medicaid (5 , 3 1 , 32). Often, state indigent care programs target special populations or diseases . Throughout the 1 980s, states funded new, and often innovative, programs for pregnancy care to poor women not eligible for Medicaid (44, 5 1 , 58, 70) . Massachusetts, as part of its comprehensive state health insurance plan (Chapter 23), uses Medicaid to expand coverage to the disabled population. The program, called "CommonHealth," permits eligible working disabled individuals and families with disabled children to "buy into" the Medicaid program on a very generous sliding fee scale: Disabled persons with no insurance can buy into an almost full package of Medicaid benefits; disabled persons with private insurance can purchase a supplemental Medicaid "wrap­ around" policy (78) . The most recent and dramatic increase i n state targeted funding i s for AIDS. In 1 988, states spent almost $500 million on AIDS, half of which came directly from state coffers. State AIDS programs provide for surveying, testing, counseling, and AZT-purchasing programs. In fiscal year 1987, AIDS programs cost 1 % of total state health budgets (72a) . DIRECT FINANCING OF PUBLIC HOSPlTALS AND CLINICS The poor have traditionally received their medical care in the form of charity, either public or private. Reflecting their origins, private charitable hospitals and public hos­ pitals and clinics could be differentiated from almshouses and pesthouses as primarily medical care institutions only toward the end of the nineteenth

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century. Always constrained by stiff opposition from the organized medical profession, both public and charitable hospitals have served mainly the poorest strata in society with often miserly budgets that never managed to keep up with the demand for their services or costs of providing care in a manner commensurate with facilities for private patients ( 13, 14, 75, 87 , pp . 180-97). With the enactment of Medicaid and Medicare in 1965, the need for public hospitals declined-but it did not disappear. Two decades later, public hospi­ tals still accounted for more than a fourth of the nation's community hospitals, and they provided a broad range of services from trauma care and the training of medical professionals for the entire community to their traditional role of serving the residual population excluded from the private medical market­ place by lack of insurance or money. Charitable care by hospitals is now lumped together with bad debts (bills left unpaid by patients) as "un­ compensated care . " By 1982, uncompensated care provided by the nation's private and public hospitals totalled $6. 2 billion, with public hospitals accounting for about 40% of the total, twice their share of all hospital beds and all hospital charges (8 1, 89) . In 1989, Mississippi removed state funding for three state-owned hospitals, leaving Louisiana and Pennsylvania as the only states to operate a charity hospital system. A number of states, however, provide substantial funds to pay for indigent care provided in state university teaching hospitals and local county or city public facilities. Iowa, for example , appropriates funds to the University of Iowa hospital and clinics that provide care to indigents from all over the state (31). In Colorado, Denver's public hospital receives the lion's share of a state subsidy for the uninsured poor (20). CALIFORNIA HAS USED SEVERAL TYPES OF PROGRAMS California is illustrative of the main types of programs the states have traditionally de­ pended upon to provide indigent care-public hospitals , a state-funded Medi­ caid indigent care program, and state-local indigent care programs-and the changes wrought by fiscal and political considerations . Although California historically has had an extensive network of public county hospitals and health services, the system had shrunk from 65 hospitals operated by 49 of the state's 58 counties in 1964, the year before Medicaid was enacted, to 3 1 hospitals in 25 counties by the end of 1987 ( 13, 66) . Public hospitals were struck hard by rising health-care costs and declining tax revenues due to cuts in local and state tax rates. Lost tax revenues were only partially offset by new Medicaid revenues. By providing an alternative source of coverage for many of the "deserving" poor, however, Medicaid also gave local governments an excuse for closing their public hospitals and clinics ( 13). The state responded with a special state-funded Medicaid program for medically indigent adults ,

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but, when faced with its own fiscal crisis in 1982 , eliminated that program and added responsibility for these patients to thc counties' continuing indigent care obligations (6) . Like many states, California requires counties to assume primary responsibility for the uninsured poor, but sincc Proposition 13 slashed local tax revenues in 1 978, it now funds a substantial part of that care with state revenues. The state provided $705 million in indigent care funds to Califor­ nia's 58 counties during the 1985-1986 fiscal year, much of it supporting county hospitals and clinics. Together with the counties' own contributions, California's state and local government spending on indigent care totalled $ 1 . 1 billion in 1986. Yet public spending has not kept up with the growth of the uninsured low-income population and with inflation . Between 1983 and 1986, the number of very-low-income uninsured people (the medically in­ digent) in California grew 10.9% , to a total of 2.3 million people. After adjusting for inflation, however, total state and county spending for indigent medical care increased less than I %, thus resulting in a drop in inflation­ adjusted public spending per medically indigent person of 9% in just three years ( 17). HOW

WELL

WORKED ?

HAVE

ENTITLEMENT

AND

NON-ENTITLEMENT

PROGRAMS

State indigent care programs have made a tremendous difference in the lives of the nation's poor. State-funded Medicaid programs for the medically indigent, by providing access to essentially the same private as well as public health-care facilities and practitioners as the regular Medicaid program, generally offer better access to care than other state and local indigent care programs. The access advantages of these programs, compared to state and local programs for the medically indigent that do not provide entitlement, were demonstrated by studies of the effects of transferring responsibility for medically indigent adults from California's Medicaid pro­ gram to the counties ( 1 8 , 6 1 , 62). Non-entitlement programs for the medically indigent fall far short of filling the gaps left by Medicaid. Their dependence on underfunded public hospitals and clinics has been one persistent source of inequity. Without a powerful political constituency and forced to meet new public health demands, such as AIDS and the drug abuse epidemic, public hospitals are almost universally underfunded, causing long waits for appointments and for care and over­ crowded conditions in often antiquated facilities. Although public medical facilities provide a measure of access to uninsured patients that does not exist in communities without these services (8 1, 90), the growing number of uninsured, the continued dependence of the Medicaid population on public medical facilities, the AIDS and drug epidemic, and spiraling health-care costs have taken their toll on the nation' s rural and urban public hospitals

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during the 1970s and 1980s ( 14) . The level of access and quality of care provided by the nation's public hospitals , especially large urban hospitals, has been severely compromised. Reports of overcrowding and severe shortages of staff and equipment (24, 85, 86) raise serious questions about public hospi­ tals' ability to provide a decent level of care to the nation's poor. Aside from their dependence on public hospitals, indigent medical care programs suffer from other systemic problems. The lack of uniformity in services and eligibility among states and even within states means that both access and quality of care for low-income patients depend upon accidents of location, rather than medical need. Extremely low eligibility levels, a very limited benefit package, cost-sharing, little due process protection for pro­ gram recipients (32), and severe underfunding make it difficult, and in some cases, impossible, for program recipients to obtain medical care (6 1, 62). The uninsured poor, dependent on state and local indigent care programs, thus receive far less care than their insured counterparts (36, 37). All of these shortcomings, while not new, have been exacerbated in recent years and call into question the ability of such programs to fulfill their historic mandate as "providers of last resort." In sum, indigent medical care programs leave too many poor uninsured persons without adequate access to medical care and relegated to a separate and unequal public health-care system with little political support.

Financial Support to Providers of Uncompensated Care In addition to the disproportionately large burden of uncompensated care provided by public hospitals in 1 982, private hospitals provided more than $4 billion worth of charity care and bad debts , 60% of the total (8 1 , 89) . In California, private hospitals provided $507 million of uncompensated care during the 1985- 1986 fiscal year, in addition to state and county spending on indigent care (83). These sums represented a difficult burden that the hospital industry identifies as a major threat to the survival of hospitals, along with reduced reimbursement rates from Medicare, Medicaid, and other third-party payers, low occupancy rates, and excess indebtedness. To protect private and public hospitals against large uncompensated care burdens and to assure access to the uninsured and others living in low-income areas , a number of states have developed programs to pay hospitals for charity care and bad debts. HOSPITAL REVENUE POOLS By the end of the 1 980s, 1 1 states (Florida, New York, New Jersey , Maryland, Massachusetts , West Virginia, Wiscon­ sin, South Carolina, Nevada, Virginia, and Rhode Island) were operating hospital revenue pools, which in effect tax hospitals and redistribute the revenues to those facilities that treat a disproportionately large number of

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uninsured, indigent people. Revenue pools in New Jersey, Maryland, Massa­ chusetts, and New York are part of a state hospital rate regulation system. Hospital pools are funded by a hospital tax or an add-on to private insurer hospital bills. Some state pools also include revenues from the state or counties. Pool revenues are distributed to hospitals providing the greatest amount of indigent care (5, 27). FUNDING FOR DISPROPORTIONATE-SHARE HOSPITALS The Omnibus Budget Reconciliation Act of 1 98 1 required state Medicaid reimbursement systems to "take into account the situation of hospitals which serve a dis­ proportionate number of low-income patients with special needs." Limited state response to funding disproportionate-share hospitals (27) led Congress to set minimum reimbursement requirements for these hospitals in the Omnibus Budget Reconciliation Act of 1987 (21). A few Southern states, most notably Tennessee, have creatively used the disproportionate-share provision to expand uncompensated hospital care funding without state dollars . Nonprofit hospitals in these states have "volun­ tarily" given money to their state for Medicaid expansion. In tum, states leverage these new dollars with the federal government, receiving a three-to­ one Medicaid match. Part of the new federal Medicaid dollars obtained in this way are given back to the hospital donors by way of disproportionate share reimbursement (26, 27). During its 1 989 legislative session, Tennessee im­ posed a hospital licensure fee to provide a stable base of funding for its disproportionate hospital program.

HOW WELL HAVE UNCOMPENSATED CARE PROGRAMS WORKED? Under hospital revenue pools and, to a lesser extent, under disproportionate share reimbursement programs, hospitals may not be penalized for providing un­ compensated care. The effectiveness of these approaches, however, depends upon how well funded the program is, what proportion of uncompensated care it covers, and how much of the money gets returned to hospitals that provide a high volume of uncompensated care . The uncompensated care pools in New Jersey, Massachusetts, and Maryland have provided assistance to hospitals serving the poor and expanded access of the uninsured to private hospitals . Few uninsured patients, for example, are transferred from one New Jersey hospital to another because of their insurance status (22). Florida's hospitals, however, complain that the state's uncompensated care pool, which uses money from the pool to fund expanded Medicaid eligibility, does not generate a sufficient rate of return to hospitals with large uncompensated care burdens. Even at their best, hospital revenue pools and disproportionate share reimbursement programs emphasize hospital-based care, which is not the most economical way to provide much of the care people need, and which

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discourages primary and preventive care that may keep people healthier and reduce some future medical costs (27).

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HEALTH INSURANCE: VOLUNTARY AND MANDATORY APPROACHES In addition to their long traditions of providing direct funding for health facilities and for entitlement programs for the medically indigent, states have been trying in recent years to extend private insurance coverage to the uninsured population. Some of these programs seemed especially promising for low-income workers and their families. State programs have included risk pools and catastrophic insurance programs for certain uninsured groups, a variety of voluntary efforts to encourage uninsured individuals and firms to purchase health-care coverage, and mandates and tax incentives on employers to force them to provide or pay for health benefits .

Programs for High-Risk Persons and Catastrophic Expenses During the 1970s and 1980s, a number of states targeted certain groups of the uninsured for special legislation. Most notably, state legislation has attempted to address the problem of the high-risk population, unable to purchase in­ ' surance because of preexisting conditions ( 12, 43) . In 1 989, Georgia and California joined 1 7 other states in establishing high-risk pools to provide health insurance to the "uninsurable population" (26) . High-risk pools gener­ ally require insurers to establish independently administered pools to insure persons who have been unable to purchase insurance because of their health conditions . Premium rates range from 125 to 400% of the average individual premium rate in the state. Two states, Wisconsin and Maine, subsidize the premium costs for low-income pool enrollees. In addition to the high-risk uninsured population , states have sought to fill in other holes in the insurance net by targeting other special groups, especially individuals and families who suffer catastrophic medical expenses . Cata­ strophic insurance programs generally provide supplemental state coverage for already insured persons whose medical costs exceed a specified percent­ age of income. At present, only two states, Rhode Island and New Jersey , continue to operate catastrophic programs. Alaska, Maine, and Minnesota dropped their catastrophic coverage in the 1980s. New Jersey's program is limited to families with catastrophic costs associated with disabled children. HOW WELL HAVE THESE PROGRAMS WORKED? State legislation address­ ing small, but politically sympathetic, populations of the uninsured have not worked well. This approach has a lot of political appeal because it targets people whose desperate need for coverage is obvious even to the most

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skeptical observer. But premium costs, high deductibles, and other cost­ sharing provisions of high-risk pools have kept all but a small percentage of the eligible population, less than 3%, from obtaining coverage (43). One study for the California legislature, which extrapolated from experiences in other states, estimated that of the state's 5.1 million uninsured people, about 244,000 are medically uninsurable, and that about 15,000 of these would be likely to participate in a risk pool that was sufficiently subsidized to reduce premiums to 125% of standard-risk plans (7 1). Even the limited access to coverage for the uninsured population provided by risk pools has required costly subsidies. Catastrophic insurance programs also have been found to provide help to only a small number of persons in need and, like high-risk pools, tum out to be far more expensive than predicted.

Encouraging Health Insurance Coverage for the Uninsured Faced with state fiscal constraints, rising costs for Medicaid and other in­ digent medical care programs, and expensive subsidies for small-impact health insurance programs, states are beginning to develop new ways of redistributing the burden of providing coverage to their large and growing numbers of uninsured residents. Some states are experimenting with modest efforts to encourage voluntary coverage either through the workplace or directly to uninsured individuals and families by disseminating information, providing tax credits, or developing pilot projects that subsidize the purchase of insurance. For a small employer, finding an afford­ able insurance product can be very time consuming. A few state initiatives are aimed at making it easier for uninsured employers/employees to find afford­ able insurance products. In 1989, New Jersey, Vermont, and North Carolina initiated programs to provide information to businesses on insurance products available for their uninsured employees. New Jersey's program requires employers to pass this information along to uninsured employees (26).

INFORMAnON DISSEMINAnON

PILOT PROJECTS Eleven states have already implemented, or are planning to implement, pilot projects to increase health insurance coverage. Many of these pilots are part of the Robert Wood Johnson Foundation Insurance Demonstrations that focus on increasing insurance coverage through the workplace (2). Pilots vary dramatically in terms of coverage, structure, and costs. Except for Washington state's Basic Health Plan , and New York's Individual Subsidy Pilot, state pilot projects tie eligibility to the workplace. By contrast, the Washington and New York pilots target individuals and families with incomes below 200% of poverty. State pilots are testing a variety of different financial incentives to increase

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the purchase of insurance by small employers . Some of the pilot initiatives negotiate reduced-cost insurance packages that are marketed to eligible pilot project employers. Other pilots pay part of the premium costs for employers and/or low-income workers who purchase an existing product (2) . The most widely publicized pilot is the Washington program to make health insurance plans available to 30,000 of the state' s 720,000 uninsured residents. Under this program, families whose incomes are below 200% of the poverty level are eligible to purchase health insurance on a sliding scale based on income, with the state paying up to 90% of the health plan's cost (33). TAX CREDIT LEGISLATION In 1987, Oregon enacted a tax credit plan to encourage small employers with 25 or fewer employees to purchase health insurance. Uninsured employers purchasing a state-certified plan, the pre­ miums of which cannot exceed $53 a month per employee, will at the end of the year receive a tax credit of the lesser of 50% of the monthly premiums or $25 a month per eligible employee . The tax credit is phased out over five years . After a substantial delay, the program began enrolling firms in May 1989, but early enrollment numbers were not promising (26). In 1989, California became the second state in the nation to enact a small-employer tax credit program, expanding upon earlier legislation that was never implemented. The program is scheduled to begin in 1992. HAWAII "GAP GROUP" COVERAGE During 1989, Hawaii substantially ex­ panded health-care insurance for its low-income popUlation. Hawaii's legisla­ tion funds subsidized health insurance covering primary and preventive ambu­ latory care and limited hospital care for some 50,000 low-income persons (called the "gap group") who remain uncovered by the state' s employer mandate law (see below). The Hawaii program will be funded by state funds and income-related contributions from covered individuals and families (60). HOW WELL HAVE THESE PROGRAMS WORKED? Most of the state initia­ tives and pilot projects to encourage employers to provide health insurance to their employees are untested, or are only now being implemented. Pre­ liminary evidence does not support an optimistic assessment. State educational efforts to encourage employers to provide health in­ surance to their employees are unlikely to have a major impact. Although some small employers do have difficulty finding insurance products that meet their needs, the problem lies predominately with their inability to afford the insurance, not lack of information on what products are available. The most common reason given by small firms (fewer than 100 employees) for not offering health-care coverage as a fringe benefit is insufficient profits (67%) followed by the high cost of insurance (62%) (57, 82). Thus, subsidies to small employers purchasing insurance would seem to be

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critical if states hope to improve health-care coverage by small employers by using voluntary methods. What type of subsidy will work best, however, is not certain . Employer participation in a voluntary program is likely to depend upon the employer's profit margin, the costs of health insurance plans that are available , the market for the firm's own products or services (that is, would adding insurance premiums to their labor costs make them less competitive?), and the labor market in which the firm competes for workers (can the employer get and keep workers without providing health insurance?). Early enrollment in Oregon's tax credit program has not been encouraging (26). End-of-the-year tax credits help neither firms with cash-flow problems during the year nor those with small profit margins. Moreover, tax credits for small employers who do not now provide insurance would not address a major gap in coverage-uninsured workers employed for firms that offer insurance. Two thirds of all uninsured workers are employed at firms who already offer insurance to at least some people in the firm (3). The more direct subsidies provided by some of the pilot projects sponsored by the Robert Wood Johnson Foundation and by some states may provide greater incentives for employers and employees to purchase insurance. The success of these pilots will depend, in large part, on the actual cost of the insurance product, the amount of the subsidy , and the resulting purchase price of the health plans to employers and employees. The vast differences in structure and costs of pilot projects , and the short time in which these pilots have operated, make any global assessment of their successes and failures difficult. A very preliminary assessment by the RAND Corporation, however, of six pilot projects and the Oregon tax credit program found that implementing pilot projects is a long, arduous task and that, in a number of programs, enrollment is below expectations. An initial assessment by the Robert Wood Johnson Foundation of its pilot projects concluded that "the projects' early experiences are already demonstrating that there are some inherent limitations of the private sector, including the insurance industry, in addressing the entire problem of the uninsured" (2). Moreover, it appears that the pilots are primarily attractive to one segment of the uninsured small firm market-the self-employed and "mom and pop" firms. Firms with five or more employees have not been enrolling in the pilot programs (2, 26). Despite reduced cost insurance packages or direct state subsidies of pre­ mium costs , states may be unable to reduce the costs of insurance enough to attract large numbers of uninsured firms. This conclusion may not hold true, however, for uninsured individuals and families. The early enrollment suc­ cess of Washington's Basic Health Plan may indicate a greater willingness among uninsured individuals and families to purchase subsidized insurance than among small employers (26). Small business pilot programs that subsidize the purchase of insurance

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appear to have some fundamental limitations that reduce their effectiveness in addressing the problem: A large number of firms will not purchase insurance even when subsidized; employees of participating firms may not be able to afford the proffered insurance; these programs often contain underwriting restrictions that deny coverage to firms considered to be high risk; and these programs do not address the issue of employees in large firms who offer no insurance or who offer it only to a portion of their workforce . Employer Mandates and "Play or Pay" Programs Recognizing the limits of these voluntary programs in most states with fairly large uninsured problems, states also are seeking to force employers to provide health insurance coverage to pay for the coverage of employees by state programs. EMPLOYER MAN DATES From a state's perspective, the most attractive way to extend coverage to uninsured workers and their families, who represent a majority of the uninsured population, is simply to require employers to provide coverage . State mandates have grown in recent years as a method of extending insurance coverage to groups of people, as well as services, not otherwise covered by employers. In 1985, all states required at least some provisions, and the typical state had 10 to 12 such laws (53). More general employer mandate legislation would require firms to offer health insurance to their employees (and usually dependents as well) and pay the lion's share of the premiums (75-80%). To a state that wants neither to tax nor spend, the obvious advantage of the mandate is that the entire cost is born by employers and employees. Hawaii is the only state in the nation with a general employer mandate . Passed in 1 974, Hawaii's Prepaid Health Care Act (PHCA) requires employ­ ers to provide health insurance to employees who work a minimum of 20 hours a week and who earn a monthly wage of at least 86.67 times the hourly minimum wage. In order to implement the PHCA, Hawaii had to obtain a Congressional exemption from the federal preemption clause of the Employee Retirement Income Security Act (ERISA), enacted shortly after Hawaii's PHCA. ERISA exempts "employee welfare benefit plans" from state regula­ tion, and thus prohibits states from mandating employers to provide health insurance (35, 53). At a minimum, Hawaii employers must pay half the premium costs; if, however, the employee's share of premium costs exceeds l .5% of monthly gross earnings, employers must pay the premium above this amount. Thus, over the years, as health-care premium costs increased faster than wages, employers have found themselves paying a greater share of insurance costs (3, 38).

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Although as much as 98% of Hawaii's work force is insured , because the PHCA does not require coverage of employee dependents, part-time laborers or farm workers, approximately 5% of the nonelderly population, remains uninsured (38). The one-time ERISA exemption granted by the Congress in 1983, however, prevents Hawaii from extending mandated coverage to this "gap group. " In 1 989, in order to address the "gap group," Hawaii enacted its separate program of coverage for this population. Hawaii's state health insurance program, until recently, has been generally ignored because the state and the circumstances that led to the legislation were considered so unique (3). In 1 989, however, at least six states proposed an employer mandate that would have required employers to offer, and, in three cases, pay for health insurance . None of the employer mandate provisions was enacted (26). "PLAY OR PAY" "Play or pay" legislation taxes employers who do not provide a state-specified minimum dollar expenditure or package of health benefits to their employees. From the states' perspectives, "play or pay" provisions are a way to get around the ERISA prohibition of a mandate. A "play or pay" provision is at the heart of Massachusetts' 1988 legislation to provide health insurance to all the state's uninsured by 1 992. Massachusetts argues that a tax on employers who do not provide health insurance does not constitute an employer mandate and, therefore, does not run afoul of ERISA. The legality of this argument will likely be tested in the courts as Massachu­ setts' "play or pay" provision's 1992 implementation date grows nearer. In 1989, at least 1 1 state legislatures proposed "play or pay" provisions (26). Oregon was the only state to follow Massachusetts' lead. New Oregon legislation mandates a tax on employers who do not provide health insurance, if by 1994 the state ' s tax credit plan has fewer than 150,000 enrollees . The legislation also adopts the new benefit-rationing system used in the state's Medicaid program. In 1989, "play or pay" legislation was proposed in California and Minneso­ ta as part of proposed statewide insurance programs for the uninsured. Neither proposal passed the states' legislatures, although both states enacted legisla­ tion to "study" ways of increasing coverage for the uninsured. HOW WELL HAVE "PLAY OR PAY" AND MANDATES WORKED? "Play or pay" initiatives and employer mandates have their own set of problems. Vehement business opposition, the ERISA exemption problem, and the costs of this legislation will make it difficult for other states to follow Hawaii's or Massachusetts' lead. Although Hawaii's mandate has worked well to expand health insurance coverage, the unique circumstances that gave rise to Hawaii's mandate may make the program difficult to duplicate elsewhere.

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The lack of adequate cost containment in Massachusetts' Chapter 23 threatens to derail the program before its major provisions are implemented in 1992 (78). Finally, the exemption in most "play or pay" and employer mandate initiatives of firms with five or fewer employees may, ironically, exclude that portion of the uninsured market most desirous of health insurance coverage (26). DISCUSSION During the 1980s, states have assumed, largely by default and certainly by necessity, a leadership role in confronting the problem of the uninsured. Federal and state indigent care programs have made a tremendous difference in the lives of the nation's poor. Unfortunately, these programs leave too many poor uninsured without adequate access to medical care, and they often relegate the poor who are covered by them, as well as those who are ineligible, to a separate and unequal public health-care system . State initia­ tives to deal with the problem have, as we have seen, targeted subpopulations of the uninsured, including the poor, high-risk populations and those with catastrophic medical expenses, and workers. A few states, however, are attempting to fashion more comprehensive programs that will cast a wide coverage net over the uninsured population. State legislative efforts to in­ crease health-care coverage for the uninsured are affected by several factors, including the high and rising costs of health care, constraints and lack of leadership at the federal level, and the political process and organized political forces. First, the relentless increases in health-care costs, which have been rising much faster than the consumer price index for several decades (65a, p. 157) have put severe pressure on state budgets, much as they have affected the federal government, business, and individual families. Although they provide less than 10% of total personal health expenditures, state and local gov­ ernments spent a total of $62.7 billion on health care in 1987 (59). These fiscal constraints have made states reluctant to expand their responsibilities or their funding, and have engendered increasing opposition by state gov­ ernments to further broadening of Medicaid eligibility (63, 93), for which they pay up to half the costs. Nationalizing Medicaid, while relieving the states of their most severe fiscal problem, would still leave us with a separate and unequal system of care for the poor and no coverage for the uninsured near-poor. Second, the states have not been able to look to Washington for much leadership or relief in dealing with the uninsured or indigent medical care. Starting with the Carter administration's backing away from national health insurance, and continuing with the Reagan administration's cutbacks in feder-

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al funding for indigent medical care programs, the states began to get the message that they were largely in this struggle alone . Though the states have not received much help from Washington, they have been saddled with the greatly constraining effect of ERISA , which has stymied their ability to force employers to extend insurance coverage to uninsured workers. Despite these constraints , states have demonstrated during the last ten years a remarkable willingness to experiment with expanded coverage of their uninsured populations. Nonetheless, although the states may make useful laboratories for experimenting with alternative models of programs , a strong federal role will be necessary to solve what is clearly a national problem. Without substantial federal financial support and strong federal guidance, we will end up with wide state-by-state variations in care a La Medicaid. Richer states will provide more; poorer states less. Third, the political process itself has affected the prospects for developing solutions. State health-care politics, like those at the national level, are dominated by health-care industry interest groups , many of which are well heeled and resistant to changes that may adversely affect their interests . Arrayed against these groups have been advocates for the low-income popula­ tion, an earnest but not very powerful political force. The victories they have scored over the past three decades are a testament to the high moral ground they have held on this issue and to the commitments of some legislators to meet the needs of the underserved population. Until recently, consumer groups, employers, and labor unions have demon­ strated l ittle organized interest in this process. The rising costs of health care and health insurance, however, have begun to stir these dormant forces. Employers have been experiencing double-digit percentage increases in their premiums for several years (39, 77) , and many are becoming weary of their unsuccessful efforts to stem rising costs on their own. "We have tried a lot of things," bemoaned the president of the California Council of Employer Health Care Coalitions , "utilization review, case management, cost sharing with employees, health maintenance organizations, preferred provider or­ ganizations, hospices-and costs are still going up 20 to 30 to 40 per­ cent" (52) . Informal observation suggests that business groups' positions on these issues seem to differ from state to state. In general, business, and especially small employers, tend to oppose any legislation, like employer mandates , or regulations that would add to the costs of doing business. Some large employ­ ers who already provide health benefits, however, are beginning to voice support for legislation that would extend insurance coverage and stabilize the volatile health-care financing problem. In the nation as a whole and in some states, there even are signs of growing interest and support from significant business leaders for government taking over the financing of health services

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and paying for them with tax funds (34a, 52a). At a minimum, all business sectors seem agreed that the federal government should intervene to control health-care costs , improve quality , and provide access for' the uninsured­ tasks they once thought the private sector could and should do, but that they now believe the public sector could do better (74) . Labor unions also are growing concerned about retaining their members' health benefits in the face of rising costs and employers' efforts to increase employee cost sharing . The "Baby Bell" strikes in 1 989 are only the most visible sign of this new source of labor-management conflict. Both nationally and within the states, labor leaders are beginning to get involved in coalition efforts to control health-care costs and to extend coverage to the uninsured (4). Consumer-based groups also have been active in this arena, having led efforts in many states to develop legislation and forge sufficiently broad coalitions to overcome the resistance of legislators and opponents . These consumer efforts appear to reflect broad public opinion, at least as represented by numerous recent surveys that have found support for national health insurance and for state legislation to extend coverage to the uninsured. A recent public opinion survey , for example, found that 89% of Americans believed that fundamental changes are needed in the nation' s health-care system, including 29% who believed that the system was so bad that it needs to be completely rebuilt. A majority (6 1 %) said they would prefer a Canadian­ style national health insurance system supported by taxes with the government setting doctors' and hospitals' fees and paying most of the bills ( 10) . This is consistent with other public opinion polls that have found support for national health insurance among about two thirds of respondents (67, 72) . In Califor­ nia, where the proportion of the population without insurance coverage is greater than the national average ( 1 7) , support has been even stronger (67). Similar concern about health-care costs has been found in surveys of voters (9) . Polls have thus found that the public supports legislation to solve this problem, including paying some additional taxes to do so, although the depth of this support has not been adequately explored. The failure of small incremental efforts to solve the problems of the uninsured and indigent care suggests that more comprehensive solutions will be necessary. Solutions must link the presently uninsured to the rest of the popUlation in a universal program or policy and also control health-care costs. Efforts are intensifying in a number of states to enact such legislation, and, as the crisis of health-care access and costs continues to grow, it is likely that some will succeed. In the long run, states by themselves cannot solve these problems. A universal national health program is needed if we are ever to control health-care costs and provide equal access to health care for all Americans.

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of access to medical care: A conceptual and empirical overview . In Securing Ac­ cess to Health Care: The Ethical Im­ plications of Differences in the Avail­ ability of Health Services, 3: 1 9-54. Washington, DC: Pres. Comm. for Study of Ethical Problems in Med. and Biomed. and Behav. Res. 2. Alpha Center. March 1 988, July 1988 , April 1989, June 1 989, October 1989. Health Care for the Uninsured Program Updates. Washington, DC: Alpha Cent. 3. Am. Hosp . Assoc. 1 988. Promoting

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