You Can't Make Me Do It, but I Could Be Persuaded: A Federalism Perspective on the Affordable Care Act.

Journal of Health Politics, Policy and Law

You Can’t Make Me Do It, but I Could Be Persuaded: A Federalism Perspective on the Affordable Care Act Simon F. Haeder David L. Weimer University of Wisconsin–Madison

Abstract The Affordable Care Act (ACA) seeks to change fundamentally the US health care system. The responses of states have been diverse and changing. What explains these diverse and dynamic responses? We examine the decision making of states concerning the creation of Pre-existing Condition Insurance Plan programs and insurance marketplaces and the expansion of Medicaid in historical context. This frames our analysis and its implications for future health reform in broader perspective by identifying a number of characteristics of state-federal grants programs: (1) slow and uneven implementation; (2) wide variation across states; (3) accommodation by the federal government; (4) ideological conflict; (5) state response to incentives; (6) incomplete take-up rates of eligible individuals; and (7) programs as stepping-stones and wedges. Assessing the implementation of the three main components of the ACA, we find that partisanship exerts significant influence, yet less so in the case of Medicaid expansion. Moreover, factors specific to the insurance market also play an important role. Finally, we conclude by applying the themes to the ACA and offer an outlook for its continuing implementation. Specifically, we expect a gradual move toward universal state participation in the ACA, especially with respect to Medicaid expansion. Keywords Affordable Care Act (ACA), health care reform, Medicaid, health

insurance marketplaces, Pre-existing Condition Insurance Plan (PCIP)

Introduction

The Affordable Care Act (ACA) seeks to change fundamentally the US health care system by moving toward universal health insurance coverage. Following a long line of shared state-federal programs in health care, the ACA not surprisingly relies heavily on states to implement several of its Journal of Health Politics, Policy and Law, Vol. 40, No. 2, April 2015 DOI 10.1215/03616878-2882219 2015 by Duke University Press

Published by Duke University Press


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key coverage provisions: the Pre-existing Condition Insurance Plan (PCIP), health insurance marketplaces, and the expansion of Medicaid. For all three programs, states are tasked with more than mechanically implementing federal fiats. Instead, states were envisioned as partners, and they were given significant leeway in terms of program design and implementation. The ACA thus places great importance on shared governance between the federal and state governments for achieving its substantive goals. As one of the most controversial pieces of federal legislation in recent times, the implementation of the ACA remains politically salient. Because of its importance, staggered implementation, and political saliency, the ACA provides a rich opportunity for studying implementation of programs involving the federal government sharing programmatic governance with the states. The responses of states have been diverse and dynamic. Some states have made explicit choices about some or all ACA components, ranging from acceptance of all components to rejection of all. Indeed, some have steadfastly refused any cooperation. Other states have eagerly sought federal resources to move health reform forward. Yet other states have reversed positions on important components of the ACA. What explains these diverse and dynamic responses by the states? To answer this question, we examine the decision making of states concerning the creation of PCIP programs and health insurance marketplaces and the expansion of Medicaid under the ACA in historical context. Recognizing the dynamic nature of the ACA implementation, we take a dual approach that draws on both qualitative and quantitative evidence. Doing so allows us to assess current progress while also anticipating how implementation is likely to continue going forward. We begin by developing seven themes based on observation of previous health care programs that involved significant degrees of shared governance from the Sheppard-Towner Act of 1921 through the Trade Act of 2002. These seven themes frame our analysis of the ACA and its implications for future health reform in broader perspective. Next we assess the implementation of the three main elements of the ACA requiring state cooperation (PCIP programs, health insurance marketplaces, and the expansion of Medicaid) and explain the diverse responses of states. Finally, we conclude with implications for shared governance in the future and the outlook for continued progress in implementation of the ACA. Overall, we find that the ACA broadly conforms to the history of various shared governance health care programs over the past century. While the past is not a perfect predictor of the future, we have few reasons to believe that the ACA and any future reform will not follow a similar pattern. The ultimate lessons are that the implementation of shared governance programs is never a straightforward or simple undertaking. Indeed, we should



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expect conflict between the different levels of government because they often have divergent interests and incentives. Nonetheless, in the long run, states take advantage of the incentives offered to them by the federal government, and they adopt shared governance programs to fit their local preferences and political circumstances, resulting in significant temporal and geographic variation. Themes from Past Shared Federal-State Health Programs

Shared state-federal governance has a long tradition in the American welfare state, particularly in the implementation of health care programs. Various factors account for the adoption of this kind of arrangement. First, a strong strain of liberal, antigovernmental ideology (Huntington 1981) makes intervention much more palatable to citizens when it occurs at the state rather than the federal level. Federalism allows for diverse delivery systems to accommodate diverse cultures (Grannemann and Pauly 2010). The shared governance approach serves as a ‘‘political counterweight to charges of a federal takeover’’ (Sparer 2011: 465). Voters are also better able to express their preferences and priorities (Grannemann and Pauly 2010). Second, following Justice Louis Brandeis in his opinion in New State Ice Co. v. Liebmann (285 U.S. 262 (1932)), many observers tout states as ‘‘laboratories of democracy’’ and favor allowing states to experiment with various policies to fit local circumstances. Third, much of health care requires rules for health care providers and insurers, and such regulation has long been under the purview of states (Meier 1988; Grace and Klein 2009). Fourth, the federal government often simply lacks the capacity to implement programs across fifty diverse states and therefore has to rely on the state and local governments as well as private partners (Haeder 2012). Seven themes emerge from the long history of cooperation between the federal government and states in the provision of health care that spans the past century (table 1). These themes shape our expectations about implementation of the ACA and future programs. 1. Implementation Is Often Slow and Uneven

Reliance on states to implement federal programs offers many benefits in a large and regionally diverse country like the United States. However, as a result, the implementation of programs is quite uneven, often requiring years or decades, if ever, for all states to sign on. Maternal and child health programs under both the Sheppard-Towner Act and the Social Security Act


First public health grant. First direct federal grant program to any group for health services. Allowed states to appeal directly to the president for redress. Abandoned in 1929. Provided extensive coverage for the time, including physician care, emergency dental services, bedside nursing, prescription drugs, and emergency appliances. Provided extensive powers to the federal government, such as federal assumption in case states fail to meet grant requirements. Major expansion in type and extent of federal involvement.

Venereal disease control

Maternal and infant health

General relief

Child welfare services; maternal and child health services; crippled children’s’ services; aid to dependent children; oldage assistance; aid to the blind; general health services

Chamberlain-Kahn Act (1918) Sheppard-Towner Act (1921)

Federal Emergency Relief Administration (FERA) (1933)

Social Security Act (1935)

Importance

Purpose

Historic Development of Shared Governance Health Care Programs

Program (Creation)

Table 1


Significant diversity in terms of speed and extent of implementation, administrative arrangements, benefit structure, and eligibility.

Little funding provided initially; all funding lost within a few years. Very limited program that did not provide medical services. Strong opposition led to nonrenewal. Many states implemented quickly, others took multiple years, and some states never implemented. Diverse implementation across the states coupled with markedly differing federal expenditures and matching rates. Federal takeover and partnerships in various states. Followed up by the Civil Works Administration (CWA) and Works Progress Administration (WPA).

Developments


Provides extensive medical coverage to qualified poor Americans. Amended and expanded over the years. Key component of coverage expansion under the ACA. Largest dedicated funding source for uncompensated care. Initial program imposed no upper limit on total expenditures for DSH. Phased out under the ACA through 2021.

Preserve access to and provide support to safety-net hospitals.

DisproportionateShare Hospital Funding (DSH) (1981)

Significant extension of federal responsibility through open-ended cost sharing. Abandoned in 1969.

Medical assistance for the qualified indigent

Medical assistance for the aged

Kerr-Mills Act (1960)

Importance

Medicaid (1965)

Purpose

(continued )

Program (Creation)

Table 1

Slow take-up rates led to more favorable matching formulas and target population expansion. Only 40 states created programs; they differed widely in benefits provided and eligibility. Initially, only adjunct to welfare. Despite significant expansion over the years, often does not provide access to care by indigents. Great diversity across states, particularly in terms of optional benefits. Initially ignored by states. Series of amendments sought to increase takeup rates. Program grew almost thirtyfold between 1989 and 1992, with 39 states establishing DSH program by 1992. Creative efforts at DSH maximization by states reigned in over time. (continued )

Developments



Trade Act (2002)

Establishes insurance portability requirements for group coverage.

Health Insurance Portability and Accountability Act (HIPAA) (1996) State Children’s Health Insurance Program (SCHIP) (1997)

Establishment of the health coverage tax credit (HCTC)

Increases coverage of children and their families just above the Medicaid income limit.

Purpose

Diverse state responses. Five states relied on federal enforcement in 1998, 10 in 2005. Benefits, coverage, and costs vary widely across the states.

States have various options for compliance: NAIC model acts, high-risk pools, or other innovative mechanisms. Federal enforcement in case of noncompliance. Not an individual entitlement; provides states with significant discretion and provides federal funding as block grant based on a set formula. Expanded under the Obama administration but phased out under ACA through 2019. Provides advanceable and fully refundable tax credits to qualified individuals up to 65 percent of premium costs. States have choice to implement any of 10 different programs.

By July 2004 only 34 states provided at least one option. Restrictions limit participation even when a program is implemented. Vast differences in terms of availability, benefits, coverage, and costs. Fewer than 20,000 people enrolled.

Implemented in 31 states by the end of 1998 and by all states by the end of 2000. Varies dramatically across states in terms of eligibility, costsharing provisions, premium assistance, and coverage for adults.

Developments

Importance

Historic Development of Shared Governance Health Care Programs (continued )

Program (Creation)

Table 1




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nicely illustrate this point. The vast majority of states implemented the Sheppard-Towner program within months of its creation, while states like Rhode Island and Kansas took several years to do so (Meckel 1990). Similarly, in the case of the Social Security Act of 1935 all but one state applied immediately for maternal and child benefits, while a large but smaller number applied for funds for ‘‘crippled children’’ (Stuart 1936). At the same time, not all states had instituted programs to aid the needy blind even by 1940 (Macdonald 1940). Medicaid serves as another striking example, as six states created programs within the first six months (Thompson 1981). The number reached twenty-five in 1966 and thirtyseven in 1968, but not until 1982 did the last state, Alaska, join (Thompson 1981; Herz 2010). With regard to the State Children’s Health Insurance Program (S-CHIP), which was adopted in 1997, thirty-one states established a program within the first year, but not until the end of 2000 did the last state do so (GAO 2012). At the same time, for states not to participate in shared governance programs at all is rather common, despite the significant inducement provided by federal matching funds. In the case of the Sheppard-Towner Act (Lenroot 1936) or the Kerr-Mills Act (US Senate Subcommittee on Health of the Elderly 1963), not all states established their own programs before the federal program was discontinued. As seen in the case of the Federal Emergency Relief Administration (FERA), the federal government even temporarily took over programs in Illinois, Kentucky, Oklahoma, North Dakota, Maine, Massachusetts, Ohio, Louisiana, and Georgia (Clark 1938: 250–53) and entered into partnerships in Arkansas, Colorado, and Washington (ibid.: 258). More recently, the number of states relying on the federal fallback option under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) has been changing significantly over time (Chaikind et al. 2005; Fuchs et al. 1998). 2. Programs Vary Widely across States

Even when states agree to participate actively in joint programs, shared implementation and shared governance almost inevitably create large disparities and inequities across the country. These discrepancies are particularly evident with regard to different benefit structures, spending, and eligibility levels for the major health programs that have been a mainstay of the American welfare state. For example, adult programs first established under the Social Security Act of 1935 differed widely in terms of the dispersal of free drugs to indigents (thirty states), dark-field examinations



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for private patients (twenty-one states), and epidemiological investigations (all but fourteen states) (Vonderlehr 1937). Even more variation resulted from programs that covered venereal disease and tuberculosis (Perkins 1958). With regard to the Medicaid program, states also differ significantly in terms of per-enrollee spending. One major driver of these differences hails from the selective inclusion of so-called optional services, which amount to 61 percent of total program Medicaid spending (Mitchell 2012; KCMU 2012).1 Similarly, a mere fifteen states use presumptive eligibility determination for children to facilitate access (InsureKidsNow.gov 2013).2 States also rely on diverse combinations of funding mechanisms, encompassing general fund dollars, tobacco and provider taxes, and local government funding (Mitchell 2012). Similarly, while almost all states offer coverage at least to 200 percent of the federal poverty line in their SCHIP programs, eighteen do so at least up to 300 percent of the federal poverty line. Only New York and New Jersey exceed even that threshold (KCMU 2012). Moreover, a mere nine states provide premium assistance (Herz, Peterson, and Baumrucker 2009), and only twelve use presumptive eligibility determination for S-CHIP (InsureKidsNow.gov 2013). Several of the smaller health programs exhibit similar startling differences. For example, under Kerr-Mills comprehensive benefits were available in only four states, dental coverage was available in seventeen states, prescription drugs were covered in nineteen states, and physician services were covered in twenty-eight states (US Senate Subcommittee on Health of the Elderly 1963). Even today, HIPAA high-risk insurance pools are available in only twenty-four states (Chaikind et al. 2005), and only thirty-nine states have provided at least one option to qualified individuals to take advantage of the health coverage tax credit (HCTC) under the Trade Act of 2002 (Stone-Axelrad and Lyke 2005). In both programs availability, benefits, coverage, and costs vary widely across the states (Dorn and Kutyla 2004; Chaikind et al. 2005; Fuchs et al. 1998). These discrepancies are particularly concerning for two reasons. First, wealthier states tend to move ahead quickly and adopt more generous benefits, as in the case of Kerr-Mills, where seven wealthier states received 88 percent of federal funding (US Senate Subcommittee on Health of the Elderly 1963). Similarly, when Medicaid was established the two 1. These are services that are not a requirement for program participation but nonetheless receive federal matching funds if states choose to provide them. 2. Presumptive eligibility allows qualified entities to enroll individuals into Medicaid while a full eligibility determination is conducted. It hence avoids the administrative waiting period. This option was created by the Balanced Budget Act of 1997.



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wealthiest states, California and New York, established the most generous programs, including coverage for the ‘‘medically indigent,’’ which was not matched with federal dollars (Brown 1981, 1983). At the same time, poor states were particularly slow with implementation and in offering coverage to the indigent (Moore and Smith 2005). Naturally, wealthier states like California and New York have a much easier time raising matching funds. However, through their federal tax dollars, citizens in poorer states, that is, those with limited benefits, fund more generous programs in wealthier states. Second, particularly affected by the diversity may be minority citizens and immigrants (Soss et al. 2001; Lieberman 2002; Hero and Preuhs 2007). A number of researchers have found a consistently negative relationship between the generosity of welfare provisions and the proportion of both ethnic and racial minorities who are beneficiaries (Soss et al. 2001; Fellowes and Rowe 2004). In addition, evidence of ‘‘white backlash’’ is found in areas with high minority concentrations (e.g., Blalock 1967; Bullock and Rodgers 1976; Giles and Buckner 1996). These effects are not just regional, because race and ethnicity have been found to affect state policy outside the South (Hero 1998). 3. The Federal Government Is Usually Extremely Accommodating

The federal government has usually shown great deference to states with regard to jointly implementing health care programs by allowing significant variation and adjustments to match local circumstances and political conditions. Two of the most common accommodations are increases in funding and the expansion of target populations. In fact, in all programs presented here, the federal government bears a significant amount, if not the majority, of the financial burden. Moreover, states are generally not mandated to establish programs. Examples of the expansion approach are the 1956 Social Security Act amendments, which changed the medical payment matching mechanism. These changes resulted in thirteen states implementing the program for the first time (Mitchell 1958). Just a few years later, the 1958 amendments established a variable matching rate ranging from 50 to 65 percent depending on the residents’ income (Kramer 1959). Kerr-Mills itself was a more generous response to the slow take-up rates for a program of medical vendor payments under the Social Security Act amendments of 1950 (US Senate Subcommittee on Health of the Elderly 1963). Matching rates have also been adjusted frequently in times



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of economic hardship, most recently during the last recession (Peterson 2010). Similarly, various planned cuts to the disproportionate-share hospital (DSH) program have repeatedly been delayed or wholly abandoned (Hearne 2005). Furthermore, eligible populations have expanded greatly over time as liberalization and expansion occurred for various Social Security Act programs (Kramer 1959; Council of State Governments 1947), including Medicaid (Olson 2010) and S-CHIP (Stone et al. 2010). The federal government also generally offers states a variety of pathways to implementation. Most leniently, under Sheppard-Towner the national government merely provided funding and left implementation completely to states (Velsor-Friedrich 1996). Under S-CHIP, states were provided with the options of expanding their existing Medicaid programs, creating a separate S-CHIP program, or relying on a combination of the two (GAO 2012). Through HIPAA a variety of compliance options are also offered in the form of National Association of Insurance Commissioners (NAIC) model acts, qualified high-risk insurance pools, or other innovative mechanisms to ensure coverage (Atchinson and Fox 1997). Finally, the Trade Act of 2002 makes ten different types of plans eligible for its tax credit (Stone-Axelrad and Lyke 2005). States have generally sought to leverage their pivotal position in the implementation process by negotiating for side payments and terms that are more favorable to their interests. Perhaps the most dramatic forms of this phenomenon are section 1115 demonstration waivers (Thompson 2012; Herz 2010) or section 1915(c) programmatic waivers (Thompson and Burke 2009), which allow for significant alteration to Medicaid programs, such as exemptions from various federal requirements, including guaranteed entitlements. Indeed, Massachusetts was able to use its 1115 waiver to implement state-based health reform. Waivers have also been used to turn the Rhode Island Medicaid program into a block grant (CrossCall and Solomon 2011). 4. Ideological Conflict Permeates Enactment and Early Implementation

Adoptions of most health programs have involved protracted struggles in Congress. For example, the Sheppard-Towner Act was denounced as supporting socialism, free love, provision of birth control, federal encroachment, paternalism, and state interference with the practice of medicine (Chepaitis 1972). Of the plan, one member of Congress even asserted: ‘‘[It] represents the frenzied extreme, but it does not stand alone. It



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is allied with . . . various radical schemes inaugurated in different European countries . . . where socialistic doctrinaires have long insisted upon the establishment of . . . benefit systems. . . . All of such plans involves the assumption by the State of the authority to interfere in the family relations. They imply the right of State visitation and espionage. Such doctrines are not to be tolerated in a free country’’ (quoted in Bremner et al. 1971: 1016). A similar tone is present in the comments by the Illinois editor of the Journal of the American Medical Association after the passage of the Social Security Act: ‘‘This new law is a horse laugh on scientific medicine and American patriotism. Tentacles of this octopodan law will entwine the medical profession more securely than has been managed by any other communistic traps or socialistic twiddle-dee-dees emanating from the patriotically-paralytic bureaucracy bossing the country. . . . Even the dullest economist discerns readily the fist of politics clutched in the cash box of appropriations’’ (quoted in Garceau 1941: 139). In 1962, future president Ronald Reagan (1962) asserted his dismay during the debate over Medicare and Medicaid as follows: But at the moment I’d like to talk about another way because this threat is with us and at the moment is more imminent. One of the traditional methods of imposing statism or socialism on a people has been by way of medicine. It’s very easy to disguise a medical program as a humanitarian project. . . . Now, the American people, if you put it to them about socialized medicine and gave them a chance to choose, would unhesitatingly vote against it. . . . The doctor begins to lose freedom. . . . And from here it’s only a short step to dictating where he will go. . . . From here it’s a short step to all the rest of socialism. Federal grant making has also been accompanied by complaints about federal interference in the affairs of sovereign states. However, states have been quite opportunistic and expedient when their interests are concerned, altering and adjusting their stance based on their own benefit-cost calculus. Not surprisingly, states for which the calculation is negative often resort to the courts for relief. For example, Massachusetts was particularly recalcitrant with regard to the Sheppard-Towner Act and unsuccessfully challenged the law in Massachusetts v. Mellon (262 U.S. 447 (1923)). However, Arkansas, Arizona, Colorado, Delaware, Indiana, Kentucky, Minnesota, Oregon, Pennsylvania, and Virginia filed briefs in support of the law. Nonetheless, courts have upheld virtually all aspects of federal grant making (Council of State Governments 1949; Joondeph 2011).



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Ideological conflict usually lingers into the early implementation stage of programs. Notwithstanding the virulent rhetoric when programs are established, however, most voices of ideological opposition usually dissipate. Eventually, most states act pragmatically, take advantage of these opportunities, and establish most programs, if the financial incentives are sufficiently strong. A case in point is Reagan, who as governor of California actively expanded the Medicaid program beyond categorical linkage to include all medically indigent adults, despite his prior opposition to the program (Haeder 2010). Ideological opposition is much harder to maintain as large parts of the country move forward and offer their residents greater access to health care services. In particular, the vivid debates about socialism usually disappear quickly from public discourse, though debates about states’ rights tend to reappear intermittently, particularly when major changes to existing programs are in the offing. 5. Grants Create Incentives and States Respond to Them

States are often loath to create distributive programs on their own (Peterson 1981; Peterson, Rabe, and Wong 1986). Instead, they may prefer to wait for some federal inducement that encourages other states to create programs and that reduces overall state costs. The federal government rarely imposes direct requirements on states without providing some form of incentive. Usually, the incentive is a (matching) grant that often elicits state participation. In addition, states are not required to implement many of these programs. In anticipation of state opposition, many programs also include a federal fallback option to ensure a degree of access nationwide. Programs for maternal and child health offer particularly interesting lessons because they were established, terminated, and then reestablished at the federal level. As noted, some states took longer than others to implement the Sheppard-Towner Act, while others did not implement its provision at all. Tellingly, only two states decided to implement a state program instead (Meckel 1990). However, once federal funding expired the majority of states dramatically reduced funding or terminated their programs. Most did not reestablish their programs until further federal assistance was offered under the Social Security Act (Lenroot 1936; Eliot, Bierman, and Van Horn 1938). Not surprisingly, states exert significant effort and ingenuity in maximizing funding. These efforts include shifting individuals into programs with better matching formulas, as occurred, for example, when Kerr-Mills was established to replace a program under the Social Security Act



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amendments of 1950 (Peterson 2010). Similarly, while many states initially relied on their Medicaid programs to expand coverage under S-CHIP, they quickly moved to create stand-alone S-CHIP programs that offered greater flexibility and better matching rates (ibid.). Finally, states resort to the use of ingenious and complex funding arrangements that may also hamper accountability and transparency. In the case of the DSH program, once West Virginia and Tennessee pioneered creative funding approaches such as provider donations and provider taxes (Hearne 2005) and intergovernmental transfers (Coughlin and Liska 1997), program participation dramatically increased. Even when Congress sought to rein in spending, states found additional mechanisms, such as pass-throughs using mental health and other public entities (Coughlin and Liska 1998) and administration fees (Huen 1999), to maximize federal funding. 6. Not All Eligible Individuals Enroll

Even with full cooperation from the states, take-up rates will be incomplete, and not all individuals eligible for programs eventually sign up. Sometimes, state governments seek to minimize the number of enrollees to contain costs and stabilize state budgets through burdensome certification and recertification requirements as, for example, under the Deficit Reduction Act of 2005 (Thompson 2012). States may also shy away from outreach programs, which often require significant investments to reach and enroll all potentially eligible beneficiaries. Even when individuals are made aware of their eligibility, programs may also still be unaffordable for many. As mentioned earlier, premium assistance for S-CHIP is not available in all states, and even small beneficiary contributions may act as a deterrent. Moreover, various states have closed enrollment, require long waiting periods, or have long waiting lists for their high-risk insurance pools (Chollet 2010). High-risk insurance pool premiums may also be out of reach for many people (Blewett and Spencer 2008). Others will lack the incentives or knowledge to come forward because they may be immigrants or fear stigmatization (Cross-Call and Solomon 2011). Not surprisingly, generally fewer than twenty thousand individuals are able to take advantage of the HCTC (GAO 2004), and fewer than 0.5 percent of those eligible are enrolled in high-risk insurance pools in most states (Blewett and Spencer 2008). Finally, the estimated take-up rate for Medicaid ranges from 30 to 80 percent nationally (Sommers et al. 2012).



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7. Past Programs Serve as Stepping-Stones and Wedges

Finally, previous shared state-federal programs often serve as steppingstones for future coverage expansions. Program structures, matching formulas, and benefit design, for example, are often rather similar in successive programs, differing only incrementally. Generally, modifying existing institutional features is easier than justifying and creating completely new ones. Moreover, programs also often contain within them the seeds for further, evolutionary expansions, offering a broader set of benefits to a broader set of beneficiaries over time. For example, FERA in particular proved to be pivotal in the enlargement of the welfare state because it set the precedent for increased federal participation in medical care (Greenfield 1958; APWA 1934). It also initiated the shift away from local toward state and federal responsibility for indigent care. Moreover, it differed significantly from previous programs in terms of the large powers granted to the federal government, including federal takeover in case of noncompliance (Macmahon, Millett, and Ogden [1941] 1971; Williams and Williams 1940). Similarly, the maternal and child health programs under the Social Security Act are clear expansions of the Sheppard-Towner programs; Medicaid and Medicare are enlarged versions of Kerr-Mills. Additionally, programs under the Social Security Act, particularly Medicaid, have seen steady growth in benefits and eligible populations. Finally, S-CHIP is an expansion of Medicaid. Shared State-Federal Programs in the ACA

As illustrated in the previous section, the ACA follows a long line of shared governance programs that involved cooperation between state and federal governments. Much of the media and even some academic treatments of the ACA have focused on the significant amount of noncompliance by states with its major provisions. Naturally, many Republicans have pointed to opposition by states as indicators of the shortcomings of the ACA and broad public opposition. State and public opposition, in the eyes of many Republicans, thus point to the eventual demise of the ACA. Undeniably, public opinion has been markedly split, and divisions by party, ethnicity, and income status are remarkable (Henry J. Kaiser Family Foundation 2013b). Familiar to most Americans, and perhaps most politically controversial, are three major coverage components of the ACA: the PCIP, insurance marketplaces, and the



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Medicaid expansion.3 In the sections below, we analyze current progress toward implementation of these programs. In view of the dynamic nature of the implementation process, which will persist for several years if not decades, the analysis necessarily provides a snapshot. Hence we follow up this analysis with expectations for and predictions about future implementation. Pre-existing Condition Insurance Plan

Background. Through HIPAA and the Trade Act of 2002, high-risk insurance pools have been part of the health care environment in the majority of states for at least the past two decades. Various states had relied on high-risk insurance pools long before states were offered the opportunity to use them to fulfill their requirements under HIPAA. Connecticut and Minnesota were the first to establish high-risk insurance pools in the mid1970s. By 1988 fifteen states had created such pools (Laudicina 1988). The most recent states to create high-risk insurance pools before the ACA were Tennessee and North Carolina in 2006 (Chollet 2010). Overall, a total of thirty-five states had active high-risk insurance pools at the end of 2010, enrolling about 220,000 people (Cauchi 2012).4 Consumers in high-risk insurance pools naturally require significantly more medical care, leading inevitably to high per-beneficiary costs (Schwartz 2010). High-risk insurance pools are intended to limit premium increases in the general insurance market while providing coverage for individuals with preexisting conditions who are priced out of this general insurance market.5 Implementation of high-risk insurance pools has varied widely across states and across time. For example, some states have increased eligibility limits and coverage; others have increased lifetime caps and established subsidy programs (Chollet 2010). Nonetheless, states, deliberately or

3. However, we should mention that the ACA also relies on the states for a variety of other, smaller components and created a series of grants and loans offered to encourage state participation. These programs include Insurance Premium Review Grants (forty-five states received grants); Consumer Assistance Program Grants (thirty-five states received grants); Nursing Workforce Development Grants (all states received grants); Community Transformation Grants (thirty-six states received grants); and Consumer Oriented and Operated Plan (CO-OP) loans (organizations in twenty-three states received loans). We emphasize that participation in many of these programs was broad, varied, and largely uncontroversial and included both Democratic- and Republican-controlled states (StateHealthFacts.org 2012c, 2012d, 2012a, 2012b, 2012e). 4. States also resorted to arrangements like guarantee issue and carriers of last resort to achieve similar goals. 5. Ironically, high-risk insurance pools do not actually ‘‘pool’’ coverage but instead segregate groups based on expected costs and thus are solely made up of high-cost beneficiaries.



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inadvertently, often discourage enrollment (Chollet 2002). Not surprisingly, high-risk insurance pools are usually operated at a loss, as premiums generally cover only between 50 and 60 percent of costs (Blewett and Spencer 2008).6 States vary in the funding mechanisms used for high-risk insurance pools but generally include assessments on carriers to supplement federal and state support (Chollet 2010). At the same time, premiums often remain out of reach for many individuals, leading to very low enrollment rates of eligible individuals in most states (Blewett and Spencer 2008).7 Some states provide additional subsidies for individuals to make coverage more affordable (Chollet 2010; Schwartz 2010). In addition, various states have either closed enrollment, require long waiting periods, or have long waiting lists (Chollet 2010).8 Some states have also imposed annual and lifetime maximum coverage provisions (Fernandez 2011).9 Finally, the size of pools also varies significantly, from a low of 236 in West Virginia to a high of 30,000 in Minnesota in 2008 (Blewett and Spencer 2008). The federal government has long supported the establishment of highrisk insurance pools, and Congress has sought to subsidize their establishment. The first major federal investment was part of the aforementioned Trade Act of 2002, which provided both seed and premium support grants (Fernandez 2011). Further assistance was provided by the Deficit Reduction Act of 2005, the State High Risk Pool Funding Extension Act of 2006, and various consolidated and omnibus appropriation acts in 2008, 2009, and 2010; appropriations were often in excess of $100 million annually (Blewett and Spencer 2008; Fernandez 2011; Laudicina 1988). Through 2004, forty-five states had received implementation grants (GAO 2004). Implementation Developments. The high-risk insurance pool provisions under the ACA as outlined under section 1101 were intended as a bridge for individuals with preexisting conditions, until 2014 when market reforms, such as guarantee issue and limited community rating, have allowed individuals to obtain coverage through insurance marketplaces. The provisions are referred to as the PCIP. The ACA made $5 billion in funding available for the program and imposed relatively strict eligibility 6. In some states the percentage is as low as 24 percent (New Hampshire), while in others the percentage is as high as 106 percent (West Virginia) (Schwartz 2010). 7. Premiums usually amount to 150 to 200 percent of market rates (Fernandez 2011). 8. For example, Florida has not opened its high-risk insurance pool since 1991. California has capped enrollment at 7,100 (Schwartz 2010). Waiting periods can last for up to twelve months for preexisting conditions (ibid.). 9. For example, California’s annual maximum is a mere $75,000. In addition, California usually has significant waiting lists for new entrants (Chollet 2010).



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requirements for individuals seeking coverage.10 For example, states had to continue operating their existing high-risk insurance pools, and individuals had to be uninsured for at least six months to be eligible. Nonetheless, the PCIP was designed to offer a reasonable amount of benefit at reasonable cost. Not surprisingly, the PCIP was proposed by congressional Republicans (NAIC, n.d.), who have long made high-risk insurance pools a core feature of their reform proposals (Pauly 2008).11 States were offered a variety of options very similar to those provided under HIPAA. Again, a federal fallback provision was included. Funding for the PCIP is similar to the formula used for S-CHIP and allows reallocation of unspent funds within the program. The implementation timeline for the PCIP was set by the ACA at ninety days after passage. States had until April 30, 2010, to inform the Department of Health and Human Services (HHS) whether they intended to establish high-risk insurance pools in compliance with the ACA or instead would rely on the federal government to do so. Initially, twenty-nine states decided to offer their own plans under various arrangements. New Hampshire and South Dakota were the first to establish their PCIP programs in July 2010, even before the federal government was able to set up any plans (GAO 2012). An additional nine states followed in August and another twelve in September. California, Michigan, New York, and Pennsylvania were the last to establish plans in October. The twenty-three federal high-risk insurance pools are operated by the Government Employees Health Association (GEHA) under contract with the HHS. Most of the plans were established in August 2010. However, plans for Utah and West Virginia were created in September, and the last PCIP program was created in October for the District of Columbia (GAO 2012). The delay occurred because these states had initially indicated that they planned to establish their own PCIP programs but eventually failed to do so. Generally, Democratic governors were more likely to implement statebased plans, while Republican governors were more likely to rely on the HHS. However, various Democratic and Republican governors bucked the trend.12 The debate was markedly calmer compared to the creation of 10. This amount is in addition to premiums paid by beneficiaries. Nonetheless, various governors including Rick Perry of Texas and Dave Freudenthal of Wyoming expressed concerns about the lack of adequate funding and cited those concerns as reasons not to participate (Newsom 2010). Interestingly, had federal projections of enrollment held up, funds would have been exhausted by the end of 2012 (Chollet 2010). 11. Recently, congressional Republicans introduced the Guarantee Access to Health Insurance Act, which seeks to replace the ACA with a variety of market reforms, including a greater reliance on high-risk insurance pools (Kasperowicz 2012). 12. Among Democrats, for example, were governors of Delaware, Tennessee, and Wyoming. The Republicans included governors of Alaska, California, Connecticut, New Jersey, Rhode Island, South Dakota, and Vermont.



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insurance marketplaces and the expansion of Medicaid. This lower level of tension may be the result of the long-standing support of Republicans for the high-risk insurance pool concept. Moreover, because high-risk insurance pools were so common across the country, to describe them as a government intrusion into, or takeover of, the provision of health care poses a greater challenge. Most concerns expressed were analytical and focused on issues of solvency and lack of regulatory guidance (Haberkorn 2010), with some notable exceptions (Pear 2010). Tensions briefly flared up over the coverage of abortions, but the HHS quickly eased them with clarifying guidance (Pecquet 2010). Overall, enrollment lagged considerably behind projections, with only a small percentage of eligible individuals obtaining coverage. By November 2010 only eight thousand individuals were enrolled (Nather and Brown 2011), and by early 2011 the program had reached just over twelve thousand individuals (Blumberg 2011). By June 2013 monthly enrollment amounted to almost 105,000.13 These figures compare to 375,000 individuals who were originally expected to enroll (Chollet 2010).14 An active outreach strategy appears to have been particularly important (Vestal 2011). In response to the low initial numbers, the HHS temporarily sought to increase enrollment by streamlining administrative procedures, increasing outreach, and significantly reducing premiums for federal plans (ibid.). While enrollment lagged behind projections, per-enrollee costs significantly exceeded estimates. Costs for PCIP participants are actually nine times higher than for traditional high-risk insurance pools, as beneficiaries proved older and sicker than traditional high-risk pool enrollees (Hall and Moore 2012).15 Individuals suffering from heart conditions, cancer, and degenerative bone diseases especially drive up costs (CCIIO 2013). Average state costs per beneficiary amount to $32,000 annually but reach as high as $172,000 (ibid.). While some states used little of their funding, states like California and New Hampshire had to make supplemental requests (Vestal 2012). In response to the high average costs, the HHS implemented a variety of cost-containment measures for federal plans, including changes in provider networks, increased out-of-pocket limits, 13. For the most recent update, see the ‘‘State by State Enrollment in the Pre-existing Condition Insurance Plan’’ page at the CMS website (CMS, n.d.). 14. This estimate is by the Center for Consumer Information and Insurance Oversight (CCIIO 2013). The Congressional Budget Office had estimated enrollment at six hundred to seven hundred thousand individuals (CBO 2010). 15. The high costs are particularly driven by a small number of extremely sick individuals. Hence 4 percent of participants are responsible for more than 50 percent of claims (CCIIO 2013).



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and negotiations with high-volume providers (CCIIO 2013). Nonetheless, the HHS recently halted enrollment in the PCIP because of an expected funding shortage (HealthCare.gov, n.d.). Interestingly, congressional Republicans have used the financial shortfall of the PCIP as an instrument to attack the ACA by introducing legislation to shift money from the ACA’s Prevention and Public Health Fund (PPHF) to the PCIP program.16 This move would create a predicament for Democrats because PPHF monies have been used extensively by HHS secretary Kathleen Sebelius for the implementation of health insurance marketplaces. In late 2013 the HHS was also forced to lower state allocations because of funding shortfalls. As a result of the cuts, the HHS offered states the options either to transfer their program to the federal government or to operate at reduced allocation levels. As a result, nineteen states, including, for example, California and Ohio, chose to transfer their program to the HHS. The program has been extended repeatedly to guarantee continuous coverage as technical difficulties have hampered the transition of beneficiaries into Medicaid and marketplace coverage. As in previous shared state-federal programs, citizens are confronted with drastically different programs across the country. This situation holds even when considering the significant requirements imposed by the ACA. Differences emerge from variation not only between federal and state implementation but also across the program configurations employed by the various states. These differences are substantial and significantly affect citizens in the form of, for example, coverage limitations, premiums, enrollment, and availability. A report by the Government Accountability Office (GAO 2011) illustrates this point. According to the study, premiums for comparable policies can vary by more than 500 percent between states. Moreover, requirements for coinsurance, deductibles, and out-of-pocket limits put uneven burdens on individuals, depending on their state of residence. The same holds true for lifetime maximums, smoker penalties, and mental health and substance abuse coverage. Moreover, skilled nursing home coverage can vary from 30 to 180 days. Customer options also differ, as fifteen states offer only one plan and five states offer only two; seven states and the HHS offer at least three. Finally, administrative costs are also lower for the HHS program than for any of the states’ programs. Data and Analysis. We estimate a standard logistic regression model to assess the factors that contribute to states implementing state-based 16. The legislation is portentously named the Helping Sick Americans Now Act.



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high-risk insurance pools under the PCIP.17 We expect both political and insurance market variables to affect the decisions of states. Hence we include indicators for whether a state had a unified Democratic legislature or a Democratic governor at the time of the implementation decision. We expect both to have a positive effect, thus increasing the probability of establishing a state-based high-risk insurance pool. To account for the state-specific insurance market we include the Herfindahl-Hirschman index (HHI) and the number of years a state had operated a high-risk insurance pool prior to the ACA.18 Moreover, we include an indicator of whether a state has implemented guarantee issue requirements or dedicated a carrier of last resort (facilitated access before ACA). We expect states with a longer history of high-risk pools to be more likely to establish a state-based high-risk insurance pool. While we also expect a positive effect for states that facilitated access for needy individuals prior to the ACA, we have no clear expectation for the HHI. Finally, we include the amount (in millions of dollars) that was allocated under the ACA to each state for the operation of the high-risk insurance pool (federal allocation). This should reflect medical need. Results are displayed in table 2.19 Logit coefficients are not directly interpretable but do indicate the direction of the marginal effects. We provide a substantive interpretation of the results in the adjacent column holding all other variables at their means or modes. The party of the governor appears to have the strongest effect, as Democratic governors are 36 percentage points more likely, other things being equal, to establish a state-based high-risk insurance pool. Interestingly, we found no effect for a unified Democratic legislature. The time frame for the decision appears to have limited legislative participation. Moreover, states that had facilitated access prior to the ACA were 18 percentage points more likely to establish a state-based high-risk insurance pool. Finally, comparing 1 standard deviation below and above the mean for the number of years a state has operated a high-risk insurance pool, we find an increase of 8 percentage points. In sum, state decisions were largely dependent on governors, with Republicans generally opposing and Democrats favoring state-based solutions. However, prior state regulatory behavior also clearly had an effect, whereas need appears not to have affected the decision. Strikingly, even the implementation of the least 17. We note that given the small number of cases, that is, states, in the analysis we seek out as much parsimony as possible in our modeling. 18. We multiply the HHI by 1,000 to facilitate presentation. 19. We conducted a variety of standard statistical tests appropriate for logit models to develop the model, including goodness-of-fit measures and an assessment of outliers and influential observations.



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Table 2 Factors Affecting Establishment of State-Based Pre-existing Condition Insurance Plan (PCIP) Programs Variable

State-Based PCIP

Herfindahl-Hirschman index Years of experience with high-risk pools Federal allocation in millions of dollars Facilitated access before ACA Democrat governor Unified Democrat legislature Constant Observations McFadden’s R2 Log likelihood w2 Sensitivity (%) Specificity (%) Correctly classified (%)

0.100 (0.258) 0.072* (0.043) 0.003 (0.003) 1.656* (0.998) 2.532*** (0.818) 0.607 (0.724) - 3.514* (1.831) 50 0.260 - 25.52 17.96 81 78 80

Impact (Percentage Points) 2 8 3 18 36 4

Source: Authors’ calculations Note: Standard errors in parentheses. *p < .10; **p < .05; ***p < .01

controversial part of the ACA seems to have been driven by partisanship and polarization to a significant degree. Insurance Marketplaces

Background. Health insurance marketplaces are the second major element included in the ACA intended to extend coverage to nearly all Americans and legal residents.20 Marketplaces were built on the successful model of the Massachusetts Health Connector established in 2006 under Governor Mitt Romney. A much more limited version, Avenue H, has been operating in Utah since 2009. Marketplaces have long been at the heart of 20. For a detailed discussion of insurance marketplaces, see Haeder and Weimer 2013.



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conservative health reform proposals (Haislmaier 2006; Frist 2012). Marketplaces offer a venue that brings together individuals seeking insurance coverage and insurance providers offering coverage. In combination with the individual mandate, which requires most Americans to seek coverage or face financial penalties, marketplaces are intended to overcome common problems associated with the purchase of insurance, such as information asymmetry, adverse selection, and moral hazard. Health reform not only provides for the creation of these marketplaces; it also seeks to provide consumers with additional information to facilitate decision making. For example, by requiring certain benefits (termed essential health benefits) and by providing set levels of coverage in the form of actuarial values (termed bronze, silver, gold, platinum, and catastrophic coverage), the ACA aims to increase the information available to consumers and allow them to make viable comparisons across plans. Under the ACA, states were expected to create insurance marketplaces for both individuals (American Health Benefit Exchanges) and small businesses (the Small Business Health Options Program [SHOP]). However, in case states fail to comply, the ACA envisioned a federal fallback option under the auspices of the HHS (federally facilitated exchanges). During implementation, a third option became available in the form of a state partnership with the federal government (partnership exchanges). States were also given significant leeway in the design of marketplaces, including a variety of administrative and governance options (Haeder and Weimer 2013). For example, states could establish marketplaces as either nonprofit organizations or state agencies, and they could decide whether their marketplaces should function as active purchasers or clearinghouses. To address concerns about affordability, the ACA provided subsidies for individuals with incomes from 100 to 400 percent of the federal poverty line. These subsidies are expected to reach $1 trillion, or $5,510 per beneficiary, by 2022 (Merline 2013). States received significant financial support from the HHS to support design and implementation of the marketplaces in the form of grants totaling about $4 billion by May 2013. Moreover, the ACA facilitated technological upgrades necessary for interoperability with state Medicaid programs by providing 90/10 matching grants for state eligibility system upgrades and 70/30 matching grants for state eligibility system maintenance. Implementation Developments. Despite their conservative credentials, insurance marketplaces have seen some of the fiercest opposition from Republicans and Tea Party supporters across the country (Haeder and



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Weimer 2013). However, even in some Democratic-leaning states implementation has lagged behind the expectations of the ACA’s sponsors.21 The first state to create an insurance marketplace was California under Republican governor Arnold Schwarzenegger in late 2010, followed by Rhode Island under Independent governor Lincoln Chafee in late 2011. Several other states, mostly controlled by Democratic governors and legislatures, slowly followed suit by either executive or legislative action.22 However, several Republican governors have also embraced insurance marketplaces, arguing against federal intrusion into state insurance markets and for the preservation of state rights. These include Susana Martinez of New Mexico, Brian Sandoval of Nevada, and Butch Otter of Idaho. Ultimately, seventeen states and the District of Columbia ended up creating state-based marketplaces. In addition, seven states officially opted to create partnership marketplaces in cooperation with the federal government. Many of these states have divided governments. Moreover, in several of these states, such as Arkansas, Illinois, and Michigan, governors were willing but unable to obtain legislative support for state-based marketplaces. Interestingly, West Virginia, one of the first states to establish a marketplace, ultimately reversed course and partnered up with the federal government. Finally, twenty-six states defaulted to the federal marketplace. Mississippi made for a particularly interesting case because of the drawn-out dispute between Republican insurance commissioner Mike Chaney, who sought to create a marketplace, and Republican governor Phil Bryant, who was adamantly opposed to any implementation of the ACA. Most recently, New Mexico and Idaho, both under Republican governors, decided to move forward with a state-based marketplace, and Commissioner Chaney was able to win HHS approval to run Mississippi’s small business health options program. However, for many states seeking statebased marketplaces initial cooperation with the federal government was almost inevitable, because of the short time frame established by the ACA and the delay created by the various lawsuits challenging the ACA. Finally, the HHS recently had to delay the implementation of the small business health options program in federal marketplaces for at least one year because of technical difficulties. As a result, small business employees will 21. For a detailed treatment of implementation developments, see Haeder and Weimer 2013. 22. New York and Kentucky followed by executive action, while Colorado, Indiana, Nevada, Vermont, Washington, and West Virginia followed by legislative action. Indiana has since abdicated all responsibility to the federal government, while West Virginia has opted for a partnership model.



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be unable to select a plan of their choice on the marketplace. For now, the choice will be made by the employer. Overall, the open enrollment period in all three types of marketplaces has been fraught with technological difficulties. Virtually no marketplace was fully operational when the open enrollment period commenced, and in some states websites failed to become fully operational at all (Dooren 2014). Data and Analysis. States had three options with regard to the implementation of insurance marketplaces. They could rely exclusively on the federal government, work in partnership with the federal government, or create an exclusive state-based marketplace. In view of the limited number of observations, not to ask too much of the data is prudent. The most important choice confronting states is clearly whether to work with the federal government or whether to refuse cooperation. Moreover, various states like New Mexico and Idaho sought to establish state-based marketplaces but were unable to do so in time and thus will initially rely on a partnership model. Hence we sorted the states dichotomously into states that cooperated, that is, established a state-based marketplace or opted for a partnership model, and into states that rely exclusively on the federal government. Again, we employ a logistic regression model.23 In selecting the variables we largely follow a model we developed (Haeder and Weimer 2013), with some minor adjustments. First, several states altered their implementation choice since we estimated our model, which was based on data available in February 2013.24 As mentioned earlier, states’ responses have been dynamic. In this case, six states altered their choices. Second, we replaced the HHI with health maintenance organization (HMO) penetration, that is, the ratio of insurance coverage provided by HMO plans in a given state. We do so because to contain costs, most plans sold in the marketplace will be HMOs.25 Hence HMO penetration should be a more relevant measure than concentration in the overall insurance market. States with a larger percentage of HMO coverage should then be more likely to establish insurance marketplaces because HMOs should be eager to expand their clientele. In addition, we include three political variables:

23. We note that a survival or event history model is not appropriate here because for the choice we are analyzing time is not a very important component. Instead, states were really facing a dichotomous choice whether or not to submit their intention to operate their own exchange. This choice initially had to be made by November 2012 but the deadline was repeatedly extended. 24. We used June 2013 as our cutoff date. 25. This expectation follows from the submissions of proposals to insurance marketplaces throughout the country, which became public in May 2013.



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whether the governor is a Republican, whether the legislature is unified Democratic, and whether the insurance commissioner is elected. We expect Democrats to be less likely to rely exclusively on federal marketplaces. We have no expectation for the effect of the selection method for insurance commissioners. To account for the capacity of the insurance department we use the budget (in millions) per million state residents and the number of insurance mandates in the state. The latter also accounts for the propensity of states to regulate their insurance market. Results are displayed in table 3.26 The estimated model provides a good fit to the data. Substantively, governors exert the largest influence, with Republican governors decreasing the probability of cooperation by 35 percentage points over Democrats and Independents. Moreover, unified Democratic legislatures increase the probability of cooperation by 26 percentage points. Neither of these results is surprising. In addition, HMO penetration is substantively important, adding an additional 22 percentage points when comparing 1 standard deviation below and above the mean. States with higher HMO penetration appear to be more likely to have the state involved in administering the marketplace. This result is also not surprising because HMO carriers probably anticipate having greater influence on state than federal regulators. Turning to insurance departments, we find that elected insurance commissioners marginally depress the probability by 8 percentage points, while comparing 1 standard deviation below and above the mean for the budget variable shows a slight increase of 3 percentage points. Finally, the number of mandates is also significant, and comparing 1 standard deviation below and above the mean reduces the probability by 3 percentage points. Surprisingly, states with a larger number of mandates have a higher propensity to rely on the federal fallback option. In sum, political variables again appear to exert significant influence on state decisions. In addition, insurance market context also appears to matter. Medicaid Expansion

Background. The ACA makes a significant number of changes to the Medicaid program, including changes in mandatory and optional benefits and beneficiary eligibility. The changes are extensive and complex (Baumrucker et al. 2012; Stone et al. 2010). For our purposes, we focus on 26. We again conducted a variety of standard statistical tests appropriate for logit models to develop the model, including goodness-of-fit measures and an assessment of outliers and influential observations.



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Table 3

Factors Affecting State Response to Insurance Marketplaces Insurance Marketplace State Cooperation

Variable Number of insurance mandates Insurance department budget per million persons HMO penetration Republican governor Unified Democratic legislature Elected insurance commissioner Constant Observations McFadden’s R2 Log likelihood w2 Sensitivity (%) Specificity (%) Correctly classified (%)

- 0.281** (0.115) 0.518 (0.464) 0.210* (.112) - 9.485*** (3.429) 6.127** (2.871) - 5.334* (2.903) 11.04** (5.306) 50 0.744 - 8.87 51.50 92 96 94

Impact (Percentage Points) -3 3 + 22 - 35 + 26 -8

Source: Authors’ calculations Note: Standard errors in parentheses. *p < .10; **p < .05; ***p < .01

the decision of states to either expand Medicaid or refuse to do so. Originally, this choice was not an option left to states, as the expansion of minimum eligibility to 133 percent of the federal poverty line was a requirement under the ACA. However, the Supreme Court decision in National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012) made the expansion optional for states. The Supreme Court decision thus created significant uncertainty about insurance coverage for millions of Americans. If states choose to expand Medicaid eligibility to 133 percent of the federal poverty line, the federal government will fully cover newly eligible individuals from 2014 to 2016 and gradually reduce its matching rate to 90 percent by 2020 (Stone et al. 2010).



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Implementation Developments. Implementation of the Medicaid expansion has differed markedly from both the PCIP and insurance marketplaces. In particular, it has created a deep split between supportive and unsupportive Republican governors. Unquestionably, the Medicaid decision involves the largest financial stakes, because literally hundreds of billions of dollars are on the line for various well-organized groups, such as hospitals, ambulatory care centers, federally qualified health centers, and physicians.27 Along with the Medicaid expansion, the ACA phases out DSH payments, potentially leaving hospitals in states that choose not to expand their Medicaid programs with significantly higher uncompensated care costs. As many hospitals are already operating on razor-thin margins, these costs could obviously have significant consequences. The Medicaid expansion is bound to not only offer benefits to potential consumers but also serve as an engine for economic growth in the health care sector. Hospitals and other providers have lobbied intensely on the issue, and many Republican governors have been receptive to their arguments. Interestingly, in many conservative states like Texas (White 2013) and South Carolina (‘‘SC Faith Groups’’ 2013), religious groups have been very active in support of expansion by holding rallies and other grassroots activities. Several Republican governors, including Rick Scott of Florida (Millman 2013) and John Kasich of Ohio (Sanner 2013), have acknowledged that Christian and moral values have shaped their decision to support expansion. A majority of governors have come out in support of Medicaid expansion, with only fifteen in opposition. Supporters include many Republican governors who refused to create state-based insurance marketplaces, such as Kasich, Jan Brewer of Arizona, and Jack Dalrymple of North Dakota. Interestingly, Wisconsin’s Scott Walker proposed a reduction in Medicaid eligibility while shifting many beneficiaries into the maligned federal insurance marketplace. Other Republican governors, like Rick Perry of Texas and Bobby Jindal of Louisiana, have been steadfast in their opposition. Those governors favoring expansion have found it challenging at times to find common ground with their legislatures. Nonetheless, at least twenty-five states are officially moving forward with the expansion, and bills to allow expansion have been introduced in all but two of the remaining states (State Reforum 2013).28 Some states such as Florida even 27. For-profit hospitals alone are also set to make tens of billions of dollars annually from expansion (Johnson 2012). 28. For an updated overview with an expanded look at legislative activity, see State Reforum 2014.



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proposed creating limited state programs without any federal subsidy in lieu of cooperating with the Obama administration. Fourteen states have stated that they will not expand their programs. A recent RAND study estimates that those fourteen states will lose out on $8.4 billion in federal transfers and incur $1 billion in additional uncompensated care costs in 2016 (Price and Eibner 2013). Arkansas provides a special case in this regard. Hampered by supermajority requirements and divided government, Republicans and Democrats were nonetheless able to agree on a compromise negotiated with the HHS. This compromise allows the Medicaid expansion to be implemented exclusively through private coverage obtained in the insurance marketplace. This private option, or alternative benefit plan, has been available to states since the enactment of the Deficit Reduction Act of 2005.29 Similar approaches have also been favored by Scott, Kasich, and Governor Terry Branstad of Iowa.30 The availability of a quasi-market alternative may significantly reshape both Republican strategy and the structure of the Medicaid program over the long term. Some peculiar features of the ACA also add an interesting side note to the expansion of Medicaid. For one, states’ refusals to expand Medicaid could be cushioned to a degree by provisions in the ACA that allow subsidies to reach persons from 100 to 400 percent of the federal poverty line. This provision was initially intended to limit churning of individuals between Medicaid and insurance marketplace coverage. In states that fail to expand their Medicaid program, those individuals between 100 and 133 percent of the federal poverty line envisioned to receive coverage through Medicaid may be able to find alternative coverage in marketplaces. However, this option is clearly not satisfactory because some of the poorest individuals in states with eligibility requirements below the federal poverty line, that is, those between 100 percent of the federal poverty line and the upper bound of the respective state’s Medicaid eligibility limit, would be left without coverage.31 Moreover, the number of states in which near universal coverage could be achieved in this manner is rather small. Those left out will generally be working and jobless parents as well as childless adults and individuals with disabilities. In addition, the ACA provides legal immigrants, who are often ineligible for Medicaid, with subsidies for insurance marketplaces if their incomes are from 0 to 400 percent of the 29. Details can be found in section 1937 of the Social Security Act. 30. Again, for a recent overview, see State Reforum 2014. 31. For a current overview of Medicaid eligibility limits for adults, see Henry J. Kaiser Family Foundation 2013a.



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federal poverty line. Ironically, the failure to expand Medicaid thus holds the potential to achieve virtually universal coverage for legal immigrants while leaving millions of US citizens without such benefits. Expectations for the Further Implementation of Marketplaces and Medicaid Expansion

Neither implementation of insurance marketplaces nor expansion of Medicaid has been fully completed at the time of writing. Various lawsuits continue to challenge crucial provisions of the ACA, such as the availability of subsidies in federal marketplaces (Adler and Cannon 2013), the employer mandate (Norman and Millman 2012), and the individual mandate (Kenen 2012). Moreover, significant information technology challenges have been evident since marketplace enrollment began in October 2013. Adverse selection may also prove to be a fundamental challenge for marketplaces (Haeder 2013). Moreover, some smaller states may be hard-pressed to provide adequate choice in their marketplaces, though this problem is somewhat ameliorated by the ACA provision that two national plans be available in all marketplaces.32 Regional or multistate marketplaces as well as continued reliance on federal marketplaces may provide cost-effective alternatives over the long haul. Hence what seems plausible is that some states may continue to rely on the federal government, or at least on partnerships, for the foreseeable future. However, what seems likely is that many states will eventually convert to state or partnership marketplaces to gain better control of insurance regulation, which has long been the domain of states (Meier 1988, 1991), and because of the strong public support for state-based solutions (Alonso-Zaldivar and Agiesta 2012). State responses will continue to be diverse and match the local political and health care environment. In terms of the Medicaid expansion, in view of the long history of the program described earlier, we think that most states are likely to expand their programs eventually. Strong public support in many states is evident in recent polling numbers (ibid.). Public demands may even increase once neighboring states move forward with implementation and make significantly more coverage available just across state lines. Particularly when DSH payments will be phased out, pressure from health care providers may become overwhelming. Many religious groups will also continue to push 32. However, the HHS will be unable to comply with this requirement for the near future. Currently, plans are only offered in thirty-one states. For details, see OPM, n.d.



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for expansion. Electoral replacement may additionally bring many states on board over time, as the Republican dominance of legislatures and governors’ mansions in states like Wisconsin is unlikely to be perpetual. Republican control in the South may delay expansion the longest, although pragmatic governors in several of the Southern states are actively seeking solutions. The reason may be that their electoral bases are broader and more diverse than those of state legislators. They are also supported by for-profit hospital chains, insurance carriers, and other groups with strong lobbying presence. Finally, if implementation goes reasonably smoothly and programs improve over time, holdouts will likely relent. Conclusion: The Seven Themes and the ACA

The seven themes developed from the history of federal grant programs to promote health care access apply nicely to the recent experience with, and expectations for, the ACA (for an overview of the themes as well as their relevance to the ACA, see table 4). In terms of gross patterns, for states to join federal programs often takes a significant amount of time. In some cases, they may never join at all. Hence we should not be surprised about the diverse state responses to the three ACA programs described above. In historical perspective, contemporary media accounts of gloom and doom for the ACA appear much exaggerated. Instead, what appears reasonable to believe is that the majority of states, if not all of them, will eventually implement many components of the marketplaces and the Medicaid expansion. In the case of marketplaces, what also appears plausible is that states with smaller insurance markets will rely on the federal government or larger interstate marketplaces because small state marketplaces may not be viable in the long term. Shared state-federal programs also allow for significant diversity and experimentation across time and space. The ACA provides significant leeway in the implementation of the three important programs we discussed, and states have implemented these programs in diverse ways. Furthering diversity, the federal government has been very accommodating of states. In particular, the lenient position of the federal government with regard to the Medicaid expansion and minimum benefit levels in the marketplaces, in combination with the specific circumstances of the states, will likely lead to significant geographic and temporal diversity in the future. Nonetheless, the ACA’s federal fallback option may prove to be a reasonable strategy in cases where access to such programs has been


The federal government is usually extremely accommodating.

Programs vary widely across states.

Some programs take until October to commence enrollment Some states move ahead swiftly 23 states rely on federal program initially Wide variation in consumer choice, benefits, and premiums Few restrictions for states in terms of consumer choice, benefits, and premiums Choice to shift program back to federal government in 2013

Pre-existing Condition Insurance Plan

Majority of states expanding; 14 states opposed Many states still debating expansion plans

Full expansion of traditional programs vs. Arkansas option

26 federal, 7 partnership, and 17 state-based marketplaces California establishes marketplace in 2010; many others do not do so until late 2013 2 states plan to take over federal marketplace in 2014 Continued reliance on federal marketplaces in various states plausible

Diversity in governance, administrative structure and location, pricing, competition, networks, etc. Office of Personnel Management plans offered in only 31 states Creation of partnership option Lenient regulations Repeated delay of deadlines Federal government allows states to retain regulatory functions in federal marketplaces Generous grants Acceptance of all but 1 blueprint Permission to allow splitting of marketplaces from SHOP. Deference to states for essential health benefits


(continued )

Acceptance and promotion of Arkansas option Willingness to negotiate with all states

Medicaid Expansion

Insurance Marketplaces

Application to the Patient Protection and Affordable Care Act

Themes from Past Shared Federal-State Health Programs

Implementation is often slow and uneven.

Theme

Table 4


Medicaid Expansion Concerns focus on states’ rights Supreme Court ruling

90–100% federal match Billions of dollars at stake for state economies and powerful constituent groups like hospitals, surgical centers, and physicians State eligibility system upgrade and maintenance grants

Insurance Marketplaces Debates about states’ rights vs. federal intrusion Socialist medicine, government intrusion into medicine, death panels, etc.

More than $4 billion in planning and establishment grants State eligibility system upgrade and maintenance grants Federal marketplace costs fully borne by federal government

Limited ideological conflict Flare-up about abortion coverage

Program initially fully funded; no state funding required Reduction in funding leads to states turning over program to federal government



Themes from Past Shared Federal-State Health Programs (continued )

Ideological conflict permeates enactment and early implementation. Grants create incentives and states respond to them.

Theme

Table 4



Past programs serve as stepping-stones and wedges.

Generally fewer than 0.5% of eligible individuals enrolled in state high-risk pools Enrollment slow and significantly below projections Takes several years to reach significant number HIPAA, Trade Act of 2002, S-CHIP State high-risk pools


(continued )

Not all eligible individuals enroll.

Theme

Table 4

Medicaid Expansion Past take-up rate estimates range from 30% to 80% Individual mandate creates woodwork effect for previously eligible individuals

Previous Medicaid expansions and previous Medicaid demonstration waivers Massachusetts health reform

Insurance Marketplaces Slow initial enrollment, partly driven by technological problems Current projections show far from universal enrollment

Massachusetts Health Connector and Avenue H Massachusetts health reform Previous private and public exchanges





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deemed an essential part of citizenship, too essential to be determined by the vagaries of the politics of the day, the fiscal situation of states, or ideological predilections. Debates about the ACA in general, and about its specific programs, have also been highly controversial and full of the ubiquitous charges of socialism and infringements on states’rights. Again, this situation is in line with the experience from previous programs and is likely to continue into the immediate future. However, over time we expect these debates to fade gradually. This shift is already seen in the case for the PCIP, which has found some of its staunchest supporters, albeit for possibly ulterior motives, among congressional Republicans. The debate about marketplaces is also likely to subside quickly once millions of Americans obtain their coverage through them. However, recent technical difficulties have done little to calm the controversy and certainly have delayed the realization of benefits that one might expect to shift public opinion in favor of the ACA. States’ rights debates, however, will likely continue to play a major role in the Medicaid expansion, as a significant number of states have yet to make a final determination. Moreover, as federal matching rates are gradually reduced, and as concerns about the federal fiscal situation continue, we may see renewed controversy. Grants, and the incentives they provide, have long shaped states’ responses, and their role in implementation of the ACA is no different. Arguably, the federal fallback option, the short time frame, and the uncertain technological and political circumstances gave many states strong incentives to punt the implementation of marketplaces to the federal government to avoid political and fiscal costs. However, over time concerns about maintaining full control over state insurance markets as well as the lobbying clout of providers are likely to shift these incentives. As a result, state implementation may become a more preferable strategy for many states. The HHS will likely continue to provide implementation grants and support for the foreseeable future. Moreover, the enormous financial incentives to expand Medicaid at favorable matching rates may also tilt the balance in favor of expansion over time as even a 90 percent matching rate offers a remarkable return on a state’s investment. With the PCIP almost completed and the enrollment in marketplaces just under way, we also see differences between eligibility and take-up. Enrollment in the PCIP was slow and never approached expectations, whereas marketplaces have shown significant interest despite technical difficulties. Gradually increasing penalties, as well as outreach and



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improved understanding of the program, should eventually drive up enrollment, but almost certainly never close to 100 percent. Ironically, the individual mandate requirements of the ACA may exert a woodwork effect and drive up enrollment in state Medicaid programs by individuals who have previously been eligible but, for a variety of reasons, have not enrolled. Finally, prior programs have clearly been stepping-stones for the ACA. Perhaps the clearest example is the Medicaid expansion. Moreover, as mentioned above, high-risk insurance pools have been established since the 1970s and are in existence in a majority of states.33 Marketplaces, such as the Massachusetts Health Connector, have been in existence in the private and public spheres for decades. Yet more generally, the ACA itself, and the combination of the various mechanisms to achieve near universal coverage, is modeled on the relatively successful reforms implemented under Governor Romney in Massachusetts in the late 1990s. Most likely, any future reform will draw its lessons from these existing programs and most likely make only marginal adjustments to them. Overall, the ACA broadly conforms to the history of various shared governance health care programs over the past century. What is plausible, even likely, is that any future reform will follow a similar pattern. We know that even ‘‘under the best of circumstances, [implementation] is exceedingly difficult’’ (Pressman and Wildavsky 1973: xiii). The ultimate lesson is that the implementation of shared governance programs is never a straightforward or simple undertaking. Indeed, we should expect conflict between the different levels of government because they often have divergent interests and incentives. However, over time pragmatism usually prevails and states take advantage of the opportunities the federal government offers by adapting shared governance programs to their local preferences and political circumstances. As a result, program design and benefit structure exhibit significant temporal and geographic variation. Perhaps most surprisingly, the pattern appears to hold during periods of both low and high partisan polarization, war and peace, and economic prosperity and turmoil. Apparently, current political and economic circumstances exert only a temporary effect that does not significantly alter the long-term trajectory of the programs.

33. However, many states have begun to phase out their plans. Others have chosen to extend their plans for another year to account for the significant problems with enrollment into the ACA’s marketplaces.



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Simon F. Haeder is a PhD student in political science at the University of Wisconsin– Madison. His research interests include health care policy, regulatory policy making, interest groups, and theories of the policy process. He is currently working on several research projects in health policy focusing on the implementation of the Patient Protection and Affordable Care Act (ACA) and insurance regulation. He is also investigating the incidence and effect of regulatory lobbying. His recent work on the implementation of the ACA has been published in Public Administration Review, The Forum, and the Policy Studies Journal. His recent work on organizational report cards has been published in the Annual Review of Public Health. David L. Weimer is the Edwin E. Witte Professor of Political Economy, University of Wisconsin–Madison. He teaches courses in political science and public affairs. His recent research has focused on health policy issues, especially the impact of report cards and regulation on health care quality and the governance of US organ transplantation. He is a past president of the Association for Public Policy Analysis and Management and of the Society for Benefit-Cost Analysis and a fellow of the National Academy of Public Administration. His work on the implementation of the Affordable Care Act has been published in Public Administration Review. His recent work on organizational report cards has been published in the Annual Review of Public Health.

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