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Lou Cannon: New Health-Care Law Poses Financial Pitfalls for States

Clouds of uncertainty gather over rules, regulations but significant decisions are required in a matter of weeks

Speaking at the University of Iowa soon after he signed the Patient Protection and Affordable Care Act into law, President Barack Obama told an amused audience that he hadn’t seen any asteroids falling from the heavens. It was his way of saying that the sky won’t collapse because the United States has finally joined the long list of industrialized democracies providing near-universal health-care coverage.

Lou Cannon
Lou Cannon

Considering the political obstacles he overcame to obtain a health-care bill, it is understandable that Obama is using a time-worn tactic of ridiculing the more extreme claims of the opposition to divert attention from what may be legitimate objections. Obama has had particular fun with the contention of the radio talk-show crowd that the new measure is an exercise in “socialized medicine.” As The Economist, an unreconstructed apostle of free markets, observed, “The basic planks of Obamacare — compelling citizens to buy private insurance and subsidizing those who cannot afford it — are hardly Marxist.”

Indeed, the only feature of the original House bill that might have deserved a “socialist” label — the public option — never stood a chance. In a bow to the left wing of his Democratic Party, Obama said he favored the option but discarded it in virtually the same breath. The Senate never even considered it.

One of the striking features of the Patient Protection and Affordable Care Act is its reliance on market solutions. Although Obama in his speeches has made insurance companies the whipping boy for soaring health-care costs, mandated coverage will provide some 32 million new customers for these same companies. Conservatives won the public option debate even if they cannot take yes for an answer.

But whether Obamacare will contain costs or prove as much as a boon for states as it is for insurance companies are open questions. There are 2,700 pages in the new law, and state officials are just beginning to digest them. According to the National Council of State Legislatures, or NCSL, at least 39 states have proposed legislation to limit or alter the federal bill, with the mandate requiring individuals to purchase health insurance drawing the most fire.

Although the mandate and most major provisions of Obamacare do not take effect until 2014, states face immediate and difficult decisions. The first choice arrives on April 30, when states must notify the federal Health and Human Services Department if they intend to operate their own programs to cover people who are presently deemed “medically uninsurable.” Thirty-five states already have high-risk pools to insure such individuals, although some of them may not meet the new federal standards. Georgia, the first state to decide under the new law, has announced it will not operate a high-risk program, which means the federal government will establish an alternative program for uninsurable Georgians.

States eventually will also have to decide if they want to operate new marketplaces, known as exchanges, to provide affordable health insurance for persons not covered by employer-provided plans. States fought for this alternative as the legislation wended its way through Congress, but it’s not clear how many will take advantage of it. In separate interviews, William Pound, executive director of NCSL, and Scott Pattison, executive director of the National Association of State Budget Officers, said that the watchword for states is caution.

“At this point, the questions about the health-care bill exceed the answers,” Pound said.

Many of the questions involve Medicaid, the matching federal-state program that insures low-income Americans. Medicaid has surged during the Great Recession, as the working poor lost health insurance along with their jobs. The Medicaid rolls have swollen to 62 million — one in five Americans — and are likely to remain near this level until unemployment diminishes.

One of the most beneficial features of the 2009 stimulus bill for states was a provision that increased the federal share of Medicaid. This formula is due to expire at the end of 2010; a bill that would extend it another six months languishes in a House-Senate conference committee while Congress tries to find a way to pay for it.

The Patient Protection and Affordable Care Act emerged from Congress as a partisan achievement (or catastrophe, depending upon one’s point of view.) Democrats overwhelmingly voted for it; Republicans solidly opposed a bill that much resembled their own alternative to the failed health-care proposal of the Clinton administration. This partisanship was reflected in the first response of a dozen Republican state attorneys general, joined by one Democrat, who announced a long-shot legal challenge to the constitutionality of requiring individuals to buy health insurance.

But partisan considerations are now taking a back seat as states face up to the practical questions of implementing Obamacare. For Democrats and Republicans alike, the new bill contains several potential minefields that all states are likely to have difficulty negotiating.

As your columnist interviewed the usual informed suspects in an attempt to evaluate what the new health-care bill will mean for the states, I was struck by the extent of their uncertainty. It is still a backburner issue for state politicians, many of whom are trying to balance this year’s budget at a time when tax revenues trail behind the first signs of economic recovery. Even so, there is concern over various provisions of the health-care bill, one of which will give states a huge federal bonus in paying the bills of primary-care doctors. But this provision does not kick in until 2013, and it will expire two years later.

“What do states do then?” asked Joy Wilson, the point person in Washington for NCSL on health-care legislation. “If the states continue to pay for this subsidy, it could mean cutting other programs.”

All of this seems distant, but the locomotive of health-care reform is already speeding down the tracks. This month the HHS’ Centers for Medicare & Medicaid Services sent out a letter to the states saying they could phase-in the new federal aid for Medicaid patients that begins in 2014. Whether it is wise for states to do this requires some thorny fiscal guesstimates, and states have only until June 30 to decide.

Under the pull-and-tug of the American system of federalism, states often seek additional fiscal aid from the federal government, which in turn tries to pass off as many costs as it can to states and local communities. In the case of Obamacare, this struggle is likely to reach a climax in mid-decade when the federal government will be under political pressure to reduce public debt. Whether there will be money in the till to help the states at this point depends in part upon the accuracy of the Obama administration and the Congressional Budget Office in forecasting that the health-care bill will reduce the deficit.

This is impossible to predict with any certainty, but it would seem on the face of it that Republican concerns about the cost of Obamacare are more justified than their spurious claims about socialist medicine. The rosy scenario of deficit reduction is dependent upon Congress reducing Medicare payments to doctors, which Congress has backed away from doing in the past. It also depends on Congress deciding — in 2018!  — to tax the high-end health insurance (“Cadillac”) plans negotiated between employers and unions that represent their workforces. The unions, of course, oppose it. Perhaps the Democrats, dependent on the fundraising and support of organized labor, will somehow muster the courage to stand up to this constituency six years from now, but one wouldn’t want to bet on it.

For most Americans, the real test of Obamacare will be whether it reduces health-care premiums. This is also unknowable, but the few auguries of state experience do not inspire confidence. Mandated health care has been a qualified success is Massachusetts, despite some grumbling about longer waiting lines. Premiums are high but in line with states that lack universal coverage.

The cautionary example is New York, which in 1992 required insurers to accept all applicants, a ballyhooed feature of the new federal law. When he signed the law, then-Gov. Mario Cuomo predicted it would reduce costs and be a national “forerunner.” Annual health insurance premiums in New York now cost $9,000, among the highest in the nation. The New York law allowed people to obtain health insurance on the way to the hospital and drop it whenever they wished.

The White House insists that the Patient Care and Affordable Protection Act will have a different outcome because people will be required to keep their coverage. That’s all well and good, but what happens if the mandate is unenforceable or if the insurance recipients can’t pay? We don’t yet know the answers. There are no asteroids falling, to be sure, but the health-care skies are cloudy in the states.

— Summerland resident Lou Cannon is a longtime national political writer and acclaimed presidential biographer. His most recent book — co-authored with his son, Carl — is Reagan’s Disciple: George W. Bush’s Troubled Quest for a Presidential Legacy. Cannon also is an editorial adviser to State Net Capitol Journal, which published this column originally.

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